Offshore bond due diligence must consider features ...
Offshore bond due diligence must consider features not just charges to meet clients' needs
11 Months ago at 8:00
According to independent financial research company Defaqto, it is important for advisers to consider the features of individual offshore bonds into account, and not just focus on the charges involved, to identify products that meet the unique requirements of their clients.
Defaqto's Guide to offshore bonds, published today, shows how limited research that focuses solely on charges may not be sufficient to identify products that are suited to client needs. As a result, examining the range and quality of features included should form a key element of the due diligence process.
Once a client's circumstances and financial objectives have been established, and having found that the characteristics of offshore bonds provide the best overall solution at tax wrapper level, the next step is for advisers to identify which product is most suitable based on the features they offer.
According to Defaqto, the areas that should be considered as part of the due diligence process include:
Variety of investment options
Product guarantee options - the decision on whether to use a guarantee should be determined by the client's attitude to risk and their willingness and capacity to take losses
Online services - businesses increasingly work online for speed and convenience
Currency - where the reasons for using offshore bonds include issues of residency or migration, the bond's currency could offer a means for obviating currency risk
Technical support - the level of support offshore insurers are able to offer on issues such as estate planning and use of trusts can be crucial to meeting clients' long-term objectives
Trust document availability - it is likely that trust documents offered by bond providers will be well tested and up to date with any legislative changes so where offered these are a valuable feature for advisers
Adrian Gaspar, Senior Consultant at Defaqto, said:
"As with any financial product, selection of an offshore bond should be made first on the basis of provider due diligence and then the features offered by specific bonds to ensure they are able to deliver the client's goals. People using offshore bonds tend to be those with high net worth and complex circumstances. As such, the financial objectives of each client are likely to be different.
"Once those circumstances are established and it is found that offshore bonds provide the best overall solution, the next step is to identify which product is most suitable. The range and quality of features available with offshore bonds is not uniform and advisers should take care to examine which features are absolutely essential, which are desirable and, in fact, which may not be necessary to identify bonds that are an optimum fit for the client's objectives."
The guide also sets out the key areas of due diligence advisers should consider when selecting bond providers, as well as their products:
The financial strength of the insurer
Provider jurisdiction and the impact this has on regulation, supervision and compensation arrangements
Which type of investor (UK resident(whether UK domicile or non-UK domicile) EU resident or Non-UK resident) can access bonds from a provider
Defaqto's Star Ratings for offshore bonds provide an independent verification of the comprehensiveness of the features of a product. Star Ratings can help validate advisers' recommendations by indicating where a product sits in the market and the segments within that market based on the comprehensiveness of the features and benefits the product offers.
In addition, Defaqto offers comprehensive data on all offshore bond options and product features available to advisers in its online product research tool Engage. For more information visit www.defaqto.com/adviser/engage.
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