Offshore insurance bonds are widely sold to expats as a wrapper for investments.
Traditionally, these offshore insurance bonds have offered some excellent tax planning opportunities for those living in highly taxed jurisdictions. They have also been a useful tool for trust planning and simplified administration of consolidated funds.
Offshore insurance bonds are now being sold extensively by offshore advisers that recommend QROPS and/or insurance bonds as tax efficient wrappers for every country. It may well be, in certain jurisdictions, this is the only viable wrapper to hold pension assets but also it is true that in many countries they are not recognised or registered!
It is also true, that offshore insurance bonds are traditionally very expensively charged, often with hidden commissions, although that is improving in some instances.
Therefore, while in some instances they can be useful, we have a number of concerns about how offshore insurance bonds are sold and some of these concerns were picked up in this excellent article by Kirsten Hastings at International Adviser.
- Investment- Offshore insurance bonds are only going to be tax effective if the charges for the product are lower than the tax deferred/saved. Due to the high commissions taken on the sale of the insurance bond and charges on some of the funds offered, the investor often will not benefit at all. If the offshore insurance bond is established on a transparent and non-commission basis, then wealthy clients may benefit from tax planning opportunities.
- An offshore insurance bond in a QROPS offers no tax advantages at all.
This was the main point raised by Kirsten’s article. Many firms that sell offshore insurance bonds only have permissions to sell insurance products and these permissions do not cover the regulation of investment advice.
In the event the investment advice was poor or negligent, the client has little comeback with the regulator. So who is liable?
To quote from the article –
Willoughby said, but, “if a mis-sale occurs, regardless of the circumstances, the adviser will generally take the brunt of the blame as they provided the point of sale advice”.
“In this scenario, it’s not unknown for the life company to ‘hide’ behind the Law of Agency and say that the mis-sale is nothing to do with them, despite having a terms of business relationship with the adviser, who is promoting their products, sales of which will almost certainly have involved some form of payment from the life company for introducing the client.”
As the life company ultimately has control over which advice firms they offer terms of business to, they should not be able to shield themselves behind the Law of Agency, Willoughby said.
“If life companies give terms of business to ‘bad’ advisory firms, they deserve to cop some of the flak for a mis-sale.”
An expat that engages with an offshore adviser really needs to check the permissions of that adviser and the represented advice firm and to make sure that the name of the firm is actually the same one as that that is providing the advice. While the responsibility for the advice may well be on the adviser, as it should be, the chance of redress is slight if the regulator cannot assist where the investment advice was not regulated, or that the firm operates in several countries with the same name but is using unregulated firms to process the advice or business.
It is going to be nigh on impossible to use the local civil laws to take the insurance company that offered the offshore insurance bond to court- especially for an expat.
To be honest, there should be no need for that, as is made clear from this comment in the article.
The Law of Agency is still a good model for providing independent financial advice, Willoughby believes, “if life companies vet and control whom they give terms of business to, and advisory firms seek to do right by their clients”.
Do the due diligence on your adviser and their firm and check their regulation and none of the above issues are likely to apply to you!
A word of warning. Many of these offshore insurance bonds (not within a pension) are “personalised”. Basically, the funds are in a wide range of investments that are “personalised” and not on the standard list of the insurance company listed in-house funds. If an expat returns to the UK with one of these without taking appropriate action, then there will be severe tax consequences. We will discuss this in a future blog.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 3rd March 2017
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