In the UK, if you need financial advice it’s not only relatively easy to find an adviser, it’s easy to check whether they are regulated with the Financial Conduct Authority or not simply by going online and doing a quick search.
As soon as you move abroad however, it can feel like dipping your toe into a pool full of sharks when you start looking for an offshore IFA.
There is seemingly no consistent rule about regulation or even qualifications, advisers can still be commission only or fee based, or both. What’s more, because the international financial landscape is almost limitless in terms of its breadth, how on earth can you find just one person who knows it all who can help you?
If you’re thinking of getting advice about existing investments or future wealth plans and you need to find an offshore IFA or international financial adviser, this report, which details what you need to know about the industry and its employees, should guide you onto the right path.
Who needs an offshore IFA anyway?
There are a number of reasons to consider getting financial advice once you’re living abroad.
Firstly, whilst you may speak the language in your new country of residence, seeking advice from an independent, offshore financial adviser may be more beneficial than choosing an adviser in your new country, especially when considering your finances from an international perspective.
As an expat there may be unique tax advantages or other financial benefits that you can benefit from by going offshore, that a local adviser in the UK or in your new nation may know nothing about.
Your old adviser back in the UK may not even be regulated to advise you as soon as you move away. And whilst a local adviser in your new country might be able to help you with local plans, what about sorting out money you still have in Britain, or aligning your finances with future plans to repatriate or relocate again?
An international adviser will be able to look at any plans you already have in place, and ensure they work for you now that you’re non-resident in Britain for tax purposes.
What’s more, an international adviser will have as international an outlook as you, and so not restrict you or your wealth to the constraints of regulation or limited choice in your new nation or back home in Blighty.
They will also be able to take into account any plans you may have for moving on or moving back to Britain, and factor these in when advising you what to do with your wealth right now.
Another reason to consider an international financial adviser when you need financial planning assistance is because they may be more used to working via email or telephone, so that wherever you move to next in the world, they can remain your point of contact, maintaining continuity for your money.
Finally on this point, because there is so much more choice for the management and investment of your wealth as soon as you think internationally, it’s often wise to seek expert offshore advice to ensure you identify which paths would be most suitable for your own ambitions, goals and personal financial position.
What to look for in an offshore financial adviser
1) You need an independent adviser who has as international a perspective as you. There’s no point using a local adviser if you may move to another country or even go back to the UK at some point in the future.
This is even more apparent if the local adviser only specialises in advising clients where you are currently based. Planned correctly, a move to another country or repatriation to the UK can have future tax advantages for your wealth and estate – a local adviser may not know about this.
2) You need to ensure that your adviser provides the best advice for your international outlook.
3) You need an adviser who understands how your previous financial affairs were managed, how your current status can benefit you, and how future requirements may lead you to or from certain courses of action.
4) You need an adviser who understands expatriates and the offshore/international world of tax and financial planning.
5) They should not be tied to any financial institution as independence of advice is essential.
6) The adviser needs to be qualified, experienced, professional and ideally backed by a brokerage large enough to have terms of business with the major financial institutions.
7) Your adviser needs to be correctly regulated to give you advice.
All that sounds ideal – but how do you narrow it down? Read on…
Should you choose a commission or fee based adviser?
Unlike in the UK, most international offshore independent financial advisers, i.e., those who are not tied to giving advice based on one bank’s products only, currently charge a fee for the advice they give, or they receive commission after they have placed your business with the best bank or financial institution that meets your personal requirements.
Occasionally some advisers charge a fee and receive commission.
Since 2012 the UK has changed the rules about how financial advisers in Britain receive payment, and all advisers in the UK will only be able to charge fees for advice giving.
This is to try and bring greater transparency to financial advice giving in Britain.
As an expat, rather than being forced to speak to an IFA in the UK who may misunderstand your new tax status or who may only be able to recommend unsuitable savings and investment products onshore in the UK, (such as ISAs you’re no longer eligible for when you become non-resident, and pensions on which you cannot receive tax relief), you can call on the services of an offshore or international financial adviser.
Offshore financial advisers may refer to themselves as international wealth managers, expat financial advisers or just independent financial advisers.
Currently, such advisers based in Europe, (not UK), are still free to charge a fee for advice giving, or to take commission.
There is no ‘right’ way for your adviser to be paid.
Some of the better brokerages that ensure they maintain an ongoing client relationship by offering a regular review of your financial arrangements to make sure they are still suitable, receive an ongoing management fee rather than a one off commission from an institution they have placed a client’s business with.
Such companies may instead make it clear to you, their client, that there is an ongoing fee due for payment for their ongoing commitment to the correct management of your money.
Ultimately, when you choose an adviser, you must ask them how they will be paid for giving you advice. Most advisers will offer this information up front anyway. And where a fee is chargeable this must be agreed with you in advance. Where commission is paid, this must be detailed to you transparently.
Fee based IFAs claim their method is best because it means they are not ‘encouraged’ to place your money with the bank that pays them the highest commissions.
A commission based IFA will claim that their method is best because they are fully incentivised to continue working with you, their client, forever. What’s more, they always point out that once a client has paid a fee for advice and invested their money, they are always reluctant to have to pay another fee every few months just to have the adviser check that they are still correctly invested.
Apparently this can mean an expat doesn’t keep on top of their financial portfolio as often as they should if they choose a fee-based adviser.
A commission-based IFA will offer this financial review service for free on an ongoing basis, thus ensuring an investor’s portfolio is very regularly checked to make sure it still matches the client’s circumstances.
The type of adviser you choose will obviously depend in part on whether you prefer to pay a regular fee every time you need to ask a question or change an investment approach, or whether you’re comfortable for your adviser to receive commission or a management fee from a bank/finance house when they do a good job for you.
Either way, you are paying for the advice, just as you would pay a plumber for advice (and help) if you had a burst pipe, or in the same way you would pay a doctor for advice about a medical complaint. Even when you choose a commission based advice service, the commission paid is factored into the fees and charges you pay to the bank or finance house for the investment of your money!
How are offshore financial advisers regulated?
Perhaps one of the most important things you should focus on when choosing an offshore IFA is how they are regulated. As mentioned above, all IFAs in the UK who want to give advice have to be regulated by the FCA. But it doesn’t work like that once you move abroad…
In the EU there is a Markets in Financial Instruments Directive which “provides harmonised regulation for investment services” throughout the EEA. Under this directive the concept of ‘passporting’ exists.
Passporting is a term that is relevant to how an offshore financial adviser, based in Europe, is regulated to give you advice assuming you live in the EEA.
An offshore IFA based in the EU should be regulated somewhere within Europe; common countries for regulation include Belgium, Ireland and Germany because other member states deem them to have the best regulation procedures in place.
Once regulated therein an advisory can give advice. They can also have a branch office elsewhere in Europe for example, from which they may advise expats too, and because of passporting, they can advise expats in other EU member states.
In other words, passporting is a term describing the right to conduct financial services across the EU based on a single authorisation or approval.
So, assuming you’re resident in Europe, you need to ensure the company your IFA works for is regulated and therefore licensed to give financial advice. You need to ensure that they are regulated in a jurisdiction within the EEA where you are afforded good protection. What’s more, you need to find out about their indemnity insurances in case things go wrong, and discuss how their compliance and complaints processes work too.
There is strong regulation within the financial advice arena in Europe. Regulated brokerages must abide by the terms of their licensing in the jurisdiction in which they are regulated.
Protecting yourself against bad offshore financial advice
It’s important to understand what you can expect from an advice giver. By understanding this you can make sure any adviser you approach is best placed to offer you good advice.
Here’s what you need to know (this list is not exhaustive!): –
1) Assuming you live in the EU, the company your adviser works for should be regulated within the EEA
2) If the adviser is not based in the nation where the company is regulated, this must only be because the company is correctly regulated to enable them to ‘passport’ their service to other countries within the EEA
3) Your adviser should work for a company with clear compliance procedures in place to prevent everything from mis-selling to money laundering
4) Your adviser’s company should have indemnity insurance in place to cover you and them in the event of a mis-selling complaint
5) Your adviser should be qualified to give advice (see below)
6) Your adviser should be experienced in working with expatriates because expats have unique opportunities for the saving and investment of their money offshore and onshore
7) Your adviser should give best advice on an ongoing basis by offering you a regular review of your financial portfolio. This is because markets move, circumstances change, and new products and financial solutions become available regularly
8) Ideally your adviser should be able to give you testimonials proving their company’s good service.
Some of the larger brokerages offer new clients the option of contacting one of the financial services companies with which they have terms of business, and you will receive a reference/testimonial from them about how they rate the advisory in question.
Offshore IFA qualifications – what you need to know
Just as no one would put their health at risk by knowingly taking medical advice from an unqualified practitioner, so no one should put their financial health at risk by knowingly taking advice from an unqualified financial adviser.
Despite the fact that the UK rules relating to financial advice giving no longer apply and cover you when you’re an expat living abroad and taking financial advice from an offshore financial adviser, the UK’s qualifications for financial advisers are still among the best in the world.
What’s more, most Britons living abroad and considering investing their money offshore are likely to favour a British offshore IFA to give best advice.
This is because there are many technical elements to understand – from what constitutes a good investment fund to where is the safest offshore jurisdiction for your money for example. And to understand all this, it’s fair to say most Britons probably prefer to speak with someone who is a native English speaker.
So, whilst this is not a hard and fast rule – you can perhaps be more reassured that your financial adviser knows what they’re talking about if they have the likes of the CFP* certification for example.
*CFP (Certified Financial Planner) certification was formerly from the Institute of Financial Planning, which has now merged with CISI (Chartered Institute for Securities and Investment) and here’s what they say about the qualification: “CFP certification is an advanced qualification which tests a candidate’s ability to apply their detailed knowledge and skills in order to produce an effective financial plan…Becoming a CFP professional is not easy. It’s a real challenge and that is why CFP certification is highly respected as an international standard.”
Alternative qualifications to look out for include the International Certificate in Financial Advice from the Securities and Investment Institute and the FPC qualifications from the Chartered Insurance Institute.
How to protect yourself when seeking advice from an offshore IFA
From all you’ve read above you can probably see that there is no singular, hard and fast rule that you can apply to determine whether an IFA you may have identified to work with is any good!
There are questions you can ask, checks you can make and certain minimum requirements you must ensure, but what else can you do, if anything, to protect yourself?
Well, you can do your own due diligence on any recommendation an offshore IFA makes…from the jurisdiction they recommend, to the financial services company or bank, right down to the product or path they are suggesting.
The power of the Internet can really help you. You can research whether a jurisdiction has investor protection schemes in place, and whether you, as a non-resident of that jurisdiction, qualify for any protection of your invested funds.
You may be able to look at the bank or financial services company and how they are rated locally – some countries have ratings services, others list whether an institution is insured, and in some cases you can look at a company’s financial performance.
You should also work out whether a company has a parent bank or institution above it, and check its standing as well.
In addition, you should certainly do your own due diligence on any investment fund or solution your adviser is recommending. You need to make sure it is legitimate first and foremost, and then you need to ensure it is suitable for you personally.
Look at whether the way your adviser is proposing you invest or save your money really matches your own appetite for risk.
You don’t need to be a financial expert to do any of these things. And common sense will take you a long way – i.e., if something sounds too good to be true then it is.
Finally and critically, a legitimate financial adviser will never request that you make a direct transfer of any funds that you’re saving or investing to them. Your money will always go directly to the bank or financial services company you have chosen to do business with.
The good news is there are extremely excellent financial advisers working offshore and internationally. They know how expats can leverage any tax advantages they may have, they know the best jurisdictions for investor protection, they know that one product or path certainly doesn’t suit all, and they can help you make the very most of your own international status by plotting you a unique offshore path.