The UK-based firm said, after conducting research into the advice process involved with recommending offshore bonds, it has concluded that advice based purely on charges “may not be sufficient to identify products suitable to client needs”.
Specifically, Defaqto argue examining the range and quality of features offered by products should form a key element of the due diligence process.
The areas which Defaqto said should be considered as part of this 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
In addition, Defaqto said its guide, which can be downloaded for free here, sets out the key areas of due diligence advisers should consider when selecting a bond provider. This includes the following:
- 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
- Platform availability through the insurer
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.”
