Much has been written in recent months regarding the strength of the ongoing planning opportunities ...
Much has been written in recent months regarding the strength of the ongoing planning opportunities available to advisers through offshore bonds. There is no doubt that despite investment market uncertainty and UK tax changes these products will have a significant part to play in future financial planning. However, I believe that this will be driven as much by the evolving needs of clients as by the fiscal position of the product.
European Union directives are impacting on business to at least the same extent as domestic regulation in individual markets. In particular the EU Mediation Directive is enabling advisers to 'follow' the increasing number of clients who are spending a proportion of their working or post-working lives living abroad.
However, this is not as simple as registering with the lead regulator to passport one's services into another country and assuming that the same product and fiscal considerations that drove financial planning in the home country will continue to apply. Insurance policies continue to represent an excellent tax deferral vehicle in many European countries. However, advisers should research and understand these issues based on the precise circumstances and proposed location of their customers.
Today, a greater proportion of those who move abroad do so on a permanent basis, buying property and taking advantage of what they perceive as positive quality-of-life opportunities. This often means that tax residency is established and that investment portfolios must be viewed from the perspective of the new country of residence.
Double tax treaties must also be taken into account as they often offer a fair and positive way of mitigating any tax liability. In addition, other countries may have different issues such as wealth or property taxes to consider.
Currency considerations bring another dimension to financial planning for mobile clients. Outgoings and liabilities stem from the country where the individual is based and it therefore makes sense to denominate the investments that are generating income and providing a long-term capital base in the same currency. However, mobile workers, for example (as distinct from retirees) often plan to return home in due course and wish to maintain at least some of their capital in their home currency.
Advisers may be somewhat daunted by all of this and steer clear from 'following' their clients, particularly if they have been product-driven in the past. However, this can lead to losing one's best clients.
I believe that those who take time to educate themselves in relation to these issues have a great deal to gain and a great deal of value to add to their customers. True independent advice is not as prevalent overseas, particularly throughout the EU, as it is in the UK. Product providers, such as Ailo members, have a key role to play in offering information and training in these increasingly important areas. At its simplest, an offshore bond offers a cost-effective, gross-of-tax holding vehicle for a well-constructed and diversified investment portfolio. This can be a very useful and appropriate starting point for financial planning in relation to the growing number of mobile clients.
Independent advisers who work to develop their expertise in this area will have an increasingly central role to play in high-end financial planning for the long term. Those who do not may see some of their most important clients looking elsewhere for advice.
- Dave Fagan is chief executive of Legal & General International (Ireland).
Has spent four years at SLA
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