Offshore going mainstream

The boom in offshore funds is set to continue as more and more advisers accept the products as mainstream solutions to financial planning.

A survey of more than 500 financial advisers, conducted by Skandia International, shows that more than one in three advisers expect the proportion of offshore advised on to increase over the next 12 months. At the same time, just 2% said they expect it to decrease.

While the proportion of offshore sales is still relatively small – 78% of advisers say it accounts for between 1% and 10% of its business – Skandia believes this is likely to increase over the next year. This is based on figures from the Association of International Life Offices (AILO), which suggest, for example, that the market for offshore bonds has more than trebled over the past decade with the most significant growth occurring in the past three years.

According to AILO, the offshore bond market was worth £8.7bn in 2006 compared to £4.4bn in 2003, with £6bn of this coming from the UK. Adrian Smith, international product marketing manager at Skandia International, said there were a number of reasons why offshore bonds were increasing in popularity.

“Generally offshore investing has become a more acceptable and familiar option in financial planning over the past few years."

“This is largely due to the fact that offshore investments are better understood today and are no longer seen as tax efficient schemes only appropriate to the very wealthy.

“In addition to this more companies are launching offshore products, which expands choice and raises awareness as the amount of promotional activity is increased.”

Almost every major asset management house has a range of offshore products, targeting both UK and global investors. Franklin Templeton’s 50-plus strong Luxembourg Sicav range, for example, dwarfs its 9-strong range of onshore Oeic range.

JPMorgan, HSBC, Schroders, Fidelity and Gartmore also have strong offshore fund ranges. Skandia’s Smith says the stock market boom and strong economic growth of recent years has also been behind the rise in offshore fund and product sales.

“Global stockmarkets generally have been buoyant over the past few years. Allied with increasing levels of personal wealth this feeds through to more people able and willing to invest.”

The increases in offshore business are likely to be greatest in the Middle East and South America, Skandia suggests. Its survey shows that 80% and 82% of advisers in the Middle East and South America respectively see their offshore business increasing.

Sales also look to be significant in the Far East and Hong Kong, where 73% and 64% of advisers respectively expect to write more offshore business in the next year. The figures were lowest in Europe (55%) and the UK (37%). Peter McGahan, director at Worldwide Financial Planning, said the boom in offshore business was not surprising.

"There are far more people retiring offshore, more working abroad and products are becoming increasingly flexible, more transparent and cheaper,” he said.

1 October 2007