John Pugsley was the keynote speaker at the Swiss Wealth
Protection Seminar in Zurich last April. He published a
conversation with Jurg M. Lattmann in the July 1995 issue of John
Pugsley's Journal. Excerpted here are some of the issues on
Swiss investments and global diversification that they discussed.
John Pugsley: Jurg, it seems that I met you sometime around 1978
or '79 at one of the seminars put on by Inflation Survival
Letter... At the time Americans, including those of us who were
convinced that the Swiss franc and gold were headed up, were just
learning about Swiss investments and didn't know much about Swiss
annuities or insurance companies.
JML: At the beginning there was a big information gap. We had
to explain to Americans how the benefits of diversifying into
foreign currencies such as the Swiss franc, as well as how
important it was to have one's assets geographically diversified.
At the same time, all I knew was Swiss insurance law and nothing
about American law. More and more American legal questions came
up -- such as, can an individual retirement account own a Swiss
policy, etc.? So I learned the answers. Until five years ago,
we didn't receive a lot of questions regarding privacy and asset
protection. When I started in business I didn't even know that
this was of any importance. There are precedents in Swiss law
that an annuity really is a very, very private investment and
under Swiss law there is no way that a creditor can attach this
investment. Coupled with this, Americans don't legally have to
report annuities as they are insurance policies and not foreign
financial accounts. Today, privacy and asset protection have
become the most attractive features in annuities, especially to
Americans.
JP: I've long promoted four attributes of Swiss annuities for my
readers: geographical diversification, foreign currency
diversification, privacy and protection from creditors. Aside
from these, how do Swiss annuities stack up against the annuities
sold by American insurance companies?
JML: You've hit the four primary benefits. I'd add that Swiss
insurers are more fiscally stable than their U.S. counterparts,
in part because they are restricted by the Swiss Insurance
Commission to hold only the most conservative investments. As
you know,...no Swiss insurer has ever failed to meet its
obligations and not one has ever failed.
I've personally helped design a new generation of annuities
that offer the insured a number of other unique advantages. For
one, unlike most annuities, ours are completely liquid. For
another, there is no up-front or back-end commission load -- the
sales fee of about 5% is deducted from dividends earned over the
first year. And, of course, the earnings accumulate free of any
Swiss or U.S. tax. In fact, the investor doesn't need to report
the annuity on his tax return. Finally, we've designed them so
that the funds may be switched between Swiss francs, U.S.
dollars, pound sterling and ECUs, so the account holder has the
flexibility to choose the strongest currency.
Consider the $10,000 client who bought one of our Swiss
annuities 15 years ago. We have thousands of annuitants who
started in the 1970s and today are paid monthly annuities. These
people have seen their annuity income triple. I'm not saying the
dollar will continue to depreciate against the Swiss franc as it
has in the past twenty years, but the fundamentals remain very
bad for the dollar. Yet now the government pressure is
increasing to block Americans' access to information on these
annuities.
JP: Do you think that foreign-trust products...will be a conduit
for a lot of the smaller American investors to put money into
annuities?
JML: Unfortunately, whenever an investment vehicle becomes too
popular it becomes a target. What I'm personally afraid of is
that when something that has cost $10,000 to $20,000 to put in
place is now available for $500, this is near the end of the
cycle.
JP: You're saying trust devices are near the end of the cycle in
terms of the popularity?
JML: No. The trust business is as old as Anglo-Saxon law and
most nations honor trusts. The problem is the U.S. government is
treating foreign law with contempt and it may someday outlaw the
setting up of foreign trusts. If any device becomes too popular,
no matter how logical and right it is, the government can make it
illegal.
This is even a greater reason to diversify globally now,
before it becomes illegal. It's like your trapper, who caches
supplies along the trail. Keep things separate and if there is a
law change, make sure it doesn't destroy your entire financial
house. Use a trust for some assets, but also have an annuity
policy outside the trust. The annuity policy does not need to be
in the trust because you already have asset protection in the
policy. With a bank account you don't. So put the bank account
in the trusts. These kinds of things.
You see, I'm not saying that either an annuity or a trust
protects your assets entirely, but each is a hurdle for anyone
attacking your assets to clear, and if they are not expensive, I
would put those hurdles in.
JP: As laws get more onerous are you going to move away from the
American market?
JML: I'd like to service the American market but America is
getting more and more isolated. Already, the big institutions
are concentrating on other markets, such as the emerging markets
in Asia. ...If you have to make priorities, and Americans are
isolating themselves more and more, you move to other markets.
JP: Has it been hard to convince Americans about the benefits of
your products?
JML: Americans are very patriotic. Many feel that it's almost
unpatriotic to make an investment outside the U.S. ...I travel 20
miles north of Switzerland and I'm thinking in Deutsche marks, 60
miles west and I'm in the French franc. It makes no sense for a
Swiss to have all assets in Swiss francs or all assets in one
legal jurisdiction. The same is more true for Americans.
The correct stance is to neutralize yourself by becoming
globally diversified. You don't keep all of your assets in the
U.S., but you don't put them all in Switzerland, either. You may
have your legal house domiciled in the Isle of Man, with an
account in Switzerland and the account in Switzerland is invested
in Southeast Asia. Only a fraction of your assets are actually
invested in Switzerland -- perhaps in the form of a Swiss
annuity, bonds, or whatever.
Private banking in Switzerland allows you to develop a
global strategy. What Switzerland offers is privacy, asset
protection and access to worldwide information and markets. You
use Switzerland as a gateway to the world.
Reprinted with permistion from
Swiss Perspective.
More information on Switzerland as an investment center is available at
Fortress
Switzerland.
