Open up the investment market

John Doherty

The use of offshore centres by UK legal firms still focuses on the traditional realm where legal advice and financial advice are most closely linked – that of trust formation.

This is not only due to the higher cost of offshore services. The repertoire of financial advice offered by the UK solicitor has often not been dynamically developed in the budding financial services wing, but dictated by the needs of clients of the legal practice.

As a result, offshore financial advice from legal firms tends to be tailored to the wealthier client. Their financial needs cover the up-market end of investment management, more than the level of the high street broker with his savings plans, life policies and funds.

Despite new Law Society guidelines from 1 November to ensure proper qualifications in solicitors' financial services departments, this concentration on the wealthy client as the core user of offshore services is unlikely to change.

Offshore services will continue to require a certain level of liquidity, according to Michael Lally, director and investment manager at THESIS, the financial services wing of Thomas Eggar Verrall Bowles in Chichester. "Offshore is more expensive than onshore. For a client wanting to invest a smaller sum, it may just not be worth the costs involved.

"Quite often you have to pay third parties and safe custody charges. It's pointless doing that with small amounts. People are keen to avoid tax, but you must be careful that annual running costs are not more than the tax you are saving."

The overheads of an offshore trust investment are accountancy costs for preparing

returns, safe custody charges for holding or delivering stock or bank charges for making cash payments.

For trusts intended to generate income, with high levels of purchasing, selling and paying of dividends, Lally pegs £100,000 as a minimum threshold. Trusts not designed to provide income, arrangements may be simpler and costs lower. This kind of basic trust could be feasible for an investment of £50,000 to £75,000, Lally says.

Offshore trust services are, therefore, unlikely to attract the legal client with less than £50,000 in disposable income.

"Generally our clients are people who have already accumulated their capital. Most solicitors who are members of the Association of Solicitor Investment Managers network deal mainly with high net worth individuals. We don't tend to get involved with the regular savings client because that market tends to come through advertising. Most lawyers are low-key in that regard, even though the rules have been relaxed. You can say who you are, but you can't say how good you are," said Lally.

Insurance is another area where the traditional trust client has not generally demanded the solicitor's advice.

As a result, insurance does not figure in the product range of Cripps Harries Hall, a Tunbridge Wells practice where the financial services department already accounts for 25 of the company's 160 staff.

"We don't use life insurance-based offshore products at all," says David Lough, director of finance and investment services.

"We are dealing with people who have enough capital to gain sufficient spread of risk by holding their own investments directly, or for their trustees to hold the investments directly on their behalf. They don't need the extra costs and complications that come from life insurance wrappings."

The offshore providers of insurance disagree, claiming that their products can have specific uses in managing the offshore affairs of legal clients.

Kevin Taggart, marketing and technical services assistant manager at Royal Life Insurance International (Guernsey), laments the fact that little business for the company's range of 12 offshore insurance products comes through the financial services wings of law firms.

He claims that insurance products can be ideal building blocks within a trust.

"An offshore life policy is deemed to be a non-income-producing asset, and is quite an efficient product for a trust to hold for capital appreciation, and to defer income and capital gains tax," he says.

Graham Marsh, distribution manager at Old Mutual International in Guernsey, shows how offshore insurance products can be deployed to avoid probate problems in estate planning.

"The way to utilise money invested offshore is to put that money into an insurance bond where you have two or three lives insured," he says.

"These individuals have no interest in the policy, but when the individual dies, it is owned by his estate, or his next of kin as nominated in his will. No grant of probate is needed. The policy simply continues until those individuals want to withdraw money".

John Doherty is a freelance journalist.