Money and How to Hide It: Inside the Secret World of Wealth Managers

From The Guardian, September 21:

They know more about their clients than the clients’ own wives. They are loyal in the face of appalling behaviour. They are the brains behind the most ingenious tax avoidance schemes. And there are more of them than ever

The Pritzker family is one of the wealthiest in the United States. Their assets, which amount to $15bn, are held in 60 companies and 2,500 trusts, using structures and strategies that Forbes magazine – normally a cheerleader for wealthy elites – describes with an unusual hint of moral distaste as “shadowy … constructed to discourage outside inquiry – and brilliantly exploitative of loopholes in the tax code.”

This complex asset-holding structure was created not by the Pritzker family itself but by its lawyers, accountants, tax specialists and investment advisers. In this respect, the Pritzkers are no different to tens of thousands of super-rich families and individuals worldwide, who use the services of wealth managers. These professionals not only shelter wealth from taxation but, in the words of one academic paper, serve to “obscure concentrations of economic power”, using vehicles that make it difficult, if not impossible, to identify the true owners of wealth.

The work of wealth managers has been described by some leading practitioners as a defence against the depredations of “confiscatory states.” Much of these professionals’ day-to-day practice occurs in an ethical grey area – a realm of activity that is formally legal but socially illegitimate. This includes the use of trusts, offshore corporations and similar tools to help clients avoid paying tax, debts to creditors or alimony to ex-spouses. Following the financial crisis and news stories such as the Panama Papers, these tactics – many of which are also used by corporations to avoid taxation and regulation – are attracting increasing public attention and condemnation.

The profession – whose main representative body is the London-based Society for Trust and Estate Practitioners (Step) – has been singled out for blame in several countries by government agencies concerned with tax evasion, money laundering, and growing worldwide wealth inequality. In its 2006 Seoul declaration, the Organisation for Economic Cooperation and Development (OECD) made special mention of the roles played by ‘‘law and accounting firms, other tax advisers and financial institutions” in helping companies and individuals find ways round international laws. In 2003, the now-retired Democrat senator Carl Levin complained to a US Senate subcommittee about the asset-holding structures created by wealth managers to obscure their clients’ assets: “Most are so complex that they are Megos – ‘My Eyes Glaze Over’ type of schemes. Those who cook up these concoctions count on their complexity to escape scrutiny and public ire.”

As world wealth has grown to record levels in recent years – to an estimated $241 trillion – inequality has also grown, with 0.7% of the global population owning 41% of the assets. Wealth managers are estimated to direct the flows of up to $21tn in private wealth, resulting in about $200bn in lost tax revenues globally each year. In effect, these professionals detach assets from the states that wish to tax and regulate them, creating a form of capital that is, like its owners, transnational and hypermobile. Doing so involves creating not just asset-holding and tax-avoidance structures but a new body of transnational institutions, which are expanding outside of any democratic process of checks and balances. In this way, the rise of the super-rich and the wealth management industry is creating an elite who are increasingly ungoverned and ungovernable.

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The wealthy and powerful are notoriously difficult to study. Within this domain, wealth management presents particular challenges, as the profession depends on secrecy and is governed by a code of conduct that requires strict privacy.

As a sociologist intent on understanding the world of wealth management, I started my research by going back to school. In November 2007, I enrolled in a two-year wealth management training programme. My goal was to obtain a credential that is now the accepted global standard for practitioners: the TEP, or Trust and Estate Planning certification. To earn the credential, you need to pass five courses in key domains of technical competence: trust law, corporate law, investments, finance, and accounting.

Between 2008 and 2015, I conducted 65 interviews with wealth managers in 18 countries, including Switzerland, Hong Kong, Singapore, Mauritius, and British crown dependencies and overseas territories such as Guernsey, Jersey, the British Virgin Islands and the Cayman Islands. I also conducted interviews in the newer financial centres, particularly those serving the growing wealth of Asia, such as the Seychelles.

Only once my findings started to be published, about six years into the project, did anyone treat me with open hostility. In August 2013, I conducted a prearranged interview in the British Virgin Islands with a white British man in his 60s, who was a banker by training. He greeted me by saying that he had read my two recently published papers and found my work to be “left-leaning” and “disapproving of what the [wealth management] industry and wealthy people are doing”. He added that the islands’ wealth management community were all wondering what I was doing here. Although he graciously answered my interview questions, he was not done with the subject of my “agenda”. At the end of the interview, he crossed his arms, leaned back in his chair, and expressed his resentment that wealth managers and their clients had been “vilified” as being “immoral for not paying as much tax as some people think they should”. He added that one local wealth manager had suggested that I “should be thrown off the island”....MUCH MORE

HT: The Big Picture