Michael Betley examines potential jurisdictions for businesses looking to expand into new foreign markets.
Undoubtedly Guernsey has been an excellent place to thrive as a financial services business during the past 30 years. However, rather like the health warning on investment products: ‘past performance is no indication of future returns’. It is generally accepted that Guernsey, as a jurisdiction, and those that operate within the financial services sector there, need to continually strive to make their services relevant and competitive both in current and future markets. More than ever this is the challenge that many are facing.
In a time that many companies may be considering moderate approaches to growth and development, others have adopted a more positive assertive approach by embracing extension into foreign jurisdictions to ensure diversification and advancement. But where in the world depends on many factors.
Guernsey has a very healthy diversified global client base with many fiduciaries specialising in particular geographic markets. London has, however, been the single most influential centre for the Island, and will continue to be so for some time, but that emphasis is changing and there are consistently fewer opportunities now coming out of London. Moving into new markets is not an easy process particularly where there are significant cultural differences. This is particularly true the further east one travels.
It is anticipated that China will overtake the US as the next global economic powerhouse. When China liberalises its attitudes to capital markets and allows its citizens to invest abroad it is predicted that there will be a wave of opportunities for centres like Guernsey - but to take advantage of that we must get to know these markets now.
By extending into the Asian market now, businesses can establish relationships and earn the trust of the Chinese financial services division, build an understanding of the culture and language, and be present to share in the opportunities which the increasing wealth and resources in that region will generate.
Guernsey is renowned in China, for delivering a highly regarded financial services infrastructure provided by extremely skilled resources. In a land where reputation is paramount to success, this is crucial. However, both culturally and commercially, there is a lot to learn from understanding how business is won and undertaken in Asia. In order to fully understand the cultural differences the industry needs to start building relationships now, as the lead in time is potentially considerably longer than those that many of us experience in our traditional marketplace.
Alternatively, it is not uncommon for Guernsey businesses to also consider opening doors in Switzerland, partly as a gateway into Eastern Europe and the Middle East, but also as a viable alternative to Guernsey, both from a product range perspective as well as an escape route should the Island start to lose its favourable status. Commercially however, Switzerland just doesn’t make sense currently, principally due to the high cost of entry and the slower growth trajectory of entering an overcrowded marketplace.
For many businesses moving west, rather than east, has been a main focus for some time. West means North America first and from there to South America. For many, North America is thought to be one to avoid - as the impending US watershed created by the new US reporting regime (FATCA) creeps ever closer, establishing a financial business is deemed to be too cumbersome and awkwardly legislated.
But all financial services businesses will need to address the new changes that FATCA will bring and will need to determine whether they wish to remain open to US business or not. Many companies may find a need to satisfy existing client needs in this area and therefore embracing a US offering is the only way forward. There is no middle ground.
Fiduciaries with an understanding of both onshore and offshore US issues are essential for international families with an exposure in that region, in order to create optimum wealth management solutions and to manage US and non-US investment holding and trust structures either from within or outside the US, or a combination of the two.
While recognising that new and anticipated regulations will have a dramatic effect on the way business is conducted, in the end most businesses will be client led when deciding where in the world their first jurisdictional extension should be situated. Surely client satisfaction is what ultimately needs to be considered, as well as opportunities for new ventures and enterprise. The US has identified financial services as a growth area, with many states introducing flexible trust laws to encourage investment. These States are open for business.
Nevada, for example, is one of the States that actively encourages and welcomes new private wealth businesses through its progressive legislative changes, it is easily accessible which makes it an ideal location for the setting-up of family offices and private trust companies.
The US provides a culturally similar platform to Guernsey with no language barriers (bar some dubious pronunciations from their side of the pond), but like all new markets there are both risks and rewards.
Michael Betley, MD, Trust Corporation, Guernsey