If you have the equivalent of $500,000 or more to invest (more in some cases), you qualify for the
services of an offshore portfolio manager. Some offshore banks reduce this minimum to $100,000 or
even less for depositors willing to have their assets invested in a portfolio of offshore mutual funds. (U.S.
investors should generally avoid offshore mutual funds, but investors from other high-tax jurisdictions may not face the same tax issues.)
Why not simply have your money managed by a portfolio manager in your own country? Having the portfolio offshore provides many benefits, including:
* Access to investment and business opportunities not available in your own country
* Protection from a depreciating domestic currency
* Reduced portfolio risk by having your assets diversified internationally.
* Enhanced protection from professional liability and other claims
* Increased financial privacy.
* Investment continuity in the event of disruptions in domestic markets.
Traditionally, offshore portfolio management was the province of “private bankers” working at a few
dozen banks in Switzerland. The term “private banking” encompasses a range of financial services made
available to individuals with significant amounts of money to invest, centering on portfolio management.But there are more wealthy individuals now than ever before, and today, almost every major bank has a private banking department.
An offshore investment manager can tailor a portfolio according to your wishes. Within the portfolio,
the manager can arrange for a mix of investments according to your risk preference: conservative,
aggressive, or in-between.
Most offshore portfolio managers are conservative. They’re unlikely to make any rash promises about how rich you will become by letting them manage your money. They’re apt to say that their prime role is to preserve your assets. Profits are important, but a secondary concern.
While the minimum investments for offshore portfolio management are relatively high, the published minimums are often negotiable. If you have significant future earnings potential, yet don’t meet the published investment minimum, you’ll likely be given some leeway. A typical portfolio management fee is 1% annually, plus commissions and custody fees. Some managers adjust this fee downward for larger portfolios. Lower fees may apply to a portfolio consisting primarily of bonds.
An alternative to portfolio management through a private bank is to use an independent asset manager.
While independent asset managers will ordinarily execute trades through a bank, they’re not bank
employees. Perhaps the biggest advantage of using an independent portfolio manager is direct access to the individuals who own and operate the company. Another advantage is continuity. There may be considerable turnover in portfolio managers at a bank’s private banking division. In contrast, the owner-operators of independent portfolio management firms aren’t likely to change.
Independent asset managers also don’t face the same pressures as private bankers to follow a model portfolio set by the bank or to include the bank’s own securities and in-house mutual funds in their clients’ portfolios. These securities may not necessarily be the highest-potential investments in their respective categories. Further, the compensation of independent portfolio managers comes primarily from management fees, rather than commissions. Independent portfolio managers therefore don’t face the same pressures to maximize commission income that a portfolio manager at a bank may encounter.
Copyright (c) 2011 by Mark Nestmann
