Hedging their debts

A study by the Organisation for Economic Co-operation and Development (OECD) has identified that 12 per cent of the population of the 34 OECD member countries do not originate from their country of residence.

Globalisation has been accompanied by increasing mobility and a rising demand for cross-border planning and wealth management solutions. While GDP growth rates have been impacted by the slowdown, world trade has continued to zip along at around 7.5 per cent per annum, driven by the growth economies and emerging phenomena, such as south-south trade.

More than 42 centres in the world are competing for this footloose international capital according to the International Monetary Fund, so what are the 'decision points' for jurisdictional selection by these clients seeking a partner to manage their wealth?

Given we live in a turbulent and uncertain world, our experience in Jersey as a booking centre for clients in more than 200 countries has shown that political and fiscal stability, the rule of law, protection of property rights, sound progressive regulation, compliant confidentiality, expertise, and strength and depth in service providers are all big swing factors.

However, the biggest single factor at the moment is stability. In Jersey, we have certainly seen a flight to quality on the back of troubles in the eurozone, the Cyprus banking crisis and increasing concerns about sovereign debt.

At one time, advisers would evaluate brand strength, expertise and quality of service but to these assessments must now be added a new dimension: country risk. If the host jurisdiction is at risk in terms of financial stability, what are the implications for client recommendations and accountability if things go wrong?

A key measure that should feature in adviser analysis is levels of sovereign debt. After all, if a country has sound public finances there will be much less temptation to dip into international savers deposits to solve domestic financial stability issues.

While there has been much debate about debt levels that should set off the alarm bells, it is generally accepted that anything above 80 per cent of GDP is moving into the red zone.

So why does Jersey have reasons to be cheerful? Because there is no sovereign debt. The island's capital reserves are equivalent to 18 months' national income and its bank capital ratios at 14.8 per cent are 48 per cent above the new tougher Basel requirements.

Do you know what the same measures are for the booking centres you are recommending for international clients such as non-doms? You may be surprised.

Geoff Cook is the CEO of Jersey Finance

He writes a regular blog about Jersey for Private Client Adviser