As one of the most successful and forward-thinking financial centres in the Caribbean, the Bahamas is an international success story. Can its future leaders keep its position secure? By Claire Coe Smith
Welcome to this, our fifth feature in the Citywealth series on the future leaders of the private wealth industry globally. Here we seek to cast our eyes over the up and coming stars of the investment management, law, trusts and private banking sectors in the Bahamas, and to pinpoint the skills they will need to run their businesses in the years ahead.
The Bahamas, south east of the US state of Florida and independent from the United Kingdom since the 1970s, is one of the richest countries in the Americas in terms of gross domestic product per capita. It is also one of the most successful international financial centres (IFC’s) in the Caribbean thanks to its mature financial services industry, established infrastructure and tax neutral environment. Today, more than 270 licensed banks and trust companies, including seven of the world’s top eight private banks, operate within the island’s 14,000 square kilometres.
But as with all IFCs, wealth advisers in the Bahamas find themselves facing a raft of challenges on the back of regulatory change, particularly where US clients are concerned. The next generation of leaders will face a very different environment to the industry today:
“Transparency is a big theme,” says Christel Sands-Feaste, a partner at the law firm Higgs & Johnson in the Bahamas, specialising in private clients and wealth management. “It’s a theme that is global, and is very prevalent in all the IFC’s and onshore, and that’s continuing to be a permanent issue.”She suggests it will change the shape of the industry on the islands, as attrition and consolidation will result in a smaller number of participants. “Whereas maybe 10 years ago there were hundreds of players,” she says, “we will see a consolidation to a smaller number of participants focused on private wealth.
Some service providers may choose not to service US persons, for example, due to the increased compliance costs associated with doing so.” But with so much change affecting the industry, there comes opportunity too, and another result of the global drive for transparency, most notably through America’s Foreign Account Tax Compliance Act (FATCA), is a drive towards innovation. The leaders of the future in the Bahamas will need to be more switched on to products developed and evolved specifically to suit particular jurisdictions, with an increased on target markets and growth areas.
New markets, new ideas
One of the key target markets for wealth advisers in the Bahamas is undoubtedly Latin America, and particularly the high net worths and ultra high net worths coming out of Brazil. Targeting such clients will call for innovation on the part of advisers, and the Bahamas’ SMART fund model is a case in point. In August 2012 the Securities Commission of the Bahamas approved the latest SMART fund model, number seven, having introduced the concept back in 2003. SMART stands for Specific Mandate Alternative Regulatory Test fund, with the idea being to allow promoters or clients with unique investment ideas to create a fund model that can submitted to the Commission for approval. Advisers say the offering strikes the balance for those who want a privately held investment vehicle, but also like the added credibility given to a structure by the fact that it is regulated and licensed.
The latest version, SMART Fund 7, can be used for private placement purposes requiring a minimum initial investment of US$500,000 per investor, with the number of investors capped at 50. It can also be used in an offshore-onshore/master-feeder fund structure as the offshore fund element alongside an onshore fund for high net worth individuals. Sands-Feaste says: “With the development of SMART funds in 2003, the idea was to have a flexible fund product that was available to the private wealth market in particular. SMART Fund 7 was designed particularly to suit Latin and South American clients.” The Bahamas enjoys historic ties with Latin America, and its location and proximity to the region helps it compete for work coming out of that market. The value proposition of the Bahamas is understood by many in that part of the world, according to Aliya Allen, the CEO and executive director of the Bahamas Financial Services Board. She says: “Certainly the robustness and confidentiality of the structure is often more important to clients coming out of Latin America, where there might be some security concerns, while that focus has been less important for other regions.” Latin American clients also typically look for more involvement on the governance side, she adds: “Latin Americans like to be much more involved in the structure and have more control, as opposed to letting a host of advisers take the lead. But in general the end goal is still the same: providing a dynastic structure that works for generations of a family, and making sure, where required, charitable aims are met.”
Such themes further highlight the need for advisers to the next generation of clients to be much more international in their outlook, with language skills and experience of working in or with other cultures increasingly in demand. Linguistic talents will be a particular theme for the country’s future leaders, as service moves higher up the agenda for private clients, and with that comes the need to be able to speak to clients in their own tongue. Certainly the environment in which the leaders of tomorrow will operate will be more complex:“In this industry advisers need to keep abreast of tax, regulatory and other developments, but going forward there will also be a lot more complex factors to take into account,” says Allen. “There will be no room for selling trusts out of a box. The next generation is going to have to have a holistic approach to the client, looking at the whole family, all of the jurisdictions in which they operate, and taking into account all the various tax and other implications surrounding advising on a structure.” There will be greater competition between international financial centres, for sure, which will put pressure on all advisers to keep service levels ahead of those of their rivals. And the product mix will also be a key differentiator, driving the need for advisers that are not just service driven, but also full of new ideas.
Thinking outside the box
Alongside SMART funds, the Bahamas also sought to stay ahead of the curve with a package of legislative reforms at the end of 2012 focused on making it easier to manage private wealth using trusts and other products. Amendments included the introduction of arbitration of trusts, which allow for any dispute or administration question to be resolved in arbitration if the trust instrument allows, with the added benefit of providing for the ability to choose the judge on a case. The Bahamas was the first country in the region to put a trust arbitration provision in a statute. Allen says: “That package of reforms was really lauded as an achievement, because we looked at it in an intelligent way and facilitated the kind of amendments necessary to ensure disputes could be resolved in a very confidential way between parties.”
Certainly the islands have no shortage of wealth management talent to tap into, with the region’s largest number of qualified trusts and estates professionals, for example. And the Bahamas benefits from a pipeline of good quality candidates coming into the industry thanks to the high level of tertiary education available at the University of the West Indies, which has a campus in the capital Nassau. Sands-Feaste says: “In terms of people who have been in the professions on an ongoing basis, we have a well-qualified pool of seasoned professionals who have worked in some of the most sophisticated institutions in the world. There will inevitably be competition from other IFC’s, but what is key is sharpening the pencil in certain areas of service.
The Bahamas is the well established leader in private banking and trust services, and we are growing our presence in insurance and investment funds.” Consolidation may be a feature, but there remain significant opportunities for the brightest professionals to take the industry forward on the islands, not least through the development of compliant transparent products tailored to growth markets around the world. Allen concludes “While there might have been some consolidation on the banking side, on the wealth management side there are institutions that have reinvested and beefed up their capability in the Bahamas, because they see it as a jurisdiction of the future.” No one would bet on clients being anything other than increasingly demanding in the years ahead, and FATCA has put huge pressure for change on the Bahamas industry. Nevertheless, the leaders of the future highlighted here look the best placed to take advantage of the opportunities on offer.
The Bahamas Future Leaders list has been created from a mix of submissions and feedback and recommendations from the global financial services industry. The list celebrates up and coming leaders in the Bahamas. It recognises the high profile and excellence these individuals have already achieved in helping to promote business excellence in their home jurisdiction and consolidating the reputations of the financial services industry globally.