When I’m out and about meeting new people in the industry, I inevitably speak to a lot of frustrated superyacht managers and confused superyacht owners. I believe the root cause is the same for both feelings: where the industry should feature a lot of collaboration between heterogenous suppliers, instead parties who have no business doing so are engaged in a sort of cold war over who gets to charge what fees.
Now don’t take me for being anti-competitive. True competition is absolutely in the best interests of clients when it is open and honest; where the client has enough information to know if he or she is comparing apples with other apples or with oranges. Where the alternative is the case, and apples pretend to be oranges or oranges undermine apples in their job, competition isn’t doing its job right.
Efficient Superyacht Structuring
Let me explain without using a fruit analogy. Owning a superyacht is necessarily quite a complex achievement. There are as many figurative moving parts in the areas of legal compliance, tax compliance, human resources, logistics, chartering, and other intangibles as there are physical moving parts in the yacht itself. For those service-driven intangibles, several specialist suppliers are usually required. This could include a yacht manager, charter broker, technical manager, crew HR/payroll company, the captain and crew, a local representative in the owning jurisdiction, and a Corporate Service Provider (CSP) or Multi-family Office (MFO). I’ve outlined in the diagram below an example of how this should work.
Of course, there are other valid ways to structure it; for example, reporting may run via the yacht manager to the UBO or SFO. What matters, though, is that there is a clear breakdown of responsibilities and reporting lines, just like you would expect in any well-run business. The problem is it rarely works out like that. In my time in the industry I have repeatedly seen structures that are far more complex and far less clear than the above, with unclear delineation of responsibilities, vague reporting responsibilities and workflows, and ultimately massive duplication of effort.
Common Structuring Mistakes
Whilst it pains me to say it because it’s the side of the industry I sit on, this mess is almost always the CSP’s fault. Instead of being happy to draw a thick line between their role and that of the yacht manager, too many CSPs would rather quietly compete with the yacht manager they are working alongside, looking to charge fees for time spent on tasks that have already been done or could be done better by the yacht manager.
Worse, as the CSP industry continues to consolidate this sort of fight is only getting more common as larger, increasingly more ‘faceless’ CSPs across the world try to absorb more and more functions in the luxury asset supply chain. Now, I admit I can see the business-rationale there but there are two reasons I won’t buy into it. Firstly, it’s company-centric and not customer-centric thinking and that’s not how service industries – particularly for discerning UHNW clients – should work. Secondly and more importantly, I’ve never seen it work and provide the client with a truly efficient ‘one stop shop’, because whilst these large organisations may have some relevant specialist staff within their structure, the work inevitably ends up being done by generalist administrators who don’t have the specialist expertise that dedicated suppliers can offer.
So that’s why I meet so many frustrated yacht managers and confused owners. The yacht manager is in a constant battle with the CSP (who they probably introduced the work to, to add insult to injury!) over who gets to charge for what work, with a significant overlap that isn’t recognized or admitted to. The owner feels, rightly, like they are paying too much, but doesn’t understand why.
To coin a phrase with which to conclude, ‘CSP creep’ and the resulting battle over the high seas is bad for clients and bad for the industry (and you could say the same of parallel industries, such as aviation). For our part, as a multi-family office that started as a single-family office, we do think differently, as our perspective is much more aligned with that of the ultimate beneficial owner. As such, we go to great lengths to ensure structures which we create and administrate are clear, well-reported, and completely devoid of duplicated effort.
I challenge our competitors to do the same.
If you are interested in yacht structuring, you may enjoy our report on Tri-jurisdictional Superyacht Planning. Alternatively, if you feel your current yacht structure may have some of the issues identified above, you can book a totally free structure ‘health check’ here.