High profile cases involving secret accounts in the Cayman Islands can make the idea of international investing seem more mysterious than it needs to be. It may make sense for Mitt Romney to have offshore accounts, but for almost everyone else, direct overseas investments are a terrible option.
Domestic and international regulations make direct investing abroad expensive, overly complex and unnecessary for all but the wealthiest individuals, experts say.
The best place to get truly global exposure is in the U.S. says David Kuenzi, a financial advisor who specializes in working with American citizens and their spouses living abroad.
For both fund managers and advisors building individual client portfolios, “being located in the US is a distinct advantage,” Kuenzi says. “I tell people all the time, they may be surprised, but there is really no investment anywhere in the world that you can’t own through a U.S. account as cost effectively or with as great transparency.”
A recent report from Morningstar underscores Kuenzi’s point. Based on criteria such as investor protection, transparency, fees, taxation and investment distribution, the report assessed fund investor experiences in 24 markets across North America, Europe, Asia and Africa. The U.S. received the highest grade of “A.” The U.S. did not lead in the “Regulation and Taxes” category, but it has the world’s best disclosure and lowest expenses according to the findings.
As an example of the U.S. investors’ advantage, Kuenzi points to certain Japanese stocks. “The U.S. is a better place to gain exposure to the U.S., but also to Japanese investments. There are not many Japanese small cap stocks in Zurich,” he says. Though this may see counterintuitive, Kuenzi says, “The U.S. markets are just that much bigger, deeper and more globally integrated than anything in Europe, including London.”
HighTower’s head of Group Investment Solutions, Matthias Kuhlmey, agrees there is almost no reason to move assets abroad for most clients. “If I want to invest in a given currency opportunity or invest internationally, there is no need to send monies offshore,” Kuhlmey says.
Meeting U.S. reporting standards is a major concern for investments abroad, Kuhlmey notes. Except for firms that are dually registered with the U.S. and the country where the investment resides, it’s unlikely that local regulations will meet the requirements of the U.S. Even so, the burden will still be on the individual investor to supply the proper reporting to the IRS, he says. “It’s highly unlikely that you would consider an investment of that nature for a retail investor.”
Kuhlmey also stresses the importance of advisors being careful not to give advice outside of their jurisdiction. In cases where an ultra-high-net-worth client wants a single stock portfolio created in another country, he urges advisors to work with a team of international advisors.
“The best way is to look to local expertise,” says Kuhlmey. “Ideally you don’t want to be involved or compensated for advice that takes place outside of the U.S.”
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