Civil responsibilty concerning insurance investments bonds
Written by Professor Robert Anthony, Anthony & Cie
GGI Insider (#52), March 2011
In the environment of the G20 on offshore jurisdictions, international private banks and institutions are looking for legal alternatives. The insurance wrapper is becoming an interesting alternative to the offshore entity. However, this is not without its own issues. Conflicts of interest and due diligence incorrectly managed can lead to banks, lawyers and insurance companies having a civil responsibility issue. Highlighting the issues and the reasoning with the services of an independent financial advisor protects all the parties concerned and gives equitable solutions.
When taking out an insurance policy it is important to identify who is advising the client. It is often a bank that will broker a policy via its own brokerage department, which is sometimes an insurance company that is part of the same group. With the bank also acting as custodian with discretionary management, where is the bank’s independence? A lawyer advising on the file should highlight this issue to the client, but this is rarely the case. Some countries have consumer legislation to protect clients in cases of pushed selling and there are more and more case laws concerning this which result in awards against the institutions.
As offshore companies increasingly come under the microscope, insurance policies become progressively more attractive to private banking clients. Understanding the ins and outs of these issues is essential. As international wealth managers, we encounter these issues daily and are more than happy to protect member firms by acting as brokers to investment insurance policies thereby avoiding the liability of civil responsibility and at the same time giving adequate advice to the client. If you have clients without an external wealth advisor, it is time to react and protect them. If you advise financial institutions the same applies. The dismantling of the large institutions will partially go towards creating independence, but an external advisor to the insurance company that is not a member of the same group will still be needed.
The international residence headache
Today international clients still do not seem to have understood that the pressure of global taxation requires them to be transparent with their interests. They are manipulating their marital situations in creating split residences from their wives while at the same time placing their assets in their wives names. If challenged by the revenue, they are able to claim for themselves exemption from several taxes. Certain civil code countries have community marriages policy whereby the tax on the married couple’s residence is consolidated. Various interesting scenarios could arise where there is a pact between the two parties. In which case how is this dealt with when two different jurisdictions are involved?
Certain married couples have gone to the extent of divorcing in order to demonstrate clearly that they have two separated residences; somewhat extreme but not unknown. I have always believed in simplicity with regard to my tax planningwhile being more realistic about current trends. It is possible to separate clients’ assets and leave enough for the family to live comfortably where they wish. My grandfather used to say there is nothing wrong in paying some tax. Paul McCartney, for example, still lives happily in the United Kingdom!! The use of foundations, trusts, charities makes this to feasible.
It is a matter of conscience; the clients need help in facing up to what they really want! I recently said to a client, who loves his wife, but is regularly separated from her, “are you really happy being a globe trotter to avoid tax?” This meant him spending time counting the days in one country, just to duck and dive from the revenue. The client said that he would certainly prefer to live as a family. Perhaps there is a choice to be made here is the pursuit of saving money worth all the sacrifices of life style and separation from the family? When one is older one realises that it is not, but then maybe it is too late as time has already passed.
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