10 Rules of Offshore Saving and Investing

The Shelter Offshore 10 essential rules for saving and investing offshore safely and successfully

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10 Rules of Offshore Saving and InvestingFor the health of your wealth it’s imperative that you know how to tread carefully and securely when it comes to saving and investing offshore.  In the UK we like to think we have the likes of the Financial Services Authority to protect us if someone mis-sells to us or if the financial institution we entrust our life savings to goes pop.  But once you move abroad, who can help you then?

As an expatriate you’re probably very well aware that there are many incredible benefits and advantages available to you if you go offshore, but where can you find guidance to make sure you make the right investment decisions for your money?  Well, at Shelter Offshore we’re here to help and to open up the offshore financial marketplace and show that it is not as complex or as inaccessible as perhaps it may at first seem.

In this report we’re going to lay out the 10 rules of offshore saving and investing so that you can make sure you’re asking the right questions of yourself, your adviser and the financial products you’re being recommended before you commit to squirreling your money offshore with any given investment institution, bank or finance house.

1)  Don’t Buy it if You Don’t Understand it!

Financial solutions needn’t be complicated – and yet sometimes financial institutions layer complexity upon opaqueness to leave a potential investor totally confused about essential aspects of the solution being offered to them.  If you’re uncomfortable admitting when you don’t understand something, when it comes to money matters don’t be.  You may well be being led up the garden path by an adviser or a provider who’s hoping the complexity of the solution will have you signed up with no questions asked.  But the bottom line is, don’t buy in and commit to something if you don’t understand it.

2)  Ask How and Where Your Money Will be Invested

Were you aware that many of the people affected by the collapse of Kaupthing Singer and Friedlander Isle of Man and by the demise of Lehman Brothers had no idea that their money was invested in or via either institution?  It’s true – take the latter for example, there are thousands of people in the UK affected because they invested via Alliance and Leicester or Bradford and Bingley into structured products that were sold via Legal and General and which were ultimately underwritten by Lehman Brothers.  It’s all very well for an adviser to say – ‘we recommend you invest with XYZ as they are based in XYZ jurisdiction that has an investor protector scheme’ when in reality your cash or funds or assets are going to be managed or underwritten through another institution entirely.  What’s more, always read the small print, because even so called ‘guaranteed products’ are always subject to various clauses such as “subject to counter-party risk.”

3)  Know Your Own Risk Profile

When you speak to a financial adviser they will go through what’s called a ‘fact find’ – this is to enable them to learn all about you, your financial goals and obligations for example.  Part of the fact find process is for the adviser to determine your ‘risk profile.’  This is how much risk you’re willing to take with your money.  You will answer various questions for them such as how bad you would feel if you lost 30% of your investment due to a fall in the stock market for example (!) – and from this information they will work out how much risk to expose your portfolio to.

However, you need to be aware of your own risk profile as the answers to these questions are subjective and an adviser could misunderstand or misinterpret you and your risk profile through them.  You need to be very clear about what you will and will not accept in terms of the risk to your cash and assets.

4)  Ask About Costs and Fees Upfront

Some advisers charge for their advice some get commission if they sell a product of service/solution to you, some advisers charge you and get commission.  Ask your adviser up front about how they are remunerated – there is no wrong or right or better approach, it’s up to you which you feel comfortable committing to.  Next up you need to ask about the charges a financial services company will make if you buy their product or invest with them.  Find out how any charges will affect the investment of your money and get a clear breakdown of those charges and fees up front before you commit.

5)  What’s the Bottom Line in a Worst Case Scenario

If the bank you invest with goes bankrupt, what protection – if any – do you have?

6)  Understand Your Tax Obligations

As an expatriate you may well be able to benefit from tax saving or deferring advantages of a given investment solution – however, don’t automatically assume that you will be able to legitimately avoid taxation by investing your money offshore.  You may well have a reporting requirement to the taxation authority in the nation where you’re resident, and you may even still have a tax obligation in your old home nation.  What’s more, your changing status could affect the tax effectiveness of any given solutions and offshore savings and investment schemes that you have in place – so, work with your adviser and an accountant if needs be, and always make sure you know what your tax obligations are, and how best to structure your investments to be 100% compliant whilst also remaining 100% tax effective.  Expats have a very real advantage, but you have to make sure you understand how best to optimise it depending on your own very personalised set of circumstances.

7)  Short, Medium and Long-term – All Are Important

You need to think about your offshore savings and investments in 3 ways, you need to have money and assets on account for your short, medium and long-term needs.  Therefore you have to make sure you have some access to cash immediately if you should need it – if you lost your job for example you would need instant access to funds.  You then may well have more medium-term financial dreams, aims and even commitments from getting your children through college to paying off a final sum on your mortgage.  Finally, it’s highly likely that you will want to make some provision for your retirement – and these are likely to be longer-term goals that you have.  So work with an adviser to make sure you have the right balance of money in the right balance of investment solutions – and never forget that you have to have some cash easily to hand.

8)  Ask Your Adviser For Credentials, Testimonials, Qualifications and Proof of Experience

What is a good financial adviser?  We would suggest that a good adviser for an expatriate is someone with experience in the offshore financial marketplace who works as an independent financial adviser – i.e., not someone tied to one given bank or financial institution.  You would also expect such an adviser to understand how an expat’s tax and financial status is affected by the nation they’re living in, the nation they are domiciled in and any other nations they may be planning on moving to live, work or retire in.  Ask your adviser about any qualifications they have, who regulates them and their company, whether they have any testimonials from satisfied customers, and ultimately why you should trust them to give you advice.  Finally, go a little with gut feel too – if you’re not comfortable with someone giving you advice or you don’t feel happy sharing your personal financial history with a given individual, end the meeting there and then.  There are plenty of advisers out there who are very good at what they do, make sure you find one to work with who makes you feel comfortable and secure – and then check out their credentials just to be sure!

9)  Understand the Importance of Diversification

You need an independent adviser so that you can naturally diversify your financial portfolio – if you go to your high street bank and ask them for savings, investments, bank accounts and insurance, chances are they will be able to sell you everything you need.  However, all your financial eggs will be in one basket and the key to financial success is diversification.  I.e., balancing your wealth across investment and asset classes and institutions. 

10)  Take Your Time

Whilst we may well harp on about you needing to get essential insurances in place immediately - such as health and life cover – and the fact that the longer you leave it to get a pension in place the longer you will have to work for or the less you will have to rely upon in retirement, the bottom line is you should never be rushed or pushed into making a decision about your wealth.

Our emphasis on the importance of getting things sorted quickly is really only to make you start thinking and planning as soon as possible – when it actually comes time to picking the right approach you should take as much time as you need to research the advice you’re given, to read all the product literature, (including the small print), and to ask as many questions as you need to.

Do not be pushed or rushed…for the sake of your wealth’s health you need to make careful and considered decisions.

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