The financial planning advantages of offshore endowments

South Africans continue to look for investment opportunities outside of their local market, says Andrew Brotchie, MD of Glacier International. “The local market is tiny, making up less than 1% of the global market. It’s natural that local investors want to diversify – and that’s what we at Glacier International are offering, in the most efficient and effective way that we can.”

Offshore wrappers, like Glacier International’s flagship offshore endowment policy, the Global Life Plan, hold assets on the investor’s behalf, providing very good financial planning benefits. “Obviously investors’ access to international investment opportunities is relatively unfettered, but it’s really around things like foreign inheritance tax that there are benefits, making it easier to pass on wealth to future generations,” he adds.

By investing in the Global Life Plan, investors are structuring their international investments in a manner that means they don’t need an offshore will. An endowment also ensures that the investor’s estate is not subject to foreign inheritance tax, such as the situs tax that is levied on deceased estates in the US and the UK. “If you’re invested in an asset in either of those countries, they have the right to impose a tax on you upon death, with tax rates of up to 40%, but by using a wrapper like the Global Life Plan, you can mitigate against this,” Brotchie says. “It doesn’t remove the requirement to pay inheritance tax, but it brings the investor back into the local space where tax of 20%, rather than tax of up to 40%, is payable.” Investors can also appoint a nominee for ownership or nominate a beneficiary for proceeds, he adds.

Another benefit of investing in an offshore wrapper is that the life company, rather than the investor, is responsible for any tax due, so the investor has no personal tax to administer. In addition, after a period of three years from inception date, the endowment will not form part of an investor’s insolvent estate and cannot be attached by a creditor.

Research shows that around 20% of financial advisers who are advising their clients to invest internationally make use of offshore endowment wrappers for their clients, while 80% use a more simplified approach to international investing, says Brotchie. “This talks to the numbers, but I don’t think it necessarily talks to the size of the use of the different products. I say that because you’ll find that the Global Life Plan is more relevant to clients who have larger offshore portfolios, because of the issues they have when it comes to situs tax and probate.”

Brotchie says endowment wrappers are actually priced very competitively when compared with other investment options clients may have. “While fees were something that you wouldn’t want to talk about a decade ago, clients today are more likely to want to engage further on the topic. Now there’s transparency that enables clients to understand exactly what they are paying for. You’ve got the product administration fees, you’ve got the asset management fees, and you’ve got the adviser fees.”

While clients have always had access to exchange traded funds (ETFs) through share portfolios, those without share portfolios can now also invest in a select range of ETFs directly on the Glacier International platform. “We’ve

made sure that we can offer a full range of investment options, while also addressing the cost issue,” Brotchie explains. “This eliminates some of the complexity and costs of being able to get access to ETFs, something that has been growing in popularity among our clients and advisers for a number of years now. Costs are becoming more important and if you can give investors alternatives that reduce costs, it’s something you should be doing.”

Glacier International’s offering is made up of core ETFs that cover the main markets in the world, including the MSCI World, MSCI Emerging Markets, S&P 500, Euro Stoxx 50, FTSE 100, Japan, and Developed Markets Property Yield. “We also have China and tech ETFs, because investors may want to take exposure to something that interests them, but they don’t necessarily want to go to an active manager. They just want exposure, and an ETF is an easy way to achieve that. Our research team selects the ETFs, while we also work with reputable providers. For example, we offer iShares from BlackRock.”

Andrew Brotchie, MD, Glacier International