Expat wealth management
Any well-travelled expat knows how difficult it can be to move personal possessions from one country to another, and it's just the same when it comes to transferring your wealth management plans. But while portability and flexibility are the keywords when it comes to handling your finances as an expat, often the best measure can be to keep wealth in a central location while you move around it.
Simplify your finances
Changing location frequently makes it all too easy to build up financial assets across different countries and in various currencies, all subject to different tax regulations and currency fluctuations. In reality, it helps to keep the structure as simple as possible; rather than having assets scattered around different countries, it's better to consolidate those assets into fewer - or even single - regions, and subject to only one tax regime if possible.
In fact, since managing this kind of complex financial situation and ensuring wealth can be effectively handled as you move from one country to another is complicated, you may find the central solution offered by global institutions works best for you.
It's not only a good idea to simplify a portfolio by consolidating the assets into a single location but also to keep the structure simple. If an expat's wealth is invested in only shares and bonds, for example, these are easy to transfer from one country to another because these asset classes are traded around the globe and tend to be treated by the same way by different tax regimes.
A question of risk
But simplifying a portfolio like this can create other problems. Unless an expat has a very large portfolio, buying just shares and bonds increases risk. Collective investment schemes allow smaller investors to diversify their risk across a broader number of assets, and it's worth investigating what potential benefits could be accrued from other things such as property and protection products.
An expat has to understand that if they want to keep their portfolio diversified that will, to a degree, reduce the flexibility of the portfolio and their ability to transfer their wealth around the globe.
The charges associated with different financial products must be closely scrutinised. An offshore bond, for example, might include a management fee but also an establishment management fee (at setting up stage) and ongoing annual management fees.
Expats need to figure out how much the portfolio needs to grow by to outpace these charges. It could be the case that if the market fell by 10%, you would actually lose 16% of your money.
Active measures should be taken to reduce the biggest common risks to an expat's portfolio: tax and currency. While it's important to minimise tax, expats should not make this the main focus rather than ensuring the capital can provide the best possible lifestyle.
Minimise currency risk
It is vital, however, for expats to understand the impact that currency fluctuations can have on the value of their income, expenditure and assets.
Take an individual with an income of £100,000 and an annual expenditure of £80,000 who wants to move to France. At current exchange rates, the euro value of the income is slightly more than the sterling equivalent. But if the value of sterling were to collapse, then the income could fall to less than expenditure and cause significant financial problems. This is why expats need to have a good understanding of the impact of currency on their wealth and actively manage the risk.
Expats need access to good currency rates and also guidance on the best timing to buy a particular currency. For instance, expats can use money orders, he says, which allow them to implement the trade when a certain exchange rate is reached, to ensure the trade is placed at the best rate. They can also use stop-loss orders so that if the value of a currency falls below a certain amount, it will be sold.
Not every expat wanders the world indefinitely, many of them choose to come home, ideally with their wealth improved. How to repatriate financial assets is as important a consideration as managing an expat's wealth while still abroad.
Tax is a major consideration when it comes to the repatriation of assets, and many expats may prefer to leave their wealth offshore even after they have returned to their home country. currency is another thing to think about, and there are instruments that can be used to make this process easier. If an expat is returning home in a year's time but likes the current exchange rate, for instance, they can use a forward to ensure that when they do repatriate their assets in 12 months' time, it will be done at today's exchange rate.
Expats need to find an expert that will not only consider how to manage the assets at the moment, but how to structure the portfolio to ensure that they will be able to bring their wealth back home.