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Will many advisers move offshore to escape UK regulation?

Rachael Adams asks whether advisers will move abroad to avoid regulation

Moving abroad has long had the dual appeal of warmer weather and a more relaxing lifestyle but it would seem that UK tax legislation is increasingly becoming a factor.

Last month, a survey by Lloyds TSB International found that 36 per cent of the UK’s top income bracket want to emigrate, with 35 per cent of those polled citing high taxes as the reason. At the same time, strict UK regulation, the impending RDR and passporting capabilities enabled by Mifid mean that some IFAs are also seeing the EU and beyond as a more appealing location.

Bloomsbury Financial Planning director Jason Butler says he can see why wealthier Brits may view emigration positively. He says: “It is illogical to state that we are lowering corporation tax to be competitive when we are raising personal taxes to generate revenue. I have already had two wealthy clients emigrate because of high taxes.”

AES International CEO Sam Instone says: “We have seen a proliferation of people wanting to leave the UK to benefit from median tax environments and to access their pensions earlier.”

There is speculation that such emigration could be short term, however. Worldwide Financial Planning director Nick McBreen calls the current panic “smoke and mirrors”. He says: “Every time there is a tax change, we hear about this raft of people who are going to ship out but the complexities mean it does not work. So they turn around and come back.”

Moving abroad may not offer the best solution in terms of personal finance. director Ashley Clark says: “The grass is not greener over-seas. Many EU countries pay more in income, wealth and inheritance tax anyway.”
Short term or not, the impact on the IFA industry could be substantial. Butler believes emigration may benefit advisers and says: “There will be a lot more work for good advisers who understand how tax impacts on those moving abroad.”

However, the significance of increased emigration lies more in its effect on IFAs’ locations than their workloads.

Cicero Group research associate Margaretha Bata says: “The question is whether there will be an increase in wealthy investors escaping the UK tax system which is large enough for IFAs to ’follow’ them en masse. In conjunction with a stricter regulatory regime such as that introduced under the RDR, the incentives for IFAs to move overseas could potentially grow.”

Even Aifa’s Advice Horizons paper, published last year, appeared to encourage IFAs to utilise the passporting provision introduced under Mifid – wherein the home state has the responsibility for business requirements unless a host state takes control – to avoid the RDR.

Bata says: “More IFAs will assess the benefits of moving abroad to escape regulation, especially after the EC publicly confirmed that Mifid will exempt firms passporting into the UK from additional RDR requirements.”

Firms such as Guardian Wealth Management have explicitly stated that their overseas recruitment drive is intended to aid advisers who do not wish to train for QCF level four.

Butler disapproves of this tactic and says: “I am absolutely livid that an IFA can relocate, obtain regulation from that location’s regulator – which you can bet your hat will be as effective as a paper umbrella – and passport back. I raised this question with Peter Smith of the FSA and all he could say was, ’We are aware of the potential for passporting to undermine the RDR.’ They can do all the talking they want but I know more IFAs will go down this route rather than offer themselves up for gold-plated regulation.”

Passporting does not allow IFAs to wholly escape the RDR, however. As Instone points out: “The alleged loophole of establishing a company in, say, Belgium, then passporting in, is non-existent. All passporting regimes require each local jurisdiction to enforce a general good requirement that firms passporting in have to meet and in the UK that is to be fee charging and transparent. Passporting is an idea for the types of guys who inhabit those blogs and grumble about the FSA but in reality it will not work.”

Butler agrees that setting up an advisory business overseas does not come without its problems. He says: “It is out of the frying pan and into the fire. What is to say that the Irish, Germans or Cypriots will not implement an RDR-style model? Dutch regulators are about to undertake a review.”

McBreen sees another potential obstacle. He says: “With the freedom to trade across borders, Europe is just becoming more homogenised. It will not encourage IFAs to leave, it will encourage them to stay because the UK will be the same as elsewhere.”

The lack of strict regulation overseas may be a draw for IFAs but it arises from less developed intermediary markets.

Clark says: “Many overseas regulators do not have an ’IFA’ market. When we tried to set up a directly authorised business in Spain a number of years ago, the two main Spanish regulators had very little comprehension of what we do.”

Instone says the same applies in other countries. “In Germany, for example, there are only three or four providers, whereas in the UK you have a choice of 200 for one type of contract,” he says.

The key obstacle that stands between UK IFAs and moving abroad, however, is the consumer. Bata says: “Some clients may prefer to deal with a company that is UK-regulated because they feel safer.”

McBreen takes a stronger stance. He says: “British people will not want a passported adviser. We are too dyed-in-the-wool. People will be wary as it will smack of Ucits, which they see as scary.”

Butler says the practicalities of overseas advice are problematic. He says: “There is no language barrier with UK advice. Can you imagine an old lady from Bournemouth trying to complain to an adviser based in Greece with a Greek complaints form?”

Although AES International has a wide distribution of clients, Instone agrees that a cross-border client relationship can be difficult. He says: “If the client trusts the adviser, fine. But my advice would be to be very careful when dealing with an ’international adviser’. Knowing what I know, there are very few international jurisdictions I would want to take advice from. You just do not know what you are going to get.”

McBreen’s view, that “people leaving the UK seems to be a recurring story that never quite happens,” may prove to be accurate in the case of emigration. Only 14 per cent of those polled by Lloyds said they were likely to move in the next two years and the influx of immigrants from wealthy countries such as Russia means that any outward emigration will be counterbalanced.

In terms of IFAs, a mass exodus is also unlikely. The fact that EU regulators are, or will soon be, as stringent as the FSA, also means that there is little point in upping sticks.

Instone says: “All countries have their own macroeconomic peculiarities. The FSA is seen as harsh but at least you can communicate with it.”

Butler thinks that remaining in the UK could secure overseas business. He says: “UK-based advisers could market themselves as a cut above the rest and position themselves as the most well regulated advisers in Europe.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. SIMON MANSELL 11th May 2011 at 3:17 pm

    “…..but in reality it will not work.”

    But in reality it does works and is working right now! The FSA RDR Little Englander attitude ignores the fact that we are part of the EU and the EU is an even bigger regulator than the FSA.

    Under EU law super-equivalence is not permitted, which is why the FSA are unable to apply their proposed rules to inwardly passporting firms, as this would bring the FSA into direct contravention of Article 31 of the L1 Directive (2004/39/EC). NB: Firms passport into the UK from the EU just as UK firms can passport into EU states via the UK. This two way traffic is the corner stone of EU law and the principle of trading harmony.

    This is why the FSA have confirmed they will not be applying the RDR rules to firm’s exercising Article 31 rights in their draft notification to the EC (ref CP09/18 Ann B pars 26 and 51).

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