Trading the world May 2005

Offshore brokers provide expats with access to investment markets worldwide. To stay in control of their investments, expats need to find an offshore broker they can trust. By Tim Hyam

Suppose you want to buy shares on the German stock market but you are sitting in an office in Dubai. Or you are lying by the pool in Spain and get the urge to sell your holdings on Nasdaq. Unfortunately, dealing with onshore brokers in a the market where you want to trade is not always permitted for non-residents by local regulations, and time zone differences can make it inconvenient anyway. As a result, expats who want to buy and sell shares, bonds and other investments on international markets need to find a broker they can trust to execute trades across borders.

Fortunately help is at hand. There is a constituency of reliable brokerage firms in various offshore centres that can deal in a wide range of international markets for investors from around the world. Many of these brokers are backed by well-known financial institutions in well regulated offshore jurisdictions. What’s more, using an offshore broker can bring tax advantages, such as avoiding capital gains tax or stamp duty.

So how should expats set about using an offshore broker? The first thing to consider is what kind of relationship you want with the broker. Some expats, such as those with little experience of buying and selling on the international financial markets, want to be able to speak to a dealer about market conditions, or have access to the broker’s advice or research on markets or particular investments. These investors will be most comfortable with the more traditional offshore brokers that offer advisory and investment management services as well as executing trades.

Some institutions offer these brokerage services as part of an overall private banking service, and often they private a Rolls Royce service at a Rolls Royce price. Other firms provide the full range of brokerage services as a standalone brokerage house. Chris Brock, managing director at Brewin Dolphin Securities in Guernsey, says he offers several levels of service to customers: “We provide everything from execution only to advisory dealing, advisory management and discretionary management.” Many expats will be more comfortable with this full-service brokerage than with the more faceless online trading firms.

But for more experienced investors, there are low-cost “execution only” offshore trading houses that use the internet to give you the ability to trade in many of the world’s financial markets 24 hours a day, seven days a week. While some of these brokers do offer advice, they also allow investors to trade conveniently and inexpensively by using the internet.
“Times have changed and the technology these days means that you can trade the world from offshore,” says Pierre Boulle, managing director at Investors Europe, an online broker based in Gibraltar. “Our clients often want to trade on their own, and we provide them with the platform to do so. Others may want to phone us to talk about the market. We offer online trading access from your computer anywhere in the world, with back up from traders on the phone from 8am to 10pm CET.”

Robert Glaesener, general manager of online execution-only broker Internaxx in Luxembourg, says there is a steady stream of new expats entering the market for online offshore trading. “These customers are more self-directed and knowledgeable about the market and are looking for an online information and trading facility,” he says.

Once the customer has opened an account with an online broker, which can take between one and two weeks and requires a minimum deposit of at least £700, he only has to log on and trade. Online technology keeps overheads for the broker low, and these savings are passed on to the customer in the form of lower commissions. Whereas Brewin Dolphin Securities in Guernsey would charge 1.95% for a trade valued at £12,500, the equivalent Internaxx rate is about 0.25%. Rates for both firms decrease for larger trades: Brewin Dolphin has a lowest commission of 0.5% for trades over £25,000 and Internaxx has a lowest rate of 0.07% for frequent traders over £170,000.

Offshore brokers generally offer access to more markets and types of asset than onshore brokers. Brewin Dolphin Securities in Guernsey provides access to most securities markets worldwide, including some that are difficult to access using online brokers. Internaxx trades in the all major markets in Europe and North America. Thales Securities, an online trading house based in Panama, provides access to all major stocks markets, as well as markets for commodities. Investors Europe also provides this worldwide access.

Trading through an offshore broker can also bring tax benefits for expats. What these benefits are depends on where you are resident, what jurisdiction your broker is in, where the investments are listed and what type of asset they are. Pierre Boulle, managing director at online trading house Investors Europe in Gibraltar, says: “When you open an account with us it means you are a client here in Gibraltar, where there is no capital gains tax. This means we can add value for some high net worth investors.”
Security with online trading is still a worry for some expats, though many are now comfortable with 128-bit encryption, the system for keeping online instructions secure that most online brokers provide along with passwords and unique account numbers.

A more serious worry for expats is the background of the online firm.

Stories of fly-by-night brokers who use offshore centres to hide their fraudulent activities make investors wary of firms that they do not know. It is a good idea to check out who owns the online trading company you are considering: is it a reputable firm or a dodgy holding company?

Glaesener says: “We are backed by TD Waterhouse and Fortis, two very well established financial institutions. This is important to expat investors and makes a difference between us and other offshore online brokers.”
Investors should also check the level of regulation in the jurisdiction where the broker is based. Boulle in Gibraltar says: “We give investors more guarantees than they would get onshore. We are regulated to a level accredited by Gibraltar’s Financial Services Commission and offer an investor protection scheme. We also have £1 million professional liability insurance. You would not get that level of protection with many onshore brokers.”