5 Myths about Offshore Asset Management
By using an asset manager outside your own country, you gain a practical degree of financial privacy and asset protection. Since lawyers size up targets for lawsuits by looking for their money, someone considering suing you may decide to find a target with more visible wealth. In addition, a portfolio manager outside your domestic jurisdiction is likely to target different investments than a domestic manager would, leading to a greater investment diversification, and thus greater resiliency in your overall portfolio.
However, despite those obvious advantages, often when I talk about offshore banking there seem to be the same misconceptions and myths coming up repeatedly. Therefore, it is my pleasure to bust the five most common myths about offshore asset management today.
1. Offshore Banking is Illegal
By far the most common fear that people have is that offshore banking and asset management is illegal or at least shady. Many people still seem to connect the term offshore with hiding something, but nothing could be further from the truth. Not only is it perfectly legal, but if set up properly it can also be extremely beneficial.
When considering an asset manager it is important to make sure that they are registered with the SEC and have a long track record of working with US clients. You need to work with a partner that understands the US legal and compliance framework and your need of global diversification. You can check if your asset manager of choice is SEC-registered here.
2. Offshore Banking is for Tax Evasion
As already mentioned in the beginning of this article there are many valid reasons for starting an offshore banking relationship, you get enhanced privacy, especially in combination with a properly set up asset protection solution, you get geographical diversification and you can set up a global portfolio that is free from a US home bias. However, tax evasion is not one of them. Since the beginning of 2017, the global standard on the automatic exchange of financial account information (AEOI) is in place. It aims to increase tax transparency and thus prevent cross-border tax evasion. So far, over 100 countries, including Switzerland, have committed to adopting the standard. Please note that domestic bank client confidentiality in Switzerland is not affected by this standard. You can learn more about the AEOI here.
3. You need to be Super Wealthy
While it is true that offshore banking is not always the cheapest option (especially if you are considering Switzerland), you do not need to be an ultra-high net worth individual to profit from an offshore banking landscape. The minimum investment sizes varies from bank to bank. With greater wealth, the benefits of offshore banking start to compound, but nevertheless if you have a minimum investment size of USD 250'000 it can make sense to consider it as an option. Have a look at our service offering for smaller investment amounts here.
4. It is extremely Complicated
Opening an offshore bank account does come with some paperwork, that cannot be denied, but working with an independent asset manager vastly reduces your work. You have one contact partner that puts all the forms together for you, prepares everything and then walks you through every form step-by-step. You can consider your independent asset manager as a one-stop-shop that takes over all the administration and coordination with the bank and that can introduce you to any additional services you may need. Also, the initial administrative hurdle should be seen as an investment in a long-term and stable financial solution. Once the account is set-up and invested there is very limited paperwork required and you have a safe nest egg that will give you peace of mind for the next decades.
5. Having Assets outside the US means more Risks
While it may sound like a leap of faith to move some of your assets offshore and hand over the management to a person on the other side of the world, it actually can reduce your risks substantially if done properly.
By moving your assets offshore, you have the opportunity of choosing a safe jurisdiction like Switzerland. Switzerland is the world’s oldest financial haven, local banks show professionalism and integrity and the country has a strict policy of neutrality and non-intervention. The great stability of the Swiss economy and political system have their roots in a highly developed conservatism.
Additionally Switzerland has one of the best laws when it comes to protection of bank deposits. The custodian banks carry all accounts in the name of their clients. Securities are traded and held in the bank’s name but segregated from the bank’s own assets. Through the Deposit Protection Scheme, in the event that a bank is declared bankrupt, deposits of up to CHF 100’000 per client enjoy the privileged treatment. Unlike cash deposits, assets lodged for safekeeping (such as shares, bonds and other securities) are client property, and in the event of the bankruptcy of a bank are immediately ring-fenced and released to clients separately from the bankruptcy proceedings. They, therefore, do not form part of the bankruptcy estate at any time. This reduces the risk of losses suffered significantly. You can read about this in more detail here.
Also, having a part of your wealth outside your home country helps truly diversifying your portfolio and serves as a hedge against a potential weaker US dollar thus lowering your currency risk and increasing your portfolio's resilience.