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Build, Buy or Outsource: Tax Reclaims and Class Action Recovery

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This article is sponsored by Goal Group.

Written by Bill Salva and Noah Wortman

The arguments in favor of outsourcing or buying a commercial enterprise solution from a qualified Tax Reclaim and Securities Class Action Recovery provider are compelling. One common guideline applied by many for this decision is to buy or outsource when you need to automate a commodity business process, and to build only when you’re addressing a core process that differentiates your company. The reality for most financial service firms is that Tax Reclaims and Securities Class Recovery processing is rarely considered a core business process, no matter how much many of us in the recovery business like to think it is. That said, banks, brokers and other financial institutions that provide securities trust, custody and related services for clients often have an obligation to perform these services either under local fiduciary standards, regulations or customer service level agreements. The fact is that many organizations have been forced to recognize this obligation by either their regulators or their clients and have had to decide whether to build, buy or outsource.

Tax Reclaims

The business of filing tax reclaims is not rocket science. However like rockets themselves, it has many moving pieces that require constant vigilance and attention to detail. The technology platforms that support tax reclaims need to have the functionality to account for and manage changes over time in many details such as investor tax status, income types, tax rates, filing regulations, reclaim forms, tax treaties, and other requirements imposed by various actors in the value chain.

The main problem with tax reclaim systems built in-house is that they require constant business-rule updates and upgrades to accommodate new markets, regulations, and other modifications. Keeping these systems up to date requires a commitment to sufficient resources, including expert staff and/or access to professional advisory services that many organizations overlook or under estimate. As with other in-house built solutions, the classic issues also often arise including; such systems usually cost more to develop than to buy when all costs are factored in; requirements, design and development expertise are often hard to find and keep; and internal competition for limited resources constantly threatens an in-house system’s viability.

Buy an Off-the-Shelf Solution

A tax reclaim solution from a qualified provider offers a myriad of benefits. Since a truly qualified and experienced provider will have been in this business for decades and provides its solution to many firms, the solution will likely have all the needed functionality built-in. An off-the shelf solution can also be deployed much more quickly and at a lower cost. The best providers also include business-rule maintenance that provides timely upgrades and updates. It just doesn’t make sense to “reinvent the wheel” when it comes to the right choice for a tax reclaim solution.

Outsourcing

For many firms an outsourcing model makes even more sense. As noted above, it’s clear that an off-the-shelf solution is preferable to building one in-house. However, it still requires firms to hire, train, and keep qualified staff to manage and perform all operational activities. These are not insignificant challenges for many firms due to budget constraints and shortages of qualified staff. On the other hand, outsourcing enables a firm to provide clients a world-class tax reclaim service in the shortest amount of time, at the lowest possible start-up cost and without having to staff up and support another operations team.

Securities Class Actions Recovery

When a securities class action settlement is announced, the terms under which a class member can claim a loss and seek recovery under a settlement agreement can vary substantially from case-to-case. In general, the purchases, sales and certain other trading activity in publicly traded securities of potential class members need to be evaluated to determine whether they qualify to lodge a claim, and each court approved settlement administrator has its own defined terms, manner and timing required to lodge valid claims. Moreover, the U.S. is no longer the only country for which there may be an option to pursue recovery, and each global jurisdiction brings its own set of rules and procedures to participate in class actions. This analysis is complicated and not for the faint of heart and should probably be left to the experts.

Here, the choice is whether a firm should do it themselves or outsource. An in-house solution primarily requires the development of internal expertise in the mechanics of class actions litigations and nowadays, even more so, given its ever growing global phenomenon. As with tax reclaims, qualified class actions staff are difficult to find and retain, and it is often difficult to justify dedicated staff and technology resources to securities class action activities. Like tax reclaim outsourcing discussed above, outsourcing securities class action monitoring and recoveries to a qualified, experienced provider is arguably the best way for a firm to offer securities class action recovery services to clients at the lowest possible cost.


About Goal Group
Goal Group is the world’s leading class actions and tax reclamation services specialist. With headquarters in London and offices in Philadelphia, San Francisco, Melbourne and Hong Kong, Goal Group monitors client assets with a total value in excess of £8 trillion. It has a truly blue-chip client base including many of the world’s largest global custodians, asset managers, private banks, pension funds, local government authorities, hedge funds, investment banks, prime brokers, and fund managers spread widely across the Americas, EMEA and Asia Pacific.

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How Does Geopolitics Affect Financial Markets?

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This article is sponsored by State Street Global Advisors.

In Alexandre Dumas’s 1844 novel The Count of Monte Cristo, news of an impending cross-border revolution in Spain leads to financial panic among French investors. Some investors end up selling Spanish bonds at a great loss, only to see the price bounce back after the news proves to be erroneous.

Geopolitics matters to markets in the real world too and has been a major theme in 2018, as the post-war global order is dismantled and protectionism takes hold. But, as in Dumas’ tale, it can be hard for investors to know how to react to such uncertainty. In this paper, we examine attempts to assess the impact of geopolitics on markets and conduct our own analysis on how it plays out over different time periods. Our hope is that investors can use this analysis when considering how best to respond to future geopolitical events, in terms of both the risks and opportunities they may present.

Disclaimer
By clicking on the link to view the report, you acknowledge you are an institutional investor or other accredited investor.

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Through the looking glass

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This article is sponsored by Dominion.

The decision taken by the British Government to require the 14 British Overseas Territories (BOTs) to establish Public registers of the beneficial owners of Companies registered in these territories has so far created a divided reaction. The BOTs, have generally taken the view that it is grossly unfair for the UK Government to use ancient Constitutional rights to impose the new legislation whereas the Crown Dependencies who are not affected by this decision have unsurprisingly provided a more measured response. This is reflected by Deputy Gavin St Pier in statements very similar to those issued by Politicians in Jersey stating that ‘Guernsey will introduce a public register if that becomes the agreed global standard.’

Gavin St Pier’s words have I am sure been chosen carefully since the body that has the necessary authority to end this debate is The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) that has been the multinational framework within which work in the area of transparency and exchange of information has been carried out by both OECD and non-OECD economies since 2000. The Global Forum is the only international body endorsed by the G20 on issues of transparency and Exchange of Information for tax purposes.

So what does the Global Forum have to say on this issue. Well, paragraph 14 of the report of the Plenary Meeting of the Global Forum held in Cameroon in November 2017 states ‘The second round of peer reviews launched in 2016 reflects the latest developments in international tax transparency, including the requirement to have beneficial ownership information which strengthens the fight against anonymous shell companies and the use of legal arrangements to conceal ownership of identity.’ So reasonably one might expect, this issue should already have been dealt with. Unfortunately not it seems. The information sharing framework created by the Global Forum is designed as an exchange of information programme between Governments. Information exchanged is not available to the Public. So therein lies the problem. Public disclosure of beneficial ownership, despite what paragraph 14 might say, does not appear to have been clarified by the Global Forum, leaving it to Governments, pressure groups and other Organisations around the World to set the Public Agenda on this thorny subject.

Hopefully at this years Plenary Meeting of the Global Forum guidance will be provided on this issue that will feed through into legislation in all Countries that have adopted CRS. In the Plenary Meeting in Cameroon it was noted that ‘Some Members expressed concern that the ongoing EU listing process (referring to a proposed blacklisting of certain jurisdictions by the EU) is occurring outside the framework of the Global Forum… Statements like this would not I imagine encourage the Crown Dependencies to make further comment on this issue or to take any specific action as the Global Forum is clearly through these remarks reinforcing it’s mandate granted to it by the G20. The direction of travel, if one considers EU anti-money laundering Directives and bodies such as the EITI of which the UK is an important Member, would appear to favour a new regime creating a framework for Public Disclosure but when and in what form all stakeholders in this process will just have to wait and see what develops and whether the Global Forum will opine and then issue model legislation on this important issue.

To read more on this subject please visit: expertsinwealth.com/globalregisters

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How Do Public Pension Funds Invest?

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This article is sponsored by State Street.

Public Pension Funds (PPFs) are highly idiosyncratic and distinct from other types of institutional investors. The universe of investors that fall within our definition of a PPF is numerous and varied. We count 115 institutions in 70 jurisdictions, diverse in geography and economic development. For the purposes of our study, we examined the top 16 funds whose assets constitute just over two-thirds of the total universe. Despite all the idiosyncrasies of PPFs, we have found some shared characteristics in the evolution of their asset allocation over the past decade.

According to our definition, PPFs held around $5.9 trillion in total assets of 2016 and over 4% of all publicly traded assets, making them a significant global investor group. In particular, given their preferences for specific asset classes, their share is disproportionate in some segments. For example, we estimate that by year-end 2016, PPFs owned over 7% of global tradeable fixed income assets (including 8% government bonds and over 13% of inflation-linked bonds) and over 3% of listed public equities.

Similar to other asset owners, PPFs have undertaken a major reallocation of assets over the past decade. However, the motivating driver has not only been the low yield environment, but also changing regulatory and macro policy settings, which either permitted or encouraged greater diversification along asset classes and geographical exposure.

In detail, the most dominant trend has been the move away from holding domestic (local currency) bonds; in their place, PPFs have redeployed assets towards equities and alternatives, with a small share also diverted into foreign bonds. These allocation trends have been almost universal despite a huge diversity of geography and economic development.

It is important to acknowledge how much this investor group has changed over the past decade, with the asset pool growing by over 40% in dollar terms, and even more if measured in local currencies. While some funds are still predominantly captive buyers of government debt, the bulk of PPFs have been transforming into financial institutions with independent firepower and income-generating capacity. The long-term trend towards more diversified fixed income portfolios is likely to continue, as is the shift towards taking on more risk via equity allocations, subject as ever to changes in market cycles. In this context, we expect most PPFs to not only continue taking on more risk overall, but to further internationalise their portfolios.

Finally, one consideration is that maturing funds catering for aging populations will have to make further adjustments to their asset allocations to account for changing cash flow directions and seek greater contributions and investment returns to bridge any funding gaps.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Tracking Code: 2172159.1.1.GBL.RTL

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Disclaimer
By clicking on the link to view the report, you acknowledge you are an institutional investor or other accredited investor.

Authors
Elliot Hentov, Ph.D. Head of Policy and Research, Official Institutions Group Elliot_Hentov@ssga.com
Alexander Petrov Policy and Research, Official Institutions Group Alexander_Petrov@ssga.com
Sejal Odedra Business Analyst, Client Strategy, Official Institutions Group Sejal_Odedra@ssga.com

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