During 2018 Dr Stuart Gibson conducted face-to-face in-depth qualitative interviews with 40 HNW/UHNWs and 42 private wealth professionals based in Jersey.
We are delighted to present the Jersey Private Wealth Report 2018.
A total of 82 Jersey based individuals participated in the independent research study, comprising of 40 private clients (HNWs, UHNWs, HVRs and wealthy entrepreneurs) and 42 private wealth professionals (trustees, investment managers, family office professionals, private bankers, insurance brokers, estate agents, lawyers, tax advisers, relocation consultants). All participants have taken part in qualitative interviews, sharing their expert views, insights and experiences in the context of Jersey private wealth.
We explored aspects of private client’s selection criteria for Jersey based private wealth professionals and service providers, in addition, we investigated client communication, client relationships, client value, client service quality, client satisfaction, client trust, client loyalty and client retention. Furthermore, we explored key private wealth themes in Jersey such as family offices, succession planning, philanthropy, impact investing, privacy and security.
Private client trust and loyalty. Trust is essential for successful and profitable long-term private client relationships. Greater trust is required when private clients require complex advice, such as investments, succession planning or tax, compared to simpler functions, such as transactional banking. Private clients want to trust the private wealth professional is not working independently, that expert professional advice given is the ‘house view’ of the investment manager or private bank. Private clients’ loyalty is influenced by private client service quality, client satisfaction, client trust, client communication, relationship commitment and client value.
Private client relationships. The relationship is between the private client and the private wealth professional (individual) rather than private wealth service provider (institution). A trusted ‘partnership’, consisting of open communication, honesty, integrity, trust, understanding, care and empathy. Private clients and private wealth professionals need to have ‘chemistry’ to have a successful long-term partnership. A co-pilot approach creates a long-term collaborative partnership, which is ‘two-way’, involving mutual respect, benevolence and trust. Incremental increase of shared trust, integrity and loyalty leads to strong bonds and intimacy experienced by a ‘professional friendship’. Results in mutual benevolence, increased share of wallet and private client referrals.
Succession planning. Wealth erosion is a major concern for Jersey wealth creators, as is providing a secure environment for future generations. Preparing and educating the next generation about family wealth is a big responsibility and parents are divided about how much to tell children and when. Entrepreneurs, who are still creating the wealth, find it difficult to hand over control, while a number of patriarchs want to maintain control ‘from the grave’ as part of their legacy. Divorce, remarriages and blended families are making families increasingly complex, leading to conflicts arising from fair distribution of wealth, while transfer of a family home can be emotionally challenging. Philanthropy plays a critical role in succession planning and is a way of engaging children in investment and governance issues.
Philanthropy. Wealthy individuals in Jersey want to give back to the local community. Most private clients in Jersey wish to remain anonymous, as philanthropy is personal and private. Philanthropic causes are driven by personal frustrations or concerns regarding important issues that are not being dealt with by an established charity. Philanthropy is a deliberate strategic vision for wealthy families in Jersey. Wealthy individuals/families want to create their own structure, whether it’s a trust or foundation, and want to be involved and retain control. Patriarchs/matriarchs want the flexibility to include their children in the family’s philanthropic structure. Some Jersey-based private clients and family offices use their own wealth to invest in a philanthropic cause. However, some will seek to collaborate with other like-minded UHNW individuals to co-invest together on larger philanthropic projects. Wealthy families employ the services of local philanthropic advisers to set up structures and provide good governance.
Social impact investing. A third of the interviewed Jersey private clients and family offices are involved in social and environmental impact investing, either directly or through funds. They want to invest in solutions that provide a positive impact on environmental or social issues, but also want to invest efficiently and effectively, receiving, in some circumstances, no financial return.
Family offices. The decision to set up a family office depends on many factors: 1) the amount of wealth – a UHNW of £100-500 million - to make it economically worthwhile; 2) the needs of different branches or generations of the family, who might have their wealth management and/or philanthropic requirements; 3) a question of overall efficiency of the family’s wealth; 4) the complexity of the family’s affairs – international cross- border issues and a mix of different assets in complex structures; 5) an opportunity to engage with the next generation and for children of UHNW individuals to be involved in the family office and the family’s philanthropic causes; and 6) to achieve privacy for the wealthy family – employing a small team of trusted people.
Substance. There is a consistent theme for jurisdictions wanting to tax where the ‘substance’ of the operation is; therefore, “if we have a family office in Jersey, in order to be taxed here, the substance of the operation needs to be here, actually employing staff on the island”. There is work to be done with regards to value chain analysis and understanding where the value of the transaction is. There are great opportunities for Jersey-based single family offices, multi-family offices and family office service providers, due to the abundance of high calibre, qualified, private wealth professionals based in Jersey.
Hedge funds. In line with global trends, Jersey private clients have significantly decreased their exposure to hedge funds.
Alternative investments. The top four reasons given by Jersey UHNW individuals for investing in collectibles: 1) personal enjoyment; 2) diversifying their wealth portfolio; 3) an appreciating asset; and 4) kudos amongst peers. 80% of those Jersey private clients interviewed invest in collectibles as an alternative asset. The value of collectibles (art, cars, wine, watches, antiques etc.) is driven by fashion and taste – when fashion is high the price is high, however, when it is out of fashion, the price could go spiralling down. Art collections are the highest rated investment, with cars, wine, watches and stamps following closely behind. 90% of the UHNW individuals interviewed in Jersey collect as a passion, rather than a long-term investment. Younger UHNW individuals are looking to invest in alternative collectibles, involving the latest technologies. Celebrity status continues to drive up sales of high-end alternative investments. Many of the investments of passion are long-term, generational wealth assets, due to their lack of liquidity.
Cryptocurrencies. There is a great deal of interest in, but very little actual understanding of, cryptocurrency, such as bitcoin, and blockchain, the technology behind it. Jersey private client investors and private wealth professionals are predicting that the bitcoin ‘bubble’ will burst soon. Until the government, regulators and global central banks work out how to regulate it, it will continue to be viewed with suspicion by Jersey private clients. UHNW investors are wary of cryptocurrency, because it is not tangible and is not perceived to have an intrinsic actual value. There is a widely held belief that the darker side of society – criminals – are using bitcoin to finance activity or hide money. This leads to some ethical questions about its use. While cryptocurrency is likely to be a short-term craze, it is recognised that blockchain offers more interesting, long-term possibilities for Jersey UHNW individuals. Investment into cryptocurrency is perceived to be a gamble, as the market is so volatile and there is a threat that Jersey investors could lose everything. The younger generation of private clients, with more understanding of digital technology, are more likely to invest in this type of currency.