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Offshore Online Brokerage Accounts – Are They Safe?
We are all used to doing almost everything online these days. There can’t be too many of us left who are nervous about using a credit card online, for example. Doing business online is a way to save time, money and headaches. Investing through online brokerage accounts promises the same benefits.
However, when it comes to investing offshore, borders still present a significant psychological barrier. There is no longer any real need to have your online brokerage account in the same country you live in, but it seems that investors are still reluctant to open brokerage accounts in foreign countries.
An increasing number of financial service providers offer cross-border online investment services. This trend has spread more in Europe than in North America, with larger online brokerages such as Saxo Bank and Swissquote offering services specifically designed for investors from outside their countries.
However, North American investors are also becoming more adventurous, opening more and more accounts with foreign banks and brokerages. Such accounts may be opened as individual US citizens or, more commonly, through offshore corporations or trusts designed to provide an additional level of privacy. However, the main reason for accessing these international markets is to benefit from more profitable cross-border investment opportunities and to diversify risk by spreading your portfolios between different institutions in different base currencies.
These sophisticated investors have the potential to access not only a wider range of investment opportunities, but also simplicity, tax savings and greater control over their portfolios. There is also the opportunity to save money by gaining access through discount brokerage models to exchanges that would otherwise have to be traded over the phone through remote correspondent brokerages.
The current economic climate means that many investors like the idea of being able to keep a closer eye on their internationally diversified portfolios. But the concern remains. Is it safe to invest through offshore brokerage accounts?
Are offshore online banking and brokerage accounts safe?
In short, the answer is yes, provided you take the usual common sense precautions. The Internet makes it possible to buy and sell foreign securities through foreign brokerage accounts with as much ease and security as paying a domestic electric bill – and in many cases with much more security.
The first of these precautions is to invest through a reputable firm. Do your due diligence on the company behind the service. Just like you should at home (but many people don’t), check references, make sure the broker is registered and in good standing with the relevant regulatory bodies, talk to them personally and find out what their experience is. You should also learn about the security mechanisms on their site and what kind of protection they offer in case of DDOS and other types of hacker attacks. Many offshore brokerages are fully licensed banks, making them safer and facilitating due diligence.
Once you’ve decided where to open your brokerage account, it’s important to take precautions to ensure that no one else can access your account without your permission. Make sure your security software, such as antivirus and firewalls, is properly installed, running, and up-to-date. Consider using an encrypted VPN solution, especially if you’re comfortable trading from a laptop connected via Wi-Fi, which is notoriously insecure. Also remember that just like those anti-phishing warnings from online banking at home, offshore brokerages will not send emails asking you to confirm your details. If you receive email correspondence, please confirm it by calling the company directly before clicking on any link or taking any action. Try to get to know one brokerage executive who recognizes your voice over the phone.
What services do you need?
As at home, overseas investment services can vary greatly in terms of cost and features. Even within the same brokerage, there are often different packages available. Fees may vary significantly depending on the features, information and access you request.
If you plan to invest in European bonds, mutual funds, ISAs or funds, then you probably won’t need access to an ‘offshore day trading’ type account that allows you to buy and sell individual stocks in real time. In this case, the so-called “supermarket of funds” type account offered by a European bank is suitable for you. But don’t forget to check which fund managers’ products are available and whether the broker is willing to negotiate the commissions or discounts they receive from the fund managers (many will, especially for larger amounts, but only if you ask them to)
Other banks and brokerages offer discretionary management of your portfolio. It’s suitable for investors who don’t want to monitor their accounts on a daily basis and are looking for a Swiss-style “private bank” feel to their brokerage. Having access to quality investment advice makes a big difference here – so ask what management skills the bank has access to internally. Bigger banks have more experience, but they can be busy chasing bigger fish. Small private banks and investment managers often offer a much higher level of personal service.
In turn, these different institutions often target different types of investors. The more questions you ask your broker or banker before you get started, the more benefits you’ll get from the account you finally choose. It’s called KYB (“Know Your Banker”) and it’s as important to investors as KYC (“Know Your Customer”) is to bankers.
If you take your time to do your homework, investing offshore and online is not only safe, but also very profitable, reducing costs, diversifying risk and taking responsibility for your own future. Are you ready to take on the challenge?
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