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  • Writer's pictureBespoke Financial Advice

10 Hidden Costs of Offshore Financial Advice: What You Need to Know

As an high-net-worth individual, you may have considered seeking the guidance of an offshore financial adviser to manage your wealth and investments. These advisers, often based in popular expat hubs like Dubai, Singapore, or Hong Kong, can seem like an attractive option, promising tax-efficient strategies and personalised solutions. However, the reality is that working with an offshore financial adviser can come with a myriad of hidden fees and charges that can significantly erode your hard-earned savings. In this comprehensive article, we’ll delve into the intricate web of costs associated with offshore financial advice, empowering you to make informed decisions about your financial future.

Understanding the Offshore Financial Adviser Landscape

The world of offshore financial advisers is a complex and often opaque one. These professionals typically target HNWI and are based in locations with less stringent regulatory regimes than more developed financial hubs like Europe, the UK, Australia, or North America. While some may be licensed and regulated, the local regulators often lack the resources and enforcement mechanisms to effectively oversee these advisers’ activities. This lack of oversight can leave clients vulnerable to unscrupulous practices and excessive fees.

Unregulated Advice and Cold-Calling Tactics

One of the primary concerns with offshore financial advisers is their tendency to operate outside the bounds of local regulations. Many of these advisers engage in cold-calling and even fly into countries to provide advice without the necessary licenses or authorisations. This can leave clients with little to no recourse in the event that something goes wrong with the advice or investments recommended.

The Regulatory Landscape and Its Limitations

Even when offshore financial advisers are licensed or regulated, the regulatory frameworks in their jurisdictions are less robust than those in more established financial markets. This results in a lack of enforcement action against advisers who engage in questionable practices, further compounding the risks for clients.

The Layers of Charges: Unpacking the Hidden Costs

When working with an offshore financial adviser, clients are faced with a complex web of fees and charges that significantly impact the performance of their investments. These charges can be categorized into several key areas:

Offshore Investment Bond Commissions

Offshore advisers often insist that clients use an investment portfolio bond to hold their investments. These bonds, typically offered by life providers based in low-tax jurisdictions, come with their set of charges:

  • Establishment charges: Commonly stated as a 1% per year charge for 10 years, but effectively a 10% upfront charge

  • Regular administration charges: Usually a fixed amount like €100 per quarter, subject to inflation

  • Dealing charges: Incurred every time an investment is bought or sold, typically around €30

Investment Fund Charges (and More Commission!)

The investment funds held within the investment portfolio bond will also have their own charges, known as the Ongoing Charges Figure (OCF). These can range from 1.5% to as high as 3.2% per year.

Financial Adviser Fees

Offshore financial advisers charge also an explicit adviser fee, which can be as high as 1.5% per year, on top of all the other charges.

The True Cost of Offshore Financial Advice

To illustrate the true cost of using an offshore financial adviser, let’s consider a hypothetical scenario involving a €100,000 investment (excluding any explicit adviser fee):

Initial Fees:

  • Investment portfolio bond establishment charge: €10,000

  • Investment fund initial charge: €5,000

  • Total Initial Fees: €15,000 (15% of the investment)

Ongoing Fees:

  • Investment portfolio bond administration charge: €400 (€100 per quarter)

  • Investment fund ongoing charges figure: €3,200 (3.2% OCF)

  • Total Ongoing Fees: €3,800 per year (3.8% of the investment)

As you can see, the charges associated with using an offshore financial adviser are truly staggering, with initial fees amounting to 15% of the investment and ongoing fees consuming 3.8% annually. These exorbitant costs significantly erode the growth potential of your pension or investment portfolio, ultimately undermining your long-term financial goals.

Taking Control: An Alternative Approach

Fortunately, there are alternatives to the offshore financial adviser model that can provide a more cost-effective and transparent solution for high-net-worth individuals. One such option is a low-cost platform that allows you to manage your investments and pension.

You don’t have to pay the commissions and excessive fees associated with the services from offshore financial advisers. Instead, you can manage your pension from your online account, with no paperwork and all correspondence kept in your digital record.

The charges for a €100,000 investment with this platform are a fraction of those associated with an offshore financial adviser, amounting to just 0.4% per year + €150 annual membership fee with no set-up fees. This significant cost savings has a profound impact on the long-term growth of your pension or investment portfolio.

Empowering Your Financial Future

As an high-net-worth individual, it’s crucial to be aware of the hidden costs and potential pitfalls of working with offshore financial advisers. By understanding the complex web of fees and charges, you can make informed decisions about the management of your wealth and investments.

Whether you choose to explore an alternative like our low-cost platform, the key is to prioritise transparency, cost-effectiveness, and alignment with your long-term financial goals. By taking control of your financial future, you can maximise the growth potential of your assets and secure your wealth for years to come.

✅ Book your free, no-obligation consultation and talk with an Experienced Consultant at a time convenient for you to understand your options.

📈 Our Consultant will send a Free Advice Report for you to make an informed decision.

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