Why is jurisdiction such an important consideration when selecting an offshore investment platform?
I had a very interesting meeting and discussion recently with an IFA and their High Net Worth client. They were looking to invest monies internationally, considering how best to implement their chosen strategy. The client and IFA had a number of questions and points to make about features they wanted to see from their offshore platform provider as well as their requirements for a wide range of investment options, wrapper availability and the ability to work with their chosen DFM. They also had clear expectations regarding charges and service. Not too demanding then!
However, when I mentioned the issue of jurisdiction, this had not really featured on their “shopping list”. This surprised me and I explained what I meant in more detail. Below are a number of reasons why intermediaries and clients should not ignore the jurisdiction of their offshore provider when investing internationally:
Key jurisdictional aspects:
- Regulation – clearly the presence of financial services regulation in pretty much every jurisdiction in the world is a given. However, the levels of regulation actually vary considerably from one country to another so it is important to ensure that the regime in the jurisdiction a client decides to hold their assets in is meaningful, robust, comprehensive and proven. This only goes part of the way though, because it is also important that regulatory scrutiny accompanies the legislation and that the framework is not just a “lip service” but that the regulation is monitored, enforced and constantly improved by the regulator. This gives clients the comfort that their hard earned wealth is being held somewhere which has good levels of protection to ensure it is as safe as possible.
- Stability – many clients investing internationally are often doing so to move assets away from home territories that may have geo-political issues, currency weakness or other instabilities. Investing the wealth internationally diversifies a client’s wealth to mitigate some of that home territory risk. It is therefore vitally important that they do not then hold their international wealth in a jurisdiction that has similar weaknesses.
- Time zone – with modern functionality, people expect online access and digital functionality from any international wealth platform. One would expect time difference and location of a jurisdiction to no longer be of significance. While there is some truth in this assumption, time zone remains an issue. This is because investing internationally is not always straightforward, and sometimes queries need an answer in a relatively short time frame. Being located in a jurisdiction that is in a time zone close to the home territory is therefore preferable. Alternatively, where a client is trading in global stock markets, choosing a jurisdiction in a time zone that spans over as many time zones as possible is sensible.
- Language – in a similar vein to time zone, the language of the jurisdiction can also be important to ensure that intermediaries and clients can easily communicate with the product provider. It sounds obvious but we have a number of international clients moving assets to us from other platforms where frustrations have arisen simply due to language barriers.
- Currency – any international platform should have multi-currency functionality. However, locating assets in a jurisdiction where bank transfers between client home territory and the platform’s jurisdiction is also important. International bank transfers are notoriously difficult and if money gets stalled in the banking system for a month this can not only create substantial client concern, it can also have a material impact on investment returns.
- Community – with assets potentially held a long way away in a foreign jurisdiction there are quite often ancillary services that are required. This includes tax advice, accountancy or legal services, not to mention banking and other alternative financial services. Consequently, locating international wealth in a jurisdiction where there is a wide community of quality service providers that are located nearby is also sensible. This is to ensure easy access to and administration of these additional requirements.
Why the Isle of Man?
CIG’s offshore platform is located and administered from the Isle of Man. While, the Isle of Man is not the perfect solution for all clients it does tick a number of the boxes in relation to the points above:
- Widely regarded as the leading international jurisdiction in terms of regulatory framework and winner of many “Best International Finance Centre” on numerous occasions.
- Boasts the world’s oldest continuous democracy with its own government without party politics giving it an enviable record of stability in comparison with other jurisdictions.
- Based in GMT is ideally situated to span Far East, Europe and the West.
- English may not suit everyone but as one of the most widely spoken languages and the default unifying language, (English is spoken by all pilots to identify themselves on flights regardless of where they are from!) having English as its native tongue places the Isle of Man in a strong position.
- The Isle of Man may have its own currency (Manx pound), however this currency links into the UK banking system and from London it easily links into the international clearing systems to make international bank transfers as efficient as anywhere.
- Finally, the Isle of Man is a well-established financial services jurisdiction. It has built an extensive community of professional services companies, banks, advisers, trustees and corporate service providers. This means that advisers and clients can easy find holistic solutions in a single location making communication and administration significantly more efficient.
In conclusion, while there are a number of factors that feed into the decision making process when selecting an offshore investment platform, make sure you consider the benefits and the limitations that the jurisdiction may offers clients.
Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.
