Are offshore investment bonds truly worth an expat’s hard-earned money?

11/26/2020

There is nothing intrinsically wrong with offshore investment bonds. They can be beneficial and suitable solutions for many people - both onshore and offshore. However, it's the way they are sold that can cause problems.

The main problem with offshore investment bonds that investors experience is high, hidden and confusing fees and charges. Even the most successful underlying investments will fail to thrive when subject to excessively high charges.

In investment terms, the more you pay the less you get - and that is specifically why we strongly advise anyone with an offshore investment bond to a second opinion of their portfolio, to ensure it is not being eroded by excessive and unnecessary charges.

Wrappers such as an Executive Investment Bond (EIB), Executive Redemption Bond (ERB) have different fee structures depending on the advisor who sells them. Meaning someone who uses a fee-only adviser like us pays a flat and fixed 0.4% per annum performance fee to establish their bond, and then minimal ongoing charges. But someone who inadvertently trusts an advisor seeking the largest pay out could lose 9.5% of their money over 10 years, just in regular management charges - or worse still 9.5% of their money in the first quarter after inception if they suddenly need access to their capital.

Fees and charges associated with investing in bonds

All providers and all offshore bonds have different charging structures, and it is an unfortunate feature of the most popular offshore investment bonds that their fees and charges are indecipherable.

We have a dedicated offshore bond section whereby we review the product providers and their bonds, and where we outline typical costs, which can include: -

  • Establishment charges
  • Regular management charges
  • Administration charge (can be charged every quarter)
  • Dealing charge (applied every time you make a change to your underlying portfolio)
  • Currency dealing charges
  • Early withdrawal charge (up to 9.5% in the first quarter for some bonds)
  • Ongoing service charges - also known as trail commission
  • Annual management and other charges from underlying fund managers

Consumer protection - different jurisdictions

Offshore bonds, as their name implies, are outside the UK for tax purposes. This means that they do not come under the UK's consumer protection rules. It is important to understand the consumer protection offered by the jurisdiction where the offshore bond sits e.g. Isle of Man, Dublin, or Guernsey. Only when you understand and are comfortable with that protection should you consider using a provider that favours one jurisdiction over another.

Should I invest in an offshore bond?

Investing in offshore bonds can be advantageous for those with a lump sum to invest for at least the medium-term, but costs need to be controlled, and underlying investments well-diversified. Also, the tax benefits of offshore bonds are not always advantageous for those they are marketed to.

If you are an expatriate and you have a lump sum to invest, you may therefore be advised to wrap it in an offshore investment bond. Whether that is in your best interests or not should ideally be explored with a fee-based, not commission based, financial advisor. All too often the offshore bonds recommended are too expensive and restrictive, and much better and cost-effective options are available such as a unique, smart and low-cost investment platform for the expatriate world with NO surrender charges or lock-in period and your money fully accessible from day one.

Time for a Second Opinion?

Confused? Frustrated? Lacking confidence?

Your investment strategy deserves another look.

Available to expatriates with a portfolio of £/$/25,000 or more, our Second Opinion Review determines if your retirement plan, financial plan, insurance policy, investment strategy - and even your financial advisor - are working toward your unique goals.

  • How diversified are your investments and how are they performing against benchmarks?
  • Is your advisor taking advantage of the global economy?
  • Are you being sold a product or are you getting advice?
  • Who is really managing your money?
  • How much you are truly paying for the advice you receive, including hidden commissions and charges?
  • Are you exposed to tax or hidden charges?
  • What level of risk is your portfolio is exposed to?

What worked for your investments five years ago - or even five months ago - may not be working for you today.

Investment products change.

Markets change.

Your financial situation and goals change.

And your investment strategy should adapt.

Get in touch today and ensure you get and keep the life you want: info@expatwealthatwork.com