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:<\/p>\n\n\n\n
A guarantee is only as good as the person or institution providing the guarantee.<\/p>\n\n\n\n
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 \u2013 worthless at worst.<\/p>\n\n\n\n
Again, a capital\/principle guarantee is only as good as the person or institution providing the guarantee.<\/p>\n\n\n\n
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 \u2013 which they do with alarming regularity.<\/p>\n\n\n\n
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 \u2013 you pay a very dear price indeed for investing in these types of investments. <\/p>\n\n\n\n
As an example: If you were to invest \u00a3100K in such a bond and let\u2019s 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 \u2013 but hang on a minute. What\u2019s the likelihood of that actually<\/em> 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\u2019t stupid. <\/p>\n\n\n\n Why not invest less in S&P500 and FTSE All Share tracker funds\/ETFs, say \u00a330K, and get all of the gain over 7 years instead? And you\u2019re committing less capital, freeing up \u00a370K for something else, right? And if the indices are lower in 7 years (unlikely) \u2013 just weather the storm until it blows over. It\u2019s \u00a330K not \u00a3100K tied up after all.<\/p>\n\n\n\n Everything has risk. If you keep your money in cash it won\u2019t grow and it will gradually lose its spending power (inflationary risk). <\/p>\n\n\n\n There are a handful of offshore investments that do actually offer very limited risk and in tandem with such low risk \u2013 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\u2019s 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.<\/p>\n\n\n\n Although there are a handful of highly skilled, qualified, independent and honest financial advisers working offshore, they are vastly outnumbered by sharks.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n Offshore investments are notoriously expensive and many of the underlying costs are hidden.<\/p>\n\n\n\n Did you know that your offshore financial adviser can not only get commission \u2018up front\u2019 on any product you invest in, but can also receive extra<\/em> commissions for the underlying funds the product invests in? And if this wasn\u2019t bad enough \u2013 funds can also be \u2018back-end loaded<\/em>\u2018 with more fees on exit\/sale of underlying funds. Yes! As if double charging wasn\u2019t bad enough, triple charging<\/strong><\/em> is also common offshore. Pure greed.<\/p>\n\n\n\n Unless you are super-rich and have very legitimate reasons to spread your wealth over the globe, stick with the familiar \u2013 always.<\/p>\n\n\n\n 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 \u2013 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. <\/p>\n\n\n\n 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 \u2013 and you shouldn\u2019t either!<\/p>\n\n\nNo risk or low risk<\/h2>\n\n\n\n
Just like surgery?<\/h3>\n\n\n\n
Regulation<\/h2>\n\n\n\n
How qualified is your financial adviser?<\/h3>\n\n\n\n
Fees, charges, commission<\/h2>\n\n\n\n
Are your investments making money for you or your adviser?<\/h3>\n\n\n\n
Jurisdictions<\/h2>\n\n\n\n
Where the hell is it based?<\/h3>\n\n\n\n