Will the post-covid trends of 2022 continue in to 2023?

Shoreline
After a world ravaged by Covid-19 during the course of 2020 and 2021, with most of us having endured a lockdown of some sort or another, we were cautiously optimistic about 2022. Now that we are nearing the end of 2022 it would seem that our optimism about a rosy year was rather short-lived.

Conflict continues to escalate in various countries around the world, and the climate crisis is as much of a concern as it has ever been, if not more so, with serious water and food shortages around the globe continuing to put pressure on daily life for many.

Monitoring and Communication

For most of our clients, the main impact of these pressures has seemingly been confined to the value of the assets we hold for their benefit. As trustee, we are very aware of the assets that we administer and the effect that a turbulent world with high market volatility has on those assets. After all it is our duty as trustee to preserve and enhance the value of the trust assets in our care; inflation alone is rapidly eroding even the most cautious of assets.

Regular communication and consultation with the appointed asset managers regarding the performance of an investment portfolio, or property managers in respect of tenants and tenancies, has always been an important part of meeting this duty and never more so when the normal order has been replaced with chaos.

Increased Use of Technology

Throughout the 20th and early 21st century, trustees were often found travelling the globe to see beneficiaries and intermediaries. During 2020 and 2021, the Covid-19 pandemic brought travelling to an abrupt halt and we were forced to embrace technology. Never before have we seen such advances in technology with regard to asset management, reporting and video conferencing. Skype, Zoom, Teams, all allowed us to monitor and manage assets, and attend meetings around the world when the pandemic prevented us from doing so.

What has become apparent over time however, is the importance of conversations we have with families over a cup of coffee or meal after the scheduled meetings. It is often once the agenda has fallen away that families relax and talk about the things that they don’t realise are important pieces of information for a trustee. So it is understandable that 2022 has seen a rush by many to return to in person meetings. But how does that sit in a world that is trying to become carbon neutral? 
Undoubtedly the environment received a benefit from reduced travel during the pandemic. There were fewer planes in the sky and less traffic on the road which meant less pollution. In the face of a global commitment to protect our planet, we have to strike a balance with our duties to the families we work with.

In 2023 we will therefore likely see a mixture of face-to-face and e-meetings. The ease of e-meetings enables more frequent and ad-hoc engagement thereby improving communication, however they do not replace the intangible benefits gained from in person dialogue. Both have their place in our future and that of the trusts and families that we look after, and we will all benefit from the greater access to, and use of online reporting and asset management.

Impact Investing

In 2022 we have seen many of the families that we work with, across the generations, asking us to consider ESG, impact investing and philanthropy, in part at least driven by the fall out of the Covid-19 pandemic and the intensification of the challenges faced by society worldwide. Impact investing, a form of sustainable investing, seeks to generate positive, measurable social and/or environmental impact alongside financial return. The risks can be higher but with greater rewards which extend beyond financial return. 
Philanthropy sits at other end of the sustainability spectrum, as there is no desire to generate a financial return from the deployment of capital, capital which is intended to serve a purpose for betterment only.

We have seen increasing numbers of requests to consider the assistance of trust assets to do something positive in a community that could otherwise not afford to do so themselves. On a recent trip to Kenya, we had the privilege of visiting various charities with one of our clients whose family feels very strongly about making a difference in the community that they grew up in as well as internationally. This really brought home the harsh effects of living in impoverished communities where access to water is not a given. For example, drilling a borehole, providing a solar power array to power the pump and ultimately provide a village with running water so that the women and children don’t have to walk 40 kilometres a day to water their animals and bring water back to their villages. 
By providing them with water, the village can plant crops and the children can have an education and a future. As trustee, we have the privilege of being able to assist the families we work with in their endeavours to make the world a better place.

And in 2023…?

As we head in to 2023, we believe that market turbulence will persist, requiring ongoing scrutiny of the assets we hold as to value and suitability, the balancing act of in person versus virtual meetings will continue, and we are likely to see an increasing number of requests to consider impact investing and philanthropy, as the families that we work with try to do their bit in caring for our environment. It’s just another year in the life of a trustee!

The impact of transparency and Court scrutiny on the role of the protector

Jersey-Sea
“Protector” is the title given to an individual, group of individuals or legal entity appointed to participate in the administration of a trust by acting as a check and balance against the trustees in the exercise of the powers granted to them by a trust instrument.  The protector is often appointed by the settlor of a trust when the trust is established in accordance with the terms of the trust instrument, which will also set out those trustee powers which are to be monitored, directed or restrained by the protector.  These powers commonly include a requirement that the protector consents to the distribution of assets, the appointment and removal of beneficiaries and/or changes to the terms of the trust, as well as commonly being granted the power to appoint or remove trustees.  A protector may also have the power to direct other actions to be taken by a trustee, including (by way of example) investment decisions.    

The concept of a protector is not one enshrined in law in Jersey but one that has developed over time, whether because settlors wished to retain a personal connection to the administration of their assets by corporate trust service providers or to provide the settlor with reassurance that the trust will be managed prudently and in accordance with the settlor’s wishes.

More recently, settlors have begun to consider the appointment of professional service providers as protectors. The use of professionals in the form of trust and company service providers (TCSPs) as protectors comes with a myriad of benefits: TCSPs are regulated by supervisory bodies such as the Jersey Financial Services Commission, they generally possess a detailed understanding of trust law, are experienced in the administration of trusts and better equipped to deal with complex matters, and they are more likely to be objective and impartial in the event of a breakdown in relations with the trustee (or even the beneficiaries).

The introduction of transparency regulation on a global basis clearly has many merits not least helping to defeat the funding of terrorism and fighting money laundering.  However it can also result in less financial privacy for some ultra-high net worth individuals and families.  One area that is often overlooked is the impact of transparency on the role of protectors to trust structures. This person may or may not be aware that under the Common Reporting Standard (“CRS”) their names will be reported against the assets of the trust structure.  In accordance with the CRS which was developed to facilitate the automatic exchange of information, financial institutions and trustees of trusts which are classified as Reporting Financial Institutions must report financial information on account holders to local tax authorities.  In accordance with the OECD guidance, “protectors must be treated as an Account Holder irrespective of whether [the protector] has effective control over the trust”.  This means that wealth held in trust is reported against protectors, despite them having no entitlement to the assets in question, which can lead to issues for private individuals acting as protector vis-à-vis their personal tax position.  The use of a TCSP to fulfil the role of protector therefore provides a tidy solution to this problem. Ideally this TCSP should be a firm independent of the TCSP acting as trustee.

A further driver for advocating the use of TCSP’s as protectors is that arising from current case law which has seen the extent of protectors’ powers coming under debate.  The “Narrower View” suggesting that the role of a protector is to consider whether any decision by a trustee is one which a reasonable trustee could reach.  The “Wider View”, that the protector is there to exercise an independent fiduciary function, albeit, on a more limited basis that that of the trustee itself.  In either scenario, TCSPs are well placed to act as protector given their experience in the trust arena, but should the latter view prevail, TCSPs, who are already used to exercising fiduciary powers, are perhaps better placed than those without such background.  It should give a family greater comfort that one professional TCSP is independently overseeing the trustees who invariably are also professional TCSP’s. That ensures that the trustee is kept in check and the family in essence have an experienced and regulated business in place to attend to those very important functions that are often only required in the time of a material decision needing to be made.

The next generation – challenging the status quo in favour of sustainability

Kelly Watson
As a trustee I consider our role as being focused on helping to steward families through the challenges of life whilst assisting to protect them and their wealth. In my experience, a key part of being able to achieve this is communication, particularly listening, not something that always come naturally but which is so important. Whether it be the settlor who has a story to tell about how they made their wealth, or the beneficiary with ideas as to how to grow the trust assets with the newest biggest investment opportunity, a trustee should always be ready to listen. The needs, requirements and ideals of one beneficiary to the next are often very different, even more so across the generations.
As the world focuses more on preserving our environment and protecting the planet, trustees need to be aware that it is those generations who will feel the impact of any failures in this regard, that are focusing on the subject more and more and recognising that they have a responsibility to fight climate change and its related consequences. Where once beneficiaries might have been content to agree a target return on investments driven solely by the needs of their own lifestyle, now this is increasingly subject to ensuring that no harm is done in the process.

Next-Gen, short for next-generation, was an adjective that originally came into being to describe a product that had been developed using the latest technology and was likely to replace an existing product. In the wealth arena, it seems that it is commonly being used to describe the transfer of wealth from one generation to the next and the significant differences we as service providers are seeing between those generations.

Trustees do not have the prerogative of being able to discard the old generation in favour of the next-gen. As trustee we need to listen to this shift of focus whilst also keeping an eye on / ear out to those generations who haven’t been swept up in the same shift.

Some of the older generation still retain the view that a “traditional family” is formed of a man and a woman who are married and have naturally born children. Now “blended” families are on the rise, with same sex parents, unmarried couples, and / or nonbiological children forming a part of the mix. Legislation is evolving (in some jurisdictions at least) to keep up to date with these altered views but it is also important that trustees keep up to date and ensure that the documentation governing our families’ structures does so too.

It is no surprise that with such a significant change in what is seen as representing the “norm” that views on wealth, its management and the sharing of such wealth by the next-gen differ from those of the past. Such differences can risk leading to conflict between the generations which needs to be managed by the trustees in so far as it relates to trust assets. Where the “next-gen” might assume and expect sustainable investing to reasonably form a part of a portfolio, the “old-guard” often have to be persuaded that this is the correct approach, particularly when, in their opinion, it is only relatively recently (within the last decade or so) that the application of ESG and sustainability to investments has begun to affect returns positively rather than negatively.

As a trustee, we often have to balance the desire to actively include ESG and sustainability to meet the demands of the next-gen, against making sure that this doesn’t lead to the disinterest and refusal of the older generations to engage, whilst also being aware of the fact that as the law currently stands, impact investing should only form a limited part of a trust investment portfolio unless otherwise set out in the trust deed. Genuine arguments that have been used to persuade the older generation include:

  • “Sustainable investing can help future proof returns with regard to tipping points within the market, for example, with regard to climate change” – better to be invested in renewable energy sooner rather than later when the world is moving away from fossil fuels;

  • “Impact investing can be highly complementary to philanthropy giving a direct result in the areas in which families wish to target – e.g. clients buy significant land as a means to saving a patch of the world a piece at a time;

  • “Sustainable companies are being seen to do better long term investments than those that are not, meaning that returns are likely to be better if investments consider ESG matters” – this is something that is not always obvious and sometimes as a trustee it is for us to take the lead and stress test the portfolios against ESG criteria; or,

  • “Impact investing allows the funds to be used again and again with the returns that are generated from such investing thereby allowing ongoing impact in the chosen area to benefit, whereas philanthropy tends to be a donation which even if invested by the recipient, any return and future investment is beyond the control of the donor”.

Notwithstanding the fact that all of these points are valid, we have found that they often need to be gently positioned in the face of negative assumptions and misinterpretation of the impact of ESG and sustainability to those who have operated in a world where they are “new”. This is where the communication skills of trustees are key. The move of the next-gen towards ESG and sustainability is widely known and accepted, understanding the reservations of the older generations and navigating the route towards the requirements of the next-gen is where a trustee can show their worth by listening to each generation and balancing the interests as needed.

The next-gen are the future but as trustee, we should fail to listen to the past at our peril – both the past and present are important as we weave our way forwards.

ACCURO FINALIST AT THE STEP PRIVATE CLIENT AWARDS 2022

We are delighted to announce that Accuro has been shortlisted at the STEP Private Client Awards 2022 in the “Trust Company of the Year (midsize firm)” category.

The STEP Private Client Awards are widely acknowledged as the most prestigious Awards in the industry and are rigorously judged by a worldwide panel of international experts. Being a finalist for the 6th year running is an honor and a recognition of the high quality service delivery to our clients along with the continuous commitment of our colleagues.

The winners will be announced at the Awards Ceremony on 14 September 2022 at the London Hilton on Park Lane.