Global events of the past two years certainly have proven that things can change in the financial services industry, and fast: The bottom drops out of an overvalued US stock market; huge corporations face bankruptcy as a result of mismanagement and fraud; and governments place new burdensome regulations on banks and brokerage firms in an effort to stop money laundering.
The net effect of these events (and others) on international financial service providers in The Bahamas has been a serious reality check regarding the future viability of some businesses and tougher times for others. In fact, some companies that could not withstand the one-two punch of new legislation and a dramatic drop in revenue have been forced to close down or move out. "Business as usual" is not a phrase heard often these days, leading a few to question whether the industry faces extinction.
However, I would suggest - to paraphrase Mark Twain - that reports of the death of our offshore financial industry have been greatly exaggerated. Contrary to the bleak picture of the future painted by some, I believe that all these events may actually be the best things to happen to The Bahamas' international financial services sector in years....if we are prepared to take advantage of the opportunity and make necessary changes.
Making Hay While the Sun Shined
Throughout most of the roaring 90s, financial service firms in The Bahamas reaped the benefits of an influx of new business from all parts of the world. Tourism, development, and employment all prospered. New offshore mutual funds and International Business Companies (IBCs) were established in record numbers. Real estate prices skyrocketed, and the Bahamian economy expanded.
The effect for providers in the Bahamian financial services industry was similar to that of a rising tide on boats in a harbour: the flow of new revenue into the country lifted all companies, including those without a clear, diversified business plan, solid operations, or effective management. As we quickly discovered, however, the inevitable ebb of this financial tide left some boats high and dry, still secured to the same spot where they first laid anchor.
Competitiveness in any business requires calculated risk, coordinated effort, effective planning, and the ability to adapt to change. The lack of even one of these ingredients creates uncertainty that can have wide-ranging negative consequences. In The Bahamas, we need only examine our not-so-distant past for examples. I would suggest, however, that it is only through examining what could have been done better in the past that we gain valuable insight into how best to deal with the issues the industry faces today.
What Clients Want Now
Legitimate international financial service clients - particularly global institutions that represent hundreds of millions of potential business dollars to a country - examine a number of relevant factors before deciding to "set up shop" in a jurisdiction. Among these are: reputation, cost of doing business, tax and legal environment, quality of service, proximity, and quality of the work force. One factor may be more important to a specific client than another, but all play a role in the decision-making process.
The Bahamas scores high marks in several of these categories: proximity to North America, tax and legal environment, a good reputation, and skilled professionals. Unfortunately, this is not enough any longer. In order to remain competitive in the industry today, a jurisdiction must also prove that it can deliver in other areas as well: efficient governmental review and approval, proper and effective regulatory oversight, clarity of legal framework, a high level of specialised expertise and service.
What's more, advancements in technology that continually shrink geographical boundaries also provide potential clients with additional choices that may not have been a practical consideration before. To some degree, The Bahamas now also must compete with jurisdictions such as Ireland and Luxembourg to attract business within certain sectors of the industry. Some would even argue that New York and London pose a threat to the offshore financial services industry in The Bahamas.
Admittedly, these are substantial challenges for any jurisdiction. How we respond to them, however, directly affects the viability of individual service providers, whether they are a bank or trust company, mutual fund administrator, an investment advisor, a law office, or an accounting firm.
And This Is A Good Thing?
Most of us will recognise from our own lives that sometimes it takes a "jolt" of some kind to move us from complacency to action. Change may not be easy, but it's an unavoidable reality that can open up doors of opportunity that were previously closed to us. The popular television series Biography, for example, regularly broadcasts compelling stories of well-known individuals who used such jolts in their lives as a catalyst to propel them to new and greater heights in their careers.
The same principle applies to jurisdictions and companies. If we choose - individually and collectively - to view these recent changes in the global financial services industry as an opportunity rather than a burden, we can achieve great things. Some financial service companies in The Bahamas have done just that over the past several years and have managed to actually increase their business at a time when others struggled. As the past Chairman of the Bahamas Financial Services Board remarked at the organisation's recent Annual General Meeting, "It's up to us."
RSVP
While certainly not an exhaustive list, there are several fundamental practice areas that all financial service providers in The Bahamas can improve upon, no matter what challenges the jurisdiction faces. Advancement in these areas does not require government regulation or a change in laws, nor does it involve considerable cost. In the global competition to win and retain clients, the potential benefits to be gained from achieving excellence can be tremendous.
Raise Service Standards. Individuals in management positions within financial service companies must lead the way in providing the style, substance, and level of service standards that will attract and retain clients. They must provide the clarity required for everyone in the organisation to understand exactly what is expected of them, and then provide the tools for those individuals to meet (or exceed) those expectations. Most importantly, they must be able and willing to make certain these standards are followed on an ongoing basis. If those in the highest levels of a company do not lead in this area, others simply will not blaze the trail by themselves. World-class service requires vision, ongoing maintenance, and the commitment of all involved, especially by those in senior positions.
Know What Your Clients Want. The Bahamas financial services sector caters mainly to an international clientele. Whether these clients are European, American, Canadian or any other nationality, they come with a specific set of expectations about doing business in The Bahamas, which can be quite different from what Bahamian service providers understand is expected. Providers who expect to gain new business and retain these international clients must be able to put themselves in the shoes of their clients and understand what they view as "acceptable" and "unacceptable" practice standards. Differences in expectations often exist between clients and providers regarding the length of time it takes to get something done, for example.
Be A Good Referral. Make it easy for other professionals to refer business to you by maintaining high standards of service, professionalism, and knowledge. No one wants to refer a client to another professional who proves to be unreliable. This reflects badly on the referrer, and quickly eliminates any possibility of future referrals.
Aim High. Rather than compare production or service standards to industry equals, why not raise the bar and compare them to industry leaders? Developing healthy competition to achieve lofty goals within an organisation and among organisations can help raise the overall level of competence of a jurisdiction.
These objectives do not, by themselves, address all the challenges facing the jurisdiction. But they are a good start.
Positive Steps
To its credit, The Bahamas has done a better job than many jurisdictions in responding to global changes and the resulting effect on the business of financial services. Here are several:
Creation of a new Ministry of Financial Services and Investments. Under the leadership of Allyson Maynard-Gibson--someone with first-hand knowledge of the pressures facing Bahamian service providers--the new government has made good on its promise to respond more effectively to industry concerns by creating a dedicated Ministry.
The efforts of the Bahamas Financial Services Board. The Board has made considerable efforts in recent years (and continues to do so) to solicit opinion from local providers, to act as the industry?s spokesman to the government, and to involve as many interested parties in the development of the industry as possible. It also plays an important role in enhancing the global exposure and reputation of The Bahamas through promotional tours and other related events.
Support of institutions. Many of the larger financial service institutions in the jurisdiction have provided a vote of confidence to the country by maintaining their offices here and, in some cases, expanding their operations.
Through the Looking Glass
The Bahamas will likely be faced with a changing global financial services landscape into the near future, as forces outside of its influence seek to satisfy internal agendas with little or no concern for their effect on the economies of other countries.
On a jurisdictional level, The Bahamas government will continue to play an important part in positioning the country politically and making certain specific laws provide the necessary framework to remain competitive in the global marketplace.
On an industry level, individual financial service providers in The Bahamas should now understand the importance of upgrading levels of service and venturing into potentially profitable new areas of business for the sake of revenue diversification. Recent legislation also has been healthy for the industry, to a large extent, by proving that a certain level of transparency -- considered a prerequisite to doing business today by most global financial service providers and their clients -- can co-exist with the protection of client confidentiality. In addition, opportunities will continue to arise for various providers, if competing jurisdictions respond to similar outside pressures less effectively than The Bahamas.
Change is never easy, but the advantages of doing business in The Bahamas are becoming clearer each day. The offshore financial services industry here may have to adjust, but all indications for the future seem to indicate that reports of its death are greatly exaggerated.