When we refer to offshore financial advisers, we mean those that just target expats and are based in popular expat locations such as the Dubai, Qatar, Singapore, Hong Kong, Malaysia, Thailand, Singapore and Vietnam for example.
Financial Advisers who are based in more developed financial services markets such as the UK, Australia, USA and Canada will be licensed and regulated by the local regulator. This means they will be subject to strict regulation regimes and advisers tend to stick to advising the local market and are not so hungry to chase expat clients.
The offshore financial advisers tend to be unregulated, or even if they are regulated or licensed, the local regulators are not as established as developed financial markets, and there is little enforcement action taken against advisers when things go wrong.
Offshore financial advisers often cold call and even fly into countries to provide advice without having the necessary licence. For example, to provide financial advice to Australian residents, the adviser must hold an Australian Financial Services License from ASIC (Australian Securities and Investment Commission). However, we know there are many firms who do not hold this licence and still advise Australian residents. These advisers are normally based in locations with much less stringent regulatory regimes.
At least now some regulators are now taking action against these offshore financial advisers and providing warnings to consumers. Here is an example of the regulators in New Zealand warning residents about a firm based in Dubai that is not authorised to provide advice in New Zealand.
Unfortunately however, the advisers will often stay ahead of the regulators and consumers need to be aware of this and search the local regulator’s register to check they have the required licence. When you’re dealing with an unlicensed offshore financial adviser you have no protection in the event that anything goes wrong.
If you do use an offshore financial adviser to transfer your UK pensions to a SIPP, there are a number of layers of products and associated charges which I will explain below.
➤ Do I need Financial Advice for my UK Pension?
SIPP operator fees
Most offshore financial advisers will recommend an international SIPP from one of a small group of providers. There are many SIPP providers available in the UK, however most will not accept business from financial advisers that are not authorised and regulated by the FCA in the UK. The usual fees for an international SIPP are:
- Set-up fee of £300
- Ongoing annual fee of £500
➤ What is the difference between a SIPP and an International SIPP?
Offshore Investment bond commission
Most offshore advisers will insist that you use an investment bond within the SIPP to hold the investments. The popular investment bond providers are Old Mutual International (Quilter), Generali, Friends Provident International, Hansard, RL360. These are normally based in low tax jurisdictions such as Jersey, Isle of Man or Guernsey.
Advisers will likely tell you that the bond is necessary so that your pension can grow tax free. However, UK pension rules already allow your pension fund to grow tax free, so the extra bond layer is unnecessary.
The main reason they recommend them is that it pays them a handsome commission, normally 7% of your investment. These offshore investment bonds usually have 3 main charges:
- Establishment charges – this is normally stated as 1% per year payable for 10 years. However, this should be re-worded as a 10% charge deducted in 1% per year instalments over the next 10 years. The reason being, you are locked into these charges for 10 years. If you wanted to close your bond after 3 years, you will be charged the remaining 7 years of charges. You pay the 10% regardless if you stay with them for 10 years or not.
- Regular Administration charge – this is normally a fixed amount like £100 per quarter and will increase with inflation.
- Dealing charges – you incur this charge every time you buy or sell an investment and is normally around £30.
There will also be custody fees for holding your investments but trying to get these disclosed by the bond providers is like getting blood out of a stone.
Investment fund charges (more commission)
The investment funds held within the investment bond will have their own charges. Funds that are used by offshore advisers tend to have a 5% initial charge, of which 4% is normally paid to the Adviser in commission.
The investment fund will also have ongoing charges, with the amount known as the Ongoing Charges Figure (OCF). This is commonly between 1.5% – 2% although there is a fund widely used by offshore advisers with an OCF as high as 3.2% per year!
The adviser may also recommend using a Structured Note. These are highly complex investments and are not normally sold to retail investors. Offshore advisers like to use them as they don’t have any explicit management fees and they pay the adviser a nice 4% commission.
Financial Adviser fees
Sometimes advisers can also add on an explicit adviser fee. You will need to agree this with them so they are much less common. However, we see some of these as high as 1.5% per year, on top of all the other charges.
So what does all that look like on a £100,000 SIPP (not including an explicit adviser fee).
Initial fees
SIPP provider set up fee – £300
Investment bond establishment charge – £10,000
Investment fund initial charge – £5,000
Total – £15,300 (15.3%) set up costs
Ongoing fees
SIPP provider annual fee – £500
Investment bond administration charge – £400 (£100 per quarter)
Investment fund ongoing charges figure – £3,200 (an investment fund with a 3.2% OCF)
Total – £4,100 per year (4.1%)
You don’t need me to tell you those charges seem extortionate. The adviser is happy as they get paid 11% of your pension in commission.
There is now an alternative available.
Take control of your pension
MyExpatSIPP does not work with offshore financial advisers which means we don’t have to use your pension to pay them commission. We allow you to manage your pension from your online account. You don’t have to complete any paperwork and all correspondence is kept on your online account.
There are five low cost ready-made investment portfolios so you don’t have to worry about managing your own investments.
The charges are also a fraction of those of an offshore financial adviser. Our comparable fees for a £100,000 investment would be 0.87% per year with no set up charges.
Speak to us today about transferring your SIPP.