Offshore Investment Risks & Rip-Offs

Risks of offshore investments

From receiving poor advice from unqualified, greedy, commission-based financial advisers to investing in poor quality offshore investment schemes in dodgy loosely regulated jurisdictions. There are numerous risks of offshore investments.
Here are a few of the main culprits:

Guaranteed returns

Does it sound too good to be true?

A guarantee is only as good as the person or institution providing the guarantee.

Many offshore based investments offer a guaranteed return but when you dig deep these guarantees are usually worthless. For example some products will jeopardise your capital to provide you with a regular income. Others can only provide a guaranteed return if certain criteria are met. However you look at it, the vast majority of offshore investments offering guaranteed returns and/or a guaranteed regular income are poor at best – worthless at worst.

Guaranteed capital/principle

Does it sound too good to be true?

Again, a capital/principle guarantee is only as good as the person or institution providing the guarantee.

As with guaranteed returns, offshore investments offering capital/principle guarantees need to be taken with pinch of salt. Often the company guaranteeing your capital is a small offshore company registered remotely in the Cayman Islands, British Virgin Islands (BVI) or similar loosely regulated jurisdiction. These companies rarely have any capital themselves and you stand a 99.99% chance of getting nothing back if the investment folds – which they do with alarming regularity.

Limited or No Risk guaranteed offshore investment bond issues from global banks such as HSBC, Morgan Stanley etc. are an exception. Some of these offer 100% capital security and a known return after a set number of years. However – you pay a very dear price indeed for investing in these types of investments. 

As an example: If you were to invest £100K in such a bond and let’s just say it offers exposure to the S&P500 & FTSE All Share index. Your capital is guaranteed and so is a fixed return of 15% after 7 years. OK, if the S&P500 & FTSE All Share indices plummet over 7 years your capital is safe – but hang on a minute. What’s the likelihood of that actually happening? And similarly, over 7 years these indices are very likely to be much higher than 15%, which means you will loose out on all of the gain above 15%. These institutions aren’t stupid. 

Why not invest less in S&P500 and FTSE All Share tracker funds/ETFs, say £30K, and get all of the gain over 7 years instead? And you’re committing less capital, freeing up £70K for something else, right? And if the indices are lower in 7 years (unlikely) – just weather the storm until it blows over. It’s £30K not £100K tied up after all.

No risk or low risk

Just like surgery?

Everything has risk. If you keep your money in cash it won’t grow and it will gradually lose its spending power (inflationary risk). 

There are a handful of offshore investments that do actually offer very limited risk and in tandem with such low risk – very low returns. Investors chasing income are often attracted to higher interest offshore bank accounts, but in order to get higher interest rates you are forced to hold an account in a currency that is typically more unstable. Whichever way you look at it, what’s the point in getting a few extra percent interest when you end up taking on board a heap of additional currency exchange rate risk? No point whatsoever.

Regulation

How qualified is your financial adviser?

Although there are a handful of highly skilled, qualified, independent and honest financial advisers working offshore, they are vastly outnumbered by sharks.

Offshore financial advisers are nearly always remunerated via commission and are not subject to the high standards applicable in the U.K. for instance. Once they have taken your money and invested it, unless you are ripe for more pickings you are unlikely to ever hear from them again.

Fees, charges, commission

Are your investments making money for you or your adviser?

Offshore investments are notoriously expensive and many of the underlying costs are hidden.

Did you know that your offshore financial adviser can not only get commission ‘up front’ on any product you invest in, but can also receive extra commissions for the underlying funds the product invests in? And if this wasn’t bad enough – funds can also be ‘back-end loaded‘ with more fees on exit/sale of underlying funds. Yes! As if double charging wasn’t bad enough, triple charging is also common offshore. Pure greed.

Jurisdictions

Where the hell is it based?

Unless you are super-rich and have very legitimate reasons to spread your wealth over the globe, stick with the familiar – always.

If you are recommended any type of investment that is based in, or has any links to: the Cayman Islands, BVI, Panama, Belize or Seychelles (or similar) run a mile in the opposite direction – fast! There is absolutely no reason on this earth why you should feel the need to risk hard-earned capital on investments that have any dealings with these jurisdictions, period. 

The only reason these types of investments are based in jurisdictions such as the Cayman Islands, BVI, Panama, Belize or Seychelles (amongst others) is that no respected, highly regulated jurisdiction would touch them with a barge pole – and you shouldn’t either!

Offshore Alert Website

Although a membership is required to access full articles, the Offshore Alert website is worth checking out. David Marchant’s investigative journalism has broken the news on many offshore scams, dodgy companies, investment criminals & pyramid schemes.