Expat British investors should be wary of unscrupulous offshore independent financial advisers who have low levels of professional qualifications and dubious integrity and honesty, it is claimed.
Overall much of the offshore IFA sector lacks professional standards regarding commission disclosure and treating customers fairly and takes a sales-led approach rather than a client-centric, service-based approach, according to a leading firm.
They are also not subject to the strict compliance and professional standards imposed on them by UK rules and therefore re-dress when things go wrong can be difficult, warns Carl Melvin, managing director of Affluent Financial Planning.
‘I worked briefly for an offshore firm in the early 1990s, but I lasted less than six months. I left disgusted at the practices and behaviour of the firm and its advisers. The alarm bells started to ring when I discovered that my employer did not have a work permit for me, only a tourist visa. As with the other advisers, I was expected to leave the country every six months and fly to Kuala Lumpur for a few days before flying back to resume my position,’ he explained.
‘The sales practices employed by the company were truly shocking. Unfortunately, 20 years later, little has changed in the way many offshore IFAs work or the protection afforded to expatriate investors,’ he added.
In particular investors should beware of poor quality offshore plans which often include complex charging structures with multiple charges such as establishment fees, percentage or flat administration fees and policy charges as well as restrictive terms and lack of flexibility.
‘Enhanced allocation, establishment periods, surrender penalties for early termination or even reducing the level of contribution are commonplace. Such contracts are wholly unsuitable for expatriate clients,’ he said.
One ploy that continues is what he calls the ‘extended term’ swindle. Here, the salesman sets up the offshore ‘regular savings plan’ with a term of, say, 20 years or more, even though the expat investor may only have a work contract for three to five years in the country in question. This is because the longer the term, the bigger the commission.
‘Unfortunately, if the client stops the plan or reduces the contribution level, there are often very severe penalties or administration costs. It is not uncommon for the first two or three years’ contributions to be taken in charges, leaving the investor with nothing after saving for years. It is outrageous,’ said Melvin.
‘Expats often have high tax-free salaries but no UK pension scheme benefits, so there is a real need for them to engage in financial planning and invest for the future. They are vulnerable to offshore IFAs, many of whom do not behave ethically,’ he added.
Also technology now makes it possible for UK financial planners to service expat clients wherever they may be. Email and web conferencing have dissolved the barriers to service that existed before.