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Protecting The Client: Why It's Much More Than Guarding Client Money

Tom Burroughes, Group Editor , January 24, 2020

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There is a wide toolbox of structures for protecting clients' wealth. And protecting the client is also a lot more than investment and tax. Health and contentment are important, as is reputation, dealing with infirmity in old age and the risk of cybercrime. This news service is examining these issues.

If there were to a Hippocratic Oath in wealth management then some practitioners might say that it should state “don’t lose the client’s money”. But that might be simplistic: should not private client advisors also think about protecting the reputation of a client, their privacy and for that matter, their dignity, such as in old age or when a person is in the public eye? Considering that parts of the traditional proposition of investing money have been “industrialized” by technology and squeezed by competition, there is a need for firms to prove their added value. Protecting clients legally, physically and even emotionally become more important. This is why this news service has decided to probe into a number of areas linked under the banner of “protecting the client”. 

Such protection can take many forms. A perhaps obvious place to start is that stalwart of the English Common Law, the trust. And with Switzerland looking to develop a kind of home-grown trust sector (as is Italy with some recent changes), there appears plenty of life left yet in trusts. True, pushes by governments for public registers of beneficial ownership and increasingly aggressive revenue authority behavior hasn’t been always positive for the trusts sector. Some trust companies are merging or selling business areas because compliance costs have made the area costlier to work in. 

But the fact that the world’s largest single offshore jurisdiction, Switzerland, is pushing at change (subject to the usual vagaries of the political calendar) tells its own story. The US, meanwhile, remains a large and important trusts country, and specific jurisdictions including Delaware, New Hampshire, Nevada, South Dakota and Alaska foster attractive trust features. The 2017 tax changes in the US by the federal government, capping deductions for local and state income taxes, have reportedly driven business into trusts. This isn't surprising.

Beyond trusts, there's a toolkit that advisors and clients should consider and use more fully than they sometimes do. Insurance provides channels for wealth transfer and protection, as in the case of private placement life insurance, and some life policies as well. Companies and foundations can protect wealth in certain ways. Rather like amateur golfers, some advisors will only use about half of the clubs in the bag - they should emulate the pros and use the full set. 

A big background factor in all this activity is intergenerational wealth transfer. In the US alone, an oft-quoted figure of $30 trillion is due to change hands in coming years (it is never entirely clear to this publication how such a figure is arrived at, given how business owners, for example, are known for under-reporting assets to the US Internal Revenue Service). Still, whatever one makes of the specific total figure, a lot of money is in play. And not just a “vertical” transfer from older to younger, either, but also in the form of “horizontal” transfers between divorced couples, or those left bereaved. For example, this news service has looked at issues such as the “suddenly single” phenomenon – the situation in which a person is divorced or bereaved and must face a new financial life on their own, sometimes with no preparation. 

Protection can take on real emotional and medical significance in cases where, for example, an elderly family member is diagnosed with dementia and there are moves to take out what are called Lasting Powers of Attorney. There has been controversy about the use or alleged misuse of LPAs, and calls for the system, such as in the English and Welsh one, to be reformed. This is a very clear-cut case of a “protecting the client” matter. Wealth managers are sometimes entrusted with money from clients who have been paid lump sums out of insurance claims for serious injury – raising the need to manage that money very carefully. They must also consider the best interests of those under the age of adult decision-making for managing money. 

Other protections involve reputation, physical safety and the whole world of cybercrime. There’s no point, after all, in achieving high investment returns for a client if they fall foul of hackers, or get money stolen by an employee with a grudge, or are kidnapped. And in this space there has been rapid growth in a cluster of firms offering services to protect wealthy clients in their homes, their offices and travels, and advise them and their families about using social media wisely, avoiding mistakes in use of IT, and managing their reputations. Reputation protection takes us down the well-trodden path of libel laws, for example.

There is now a growing field of “reputation management” that focuses on the online world. Firms are selling services that aim to hide or change negative search results on a person’s name. This is controversial stuff, but protecting the client can be. 

The idea of protecting the client must of course acknowledge traditional “safe money” areas such as the use of offshore centers, but with Swiss bank secrecy a dead letter internationally and registers of beneficial ownership pushing forward, financial privacy is under threat as never before. There is some pushback, and we will continue to track such issues in features this year and in the future.

Protecting the client is about so much more than money. We hope that our articles prompt readers to come forward with areas they’d like us to give more attention to. Email tom.burroughes@wealthbreifing.com and jackie.bennion@clearviewpublishing.com

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