Apparently, the old maps used to write ‘There be Dragons’ across uncharted lands. Perhaps for some clients, the risk warnings for dealing with offshore companies across multiple jurisdictions should be just as dramatic.
An increasing number of potential clients, especially wealthier people who are more likely to both need and use a financial adviser, have residence, assets, income or liabilities in more than one jurisdiction.
It is unfortunate but true to say that this has led to some consumers falling into less than scrupulous hands, and in turn, led to some very poor outcomes. Sometimes this is due to outright ‘scams’ and scaremongering. But some of these have been through a lack of knowledge as well, or just very poorly designed and regulated products, with some eye watering charges.
The fact is that it is very difficult for national regulators to deal with the challenges of this cross border activity.
After all, if it is a UK asset, and an Australian resident, but with the fund – such as a Qrops - based in Malta, the new fund based in Bermuda and the adviser somehow based in Dubai, how does any national regulator manage that? Before it goes wrong? Which, of course, it will, and with no meaningful consumer protection in place. Is ‘buyer beware’ really an acceptable approach in this day and age?
This subject is close to our hearts, partially because it describes us. Between me and my wife, Perceptive Planning director Shannon Currie, we have lived in Zimbabwe, the USA, South Africa and of course the UK. So we meet these ‘world citizens’ at bars and hotels and airports as we travel.
We understand that this increasingly common scenario adds both complexity and risk to these individuals’ affairs. That may be through complex tax rules, or simply the vagaries of currency exchange.
And it’s a more common problem than one may think. It is not always appreciated that the UK has one of the most internationally diverse populations in the world.
In fact, in 2011, around 7.5 million of the resident population of England and Wales were born outside the UK. In return, over 5 million UK passport holders are now said to reside abroad. (Numbers sourced from the UK 2011 census and Wikipedia)
If we break the problem down, we have essentially got 4 groups to consider:
1. UK clients who have moved to the EU
The typical ‘retire to Spain or France’ scenario. This group is covered by MiFID and ‘passporting’ rules apply. These should be simple. But often are not.
2. EU Clients in the UK
It is tempting to just say ‘The EU means MiFID which means UK law applies’. Well, perhaps. The trick here is to be aware of how any advice affects them back in their ‘home’ country, especially as they well be UK resident but non UK domicile. And, of course, they could be a ‘tax resident’ in more than one country at a time!
3. UK Clients elsewhere in the world
I often get asked about ‘passporting’ for these clients. Of course, EU rules, including passporting, do not apply to anywhere outside the EU. That’s the good news. The bad news is that there is no one source of information or regulation. Each country has different rules.
These range from the pretty extreme USA approach, where any citizen – note, NOT just residents – must declare and pay tax on all their worldwide income or gains to the IRS. And usually, non US ‘wrappers’ such as trusts, ISAs and pensions are disregarded. So great care is needed here, as Boris Johnson found to his cost!
4. Non EU clients in the UK
By now you will have spotted that the big red button is US passport holders. Even if they have dual nationality, the USA assumes that domestic US law overrides any other legal system.
It’s easy to pick on the USA, and it makes great headlines, but what other countries have similar tax laws? No idea? And why should you, unless you have direct knowledge and expertise in that particular jurisdiction.
I hope that it has become clear from the above that the three big issues to consider are:Tax: - how does the ‘other country’ regard the tax position of your client / potential client?Regulation: - what rules apply to your dealings? Should you be registered to give advice in the country being considered? Is this even possible? And what protections are available to your client?Suitability: - taken together, the two issues above could have a massive effect on the suitability of any advice, which, in turn, has sever implications on the potential regulatory and civil liability of the adviser or planner involved.
Naturally, if you have a succession of clients from South Africa, or who have moved to Brazil, then you will develop expertise of your own, and that may be enough.
But it may not be. And when it’s not, what do we do?
One major advantage of being part of the CFP ‘Family’ is that we have access to a network of fellow professionals in 27 jurisdictions worldwide, who share our standards and values, and who are also accountable to their respective professional bodies.
This allows us, as a CFP professionals, when we meet clients in one of these situations, to ensure we work with other CFP accredited financial planners in whatever jurisdiction is required.
In practice, this will mean reaching out through our own networks, or via the local equivalent of the ‘Find a planner’ function, to make contact with a local firm who can help. I have even had an approach on Twitter.
It’s all about the co-ordination of advice, so the client gets proper, joined up, planning that is safe, relevant and technically sound.