Onshore vs Offshore Client Base

Offshore Definition – The term ‘offshore’ is used in private banking to describe banks and services located outside the country of residence of the client. For offshore accounts, funds are domiciled in a different country abroad and are regulated by the authorities of the holding country. While most offshore banks are located in island nations – the term was originally used to describe the Channel Islands being ‘offshore’ from the UK – it now refers to any bank providing financial services to non-domiciled individuals.

Why People Bank Offshore

Banks market their offshore services to overseas clients as a method to protect their assets, the logic being that they will invest wealth in well-regulated financial centres known for their economic and political stability.

Clients who fear that their assets may be frozen or seized in the event of potential political turmoil view offshore banking as an attractive, safe way to protect their assets. Multiple offshore accounts dilute the political risk to their wealth and reduce the threat of them having their assets frozen or seized in an economic crisis.

Additionally, some offshore banks can offer a wider array of financial services which domestic banks may not offer such as dealing with products in different currencies. Holding different currencies allows portfolio risk to be diversified and savings to be internationalised.

For individuals with financial interests in a country, having an account and the advantage of financial advisors in that country is beneficial for managing their portfolios and any related legalities.

Legal implications

Fraud and other types of tax evasion have become synonymous with offshore banking. Having an offshore bank account is perfectly legal. However, wilful non-declaration of the holdings is not. For example, US citizens are required to declare assets worth over US$10,000 in offshore accounts.

With increased tax transparency and tightening of international regulations, it has become more difficult for people to open offshore accounts. The global crackdown on tax avoidance has made offshore less attractive and Switzerland, in particular, has seen a decline in the number of offshore accounts being opened. Many banks have been forced to close foreign client accounts.

Managing Offshore Accounts

Onshore, offshore or a mixture of the two will make up a private banker’s client base. The balance for each banker will be different depending on where their clients wish to book their assets. Working with offshore clients requires a slightly different approach to onshore clients and can include the following on the part of the banker:

  • They may be required to cross borders to visit clients in their home country, even when the financial institution they belong to does not have a permanent establishment located there
  • Potentially take full responsibility for managing portfolio for the client if the client is not a resident
  • Be multilingual in order to effectively communicate with clients and build their client base globally
  • Have knowledge of international laws and regulations, particularly with regards to offshore investments and tax
  • Be able to connect their clients to the right specialists to help them with different areas from tax through to more practical support such as aiding with property, relocation, immigration advisers and education consultants
  • Be aware of the latest issues affecting international clients and ensure they can create solutions to meet their needs

The bank and specific team within will determine the population of a banker’s client base. It also depends on where the bank’s booking centres are but ultimately it comes down to where the client wishes to have their assets booked.

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