How to soothe an expat headache

Expat clients likely represent a disproportionate risk to your business, argues Paul Stanfield, chief executive of FEIFA

The last decade has seen the increasing migration of people leaving these shores for pastures new, whether temporarily or permanently. Last year alone, 340,000 British nationals left the UK to join the many millions already permanently based abroad.

The relevance from your perspective is that you probably have, or very soon will have, one or more clients that now live abroad, or intend to do so in the near future. How can you effectively advise them, safe in the knowledge that you have all of the information that you need to ensure your usual quality of advice?

A taxing problem

It would be easy to believe that, because we are talking about existing clients, you know and understand them and can thus continue to assist them in very much the same way as before. Unfortunately this does not take into account the necessary tax, compliant product and currency implications that are almost certainly now going to affect them.

For example, you may have constructed a very appropriate investment portfolio for a married couple who have been clients for some time. This is held within an Isle of Man (IoM) Life Assurance Bond, from which they have been taking 5% per annum for some time. They have recently moved to Spain and, whilst their risk profile and income needs may not have changed, their tax environment has. The “5% rule” does not apply in Spain and an IoM Bond has no tax efficiency whatsoever in that jurisdiction.

The good news is that an EU-compliant bond can be highly tax-efficient in Spain and thus a transfer to such a vehicle may solve the problem. But which companies provide these products, what are the tax implications and where can you find an appropriate bond for an expat in Spain?

Product restrictions

Although you may feel that we live in a single market where financial services products are concerned, that is not really the case. Although it is possible, due to various EU Directives, for life companies to market their products cross-border, in most Continental countries there are presently fewer products available to expats from international insurance companies than there were in the mid-90s.

The single market has brought with it a need to meet local rules and regulations, and the vagaries and variations in these have led to increased product design and distribution costs. Hence the irony of less product choice in this so-called single market.

It is therefore exceptionally important to ensure that any advice to expats, or would-be émigrés, utilises compliant products.

Technical and currency issues

In many instances a UK IFA may simply not possess the necessary technical knowledge. Even those with a highly technical bias are unlikely to have “international knowledge”. For example, what do you know about QROPS? In order to completely advise any expat who has a UK pension, you ideally need to know about these pension schemes – the pros and cons, appropriate jurisdiction for your clients, relevant timing for any transfer etc.

Finally, there is the issue of currency. Understandably, UK advisers rarely, if ever, have to take currency issues into account, but the risks embodied within this area can be considerable for an expat.

Solutions

There are, of course, many ways to mitigate or even completely remove these issues. Most of the relevant information is “out there”, albeit that locating it might take significant time. Alternatively you may have an existing relationship with an adviser or accountant in your clients’ new homeland, or they may introduce you to such an individual.