Private Client 2017: Discussion

Who’s Who Legal brings together John Rimmer at Advocate John Rimmer and Tina Wüstemann at Bär & Karrer to discuss issues facing private client lawyers and their clients in the industry today, including recent regulatory changes, the growing importance of compliance in relation to tax work and the development of succession planning tools.

PC Discussion








How have enacted or proposed regulatory changes driven work in your jurisdiction? 

John Rimmer: The pace of increased regulation is unabated. The changes driven by it are relentless. It is difficult to say whether it has had very much positive effect for most customers or jurisdictions, although it has made everyone much more aware of the potential risks and probably driven out some less desirable organisations. Ultimately, it has added to the cost of doing work, so sometimes the decent client ends up out of pocket, and service providers are more process-driven.

The result has been a much more streamlined industry. It operates rigid procedures and sometimes paranoid enforcement of regulation. It would be nice to think that the increased regulation has caused an improvement in their service delivery, but for decent service-providers, regulation has often seemed instead to lead to a defensive approach.

Tina Wüstemann: There are two upcoming new regulations: the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). Both are expected to enter into force in 2019 at the earliest, and the parliamentary debate on the draft of the new laws has not yet been completed. The FinSA and the FinIA will create uniform competitive conditions for financial intermediaries and improve client protection. The FinSA contains, inter alia, a code of conduct provision with which financial service providers must comply. The FinIA essentially harmonises the authorisation rules for financial service providers. Both the FinSA and the FinIA will have different impacts on family offices, depending on their role as an investment adviser, an asset manager or an investment owner (holding company).

Our sources state that compliance is an increasingly important aspect of tax work. Have you noticed an uptick in recent years? 

John Rimmer: The move from taxation information exchange on request to automatic information exchange (for example, under FATCA and CRS) was predicted, but has nevertheless been remarkable. It means that only organisations geared to cope with each specific set of rules that might apply will in practice be able to continue in business without potentially serious problems. 

Apart from information exchange under an agreed framework, individual countries have felt able to demand registration and reporting procedures of non-resident trustees, which would have been unimaginable 20 years ago.

Again, this adds dramatically to the cost of doing business and potentially affects the margins of businesses providing financial services.

Hand in hand with this, in the trust and company service provision industry, there has been a trend towards commoditisation of trust and company services, and ever more concentration of business into a fewer, generally larger, companies. 

Tina Wüstemann: The developments of the past few years – particularly in the areas of anti-money-laundering legislation and transparency in the cross-border and domestic banking and taxation sectors, in particular with regard to the automatic exchange of information – have raised awareness of compliance matters in the public. The ongoing developments and increased requirements in the compliance sector are, therefore, implemented adequately and on an ongoing basis in our daily practice to help our clients to be fully compliant. 

Have there been any changes or developments in the use of succession planning tools to govern assets in your jurisdiction? 

John Rimmer: The Isle of Man is not necessarily known for radical legal developments. In fact, its familiarity and stability have been one of the features of business undertaken here.

There have been some refinements of law, to keep pace with important developments elsewhere – modern company law, abolition of the rule against perpetuities for trusts, the introduction of foundations – but nothing that has not been tried and tested elsewhere.

Tina Wüstemann: Particularly in cross-border estate planning, foreign trust structures play an increasing role. Even though Swiss substantive law does not mention the concept of a trust, and as a consequence a trust cannot be created under Swiss law, foreign trusts are fully recognised in Switzerland. Switzerland has ratified the HCCH Convention on the Law Applicable to Trusts and on their Recognition. According to the Swiss Private International Law Act (PILA) and the HCCH, express trusts are fully recognised in Switzerland, regardless of the residence of the settlor, and therefore trusts have become a succession planning tool for complex cross-border cases.

Furthermore, a revision of the Swiss inheritance law is under way. In that context the federal council suggests to elaborate a more flexible Swiss inheritance law that is adjusted to the changed modern lifestyles (eg, patchwork families). Central to this revision is the reduction of the forced heirship portion for descendants which would further facilitate flexible estate planning in Switzerland.

Interviewees have reported clients’ increasing concern about who has access to data on their declared private and tax wealth and the implications this may have on their privacy. Is this something you have noticed among your clients, and how do you expect these concerns to play out in the future?

John Rimmer: Over time, clients have adjusted to the demands of information provision. I expect that they will do so in respect of increased demands in future.

On the other hand, while they may accept it, they may decide that it is not worth the cost and hassle to them, and reorganise their affairs in a way that takes them outside the system (perhaps moving to a different jurisdiction or just simplifying their affairs).

For some, the risks are far greater: they live in countries where kidnap, robbery, and murder are rife, and one fears for the possible impact on them: personal data is rarely entirely secure, and the scale of reporting and publicity that is developing may only increase the risks for people in those places.

Tina Wüstemann: Our experience confirms that clients are increasingly sensitive with regard to the question who of has access to their data – officially and informally – and how their privacy can be protected. Certain Swiss cantonal tax legislations provide for a publicity of the tax register, but it is possible in most cantons to restrict access to such data upon request by the taxpayer. The vast majority of our Swiss domestic clients make use of this tool to protect their financial and personal data. Our international clients are mainly concerned by the potential leakage of financial and personal data in the context of the automatic exchange of information, and the future will show how Switzerland's contractual partners implement and maintain a consistent data protection system. Meanwhile, we assist clients with the review of their wealth structures in order to determine the data protection situation. 

Have any jurisdictions proved particularly active for emigration work recently? Are there any which clients are particularly interested in targeting? 

John Rimmer: As a practice, we would not be targeting ongoing administration or trust services, so we would not see this. 

We are seeing some interest in moving foundations to the Isle of Man from Panama, and perhaps the disaster of Hurricane Irma, and its aftermath, might influence some individuals or their advisers in deciding whether to use Caribbean service providers. I have seen no mass movement, though, and I am not aware of Manx businesses targeting to any great extent the clients of other jurisdictions who may be vulnerable.

Tina Wüstemann: Switzerland still attracts many wealthy foreigners and often clients relocate with their family to Switzerland due to its high prosperity, high living quality, its public safety and not at least because of its well-developed school and healthcare system. By now, in Switzerland one-quarter of the population are foreigners and we see in our practice still quite a few wealthy foreigners relocating to Switzerland every year. There is on the other hand no evidence that Swiss people are emigrating in large numbers. Overall, the number of Swiss nationals living abroad grew by a 2.9 per cent increase. 

In what ways has private client work become more sophisticated in recent years?

John Rimmer: Mostly, the developments have been increases in compliance requirements: the move has been away from complex tax-saving. It is some relief that some of the aggressive tax schemes being sold to some clients have dwindled, and the hard stance taken against by tax authorities makes it easier to advise a client to steer clear, or simply to avoid advising on that matter.

One area that has grown is family governance. The old values instilled into wealthy families may have been lost, if they ever existed. Families are often more aware now of the possible harm caused by wealth, and the exposure of wealth to outside claims in divorce. Most trust structures are put into place to manage wealth rather than to avoid tax. Previously advisers may have relied on the trustees’ powers, and the limited rights of beneficiaries, to manage these risks. Family governance, however, has opened the doors to more subtle, but ultimately more successful, management of the transition of wealth through the generations.

Tina Wüstemann: Not least due to increasingly complex tax regulations in Switzerland and abroad, succession and tax planning have become more sophisticated in recent years in Switzerland. One-quarter of the Swiss population are foreigners, mainly from the EU, and half of all marriages are binational. Switzerland is not a member state of the EU succession regulation but follows its own conflict of law rules. This may lead to conflicts whenever a Swiss estate has ties to the EU. Moreover, succession planning for clients with links to the US or the UK has its own challenges as a result of structural differences. In any case we advise all our clients, especially in cross-border situations, to engage in careful lifetime planning to avoid conflicts of law and jurisdiction.

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