Back in the hands of the specialists

01 May 2013 Gareth R Corbin

Back in the hands of the specialists

Gareth R Corbin examines Switzerland's emerging trend for fiduciary and trustee services to be provided by specialist independent trustees.

The Swiss trust industry has matured in the past ten years as a result of economic, legislative and regulatory factors. In the past two years, the biggest developments have come from external pressures, as governments seeking to escape recession have tried to increase tax revenue.

Switzerland has long been a jurisdiction of excellence, from its manufacturing industry to its financial services. That said, the country has not been immune to the world’s woes, and some of this advantage has been eroded by global financial trends. However, Swiss financial and legal expertise remains of the highest standard.

Current conditions

As financial centres evolve, so do the requirements for financial regulation. The focus on compliance and anti-money laundering legislation touches every sector – not just financial services – and presents an increasing administrative burden.

The fiduciary industry, regardless of jurisdiction, has the added ingredient of myriad client nationalities, particularly with emerging economies considering their wealth planning – some for the first time. Each nationality of client is looking for different services and has different requirements and reporting obligations.

Modern technology means requests and communications from clients are sent instantly from anywhere in the world and arrive with the trustee with an expectation that the response will be just as swift.

With growing numbers of jurisdictions seeking to attract accounting, legal, banking and fiduciary services, there is pressure on traditional financial centres such as Switzerland to maintain market share and prove their value to clients.

It is therefore natural that, in Switzerland, there is a growing desire to specialise to be able to stay ahead of peers and meet the requirements of the modern client. Current thinking indicates that focusing on core business makes each organisation better able to differentiate service and quality from competitors.

The trend towards specialisation

Historically in Switzerland, fiduciary and trustee services were offered alongside other services. Fiduciary relationships would have been managed in-house by the institution to ensure that the relationships were managed and controlled.

One of the attractions for clients dealing with institutions, and vice versa, was that they felt they would only have to manage one relationship. Faced with several relationships, clients may feel daunted and fear losing control of their estate planning.

However, these concerns can be met by the likes of reserved powers provisions (such as powers to direct investment management, distributions of income and capital, or even appointment and removal of beneficiaries) or specialist legislation such as the Virgin Islands Special Trusts Act. These help meet client demands, and recognise the need for bespoke structuring.

Today, aided by the increased focus on corporate governance and risk management, estate planning, through fiduciary and trustee services, has been recognised as a specialist area requiring specific expertise. While it may be deemed a complementary service, estate planning needs to be separate from other wealth-management offerings. Such specialisation is needed if Switzerland is to remain a leading financial jurisdiction attracting international clients, and to ensure that it is used as a financial centre for generations to come. After all, ‘Made in Switzerland’ is a mark of distinction for skill and quality, so why seek to dilute such skills?

Drawbacks of specialisation

This trend towards specialisation has potential pitfalls, and these must be managed with the same care and expertise as the fiduciary structures themselves.

Those looking to outsource need to choose their fiduciary partners. The trustee must have the resources and skills to manage the business, but, more importantly, must be able to deal with all of the client’s regulatory and reporting needs.

The fiduciary business should have its own office and suitable staff in the jurisdiction where the client is seeking to establish or maintain a structure. Most importantly, clients and institutions must select a fiduciary business that adheres to the highest regulatory standards (as required by law or beyond).

There are also elements the fiduciary business must consider when courting specialist business from institutions. It is not enough that the client is a trusted and valued customer. Due diligence and robust policies and procedures, together with developing relationships with service providers and advisors, are vital.

Trust and estate practitioners are all, in effect, the board of trustees for the industry. They must ensure trusts and foundations are used for the right reasons, employing foresight, planning and the strictest corporate governance rather than seeking to commoditise and shape a client to fit a generic product. Trustees and trusts have a duty to keep to the highest standards of service if they are to serve clients’ interests and maintain the reputation and standing of Switzerland and other jurisdictions they operate in.

Authors

Gareth R Corbin

CPD Reflective Learning