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Expats are urged to bypass commission-heavy bonds

Expats may be better bypassing commission-heavy investment vehicles in favour of platforms when setting up a qualified recognised overseas pension scheme, according to AES International.

Managing director Sam Instone says many overseas brokers see Qrops as a route to selling offshore insurance-based investment bonds which pay them substantial sums in undisclosed commission.

When setting up an overseas pension scheme, the client will use a Qrops trust provider for pension administration and then decide where to place the underlying investments.

Offshore investment bonds are widely marketed as offering simplified admin, confidentiality, robust investment protection and greater buying power, allowing investors to gain access to a range of funds at NAV instead of being subject to the bid offer spread.

They are commonly used in the UK as a wrapper for tax deferral and can be useful for clients planning to move overseas or likely to change their tax band.

But Instone says many of these benefits are available through a direct investment platform and it is unreasonable to pay very high charges on the bonds when the insurance element used for tax deferral is not required because the trust provider is already in a low tax jurisdiction such as Guernsey.

He says the client can invest in unit trusts, cash funds and equities at a substantially lower cost direct through a platform.

He says: “Apart from the high fees putting off clients – the fact that EU authorities may legislate against these insurance-based vehicles in order to ensure tax compliance makes these vehicles pretty unattractive when compared with platforms which potentially have much better charges, access and terms.”

Montfort International adviser Paul Davies says: “It would depend on the Qrops jurisdiction in question, the length of time until the individual’s retirement, their retirement options and their attitude to risk. Depending on these, either could suit.”

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