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
.. 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.
.. 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.
.. 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.
.. the Channel Islands tax haven of Jersey had detained, deported, and ultimately banned a reporter from Newsweek magazine for investigating claims of illegal activity there.
.. Remarkably, the local financial authorities were so well connected that they managed to bar the reporter not only from re-entering Jersey but also from entering the United Kingdom, period.
.. The super-rich are often extremely sceptical about the motives of people around them. “People who have a lot of money can become very suspicious and isolated,” Robert, who works in Guernsey, told me. “They become convinced that everyone who meets them is trying to take advantage of them.”
.. A century ago, wealth managers’ clients were known collectively as “the leisure class”, a group that probably numbered in the low four figures, concentrated in North America and Europe. These days they are far more diverse, and distributed all over the world. Today’s client base includes the world’s 167,669 “ultra-high-net-worth individuals” – people who, according to the 2014 World Wealth Report by the management consultancy Cap-Gemini, have at least $30m in investable assets.
.. their role is to be “part lawyer, part tax adviser, part accountant and part investment adviser all rolled into one”. For international transactions, wealth managers also need to assemble and coordinate a team of advisers. In this sense, wealth managers are more like general contractors: responsible for executing the client’s strategic plan, but reliant on a team of subcontractors for highly specialised parts of the job.
.. This trust-corporation configuration allows assets to be transferred back and forth in what Forbes once characterised as a “shell game extraordinaire”. Skilful wealth managers can use tools such as trusts, foundations and corporations to thwart the aims of the state almost indefinitely, without breaking any laws.
.. Bruce, an American working in Geneva, said that his primary source of job satisfaction was the “intellectual challenge of playing cat and mouse with tax authorities around the world”.
.. But a much more common reason that wealth managers give for enjoying their job is that it is not just intellectually challenging, but emotionally fulfilling.
.. On the Arabian Peninsula, they are now routinely asked to mitigate the disadvantages that Islamic law imposes on the inheritance rights of daughters. Since sharia also tightly limits testamentary freedom – the degree to which individuals can choose how their assets are distributed after their death – those who wish their daughters to have an equal share of the family fortune must find offshore alternatives.
.. almost every participant in the study mentioned “helping families” as a major source of satisfaction.
.. Within the world of wealth management, being obliged to honour debts, pay the costs of government, and otherwise obey the laws of the land are often seen as offences to liberty. One training textbook describes the claims of creditors as “risks”, rather than obligations that borrowers take on voluntarily. Other threats include the legal system itself, regulation and, of course, taxation.
.. In Treasure Islands, his study of offshore financial centres, Nicholas Shaxson describes this as a world of “members of ancient continental European aristocracies, fanatical supporters of American libertarian writer Ayn Rand,
.. The economist Gabriel Zucman has argued that the offshore financial system has grown to the point that it calls into question the future of national sovereignty. His argument is based primarily on tax avoidance, which he calls “theft pure and simple”. By allowing taxpayers to steal from their governments to the tune of $200bn in worldwide lost tax revenue each year, he argues, wealth managers dramatically undermine the power of the state.
.. Jersey “is not a country”, rather, it is “45 square miles of self-governing ambiguity”... If political leaders are interested in making elites pay their fair share of tax and submit to the rule of law, they should perhaps shift their attention from those who possess vast wealth and onto the people who serve them.
What Apple Should Do with Its Massive Piles of Money
How can Apple “return” capital to shareholders if those shareholders never supplied Apple with capital in the first place? As I pointed out in my earlier post, the only funds that Apple ever raised on the public stock market was $97 million (about $274 million in today’s dollars) at its IPO in 1980.
.. finance professors at business schools throughout the nation teach MBAs and executives that, for the sake of economic efficiency, a company should “maximize shareholder value.” I disagree with this priority. MSV is based on thefalse assumption that, of all participants in the public corporation, only public shareholders run the risk of receiving no return on their contributions to the firm and therefore only they are entitled to profits if and when they materialize.
.. When you defended Apple’s tax practices before Congress, you said: “We pay all the taxes we owe, every single dollar.” The issue for the nation is, however, whether our governments — federal, state, and local — have enough tax dollars to fund all of the public investments in infrastructure and knowledge that a prosperous nation needs.
Does Donald Trump Pay Any Income Taxes at All?
As Fahrenthold and Rosalind S. Helderman had already revealed, in April, many of the donations that Trump claimed to have made turned out to be gifts in kind from his businesses, such as free rounds of golf for charity auctions.
Fahrenthold’s latest revelation, which the Post published on Sunday, was that Trump has “found a way to give away somebody else’s money and claim the credit for himself.” Apparently, the Trump Foundation raises money from other charities, and from individuals with whom Trump has done business. Then it gives away the money with Trump’s name on the check. The last donation Trump made to his charity, Fahrenthold reported, came in 2008. Since then, nada.
.. These experts explained to Stewart that the federal tax code is so generous to real-estate developers—so stuffed with deductions, credits, and loopholes they can exploit—that it may well have allowed Trump to bring his taxable income down to nothing, or next to nothing. Which might help explain why he is so reluctant to release his tax returns.
.. Perhaps one of the reasons that Trump didn’t give any money to his foundation was that he didn’t need any charitable deductions to reduce his tax bill—because it was already zero, or close to it.
.. Surely a man as determined and tax-averse as Trump, in seeking to reduce his tax obligations, would exploit every option that the tax code offers, including this very obvious one. Unless, of course, he didn’t need to.
.. “It is likely that Trump has not paid any income tax since 1978, or maybe a little bit in a couple of years,” Cay Johnston told me.
.. “Can you imagine Donald Trump making anonymous gifts to anybody?”
The Extraordinary Intimacy Between the Ultra-Rich and Their Wealth Managers
For the one percent, a good advisor acts as a bookkeeper, a confidante, and, on occasion, a fishmonger.
.. While retaining legal counsel or consulting a financial adviser now commonly leads to short-term relationships, wealth managers maintain clients over the long term, sometimes amounting to lifetime employment.
.. It is not uncommon to find wealth managers working with the children or grandchildren of their original clients.
.. As one manager put it, the client has to “undress” in front of the wealth manager.
.. As a fiduciary, the wealth manager is bound to protect clients’ wealth from risk: This includes not just financial risk but the threat of spendthrift heirs dissipating the family assets or of family members with embarrassing secrets who might be targeted for blackmail.
.. one manager in Dubai described her client relationships in terms that emphasized the emotional labor and caring involved: “They’re asking you to take care of their family. You can’t just think of it as another piece of business … It’s not just a matter of signing documents; it’s the whole concept of doing the right thing for that family. You have to be able to say, ‘Mr. A., don’t worry—your kids are all going to be put through university. It’s all going to be okay.’ You have to be very businesslike. But also family-like.”
.. An English wealth manager based in Dubai explained that such outlandish requests are surprisingly common in the profession, in part as a way of testing whether the practitioner is “worthy” of the client making a long-term investment in the relationship:
.. And they don’t like change: they want to go to the same doctor all their lives, the same dentist, and the same lawyer or fiduciary.”
.. I said, “I’m your wealth manager, not your fishmonger.” And the client said, “Well, today you’re a fishmonger.”
.. Clients may also have a pragmatic reason for posing these tests: They allow the client to discover whether the wealth manager possesses the kind of social networks and influence necessary to provide extraordinary personal service.
.. a study of 19th-century British lawyers showed how their familiarity with clients’ business dealings allowed them to create whole new industries, such as the country’s railroad system; the professionals established a kind of private market, accessible only to the upper crust of British society.
.. Several specifically mentioned helping clients get treatment for their drug-addicted children—a particularly common problem in wealthy families.