Offshore Investment Management: The Next Dimension in Asset Protection and Risk Management

Weathering this financial storm requires advanced strategies for risk management, asset protection and diversification. Offshore investment management should be considered by any high-net-worth individual attempting to preserve and diversify wealth.

November 20, 2008
Sponsored by Rochdale Investment Management

An interview with Neal B. Rubin, Managing Director, Rochdale Offshore Investment Management.

The interview was conducted by Derek A. Roy, AIF®, Vice President-Investment Consulting of Rochdale Investment Management.

Weathering this financial storm requires advanced strategies for risk management, asset protection and diversification. Offshore investment management should be considered by any high-net-worth individual attempting to preserve and diversify wealth.

Q: Many people are saying we're in the midst of what could be the next perfect financial storm. Could you elaborate as to why now is an opportune time to consider offshore strategies?

A: The overarching concept has to do with the establishment of an offshore asset protection trust to protect a client from civil litigation. Given everything that is going on in the financial sector, I would contend that there is going to be significant litigation coming out of this crisis and also as a result of the implications of the Sarbanes-Oxley Act.

One of the things that you are able to do through Rochdale is obtain access to Swiss banking accounts and Swiss custodial accounts. The banks we deal with are not banks in the traditional sense; in actuality, they are custodians and asset managers. The only loans they make are secured by the clients' money. You have a very stable financial system there and the aforementioned aspects of Swiss banking provide excellent reasons for considering doing something offshore.

Q: Could you go through the structure to help visualize the logistics and how it is set up?

A: Although it sounds exotic, it is really straightforward. Twenty-five years to 30 years ago, U.S. attorneys realized that you could pass laws in foreign jurisdictions that would be litigant-unfriendly. For example, in the Cook Islands, they drafted such legislation by using the existing Elizabethan Law and adding some components.

One component is that if somebody wins a lawsuit in the United States and has a judgment, that judgment is not enforceable in the Cook Islands. A suit can be brought in the Cook Islands, but they can only sue for a fraudulent conveyance and the statute of limitations is generally between one year and two years.

There are secrecy laws in the Cook Islands while there are none in the U.S. So, if a client has an offshore trust and they are sued and deposed by a good attorney, that attorney is going to ask if the client has an offshore trust. In addition, the client is paying taxes on trust income/gains and the attorney is going to depose the client to obtain their tax returns. The attorney will see the foreign bank accounts and foreign interest and dividends and they will ask the client if they have an offshore trust.

Even going to the Cook Islands and even with that knowledge, if they go to the trust company, the trust company is not allowed to acknowledge whether or not there is actually a trust there. The litigant actually has to litigate to obtain the information. A court then has to agree that you can release this information.

The trusts are very similar to trusts that you and I are familiar with here, with one key exception. Under Elizabethan Law, the grantor or the person that sets up the trust, is allowed to be the beneficial owner.

  • Offshore asset protection is extremely effective in shielding high-net-worth individuals and families from civil litigation.
  • Offshore structures are set up to be fully tax-compliant.
  • Rochdale utilizes highly diversified, fully personalized global investment strategies by applying our time-tested investment management process of synching clients with their unique risk/return profile.
  • All funds are held in custody at highly reputable, long-established Swiss banks.
  • With a world-wide network of attorneys, accountants, trust companies, protectors and asset managers, Rochdale is among the industry leaders who provide investment management services via global asset protection.

Q: Can you dispel the myth that offshore accounts are a tax dodge? Also, could you elaborate on some of the legitimate reasons that people would put money offshore?

A: Part of the reason that people think they are tax dodges is because others have used them in the past as a tax dodge. Everything that we do is fully tax-compliant. Clients have to sign W-9s and, sometimes, there are W-8s involved as well.

In no way are we going to participate in helping clients avoid U.S. taxes so we are not going to open up an account unless those forms are signed. On top of that, none of the Swiss banks that we deal with will open an account unless those documents are signed.

Some clients come to us wanting access to non-U.S. financial markets and we can do that on a direct basis through our Swiss banks. Other clients have come to us looking for currency diversification. The bottom line is that individuals partake in offshore investment management to reach the epitome of risk management and asset diversification.

Q: One of the reasons that offshore accounts can be appropriate — or inappropriate — is to avoid paying legal judgments. However, the trust is not necessarily effective at protecting the assets if it's set up after the adverse event occurs. Could you elaborate on that a
little bit?

A: To preface my response, we are not giving out legal advice and I am not an attorney. It really comes down to the attorney's risk profile and what clients they are willing to take on. Some attorneys will not take a case if there has already been an event. An attorney might take the case if the individual leaves enough money to settle that event, so that they are not creating any sort of a bankruptcy situation by creating the trust and moving all the assets offshore.

Some attorneys will take on these cases and will set up the trust. However, it's truly a fine line. I would only want to do this "prophylactically." Once the event happens, moving the assets offshore may create a fraudulent conveyance, which means that you knew or should have known that an event had happened and the penalty for doing that is undoing the trust and repatriating the funds.

Q: From an asset allocation standpoint, what asset classes are held in an offshore trust? What are some of the investment options that you can hold within the trust?

A: If we have all of the client's liquid assets, we can set up a fully diversified portfolio for them in any and all asset classes, just as they could here in the U.S. If we just have a piece of their money and they want to direct us to a specific asset class, we can do that as well.

The trust itself is very flexible as it can hold any asset. The key there, though, is where those assets are located. A judge located in the United States cannot access a trust domiciled in the Cook Islands with the assets held in Switzerland.

Q: What is Rochdale's role in all of this?

A: This is something I talk to people all the time about and one of our strengths. In no way do we mitigate the efficacy of the trust due to our U.S. nexus because we are only given what is known as trading authority. That is the only authority we have over the account. We do not have signatory authority, which allows one to move the money. We only have the ability through limited powers of attorney to make buys and sells on the account and we can be fired at a moment's notice.

In addition to our established relationships with Swiss banks, our clients get a tremendous amount of comfort from the fact that we are a U.S., SEC-registered investment advisor. We are licensed and regulated to do business in the U.S. and we speak English as our first language. We are able to visit our clients and our clients can have online access to their account. When clients set up these offshore vehicles, the money is held offshore and we provide the comfort of a local, regulated intermediary.

For more information, visit Rochdale Investment Management.

Neal B. Rubin is the Managing Director of Rochdale Offshore Investment Management in the New York City office of Rochdale Investment Management, a private client money manager specializing in personalized portfolio management for high-net-worth individuals and families. For more information or for a confidential analysis of a client's portfolio, please contact John Gloistein at 212-702-3522 or e-mail jjg@rochdale.com.

* All opinions constitute Rochdale's opinion and are subject to change without notice. Rochdale Investment Management LLC, its affiliated companies or their respective shareholders, directors, officers and/or employees may have long or short positions in the securities discussed herein.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation by Rochdale or its affiliates of any product, transaction or service, including securities transactions and investment management or advisory services. The opinions expressed in this publication should not be considered investment, tax, legal or other advice and should not be relied on in making any investment or other decision.

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Investment Management.