Knowledge

Guernsey is increasingly being considered as a jurisdiction of choice for family offices, both for global family offices using the services of its specialist wealth management and fiduciary sector and for families creating (or relocating) their own family offices.

The provision of family office services in Guernsey is not new. Guernsey service providers have been providing a wide range of trustee, banking and investment management services to high net worth individuals and their families and family offices, both domestically and internationally, for the past 50 years.

The jurisdiction’s offering has always been attractive due to its political stability, independence, low crime, proximity to both the UK and the EU, tax neutrality and commitment to international standards. There are now a number of single and multiple family offices located in Guernsey and many of Guernsey’s 100-plus regulated trust and corporate services providers deliver third party services to family offices. Working alongside them are numerous Guernsey-based private banks, investment managers, insurers, lawyers and accountants who are also experienced in providing discreet, sophisticated and professional services to private clients.

The strength and depth of the experience and expertise within Guernsey’s wealth management sector mean it is perfectly positioned to provide specialist services to family offices. Practitioners are already experienced in dealing with high-value, complex, cross-border structures and advising on issues relevant to most family offices, including family and business governance, engaging with the next generation, philanthropic giving and preserving privacy.

It was, therefore, a logical step when the jurisdiction’s government, the States of Guernsey, set an objective in its 2018 Financial Services Policy Framework for Guernsey to become “foremost of mind amongst the global financial community for the provision of specialist family office and private wealth services”. The government, industry and the regulator, the Guernsey Financial Services Commission (GFSC), have since been working together to develop the jurisdictional offer “to provide the most supportive global environment and eco-system for servicing private capital and wealth”.

In addition to the local professional services infrastructure, family offices benefit from the wide range of structures available under Guernsey’s modern, robust and innovative legislation. The use of Guernsey trusts for succession planning and asset protection purposes is recognised internationally by private clients, family offices and their advisers. Family discretionary trusts, non-charitable purpose trusts, charitable trusts and family unit trusts can all be created under Guernsey law, with the ability to reserve powers to the settlor and Guernsey’s firewall provisions being particularly popular features of its trusts law.

Family offices can outsource trust administration to one of the many professional trustee companies in Guernsey or, alternatively, set up their own private trust companies (PTCs) which are now widely used to act as trustee of a group of family trusts (and may be the family office itself). PTCs are usually eligible for an exemption from licensing where the PTC is administered by a locally licensed fiduciary and the regime permits the family to have full control of the board if required.

Developments in law and regulation in recent years have facilitated the use of a wide range of other private wealth structures by family offices. Guernsey foundations are often used by families from civil law countries where trusts are unfamiliar, or even not recognised, or where families are seeking more control than a traditional trust might permit (and private trust foundations are also now available as an alternative to PTCs). Foundations are particularly useful for family offices because they have legal personality and so can contract and own property, but they are ownerless and can have a continuous existence (until removed from the Register of Foundations). In addition, the flexible legal framework under which Guernsey foundations are set up means their governance can be tailored to the family’s unique requirements.

Private investment funds, protected cell companies, family limited partnerships and family investment companies set up under Guernsey law are also often used by high net worth individuals and family offices to hold their investments in a corporate structure, which again might be more familiar or appropriate than a trust. It is also possible to create bespoke structures comprising more than one trust or entity, each holding different types of assets or being controlled by, or benefitting, different parts of a family.

In short, Guernsey’s modern, flexible and innovative legislative and regulatory framework accommodates a wide range of structures that can be tailored to a client’s specific requirements, which is ideal for family offices, whose needs and objectives can be complex and vary so greatly.

Guernsey is committed to meeting international standards of transparency, anti-money laundering and combating the financing of terrorism, which is particularly attractive to global family offices who are conscious of their own international obligations and reputation. Guernsey was an early adopter of the Common Reporting Standard (CRS) and, in 2017, introduced a central register of beneficial ownership of legal entities incorporated or registered in Guernsey.

However, as Guernsey also fully respects an individual’s right to privacy, its central register of beneficial ownership is not public – it is only accessible by competent authorities (such as law enforcement, tax authorities and other regulatory bodies) and only where their interest in the data is legitimate. Guernsey also has its own data protection legislation, following the GDPR principles in force in the UK and Europe, and its service providers uphold the highest standards of professionalism under which they owe a duty of confidentiality to their clients.

Guernsey Finance (which markets the jurisdiction’s financial services industry) commissioned an independent research study into global trends in the family office sector, published in May 2019. The study found that family offices and their advisers considered that ‘safety, security and stability’ – as indicated by high levels of social cohesion, constitutional autonomy, political and economic stability and an independent judiciary, all of which Guernsey offers - were the most important criteria when considering a jurisdiction for a family office.

The study also found that family offices and their founders are demanding greater simplicity and that many are consolidating their structures in one jurisdiction and seeking higher-quality administration. The study acknowledged that economic substance is more easily demonstrated if services are retained in-house or, if out-sourced, undertaken within the jurisdiction of the family office. This is all the more reason for establishing a family office in (or relocating one to) Guernsey - any services that need to be outsourced to a specialist third party provider, such as investment management, can be provided from within the same jurisdiction by experienced practitioners.

Finally, many high net worth individuals and family offices are becoming increasingly conscious of their social and environmental responsibilities. Many are also aware of the investment opportunities in areas such as renewable energy and recycling. Guernsey is on the radar of an increasing number of family offices because of its work in green finance, such as the Guernsey Green Finance initiative and the Guernsey Green Fund, the world’s first regulated green investment product.

In summary, Guernsey is the ideal jurisdiction of choice for any family office which values quality, reputation, privacy, substance, stability and security. It offers experience, excellence and professionalism in its service providers and choice and flexibility in the structures available for holding and managing private wealth and investments.

This article was first published in the eprivateclient Guernsey Report 2020.