With interest rates and inflation at their lowest levels for years and low-margin stakeholder pensions on the horizon, investors and IFAs are looking for alternative vehicles for savings and investments other than the traditional bank and building society deposit accounts. I believe offshore products should be among them.
We are all aware of the potential impact of stakeholder and stakeholder-type products on the profitability of an IFA's business. The 1 per cent maximum charge will squeeze margins and have a knock-on effect on their income streams. So there is a real need for IFAs to look elsewhere for new business opportunities.
Diversification does not have to be as scary as it first sounds. All IFAs need to do is look for an untapped market which will continue to grow. Simple. There is such an opportunity – the offshore market.
The offshore market has enjoyed stunning growth over the last 10 years. According to AILO, the market grew by 98.5 per cent between 1995/97.
It is predicted that this growth will accelerate based on two key drivers – market buoyancy and the improving reputation of the offshore market.
The most recent Private Wealth Survey by Merrill Lynch/Gemini indicated that there are over four million wealthy investors – approximately 4 per cent of the adult population.
This number is expected to treble in the next six years. According to the survey, the wealthier the client, the more likely they are to invest offshore. Clients with more than £500,000 tend to invest up to 50 per cent of their assets offshore.
There lies your second opportunity – the emerging affluent with between £50,000 and £100,000 who tend to invest 5 per cent of their wealth offshore. This creates a chance for IFAs to advise this group that offshore investment is not just for the super-rich and could be the right choice for them.
The key advantage of the offshore market is the flexibility of the tax environment. The scope for corporate and trustee investors, in particular, to choose when and, to some extent, how much tax to pay will stimulate the use of offshore vehicles.
Potential clients are now much more likely to be aware of offshore investment and its benefits. The offshore market is gaining in respectability and it is anticipated that fears and suspicions will decline and it will become one of the mainstream markets.
Offshore investment can be particularly useful for corporate and trustee investors but there is no denying it can be complex. This can work to an IFA's advantage. Although high-net-worth clients are more financially aware than the average client, they are still looking for advice and support. This can range from providing information to offering a whole wealth management service. In either case, IFAs can fulfil an important and valuable role.
Wealth management has traditionally been the reserve of private banks and boutique investment firms but high-net-worth clients are becoming increasingly interested in the opportunities presented elsewhere.
As a result, a large number of reputable providers are supplying support packages and are constantly developing more attractive offshore products and services including a range of financial solutions for tax planning and corporate investment.
Clearly, there is an opportunity here. Respectability has improved, old perceptions have all but disappeared and demand is predicted to continue to grow. It is an excellent time to diversify into the offshore market.
Tracey Dyer is senior sales development executive at Clerical Medical