Offshore Online Brokerage Accounts: Are They Safe?
These days, we are all used to doing almost everything online. There can’t be too many of us 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 abroad, borders still represent a major psychological barrier. There is no longer a 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 caught on more in Europe than North America, with larger online brokers like Saxo Bank and Swissquote offering services specifically designed for investors outside of their home countries.
However, US investors are also becoming more adventurous, opening more and more accounts with foreign banks and brokerage firms. Such accounts may be opened as individual US citizens or, more commonly, through offshore corporations or trust structures 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 among different institutions in different base currencies.
These sophisticated investors potentially have access not only to a broader range of investment opportunities, but also to 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 distant correspondent brokerage.
The current economic climate means that many investors love the idea of being able to keep a much closer eye on their internationally diversified portfolios. But, there remains a concern. Is it safe to invest through online offshore brokerage accounts?
Are offshore online bank and brokerage accounts safe?
In short, the answer is yes, as long as you apply normal common sense precautions. The Internet allows you to buy and sell foreign securities through foreign brokerage accounts as easily and safely as paying your home electric bill, and in many cases much more safely.
The first of these precautions is to invest through a trusted company. Do some 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 regulators, speak to them in person and find out what experience they have. You should also ask about the security arrangements on your site and what protection they offer in the case of DDOS and other types of hacking attacks. Many offshore brokerages are actually fully licensed banks, which makes them safer and makes due diligence easier.
Once you’ve decided where to open your brokerage account, it’s important that you take your own precautions to ensure that no one else can access your account without your permission. Make sure your security software, such as antivirus and firewall, is properly installed, working, and up-to-date. Consider using an encrypted VPN solution, especially if you like to do your trading from a laptop connected via Wi-Fi, which is notoriously insecure. Remember, too, that like those anti-phishing warnings from online banking at home, offshore brokerages won’t send you emails asking you to confirm your details. If you receive any correspondence by email, please confirm it by calling the company directly before clicking on any link or taking any action. Try to meet a single executive at the brokerage house who recognizes your voice over the phone.
What services do you need?
Just like at home, offshore investment services can vary wildly in terms of cost and features. Even within the same brokerage, there are often different packages available. Rates may differ significantly depending on the features, information and access you request.
If you’re thinking of investing in European bonds, mutual funds, ISAs or funds, you probably don’t need access to the ‘intraday trading’ type of account that allows you to buy and sell individual shares in real time. In this case, a ‘fund supermarket’ type account offered by a European bank would suit you. But be sure to check what products are available from which money managers, and whether the broker is prepared to negotiate redemption fees or commissions it receives from money managers (many will, especially in larger amounts, but only if requested). ).
Other banks and brokerage firms will offer discretionary management of your portfolio. This is suitable for investors who don’t want to have to watch their accounts every day and who are looking for a Swiss-style “private banking” feel to their brokerage. Having access to quality investment advice is of great importance in this case, so ask what kind of management skills the bank has access to internally. The larger schools are more experienced, but may be busy chasing larger fish. Smaller boutique private banks and investment managers often offer a much higher level of personalized service.
In turn, these various institutions will often target different types of investors. The more questions you ask your broker or banker before you start, the more profit you’ll make from the account you ultimately choose. It’s called KYB (“Know Your Banker”), and it’s just as important to investors as KYC (“Know Your Customer”) is to bankers.
If you take the time to do your homework, investing abroad and online is not only safe, but can also be highly profitable, reducing costs, diversifying risk and taking charge of your own future. Are you ready for the challenge?