Lump Sum Investing – Offshore Platforms

Today let’s take a look at a simple lump sum investment vehicle. These are often referred to as platforms or wrap accounts. There are a number of them available these days, each with different features, but we’re not going to try to compare one with another here, just to give an overview of how they work.

First of all, these products are for lump sum investment. If you are not sure what we mean by lump sum, please read this. Minimum investment levels will differ, but around USD 25,000 is typical.

Structure – The typical structure for these investments is a nominee account, whereby the assets are held by a nominee company set up by the platform provider. Investor assets are segregated from the provider company assets and the individual investor is the beneficial owner. Compared to investing directly in the underlying funds costs are reduced due to bulk trading and settlement is quicker.

Security – the nominee account structure ensures that if anything were to happen to the platform provider as a business, the investor assets are held separately. If one of the underlying funds falls in value or fails, then capital is of course at risk.

Jurisdiction – offshore platform accounts are typically set up in Isle of Man, Guernsey, Luxembourg or an equivalent tax efficient jurisdiction.

Tax – as the accounts are set up offshore, no tax will be deducted from the investment “at source”. Account holders are of course responsible for reporting the investment in the country they are tax resident in.

Investment options – Platform accounts can be either open architecture or menu-driven. Open architecture means you can own pretty much any publicly traded financial asset, which would include direct stocks, bonds, ETFs and mutual funds. Menu-driven platforms will have a fixed menu of mutual funds to choose from, and some of them will also have a menu of ETFs. Platform accounts are also likely to have access to a number of “managed portfolio” investments. These portfolios are managed by an investment manager and can invest in a diversified range of assets, many of which may not be on the platform menu itself. They are usually managed in a base currency, to a specified risk profile. So a USD Growth portfolio will have USD as it’s base currency and will invest in a range of cash, bonds, stocks, funds, ETFs and alternative strategies. The manager will have control over the underlying investments and will likely rebalance them on a regular basis.

Distribution – offshore platforms are typically distributed through financial advisers.

Fees – fees will vary from one platform to another. Typically the platform provider will take 0.5% upfront on money invested and 0.5% per year. The financial adviser handling the account may then add an upfront and annual fee on top of that, which may be negotiable depending on the investment amount. Mutual funds and ETFs on a platform will typically deal at NAV, which means there is no initial fee. Usually there are no redemption fees / exit penalties and all money can be withdrawn any time with reasonable notice.

Drawbacks – although you will be able to view your investment online, not all platform accounts allow online “trading”. They are not brokerage accounts and in some cases you will have to submit a signed instruction in order to buy or sell assets. The idea is that you should be discussing your investment strategy with your adviser and making long term asset allocation decisions, not trading assets day to day.

Platform accounts can be an efficient and cost effective lump sum vehicle. They also tend to offer significant diversification. This means it is possible to establish a solid core/satellite approach, whereby the majority of the investment is in a well diversified portfolio and a smaller percentage is invested in more alternative or riskier assets.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.