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  1. 1. private wealth management in the bahamas individual as a pearl
  2. 2. Like an exquisite pearl that has taken years to develop into its unique form,The Bahamas has nurtured and refined professional and efficient services in private wealth management since the 1930s. The Bahamas: experience and products as uniquely crafted as the individual who requires them.
  3. 3. a guide to private wealth management in the bahamas contents Foreword 4 Corporate Structures 6 Trust Services 10 Partnerships 15 Investment Management Services 16 Private Label Funds 18 Insurance Services 20 Private Trust Companies 23 Family Offices 26 The Bahamas: An Ideal Environment For Private and Corporate Services 28 Sponsors 31 disclaimer The contents of this Guide are intended to be only an aid to understanding the Bahamas environment for Private Wealth Management. The contents do not in any way constitute legal advice to any person for payment or otherwise and the Bahamas Financial Services Board,its members and directors do not and will not in any way accept responsibility or liability for any loss or damage caused by or arising from reliance on the information contained herein. Persons reading this Guide are reminded that where a decision is to be made which depends for its correctness on the effect of the new legislative regime discussed herein or on any other legislation or common law rules, professional advice should be sought from a firm of qualified legal professionals. Acknowledgment of Steering Committee and Contributors:Andrew Law, Betty Roberts, Bill Thomson, David Thain, Heather Thompson, Hywel Jones, Owen Bethel and Robert Van Wynen. © Information contained in this publication is protected by copyright May 2004 by the Bahamas Financial Services Board.
  4. 4. maximising value from personal financial planning foreword Strategic planning for business cycles is an essential element for any successful business. In The Bahamas we believe this principle is equally important for individuals and families. At each stage of your financial development, various products, services and techniques are available, many of which have complementary characteristics to assist in the organisation of your financial affairs. The Bahamas offers a comprehensive range of private wealth management options, which may be usefully regarded as a “Bahamas Tool Kit”, and which are available to design an effective individual solution for your financial affairs. In The Bahamas, we are committed to adding value to the personal financial plans of clients through dedicated service as well as the appropriate application of financial planning tools. For the purpose of this guide these professional services are termed “Private Wealth Management”. Effective wealth management is an imperative. The early part of the 21st Century has been marked by huge stock market losses which have changed the retirement and inheritance plans of many and diluted the faith of others in the self directed approach to saving. Confidence in state sponsored retirement and healthcare systems is eroding, and governments are being forced to rethink generous pension benefits as the ratio of workers to retirees decreases. Similarly, the aging “Baby Boomer” generation will soon pass significant assets onto their heirs, resulting in the greatest transfer of private wealth. Individuals with an effective wealth management strategy will be better positioned to manage the impact of these events. In The Bahamas we do not believe that Private Wealth Management should focus merely on the structuring of your financial affairs to reduce or defer tax. While the ability to accrue profits within a tax neutral environment such as The Bahamas should be recognised as a valuable advantage, we believe the greater priority is the formation of a relationship fashioned on maximising the efficiency of your financial assets. Whether this is accomplished by increasing the return, safeguarding against loss or ensuring efficient distribution, it is clearly a business relationship that may span generations. The integrity and continuity offered by institutions located in The Bahamas should be important factors when considering a wealth management plan. The financial services industry in The Bahamas is staffed and managed by a large pool of experienced professionals.With personnel committed to the local community, the client may 4 the bahamas
  5. 5. be confident that continuity of service, which lies at the heart of the successful professional relationship, will be more predictable than in locations largely dependent upon imported skills. Moreover, respect for personal confidentiality lies at the heart of Private Wealth Management and the Bahamian Government has long recognised and valued the right of the individual to confidentiality in financial matters. Clients may be assured that their affairs will be handled in a confidential, professional manner. Modern legislation enables The Bahamas to remain at the forefront of the industry. The legislative environment is constantly monitored to ensure the jurisdiction retains its competitive advantage.To this end, the ability of an independent nation to set its own legislative agenda is an important consideration when deciding the location for personal financial services. Throughout this guide we will refer to products that have a variety of uses and which inevitably overlap. It may be useful to remember that as wealth increases, the structuring alternatives available similarly increase and as such the Tool Kit expands. It should become clear, however, that successful wealth management is a whole life process which is most effective when started early and managed to achieve agreed long term goals.A trust or company structure which may be valuable for protecting assets during life can be equally effective at managing their distribution following death. Indeed, the earlier a wealth management strategy is embraced the greater the potential collective benefits. The Bahamas offers an ideal domicile for the management of personal wealth.The tradition of quality personal service coupled with an investor friendly, tax neutral environment yields a unique set of benefits. As you read this guide and explore some of the Wealth Management facilities offered from within The Bahamas, we hope you are encouraged to find out more. The web site of the Bahamas Financial Services Board ( provides a significant database of information on the industry, including a directory of service providers and legislation referenced throughout this guide. private wealth management 5
  6. 6. corporate structures The Bahamas provides individuals and institutions the ability to establish customised corporate structures tailored to the specific demands of their international business transactions, asset management and estate planning.These range from the flexibility of the International Business Company (IBC) to the sophisticated Segregated Accounts Company (SAC). Types of Structures The International Business Company (IBC) is a staple tool in creating structures to preserve and accumulate wealth. Its ability to adapt to the needs of the client is well established, and is enhanced by the jurisdiction’s tax neutral platform and the judicious corporate governance requirements. Legislation in The Bahamas also enables the creation of Limited Duration Companies (LDCs). An LDC is restricted to an existence of 30 years or less, and exists for a specific, clearly defined purpose. It also has the ability to be structured so as to be treated as a partnership for tax purposes, allowing profits and losses to be attributed proportionally to the individual members rather than to the company itself. Both the IBC and LDC benefit from tax exemptions for a period of years from normal fiscal measures in The Bahamas such as business license fees and stamp duty. As with all entities and individuals in The Bahamas, they are not subject to income tax, capital gains, gift, estate, inheritance or succession taxes. While companies established under the Companies Act are utilised by both international and Bahamian investors, the IBC is the preferred vehicle. The IBC and LDC are able to transact business both in The Bahamas’ domestic market and in the international market. Applications The flexibility and attractive cost of the IBC have resulted in the predominant use of this vehicle in wealth management. HOLDING COMPANY: In many instances the IBC is utilised as a holding company for various assets such as property, securities investments or personal luxuries. INVESTMENT FUND: In the investment funds industry, the structuring of a fund, which is simply 6 the bahamas
  7. 7. Bahamian IBC Fact Sheet prevailing law Filing of Annual Return No International Business Companies Act, 2000 Certificates of Good Standing Available Yes with amendments Liquidation Procedure Easy corporate legislation source Dissolution Procedure Available Yes English Common Law Redomiciliation Yes quick reference guide Due Diligence Yes Usual Incorporation Time 24 Hours • Full KYC unless client of recognized institution • KYC maintained with Bahamian institution Reservation of Company Names Yes (may be reserved free of charge for 90 days) supplementary information Shelf Companies Available Yes details held on public record Currency for Authorized Share Capital Any • Name of company Standard Share Capital US$5,000 • Date of incorporation Stamp Duty None • Registered office and agent address Minimum Number of Shareholders 1 • Directors and Officers Bearer Shares No • Authorized share capital and number of shares Shares of No Par Value Yes • Registered number Minimum Number of Directors 1 company name Corporate Directors Permitted Yes May end in Ltd., Corp., GmbH, Inc. or Corporate Secretary Yes S.A. either in abbreviated form or in full Audit Required by Law No Statutory Filing of Accounts No private wealth management 7
  8. 8. corporate structures continued... a customised corporate or partnership entity, allows access to specialised investment services and improved efficiencies in the delivery of investment management and administration services.The IBC is the vehicle of choice for such structures.The Bahamas Investment Funds Act provides a regulated environment, while positioning The Bahamas at the cutting edge of modern investment fund administration. SHIPPING COMPANY: The IBC is an ideal structure to hold title to a ship. The Bahamas Ship Registry is ranked as the third largest in the world, with some 1600 ships, totalling in excess of 35 million gross tons.The Bahamas Flag also is credited with being the number one choice for the world's leading cruise operators. CAPTIVE INSURANCE COMPANY: Captive insurance companies are used to insure and re-insure the risks of subsidiaries and affiliated companies. Captives also provide access to reinsurance markets and when established in a tax neutral environment such as The Bahamas benefit the accumulation of premium and investment income. PRIVATE TRUST COMPANY:The IBC, as a Private Trust Company, has as its primary purpose the role of acting as trustee for one or more family-related trust settlements. It does not engage in any third party business. Such a structure enables the Settlor to select the management of the trust company and retain more control over the operations of the settlement than would be allowed under normal corporate trustee arrangements. FAMILY OFFICE: The Family Office concept uses the private trust company structure as a platform for the broader-based services to be provided for the family. Other uses of the International Business Company include joint venture, patent and e-business companies. Depending on the nature of the product and market, the corporate structure could be enhanced by the use of a Segregated Accounts Company, an LDC or one Limited by Guarantee. In an increasingly global economy, entities which transact business in multiple jurisdictions value the importance of properly structured corporate affairs to take advantage of regional and multilateral trade opportunities, tax incentives and mitigation, transfer pricing, and double taxation treaty enhancements. Consequently the creation of a permanent establishment in a tax-neutral jurisdiction such as The Bahamas is an integral part of strategic planning. 8 the bahamas
  9. 9. Such strategic planning may also extend to companies wishing to access international financing for their operations in different parts of the world. In such instances the utilisation of international corporate structures to coordinate debt and equity financing and bond issues have proven to be advantageous to both the company and investors when combined with trust settlements as part of a broader estate planning strategy. It is therefore vitally important and pivotal to the successful outcome of transactions involving international business and trade, financial and tax planning, estate planning, wealth management, and private trust or family office facilities that the correct international corporate structure is arranged in an accommodating and well-regulated jurisdiction.The Bahamas meets all of these requirements. Regulatory Framework The legislative architecture in place in The Bahamas provides for the regulation of financial and corporate service providers by imposing a licensing regime in respect of such activity through the Financial and Corporate Services Providers Act. All companies incorporated in The Bahamas are required to maintain a registered office in The Bahamas; additionally, an IBC is also required to appoint a registered agent in The Bahamas. private wealth management 9
  10. 10. trusts A Brief Introduction to Trusts The trust is a unique relationship which allows an individual or a legal entity (the “Settlor”) to transfer assets – which may be of almost any type – to a third party (the “Trustee”) to be administered for the benefit of persons chosen by the Settlor (the “Beneficiaries”) in accordance with the provisions of a document (the “Trust Deed”).The concept is based on the separation of legal ownership of the Trust assets (which rests with the Trustees) from the beneficial ownership (which rests with the Beneficiaries). The Bahamas Advantage Bahamian law recognises trusts and the Supreme Court has a long history of upholding the principles of Equity. Many of the world’s largest and most prestigious financial institutions have branches or subsidiary operations in The Bahamas, taking advantage of the country’s stable political and economic system. In establishing a Bahamian trust, planners do not need to take local taxes into consideration, as there are no income, capital or estate taxes in the jurisdiction. Developments in trust legislation have strengthened The Bahamas’ position as an international financial centre.These developments include: The Trustee Act, 1998 – a modern and standard-setting statute which placesThe Bahamas in the forefront of international jurisdictions in terms of premier trust legislation.Today, it remains as one of the foremost international financial centres and trust jurisdictions in the world. Key aspects of the Act include: DISCRETIONARY POWERS: The Act enables a Settlor to retain certain discretionary powers without compromising the validity of the trust.The most important of these include the power to revoke the trust or the trust instrument, or any powers granted by the trust or trust instrument; to withdraw property from the trust; to add or remove trustees, protectors or beneficiaries; and to give directions to trustees.As a result the Settlor is able to ensure that the trust is properly administered; INVESTMENT OF TRUST ASSETS: Trustees have been vested with wide discretionary powers of investment and of dealing with the trust property. In this regard trustees have the full powers 10 the bahamas
  11. 11. of investment and of changing investments as those possessed by individual beneficial owners absolutely. Trustees may appoint agents such as investment advisors who, on their behalf and in accordance with the trust instrument, may properly invest the trust funds and give investment advice. MANAGING TRUSTEE/PROTECTOR: The trust may provide for a managing trustee, and a Protector may be appointed with wide discretionary powers thereby ensuring that the wishes and intention of the Settlor are properly carried out in accordance with the trust instrument. The Act formally recognises the role of the Protector. COURT ADVICE: The Act allows a process whereby a trustee may seek advice and directions from a Judge in Chambers of the Court without the necessity of filing an action; this could facilitate quick resolution of questions relating to the management or administration of a trust property, involving only such interested persons as the judge may find expedient, and saving costs. MAINTENANCE AND ADVANCEMENT:The powers of maintenance and advancement can be applied in respect to any minor who has an interest in the income of a trust property. ACCESS:The Act creates certainty as to who may be able to have access to the trust documents. INCOME ACCUMULATION: Income may be accumulated within the period allowed by the Rule against Perpetuity. In The Bahamas, the perpetuity period rule adopts the “wait and see” approach to “lives in being” or it may be a fixed period of 150 years. RISK:The Act provides for appropriate flight clauses so that if there is any political upheaval, or any serious activity that would place the trust at risk, the trust and its administration would be transferred immediately and automatically to another country. REGISTRATION: Trust instruments and subsequent documents do not have to be registered (except for conveyances of Bahamian real property or personal property) under the Registration of Records Act. The Trustee Act also provides for protection of assets against potential creditors, avoidance of forced heirship laws, and indemnities for Trustees. The Trusts (Choice of Governing Law) Act 1989 – provides that assets held in a Bahamian trust may be protected from forced heirship claims or the enforcement of other foreign law rules, which are adverse to the free disposition of property. private wealth management 11
  12. 12. trusts continued... The Perpetuities (Amendment) Act 2004 – The Perpetuities Act 1995 modernised the existing law relating to perpetuities and instituted a period determined by a life or lives in being plus 21 years or 80 years.The Amendment Act of 2004 extends the period from 80 to 150 years, effectively enabling families to plan for five generations. The Fraudulent Dispositions Act 1991 – provides creditor protection to trust settlors.Trust assets are generally protected from all litigation in respect of existing claims started more than two years after assets are placed into the trust.Trust assets are immediately protected from any claims arising after such assets are placed in the Trust. In crafting this legislation, Parliament was careful to ensure that the Act exists for the benefit of “solvent” settlors seeking to safeguard their property from possible future claims.The Act does not provide assistance to proposed settlors willfully seeking to defeat an existing or contingent obligation owed to a creditor, of which they had notice. Settlors seeking to utilise the provisions of the Act should take steps to ensure that, under their relevant bankruptcy laws, a transfer into a Bahamian Asset Protection Trust is lawful and acceptable having regard to their particular considerations and circumstances that may exist at the time. Uses and Advantages of Trusts Trusts are extremely versatile and this accounts for their long-standing use in wealth management. Examples of trusts include, Asset Protection, Purpose Trusts, Pensions Trusts, Voting Trusts and Charitable Trusts.They provide the following advantages: • Flexibility in the distribution of the client’s assets following his or her death; • Wealth preservation for the next generation; • Separation of income benefits from capital; • Avoidance of lengthy and complicated probate court procedures; • Retention of shares for employees; • Confidentiality; • Maintenance of property for those who cannot hold it for themselves, e.g. minors; 12 the bahamas
  13. 13. • Avoidance of disputes among heirs and beneficiaries by securing the services of an impartial person to administer assets; and • Protection of property and other assets from legal and political actions that may be taken against the Settlor and Beneficiaries by transferring legal ownership to the Trustee. While a focus on any of the various types of trusts would be worthwhile, the most recent addition to the Bahamas Tool Kit of products within the trust sector, the Purpose Trust Act 2004, is worth highlighting. Purpose Trusts Traditionally private trusts have named beneficiaries or classes of beneficiaries. Purpose trusts do not fit this mould and are often compared to charitable trusts. A significant difference, however, is that, with limited exceptions, trusts will only be considered charitable if they are for the relief of poverty; the advancement of religion; the advancement of education or some other purpose beneficial to the community. Like many other international jurisdictions, The Bahamas has recently introduced legislation which recognises trusts for non-charitable purposes. THE PURPOSE TRUST ACT, 2004: The law dealing with purpose trusts in The Bahamas is contained in The Purpose Trusts Act, 2004 (“the Act”). Authorised purpose trusts must satisfy the following requirements; • The purpose must be possible and sufficiently certain to allow the trust to be carried out; • The purpose must not be contrary to public policy or unlawful; and • The trust instrument must specify the event upon the happening of which the trust terminates and provide for the disposition of surplus assets of the trust upon its termination. AUTHORISED APPLICANTS: The Act provides for authorised applicants i.e. persons appointed as such under the trust instrument or the settlor of the trust or a person appointed by the Court. These authorised applicants have rights to make certain applications to the Court including administrative proceedings and proceedings for breach of trust and also rights to information (unless excluded by the settlor). An authorised purpose trust may create trusts for one or more authorised purposes and one or more private wealth management 13
  14. 14. trusts continued... individuals, corporations and charitable purposes.While individuals may benefit indirectly from the authorised purpose trust, they do not necessarily have the status of an authorised applicant. THE RULE AGAINST PERPETUITIES: This rule does not apply to authorised purpose trusts. USES: The most interesting feature of purpose trusts is the fact that beneficial ownership is not vested in the trustee as the trust is not for his/her benefit and there is no one else in whom beneficial entitlement in the trust property is vested. Accordingly, an authorised purpose trust has many estate planning and commercial uses including: • The holding of shares of a private company, which is expressly authorised by the Act. In this structure, the settlor and members of his family and his advisors may be appointed directors of the private trust company and thereby assume some responsibility for the management of the trust. This is often useful when the assets of the trust are of an unusual nature. • A trust which has both philanthropic and charitable purposes. • Asset purchase or financing transactions to provide security for an entity which finances the purchase or to keep the asset and corresponding liability from appearing on the purchaser’s balance sheet. • Separating voting from economic control. Regulatory Framework The supervisory and regulatory regime for banks and trust companies as administered by the Central Bank of The Bahamas includes corporate governance, guidance on internal controls and accounting standards, capital adequacy, risk management standards, controls on large financial exposures and self-dealing, safeguards against abuses of conflicts of interest and Know-Your- Customer (KYC) requirements. The Central Bank Act and the Banks and Trust Companies Regulations Act collectively address these issues, as well as cross border supervision and cooperation by the Central Bank with its international counterparts. 14 the bahamas
  15. 15. partnerships The Exempted Limited Partnership An Exempted Limited Partnership (“ELP”) may be established by registration under the Exempted Limited Partnership Act (“The Act”) which came into force on the 31st of May, 1995. Nature of the ELP The Act allows one or more partners to limit their liability (“the limited partners”) while the other partner or other partners have unlimited liability for the debts of the partnership (“the general partners”).The general partners run the partnership. An ELP is required to have at least one general partner who (if an individual) is a local resident or (if a company) is incorporated or registered under a local Act such as an International Business Company (an “IBC”). It is also required to have a registered office in The Bahamas and to have the words “Limited Partnership” or the letters “LP” included in its name. The ELP is exempt for a 50 year period from all local taxation, business fees and stamp duties but it is required to pay an annual fee each year except that of initial registration, when a registration fee is payable. Its Business The partnership business may be conducted from within or outside The Bahamas but an ELP is not permitted to “undertake business with the public in The Bahamas”.This restriction does not extend to business with an IBC nor to business that is necessarily ancillary to an ELP’s business which is exterior to The Bahamas. A principal use to which an ELP may be put is to serve as an investment fund vehicle. Registration An ELP can be formed quickly and easily.The process involves the filing with the Registrar of a brief statement providing the partnership’s name, nature of business, period of duration, registered office address and the names and addresses of its general partners. There must be filed each year a certificate that the ELP has not been in business with the public in The Bahamas and has duly filed notice of any changes in its registration statement. The Registrar will issue against a prescribed fee a certified copy of any item on file with the Registry, or a certificate as to good standing. private wealth management 15
  16. 16. investment management services The market downturn during the first years of the 21st century has caused many individuals to seek professional investment advice. The Bahamas Tool Kit offers international investors a full range of professional investment management services, parallel to that found in the world’s leading financial centres such as New York, London,Toronto, Zurich or Hong Kong. These services include: INVESTMENT ADVISORY: Many investors prefer an investment advisory relationship where they retain full authority regarding all investments and transactions in their portfolio. DISCRETIONARY INVESTMENT MANAGEMENT: Fully discretionary investment management accounts are available to investors who are comfortable delegating the authority to invest their portfolio to a professional investment manager who invests with full discretion, within the client’s terms, objectives and risk constraints or guidelines. INVESTMENT ANALYSIS: Many firms also provide extra investment analysis and investment recommendations as the individual investor may require. INVESTMENT FUND PRODUCTS: There is no limit to the availability of investment fund products through The Bahamas. Investors can access all the globally recognised funds of investment firms. Many Bahamian investment firms also offer investments in their own funds some of which have been internationally recognised as “best-in-class”. BROKERAGE SERVICES: International investors are offered brokerage services in The Bahamas, allowing them to trade their brokerage portfolio. These services also offer online access to investor portfolios. REPORTING: Bahamian investment services offer investors full up to date portfolio reporting packages with which to analyse their portfolios. Portfolio valuation reports and performance measurement reports are available at any frequency the investor may require. TIMELY ACCESS: Investment management firms in The Bahamas have full state-of-the-art broadband, high-speed Internet access to provide clients with instantaneous online investment management communications. This technology platform provides the degree of transparency suitable to the needs of the client. As a result, investors have access to convenient and timely reporting from their Bahamian investment managers. 16 the bahamas
  17. 17. Although the type and degree of discretion exercised and secondary services may vary, investment managers in The Bahamas offer their investor clients access to a professional investment manager or portfolio manager dedicated to their account. These professionals provide current market analysis and specific investment coverage pertinent to each client’s investment portfolio. The professional investment management community in The Bahamas is centered around the Association for Investment Management and Research (AIMR) and specialists trained in firms both within and outside of The Bahamas. Whether you are seeking to accumulate or preserve wealth,The Bahamas offers not only a full complement of global and niche investment management firms but an array of services that are appropriate to clients’ needs. Best-in-class investment products can be assessed through client directed portfolios, the in-house expertise of the investment management company or through the firm’s open architecture and access to the full complement of investment managers and products. Regulatory Framework All investment advisors and investment managers are licensed and registered with the Securities Commission of the Bahamas, providing investors with the reassurance of oversight. The Securities Commission of the Bahamas is an independent agency, which exercises statutory powers under the Securities Legislation, namely the Securities Industry Act, 1999, the Securities Industry Regulations, 2000 and the Investment Funds Act and Regulations 2003. private wealth management 17
  18. 18. private label funds The use of Investment Funds for wealth management has long been a component of The Bahamas Tool Kit. The ability to hold assets via a licensed vehicle tailored to the needs of the individual client has unique advantages. The investment fund concept is well understood and within some jurisdictions is a more acceptable entity than a Trust or Foundation for certain types of transactions. Similarly, the use of a vehicle licensed by the Securities Commission of the Bahamas adds credibility and substance which may be useful when entering into legal contracts or undertaking other financial obligations. The Bahamas has recognised the potential of this market and designed a class of Fund, known as the Bahamas Specific Mandate Alternative Regulatory Test (SMART) Fund to provide the innovative vehicle of choice for those active within the Wealth Management sector. The SMART Fund allows a very high degree of personalisation of fund structures and provides a risk based regulatory environment for investment schemes that do not involve promotion to the general public. The SMART fund offers limitless structuring possibilities for the High Net Worth Individual (HNWI).To date, the Securities Commission of The Bahamas has approved four SMART Fund mandates and published the criteria for each by means of SMART Fund “templates”. The following four “templates” have been approved: TEMPLATE 001 provides for a collective investment scheme limited to the discretionary managed clients of Bahamian regulated financial institutions or financial institutions licensed in approved jurisdictions. This template could be used to provide an investment vehicle for client funds managed under a discretionary management mandate. TEMPLATE 002 facilitates a private investment company with a maximum of 10 sophisticated investors. (The definition of a sophisticated investor can be found in the Act.) It could be used to provide an incubator structure to generate performance history prior to upgrading the licence in anticipation of a public offering. TEMPLATE 003 accommodates a private investment company limited to 15 investors. It is, however, limited to existing Exempt Funds under the Mutual Funds Act 1995 and enables existing Exempt Funds to transition to a Licensed Fund. 18 the bahamas
  19. 19. TEMPLATE 004 is designed to accommodate a private investment company with a maximum of 5 investors and could be used as a credible, licensed holding vehicle for a small group of related persons, perhaps under a Family Office structure. BFSB has published an Investment Funds Guide that describes the regulation and structuring options for investment funds in The Bahamas and introduces in greater detail the SMART fund concept. See The Bahamas has also introduced Segregated Accounts (otherwise referred to as Protected Cell) Company legislation that allows the compartmentalisation of risks within a single corporate structure. Designed originally for the international captive insurance market, Segregated Accounts Companies (SACs) are now being used by some to structure wealth management solutions for clients with highly diversified portfolios. Similar to SMART funds these licensed entities offer a highly customisable, credible asset holding vehicle for sophisticated clients. The presence of these two new options demonstrates the commitment of The Bahamas to its core wealth management business and demonstrates the focus, skill and innovative culture existing within the local marketplace. private wealth management 19
  20. 20. insurance services The range of applications for international insurance has increased significantly as the insurance market has experienced dramatic events in the recent past. Creative use of different types of insurance can provide benefits at all phases of the wealth life cycle. Captives Captive insurance can be an effective mechanism for the initial transfer of assets into a wealth management structure on a pre-tax basis. On the other hand, life insurance, although purchased with post-tax assets, provides effective deferral of the taxation on the invested assets and then a tax efficient exit strategy on termination of a structure and transfer to another generation. Until recently, captive insurance was the exclusive domain of the large corporations and little use was made of captives in private wealth management or small to medium-sized businesses. This is now changing and increasingly we are seeing captives incorporated as an integral part of wealth management structures. Variable Life Insurance Variable life insurance policies offer a number of very tangible benefits. These products can provide significantly greater investment freedom, including virtually no restriction on the types of investments contained within the policy. Investment diversification, through client tailored policies, can be designed to each client’s specific investment parameters. This may include globally diversified (multi-currency) investment opportunities and access to some of the world’s best money managers and private funds. Some international insurance companies will be flexible enough to allow the client to name an investment advisor of his or her own choice to manage the policy premium(s) as held in a segregated account, possibly utilising a money manager well known to the client. Additionally, some international life insurance companies are re-insured by substantial re-insurance companies and/or are financially supported by very large, well-established international financial institutions, providing additional safety and resources. Variable life is not complicated. Each individual policy owner simply purchases a policy from an international life insurance company in the same fashion that millions of people purchase insurance throughout the world every year. 20 the bahamas
  21. 21. Use of Insurance It is important to emphasise that even though policies may be issued by international insurance companies, the policies must be organised in such a way that they are compliant with the rules relating to insurance and taxation in the country of the policy purchaser. Insurance, like many other products, is not an effective vehicle for protection of anonymity.To be compliant with the onshore rules, there are reporting requirements which will invalidate a structure if they are not fulfilled. Ultimately, insurance provides one of the ingredients necessary to construct a single structure that provides the basic but fundamental benefits of international wealth management, namely asset protection, tax efficiency, and investment flexibility. The assets may be held by a major custodian bank and managed by a first-class investment manager.The function of the insurance is to provide a tax efficient, asset protected investment vehicle to facilitate the client’s access to the international wealth management arena. Bahamas Environment The demand for insurance services is driven by The Bahamas’ extensive institutional presence that already has an extensive network throughout the global financial community, which is ultimately the source of this business. The international environment changes constantly in response to economic, fiscal and regulatory changes in various countries.The Bahamas has proven to be proactive and flexible in responding to these changes and its reaction to the burgeoning demand for international insurance products is a good example of its sensitivity as a jurisdiction in the volatile financial services marketplace. The Bahamian Government and the private sector are committed to ensuring the continuation of this approach. Legislation The Bahamas has user-friendly and progressive legislation for almost all types of insurance business. The Bahamas provides significant asset protection, with legislation specifically exempting an insurance policy from creditors – unless of course the policy’s original premiums were derived private wealth management 21
  22. 22. insurance services continued... from a criminal or fraudulent activity. And while a number of States in the U.S. specifically exempt annuities and life insurance products from the claims of creditors, such a policy held by a Bahamian trust can provide an effective deterrent to unforeseen and unwarranted attacks by “would-be” creditors. Existing legislation also provides for the establishment of “segregated accounts”, whereby the assets held for clients are segregated from the assets and liabilities of the insurance company. Thus, in the event of the liquidation of the insurance company, the client’s assets will not be available to the creditors of the insurance company. The Segregated Accounts Companies Act will serve as a further enhancement for insurance business in the jurisdiction. Regulatory Framework The industry is supervised through the office of the Registrar of Insurance Companies. For captive insurance companies, however, the main responsibility for the ongoing operations of such entities rests with the “captive manager”.This must be a Bahamian company set up for the purpose of managing and providing insurance expertise to captives and which holds an appropriate license issued by the Registrar. 22 the bahamas
  23. 23. private trust companies As a successful entrepreneur or a family having secured significant wealth, it is likely that components of your estate involve businesses that require active management.You are unlikely to be anxious to hand over full control to a Trustee. On the other hand, independent trustees may face difficult legal and fiscal issues in ceding any significant degree of control back to the family, especially considering increased regulatory controls and litigation fears. Similarly, certain assets held in a portfolio may carry significant risk rating or represent a disproportionate percentage of the total value of the portfolio.As a result, the priority of an independent trustee to meet the prudent investor litmus test may clash with what might well reflect a peculiar knowledge base or investment interest of the family. During our earlier review of Bahamas trust law, it was noted that The Bahamas offers modern and progressive trust law that provides a great deal of protection in certain situations. However, for examples cited above, where active business ventures or trading strategies with unconventional diversification or risk profiles are involved, the answer may lie in a Private Trust Company (PTC). Special-purpose trust companies commonly referred to as Private Trust Companies provide inter alia, the following benefits: CONTROL: Provided the private trust company is properly run, it should be possible to retain control within the family without prejudicing the validity of the underlying trust. INFLUENCE: The hand picked selection of a private trust company board offers families the assurance that their trustee is genuinely knowledgeable of, and sensitive to, the family’s background and dynamics and that the trust is administered in a manner that is sympathetic to those issues. CONTINUITY: Family selected board members, and staff committed to the family business, provide for the greater longevity and understanding of family affairs. PRIVACY: With the defined circulation of information and limited turnover, families are comforted with the enhanced sense of confidentiality. EDUCATION AND EMPOWERMENT: The ability to engage the next generation of family members, first as committee members and then as board members, allows children to private wealth management 23
  24. 24. private trust companies continued... understand the extent of the family wealth, how it is managed, and the problems and responsibilities that it brings. FLEXIBILITY: A private trust company can tailor its powers and its operations to meet the needs of the family and can work closely with the family office. Structuring Options Management Family members, protectors and others involved in the administration of the family’s affairs are usually chosen as Directors of Private Trust Companies. Ownership If a PTC is chosen, the question of ownership of the entity arises.The PTC can be owned by an individual, either outright or through nominee arrangements. More often than not, one of the large factors impacting international planning involving a PTC is confidentiality and owning the company outright does not facilitate protection against fears of kidnapping, confiscation or expropriation. Outsourcing Many of the required services and advisory activities can be contracted to a trust company with an unrestricted trustee license where there are staff with genuine and extensive experience in trust administration; as well as adequate capitalisation, insurance and regulatory oversight. Another half way house may involve the appointment of a large bank as banker and custodian but with some added oversight and transaction monitoring capabilities. Many of the larger accounting firms and global banks now offer consultancy and co-ordination of reporting from multiple wealth managers and brokers – providing tailored reports including performance information, cash flow analysis, etc. in a virtual office type of setting. 24 the bahamas
  25. 25. Purpose Trust A plan to achieve all of the benefits of the private trust company without the ownership concerns is the Purpose Trust. Purpose trusts, explored earlier in this Guide, can be tailored to the PTC as they: • Generally do not have beneficiaries but are established for the “purpose of incorporating, acquiring and dealing with the shares in the PTC”; • Often allow indefinite duration; • In the absence of beneficiaries, would by Deed of Trust normally provide for an enforcer who can also have certain other powers – to approve certain actions of the Trustee; and • Often have a commercial trustee/private bank as a Trustee. Based on the above, one can see that private trust companies are not for everyone. However, for those clients that wish to access the advantages a PTC,The Bahamas’ legislative and regulatory environment provides an attractive option. private wealth management 25
  26. 26. family offices Keeping Pace The complexity and sensitivity of issues related to family continuity and wealth management can be extraordinary and specific. Families often face a seemingly limitless raft of threats to their financial well being, including confiscatory taxes, volatile economies, spendthrift children and political uncertainties. The family office has been a feature of most major fortunes through the ages, but transformation of the shape of this office is underway. Families want dynamic partnerships and advisors who will help them to fulfil lifetime goals while dealing with more regulations, and complex issues of taxation, distribution planning and charitable giving. The family company is not only the birthplace of many family offices; it is what holds many families together through several generations. Traditionally, family offices offer safety, privacy and a certain amount of pampering – the sort of service encapsulated in the industry cliché “walking Madame la Comtesse’s dog”. The Role of the Family Office One of the most common functions of the family office involves the execution of investment goals.This involves a large spectrum of activity including the participation in the formulation of time horizons, risk profiles, asset allocation and the choosing and monitoring of managers. The family office is also a very useful tool in assisting with important questions of succession coupled with optimisation of tax planning. Family members and advisors will need to consider important issues such as planning for disabled family members, protecting assets from creditors, distributing different assets to family members, the succession of family businesses and charitable planning. Certain interim lifetime considerations, in the event of incapacity, are also vitally important, including the appointment of agents or protectors to make decisions about health care and planning for the guardianship and adequate financial provision of children. A very important planning tool utilised by the family office in estate planning is the Trust.Assets will often be transferred to trusts (with underlying corporations to facilitate separation of various assets) as a means of facilitating the smooth transition from one generation to the next. 26 the bahamas
  27. 27. Other essential services of the Family Office include: • Life insurance needs evaluation; • Active coordination of legal/tax/accounting matters relating to business interests; • Financial reporting/monitoring audits; • Coordinating the purchase of non-financial assets such as aircraft and yachts; and • Corporate governance reporting for active businesses. When the decision matrix weighs in favour of the establishment of a family office, location becomes the most important consideration.The Bahamas is an ideal location for family offices, scoring high marks on all the requisites. In choosing a jurisdiction for the location of a Family Office one must consider: • The infrastructure (airports, communications, high end services). • The nature of assets held and the issues of control – (i) Where are the main tangible assets held and are business interests involved? and (ii) Are the business interests mobile or fixed? • Is the virtual family office a solution to many of the problems? If so, can this be combined effectively with the establishment of a Private Trust Company? • Whether tax neutrality and tax treaties can play a role. • The regulatory and compliance obligations of the jurisdiction. • Exchange of information and access to information. Confidentiality of their affairs is bound to be a large question on the minds of wealthy clients. • Financial environment. private wealth management 27
  28. 28. the bahamas:an ideal environment for private & corporate services With new and amended legislation, a strong regulatory structure and a cohesive and confident private sector, The Bahamas is positioned as an even stronger, more competitive international financial services centre, following the FATF’s confirmation of its satisfactory anti-money laundering regime in 2001 and the negotiation of a standstill provision by The Bahamas with respect to tax information exchange. Long-established as one of the foremost international financial centres and a key operational base for many of the world’s most recognised and respected banking and financial organisations,The Bahamas has preserved its crucial tax neutrality advantage in the new financial architecture that has emerged in the country. The Bahamas has been providing banking and trust services to the international financial community since the 1930s. It is one of the most developed financial centres in the world, with products and services covering banking, private banking and trust services, fund administration, capital markets, investment advisory services, accounting and legal services, e-business, insurance, and corporate and shipping registry. According to the Central Bank of The Bahamas more than 250 banks and trust companies are licensed to operate in The Bahamas, with all maintaining a physical presence in the country, and representing in excess of 4000 employees.There are also over 60 institutions licensed to provide fund administration and some 90 licensed to provide broker-dealer and/or investment advisory services. An independent nation since 1973 and one of the oldest, most vibrant democracies in the Western Hemisphere,The Bahamas has no income, inheritance, capital gains or corporate tax. Revenue is raised largely from customs duties, property tax and stamp duties. Its currency is on par with the U.S. dollar. Legal System The legal system in The Bahamas, modelled on the British pattern and independent of the political process in the country, provides a well-established environment for international business. The independence of the judiciary and Bahamian sovereignty provide The Bahamas with a unique environment for the conduct of international services. 28 the bahamas
  29. 29. Regulatory Authorities The Bahamas has a comprehensive regulatory and supervisory framework, and a recognised system for the prevention and detection of money laundering. It is an active member of established international regulatory and policy-making bodies and devotes considerable resources to its participation in these bodies, and adherence to international best practices. Professional Community There are over 700 attorneys practicing in The Bahamas, from firms of various sizes. Many of the firms specialise in international financial services.The British-based legal system means that most attorneys in The Bahamas have been trained and qualified in the United Kingdom, and consequently are very familiar with practices and concepts arising from English Case Law. The Bahamas also has an impressive selection of well-qualified and experienced public accountants, with an estimated 350 in practice at the present time. Business Environment The Bahamas has a liberal investment policy, with government encouraging and promoting an investor-friendly environment. The Bahamas Investment Authority (BIA) is a one-stop shop designed to cut red tape and facilitate coordination among relevant government agencies. All major political parties in The Bahamas are committed to maintaining and enhancing its status as a premier international financial centre, ensuring the industry will retain both its stability and profitability. Residency Legislation that greatly facilitates international purchase of real estate in The Bahamas has attracted an increasing number of second-home buyers from abroad. For example, purchase of a home over $500,000 provides eligibility for permanent resident status.This is attractive to business executives who trade internationally through Bahamas-based operations and who wish to take advantage of the absence of income tax in The Bahamas. private wealth management 29
  30. 30. the bahamas: an ideal environment for private & corporate services continued... The Bahamas’ superior physical infrastructure includes six international airports served by international airlines providing links to the world. The nation’s 23 seaports include a major cruise-ship port in Nassau and a modern container facility – one of the largest in the region of the U.S. Eastern seaboard – in a 200-square-mile free trade zone on Grand Bahama Island.This strategically located and modern international container port is ideal for the transhipment of goods to and from ports in North and South America. The Bahamas ranks number one in the world for cruise ship registry and number three in total world tonnage. Telecommunications services in the islands are “state-of-the-art” and are well positioned for redundancy, high speed and substantial bandwidth in a competitive environment. The Bahamas provides a range of options from virtual presence to full presence, which can draw on highly skilled professional services that have formed the backbone of this country’s pre-eminence in financial services. Further, it can accommodate fulfilment capabilities and offer leisure services unparalleled elsewhere. By tradition a service based jurisdiction, the move to an information based economy is a natural evolutionary step. All of these factors combine to make The Bahamas an attractive and competitive E-business hub for this region. The Bahamas.The Better Choice. The Bahamas is ideally positioned as a leading international business centre, with the existence of a highly skilled professional talent pool, legislation conducive to business, a risk based regulatory environment, and systems for the prevention and detection of money laundering and financing of terrorism.The depth and quality of financial services institutions is complemented by the provision of a tax neutral platform for all business activity. It is also a country committed to its democratic traditions, fiscal prudence, and a strong public-private sector partnership. 30 the bahamas
  31. 31. guide sponsors alexiou knowles & co. bank of nova scotia lombard odier darier St.Andrew’s Court trust company hentsch private bank Frederick Street Steps (bahamas) limited & trust limited P.O. Box N-4805 Scotia House, East Bay Street Goodman’s Bay Corporate Centre Nassau, N.P., Bahamas P.O. Box N-3016 West Bay Street & Seaview Drive Tel: (242) 322-1126 Nassau, N.P., Bahamas P.O. Box N-4938 Fax: (242) 328-8395 Tel: (242) 502-5700 Nassau, N.P., Bahamas Contact: Robert Van Wynen Fax: (242) 393-0582 Tel: (242) 302-2100 Email: Contact: Ian D. Fair Fax: (242) 302-2101 Email: Contact: Christian Coquoz arner bank & trust callenders & co. Email: (bahamas) ltd. One Millars Court, Off Shirley Street 308 East Bay Street P.O. Box N-7117 P.O. Box N-3917 Nassau, N.P., Bahamas oceanic bank Nassau, N.P., Bahamas Tel: (242) 322-2511 & trust limited Tel: (242) 394-5840 Fax: (242) 326-7666 Bayside Executive Park,West Bay Street Fax: (242) 394-5975 Contact: Michael Scott P.O. Box AP-59213 Contact: David Thain Email: Nassau, N.P., Bahamas email: Tel: (242) 502-8822 credit suisse trust Fax: (242) 502-8840 banca del gottardo limited Contact: Bruce Bell Goodman’s Bay Corporate Centre Email West Bay Street & Seaview Drive Bahamas Financial Centre, Charlotte Street P.O. Box N-3023 P.O. Box CB-10976 Nassau, N.P., Bahamas Nassau, N.P., Bahamas sg hambros bank & trust Tel: (242) 502-2200 Tel: (242) 356-1920 (bahamas) limited Fax: (242) 502-2300 Fax: (242) 356-1922 West Bay Street Contact: Fabrizio Tuletta Contact: Olivia Knowles P.O. Box N-7788 Email: Email: Nassau, N.P., Bahamas Tel: (242) 302-5000 lennox paton Fax: (242) 326-6709 Fort Nassau Centre, Marlborough Street Contact: James Hoar/Scott Morrison P.O. Box N-4875 Email: Nassau, N.P., Bahamas Email: Tel: (242) 502-5000 Fax: (242) 328-0566 Contact: Michael Paton Email: private wealth management 31
  32. 32. about bfsb the bahamas financial services board (bfsb) represents an innovative commitment by the government, in particular the ministry of financial services & investments, and the financial service industry to promote a greater awareness of the bahamas’ strengths as an international financial centre. the strength of bfsb is found in the effective partnership with the government of the bahamas and its member firms. this partnership is focused on ensuring that the country’s regulatory and business environment is suitable for both clients and the international stature of the bahamas as a member of the community of nations. a broadly based and highly skilled private sector creates a dynamic mix of banking, trust, fund administration, investment advisory and insurance services in the bahamas. augmented by professional advisors from legal, accounting, realty, information and communication firms, the bahamas is a complete international centre. for further information contact: bahamas financial services board tel 242.326.7001