As director of Sarnia Yachts and a member of the board, Bruce Maltwood discusses the ever-changing complexities of a fiduciary business operating in the superyacht industry and what actions owners and charterers need to explore post-Brexit.
Tell us a little about your background and how you came to be Director at Sarnia.
My background is in marine and finance, both of which suit my role at Sarnia - not that there was any master plan at the outset. I started out in trust and company administration in Jersey before switching to yachting in the early 90s. My career has always been land-based but my family are all keen sailors, so holidays and weekends when I was younger were spent sailing the Channel Islands and the south coast of England.
During my career in yachting I’ve worked in a number of different sectors including yacht sales, yacht distribution, training, import/export and VAT, mostly in the Channel Islands, the UK, France, Spain and the Balearics. I had wanted to come back to the Channel Islands to be close to family, and in 2006 I was offered the opportunity to join Sarnia in Guernsey, a stone’s throw from Jersey where I grew up.
Operating out of Guernsey, Southampton and Malta, Sarnia provides a broad range of EU and Non EU yacht ownership and operational services and, having worked my way up through the business, I was appointed to the board in 2012.
When was Sarnia established and what’s your core business?
Sarnia began in Guernsey almost 50 years ago - I believe it was the first marine specific fiduciary company to be established. Our roots lay in Private Banking, being part of the Ansbacher Private Banking Group until the management buyout in 2008. Sarnia was founded on the provision of Guernsey companies for yacht owners wishing to register under the red ensign but not qualifying in their own name. Services have evolved significantly since those early days to what we provide today which encompasses all the various aspects of both ownership and operation. The Management Buyout in 2008 enabled us to be more dynamic and nimble, both of which are vital elements to operating a business in today’s world post financial crisis.
Sarnia is now made up of a number of unregulated and regulated businesses – the latter enabling us to incorporate and administer companies for clients from a wide range of jurisdictions. Being regulated affords peace of mind for clients that they are working with a business that has a robust framework and corporate governance to best look after their financial interests. We are still the only sector in yachting that is regulated to such a level, and this is something I believe the industry needs to address.
What size of vessel do you typically work with?
We work with a wide spectrum of sizes from 20m to over 150m, which varies according to the services required, but clients start to see the value of our services from around 20-25 metres upwards. We always take each new client on their own merits to ensure a match that benefits both parties.
You have offices in Guernsey, Malta and Southampton – what’s the focus at each location?
The Guernsey office provides corporate services, yacht administration and crew management/payroll. Through Guernsey we provide a range of primarily Non EU corporate services from jurisdictions such as Cayman, BVI, Guernsey and UK. Our fiduciary license enables us to provide companies and directors for a wide range of jurisdictions.
The Malta office was set up to meet industry and client requirements for Maltese services and from there the Sarnia Malta team provides corporate, flag, VAT, administration and accounting services. Although we’ve recently seen the demise of Maltese Leasing, the Malta office continues to grow and is still the go to location for commercial yacht structures, EU importations and EU flag registration. There are still opportunities for planning around private yachts as well.
Our newest office in Southampton opened in October last year to centralise operations and certain aspects of our technical services.
Over the past few years Malta has become an increasingly popular jurisdiction for yacht ownership – why is that?
One of the main reasons was the change in the place of supply rules which required ownership structures to be located in the vicinity of the yacht’s cruising grounds – Malta’s location between the Eastern and Western Med makes it ideal for these purposes. Up to that point a large percentage of corporate services was provided from the Isle of Man but the introduction of these new rules changed that almost overnight. Withholding tax on charters also negatively impacted on the Isle of Man along with a majority of the non EU jurisdictions, again pushing business to Malta.
“The pleasure of yacht ownership should never be lessened by the ever-increasing complexities of international regulations.” For yacht management companies this must be increasingly difficult to achieve?
Indeed. This is an important consideration and a difficult balance, especially for commercial yachts. However, what is required for such a yacht is the formulation of a charter business with all use being on a commercial arms length basis. Most owners understandably see their yacht as something to enjoy and use as they please and if the yacht is private and VAT addressed then it can be. If it is commercial however they have to accept that it must be run as a business. Both private and commercial yachts still need a safe pair of hands to navigate the minefield of legislation so the client can fully enjoy their yacht.
Sarnia is one of the oldest fiduciaries in the superyacht market - what does that mean in practice?
This could be interpreted in two ways! Either that we are old school and stuck in our ways or that we have enormous depth of experience and knowledge that we can apply to the advantage of our clients. Sarnia is most definitely the latter and has continued to evolve in a fast-changing landscape.
Although the business originates from Guernsey, we always look to position the various elements of each structure in the most appropriate jurisdiction for the individual's unique circumstances. This is very rarely Guernsey for either company or flag, but the experience and expertise of our team across our offices is a constant in all situations.
Are the regulations around yacht ownership more stringent compared to other high value assets?
It is not that they are more stringent, it’s simply that the asset moves, so you need to factor in regulations and their interpretations in all the places where the yacht will operate. This interpretation varies not only country to country but sometimes region to region, so it’s critical to be involved in the day to day decisions rather than try to fix problems after the event as this can restrict operation and lead to additional costs for the client. Having experience in the operation of yachts throughout the Med certainly gives Sarnia the edge over other providers who are location centric.
During your three decades in the industry, how have the costs of owning a superyacht changed?
As we get older, we hear ourselves repeating things our parents said which we vowed never to say ourselves: ‘It never cost that much in my day’. It staggers me how much prices have increased over the past 30 years. There have been numerous examples of over-inflated prices for yachts; partly due to trade ins by the yards, but also as a result of assurances from sellers that yachts would hold their value due to supply and demand. Post 2008 we saw quite an adjustment and it has taken a number of years for some owners to accept that their yacht is not worth what they thought it was.
Whilst some yacht values reduced, running costs have just continued to rise. The running costs in relative terms are often much higher than the 10% rule of thumb previously applied. Added to this is the rise in complexity of administering yachts, particularly commercial yachts which require the right team to look after the owner’s best interests
Is there greater scrutiny by owners nowadays?
There has been a significant increase in scrutiny by owners over the last few years with almost every expense being questioned. Previously owners would typically agree to paying all the yacht’s expenses and agent fees without hesitation, but this is no longer the case. In recent years we’ve seen more value put on service, but cost is still more tightly controlled than pre-crisis days. As a result we have seen an increase in demand from owners for budgeting and financial reporting.
What has been the reaction among owners to the recent decree requiring employers of French resident crew to pay social security contributions in France?
The largest single expense when running a yacht is the crew, and this additional expense only adds to that. I have to say that most owners have accepted the additional cost which I attribute partly to global recognition of social responsibility. After a career of non- payment of social contributions, crew also welcome the opportunity to regularise their positions for when they return to life ashore. The transition has been costly for some crew as authorities question why contributions have not been paid historically. Depending on circumstances, there are a number of private schemes which are more easily transferrable which allows crew to start planning ahead.
Have you noticed any impact from uncertainties surrounding Brexit?
Brexit comes up in the majority of discussions with both current and new clients. For existing clients this is in relation to any UK aspect of the current ownership structure or, for clients who are UK residents, it concerns both the structure and their position in terms of VAT.
Taking UK residents first, Brexit will have a major impact and a number of papers have covered the potential implications. We have seen some UK residents taking their yachts outside the EU altogether, while others want to defer VAT payment until we have more certainty. Depending on the customs position of the UK after Brexit, EU VAT may not be payable by UK residents operating privately within the EU.
Looking at non UK residents, flag is the primary topic of conversation, especially for commercial yachts under 24 metres who utilise the simplified commercial code unique to the Red Ensign group and not available from the popular EU flag of Malta.
When putting together the right structure for clients it is crucial that all aspects are considered case by case. With a yacht that moves around and tax transparency rules, the potential impact on an owner’s liability can be huge.
The yacht insurance market has also tightened up in light of significant claims arising from global weather events – is it becoming more difficult to secure cover for clients?
For the majority of clients, cover can be secured. Insurers however now require a lot more information on the yacht, senior crew and its operations with premiums increasing from the unsustainably low levels of recent years. We have also seen an increase in the levels of restrictions on some areas of cover which is to be expected in the current climate. There is, however, still a long way to go to restore premiums to where they should be. Scrutiny on claims has also risen so it is even more important to ensure that the right cover is put in place and that this cover is carefully managed in line with operations.
A recent industry report identifies a decline in the desire to own a yacht, with a preference to charter and avoid the costs of ownership. At the same time more yachts are choosing to remain private to avoid the costs and administration around commercial operation. Are you seeing evidence of this?
The amount of yachts available for charter I believe will self-regulate. If the number of charter yachts decreases then demand for those that are available rises and financial returns increase. As a result, more owners will be drawn in to the appeal of chartering out their yachts. When demand drops due to over saturation then more owners will choose to operate on a private pleasure basis. With the exception of classic yachts and those that have undertaken a major refit, the ones that are impacted first when demand drops are the older yachts, so the market is self-regulated with the newer and more charter friendly designed yachts winning the most business.
Charter also serves an important role as the first step into yachting for potential owners. The majority of owners we see buying their first yacht have had experiences on a charter yacht, often on a very similar sized yacht to the one that they then go on to purchase.
Is this a problem the industry needs to fix or embrace as a new era in yachting?
I don’t think that there is a problem with supply that we need to fix, more so a change in the way that charters are arranged. We have all seen a shift in the way that holidays are booked and some charterers want the same freedom of choice. In this digital world there is an appetite for on-the-spot 24/7 bookings at the touch of a button, whilst some still want the personalised boutique service offered by traditional yacht charter companies. I believe that all aspects of yacht charter will benefit from this change, especially yacht owners, without whom we have no industry.
Perceptions around superyachts are also changing, particularly in regard to the environment – is the industry doing enough to adapt and counter this?
There is still a lot more that can be done in terms of how a yacht is run, but building yachts can never be completely environmentally-friendly so it’s a case of doing what we can. If we look at the way yachts are operated, they are often only used for a few weeks each year, yet they still maintain a footprint when not in use. There are a number of fantastic yachting specific organisations raising awareness and spearheading initiatives to reduce the impact of yachting on the environment and this is something that we all have a responsibility to support in any way we can. Shipyards and designers are also reacting to the increase demands of owners to build more environmentally friendly yachts, Rev is one such example most are familiar with.
How do you see crew employment evolving over the next 10 years?
I see the disparity between commercial and private yachts reducing and eventually I would like to see crew working on all yachts having equal benefits. There are always extremes, but on the whole crew get well paid, although it comes at a cost which is time away from family and work/life balance.
When it comes to employment, I would say that social security, as with any new change, will become the norm before long and accepted as being part and parcel of yachting. We have seen this happen time and time again with other changes and the industry just learns to adapt.
What is the most important thing you’ve learned in your career so far?
If you stand still you are going backwards. It never fails to amaze me how fast things change in the world and it only seems to get faster and faster as you get older, not just personally but also in business. If I look back at my early days at Sarnia, there was a pretty stable marketplace with little change year-on-year. Fast forward to today and there is always something on the horizon, currently this is VAT on charters and Brexit…
As you get older you realise how small a part you play in the overall scheme of things.
A lesser known fact about you personally is that you were European and National powerboat champion in the 90s – how did that come about and do you still get out on the water?
When in my teens I spent most of my time out on the water with friends in and around Jersey and the other Channel Islands with a number of us having speedboats of varying power and size. With an active racing scene in Jersey, both in terms of local club races and islanders racing overseas, the natural evolution for some of us was to step up to racing, the rest as they say is history. Before I knew it I was racing both at National and European events and challenging for podiums and race wins.
In 2017 you also took part in the industry-sponsored bike ride for charity, Cogs4Cancer, what was that like and will you be doing it again this year?
2017 was the third COGS ride I have taken part in, having done Ancona to Antibes and also Barcelona to Antibes previously. Each one was special in its own way, and I made a number of lifelong friends while raising money for cancer charities in the UK and the South of France. What is especially important about COGS is that every euro raised goes directly to charity and everything is done on a volunteer basis, including the physios, catering and mechanics.
The first ride was the most emotional for me, when the realisation of what we had achieved hit home. There is a great picture of me at the end having a quiet moment on the IYCA and that takes pride of place on the wall at home. Having done three rides I felt it was time to let other people experience what I did, but COGS is something I will never forget.
What would you change if you could?
If you are referring to things I have done, I would say that I wish I had taken time out to see the world post-education instead of going straight out to work. There are so many places that I would love to see and experience, but these will now have to wait.
What is your motto?
Your pain today will be your strength tomorrow. This I feel is very appropriate in both my work life and also my personal life with cycling and more recently triathlon. In order to progress you need to push yourself in all aspects of life, and the realisation that you can and have done so sets a new benchmark and helps you to continue pushing on to new heights.