With offshore jurisdictions much closer to home, why do US private clients choose to do business in the Channel Islands? And how is that business growing?
While they may be small in size, the Channel Islands have, for many years, played with big boys when it comes to financial services. Corporations such as Silicon Valley giant Apple come to St Helier and St Peter Port to do business, with the islands offering the ideal offshore pivot into the City of London.
But it’s not just companies that transact in the islands. Private clients – wealthy individuals or family offices – come from all over the world to benefit from the high-quality companies and services based in Jersey and Guernsey. According to Jersey Finance, £400bn is held in Jersey trusts alone, while demand for estate planning and family office services – particularly for North American clients – is also on the up.
But considering the fact that Caribbean jurisdictions such as the BVI and the Cayman Islands are far closer to the US mainland, why are the Channel Islands so attractive to US clients?
It’s worth starting by explaining that the term ‘US clients’ refers to an individual with US connections, either in the assets they hold or through their family. Roddy Balfour, Business Development Director at Equiom, explains: “An awful lot aren’t actually US. A typical example is a family in an unstable country, in Latin America perhaps, where the sons remain to run the family business, but daughters go to live in the US. For these, the patriarch will set up a Foreign Grantor Trust according to US rules, and when the father passes on, the trust will likely end up with US trustees as a Dynasty trust.”
Guernsey and Jersey have maintained financial structures for private clients for more than half a century. Yet in the past 10 years, the islands have seen an increase in the amount of US private clients heading to the English Channel.
“There’s been a large effort made by trust companies in the Channel Islands to rely less on UK and European work,” explains David Lambotte, Client Director at Estera. “So I think our jurisdictions are bearing fruit following five to 10 years of effort in the Americas, and developing business from there.”
How it all began
The reputation of Jersey and Guernsey as international finance centres, coupled with an English style and responsibility of trusteeship, are attractive to US clients. “We were one of the first to get involved,” recalls Balfour, who founded Virtus Trust, which later merged with Equiom. “Virtus was responding to a change in US legislation in the 1990s, which meant that US couples would be at a disadvantage if they held an offshore trust. As a result, Virtus obtained a US Trust Licence, a move that other Channel Islands trust firms have since mirrored.”
“In 2009, we invested heavily in our knowledge base for US clients,” explains Trust Corporation Director Andréa Daley Taylor. “Since then, there’s been a notable increase in a number of historically non-US related families.
“As they’ve become increasingly mobile, they stray into the US arena, one way or another. So we’ve found that the bigger growth area for us in terms of using our US capabilities and domestic offerings for US people holding US assets, is through the family clients that have then needed our US expertise.”
However, it’s not just the undulating coastlines and fine restaurants for which the Channel Islands are renowned. “Jersey is known as the best jurisdiction in the world for offshore trust service providers,” Lambotte continues. “The court system is good, the network of advisers is good. The wealthiest families are attracted to the best-quality service, and the quality of individuals practising in the Channel Islands is very high.”
“I think our expertise in managing non-US assets for US-connected clients is a driver,” Daley Taylor adds. “US clients could go closer to home, but quite often the other jurisdictions don’t have the level of understanding of managing both – and dealing with one service provider particularly appeals to clients.”
Jersey’s and Guernsey’s expertise in managing London and European-domiciled assets for US clients sets them apart from Cayman, Delaware and BVI-based counterparts, who are less familiar – and less connected – with investment opportunities on this side of the Atlantic.
In fact, the Channel Islands’ proximity to London is significant, as Darren Bacon, Partner at Mourant Ozannes, explains. “The rise of US law firms in London has inevitably educated the US market on opportunities in the UK and Europe, through the Channel Islands.”
That’s not to say US clients wouldn’t want US firms to manage their trusts or estate planning. The islands must be proactive when selling themselves against their US and Caribbean rivals. “Rivals such as Bermuda, for example, are very good at promoting themselves,” Lambotte continues. “So Jersey and Guernsey need to keep up that momentum and profile.”
Changing climate
US clients may look favourably on the Channel Islands. But isn’t it also possible that they’re looking to do business in Jersey and Guernsey to get away from one Donald J Trump?
“Yes, but possibly not for the reasons you might initially think,” Daley Taylor explains. “It’s actually around the reforms Trump is very quickly implementing, like the tax cuts and the Jobs Act, which came in at the end of 2017, and will effect US individuals with foreign interests.”
Clearly, Trump’s leadership style divides opinion, but overall the US economy has performed pretty well under his presidency. In isolation, however, the UK economy may be considered less stable, partly due to Brexit. And this creates opportunities for US clients to buy UK property and other assets while also benefiting from a favourable exchange rate.
“Part of it is a play on sterling,” Bacon continues. “If you’ve made your money in dollars and there’s a drop in sterling, it creates a buying opportunity for Guernsey funds denominated in sterling, and for investing elsewhere through the Channel Islands. The Asian market has seen a lot of investment into London and Europe, but that’s also come from the US.”
As well as the benefits of US clients coming to do business in Jersey and Guernsey, there are good reasons for firms on the islands to go over to the States and look to do business with clients over there. One is diversifying their geographical risk away from the UK and Europe.
“For us, the US is a very attractive market because it’s unaffected by Brexit, AIFMD and general European regulation,” Bacon continues. “If we can attract US clients, then we can do business with them irrespective of any EU regulation that’s negative to offshore. There’s a lot of uncertainty, but Guernsey is stable and is potentially unaffected by some of those bigger political issues.”
So, will the US private wealth client base continue to grow in the future? “Completely,” Balfour states. “Of the nine referrals I’m working on currently, eight have US implications. It’s been a very good period. The business is alive and well, but it’s morphing into more serious estate planning, instead of people just hoping to hide ‘rainy day’ money in cheap solutions.”
It’s clear that 10 years of promoting the islands to US private clients has borne fruit. And with trust companies, regulators and industry bodies all united, continued growth in this field is very much a target, and on the cards.