The word ’structure’ reminds me of my school English teacher. I cannot recall his last name but it was alleged that the initials for his given names ‘J T’ stood for John Thomas and he was therefore saddled with the knickname of Dobber.
Anyway, I digress. Structure, for our purposes right here and now refer to the sometimes complex, often expensive and generally unnecessary habit of placing ones offshore investments in a “wrapper” in the guise of simplifying admin.
There are genuine reasons why one might want to use such an arrangement and I myself use a combination of an offshore company linked to the nominee service of an FSA regulated stock broker in London through whom I can buy my offshore funds. My reason for doing this is succession planning; making the passing of whatever assets I leave easier to get at for those that I want to leave them to. Others have different reasons such as asset protection, tax mitigation, simplification of one’s affairs etc. Mine is not to reason why but I do think that mine is to reason how and who is most cost effective.
Generally;
1. If you are a short term investor and you are just trying to build some capital short term, then you probably do not need any sort of offshore structure at all.
2. If you invest in joint names with someone you trust you almost certainly do not need any sort of offshore structure at all.
Buying direct, using this web site and owning in your own name is the cheapest way to do it, of that there is no doubt.
The one big product that everyone knocks is the offshore insurance company portfolio bond and yes, it is horribly expensive but this is really only because the people that sell it demand it to be so. Realistically most offshore insurance companies actually charge only 1.5% in establishment charges plus GBP95 per quarter in administration charges and then GBP21 per transaction. That is not expensive but that is on a NIL commission basis. Typically, an IFA will add 7% to that in commissions.
I take 1.25% on these so you are still only paying 2.75% in establishment. Furthermore, if you plan to live in the UK at any point, no matter what your nationality there are tax advantages.
Most nominee services charge a transaction fee, custodian fee, annual management, dormant account etc., etc.,etc. The one I use charges only a transaction fee. That make life easier and you can sit in cash for as long as you want. No charge for that.
Many people get away with just a BVI Company set up which costs as little as US$1,035 to set up and then US$600 per year. Downside is the mountain of due diligence you have to provide when buying funds which is why I use the nominee service as then you only do the DD once.
There are a coiple of new variations on the theme that are allegedly cheaper alternatives to the traditional portfolio bond and supposedly a lot cheaper AND, most importantly with online dealing. Hmmmm. I decided to take a look.
Actually, there is no on-line dealing just something made to look remarkably like it but the system still depends on your financial advisor manually placing the deal. There are on-line valuations, for whatever that is worth.
From a charges point of view they are certainly marketed to look cheaper but are they really? What I did was ignore discounts at the fund manager level because we can all get those, and I also compared each product on a NIL initial commission basis to level the playing field. What did I get?
I can’t name names but let’s call them new boy number one and new boy number two, BVI company, nominee account, offshore trust company and PPB for reference. I also assumed that the entire portfolio is reinvested once a year which is excessive but you have to assume something.
On an investment of GBP20,000, Nominee account is cheapest and PPB is most expensive. The range is from GBP150 to GBP932 year one and from GBP150 to GBP632 annually thereafter. Newboys number 1 and 2 come in 4th and 5th close behind the PPB.
Take the investmnent up to only GBP50,000 and PPB jumps up above both the new boys and the cheapest is still Nominee. The range is from GBP375 to GBP1,750 year one and from GBP375 to GBP950 annually thereafter. Interestingly though the annual figures change the order with newboys 1&2 changing places in expensiveness stakes.
I did these numbers again for 100,000, 200,000 and 1 million in Sterling and USD. The upshot is that BVI takes over as cheap charlie from 100k invested but nominee stays at number 2 throughout. On the annual fees PPB is second only to BVI.
It is no coincidence that the combination of BVI and nominee service charging only a transaction fee per deal is what I use to hold offshore funds. It is the cheapest way to do it!
The real killer is not actually the year one establishment costs even though at the top end of my range, newboys 1 and 2 were DOUBLE the next most expensive.
It is the annual fees that are going to kill you. BVI company is going to cost you USD600 per year. In return for internet valuations and simplified admin, newboys 1 and 2 are taking about 35 times the cost of a PPB on 1 million in annual charges.