My client is a highly-paid international lawyer who has been asked to spend a period of time (probably up to five years) on an overseas secondment.
He is 45 and has been working for the past 20 years for a big City firm. He has a personal pension plan with a current fund value of £450,000 and a portfolio of various unit trusts, Peps and Isas worth another £175,000, which he has accumulated over the years in a haphazard manner. Both these fund values have fallen significantly over the past few years and he is now concerned about the lack of “strategy” in his investment planning.
He has a house in the UK worth £1.5m and is contemplating buying a villa in Cyprus worth £250,000. He was born in England but has no desire to retire here, preferring to spend his retirement years in a low tax jurisdiction such as Cyprus. He is married with two children, who are now both at university.
He has heard of international private wealth management and wants to know how it might benefit him and, in particular, how he can link that with a personal financial plan to enable him to retire to Cyprus. How should he go about this?
Wealth management is best described as an holistic service with four key constituents:
Most good wealth management services concentrate on investment management, tax planning, retirement planning and protection against the catastrophic effects of premature death or serious illness, which can be so destructive to personal wealth.
You must, however, shop around because the breadth of the service varies from provider to provider. A good provider will give you a choice of discretionary or advisory portfolio management, structured investment products (hedge funds and yield-enhanced or capital-protected products), credit services and a range of sophisticated fiduciary services such as onshore and offshore trust creation, establishment of offshore companies and limited partnership creation.
This can be achieved by using in-house providers of the various services or, better still, by buying in the services of providers which are considered to be “best of breed” in each area.
Most discretionary portfolio management services offer a range of ready-made portfolios designed with different risk profiles in mind. Instead of creating a unique portfolio for each client, it is the client who is categorised and placed in one of a range of prefabricated portfolios managed on a discretionary basis within certain risk parameters.
There is also a range of multi-manager funds, where wealth management services invite investment houses to create special funds which are not available on the retail market but can be linked to investment portfolios or self-administered pension schemes.
The internet also plays a role in the delivery of wealth management. Execution-only share dealing services and fund supermarkets are particularly attractive to people who travel a great deal.
The priorities of wealthy international individuals have changed in recent years, with clients becoming increasingly more active in the management of their wealth, scrutinising the performance of their investments and looking for more frequent contact with their advisers and investment managers. Their priorities can be summarised as investment performance, increased appetite for risk and sophisticated products, personalised service and specialist advice,
consolidated reporting and advice on international trust and tax structures.
Cyprus is an associate member of the EU and has a pending application to attain full membership. A residential permit is easily obtainable for persons living in Cyprus who have purchased a property.
As a foreign resident in Cyprus, your client will be able to take advantage of a favourable tax regime. He will pay only a flat rate of 5 per cent on all pension and investment income.
However, you will still require a firm that has the expertise or ability to ensure that appropriate wealth structures, including a mix of trusts, offshore funds and tax products, are offered.
The establishment of international tax structures gives protection to assets and provides for specified beneficiaries both during and after a settler's life. They can also ensure maximum tax-effectiveness in the creation and administration of the appropriate trust and private investment companies, onshore and offshore. As well as legitimately avoiding the payment of tax, trusts can also provide protection against probate, political instability and third-party claims arising, for example, from divorce or litigation