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It's an uneasy time for savers and investors. Stock-markets have been unsettled by the sub-prime crisis, US recession fears and their effect on the global economy. Inflation in the Eurozone has hit a 14-year high. UK interest rates (where many expatriates keep their savings) are falling. Euro interest rates will probably also be cut. People are questioning how safe their money really is in the bank. In view of this background, what steps can you take to protect your wealth, today and for the future? There are various different aspects to consider if you wish to maintain long-term financial security.

Bank savings

Recent events have damaged the banking industry's reputation. The public now realises that banks can suffer financial difficulties and take risks with your money. There is concern that the full extent of the credit crunch is still unknown - between $300 billion and $500 billion may have been lost but only around $100 billion has been admitted to. The exact effect of the crisis on the banks we use yet to be established. You may be surprised at the low level of depositor protection offered by the jurisdictions favoured by expatriates for their savings. The UK's Financial Services Compensation Scheme covers the first £35,000 of your savings with an institution (not per account) and the Chancellor wants to increase this limit. However, if you bank with an offshore subsidiary of a British bank, you are not protected by the UK rules but those of the jurisdiction the bank is located in. The Isle of Man offers protection of 75% of the first £20,000 per individual. Jersey and Guernsey have no depositor protection scheme.

If you have large sums of money in the bank you could move some of it into a structure whereby your assets are segregated from management firm's corporate assets your money will not form part of the firm's balance sheet and not be exposed to its credit risk. This would be the case, for example, if you moved your capital into an insurance bond wrapper based in Luxembourg. Luxembourg's high level of investor protection makes it the safest place to hold assets in Europe.

Investment assets

In times of stock-market volatility it is tempting to change your asset allocation in favour of low risk assets or put your investment capital back in the bank. However, your portfolio should be designed around your specific circumstances, objectives, time horizon and risk tolerance, and not in response to temporary market conditions.

It is possible that your portfolio needs to be rebalanced, but this would be because your situation has changed or the risk level of the assets you are invested in has shifted. The current climate makes asset allocation even more critical so this is the time to seek proper financial advice. You cannot predict which asset will produce the best results for you this year, next year or in the five years time. It is therefore necessary to have a suitable mix of assets within your portfolio, with various levels of diversification within each asset where appropriate. Then let your portfolio work over the long-term, rather than trying to time the market or making changes every time the economic background changes.

Taxation

You should also look to protect your income and wealth from unnecessary taxation. Effective tax planning is a key part of protecting your savings, since paying more tax than necessary erodes your income and savings. Spanish succession tax (and possibly also UK inheritance tax) can also significantly reduce the amount of inheritance you leave your heirs. The general perception was that keeping money in offshore savings accounts was the most effective way of paying less tax. Not any more. Today it is possible to use onshore structures, and fully declare your income and wealth in Spain, and pay less tax than if you left all your money in an offshore bank account.
Such tax mitigation can be combined with your investment planning, and placed within the secure environment of Luxembourg - keeping life simpler, more cost effective, and giving you peace of mind.

Regulation

There is another key aspect to protecting your money - your choice of financial adviser. You should ensure that your adviser is competent to give you the advice, has appropriate experience and is regulated. If the adviser is not regulated to give advice in your country of residence, you'll have no recourse against him should anything go wrong with the advice he/she has given you. Nor would you have an official organisation to complain to or to assist you.

If your financial planning needs to take your home country into consideration as well as Spain, it makes sense to have an adviser regulated in both countries. A British expatriate would appreciate having an adviser who's regulated by the UK's Financial Services Authority, considered to be one of the best in the world. However if you live in Spain your adviser also needs to be regulated here. The EU Insurance Mediation Directive allows FSA regulated advisers to establish businesses in other EU countries - this is called "passporting" and is the ideal situation for British expatriates living in Spain.

Full story from Bill Blevins of Blevins Franks

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