The portfolio of the international cross-border investor is a strange one - a web of global investme...
The portfolio of the international cross-border investor is a strange one - a web of global investment products domiciled across many countries, glued together with the ephemeral thread of international law. At any point, one of the countries with which the investor does business could choose to alter its treatment of expatriates; any one of the many product providers used could go bust, leaving questions about the value of the products it sold floating in the air; and any one of the many accountants, lawyers, and other intermediaries a typical international client uses, could make a mistake.
This brings us to the issue of ombudsmen. Ofta, the trade body for offshore financial advisers set up by Stephen Kerbel, is under attack for being unnecessary in today's modern, well-regulated environment. Well, it may well be true that in the mainstream offshore world, the 'well-behaved' centres have spent the last few years aggressively introducing regulation to match (and sometimes exceed) the standards demanded by their onshore counterparts, but that does not mean that suddenly the problems of cross-border investing have been blown away with a stroke.
What is the Isle of Man regulator to do when a Bolivian-based investor buys an Isle of Man-based offshore bond through a Singaporean intermediary and then claims he has been mis-sold? The free services provided by various jurisdictions only work so far as they can claim jurisdiction over the participating parties, which can make them pretty unhelpful in the offshore arena in the first place.
Having said that, the fact is that any ombudsman scheme is voluntary to the extent that if any party disagrees they can choose to go to the courts to get satisfaction and so perhaps it is irrelevant what kind of legal powers it has - what matters is its reputation for fairness, and how far that reputation stretches when it comes to investors hearing about judged cases.
For when it comes down to it, the final sanction that can be imposed on a product provider - or a provider of advice - is that people will no longer want to work with them.
This is why many 'freelance' ombudsmen, as it were, come from regulatory backgrounds. Those who are regarded as fun spoilers and stodgy rule-followers by entrepreneurs setting up businesses, are exactly the right kind of people to make sober judgements in highly complex and difficult cases.
Whatever the difficulties of running such a service, a successful scheme is worth all the effort, because a good ombudsman can significantly reduce the need to hire lawyers to fight expensive international court cases. And that has to count as a victory for everybody.
Partner Insight: Continuing the Architas education series for clients.
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