There may be, as is estimated, a million Australians living overseas. But as yet, there are few specialist financial advisers to serve them, industry experts say.
Despite their rarity, International Investment managed to track down three such Aussie expat specialists, and ask them why they thought this community is so under-served – and what, if anything, needs to change.
As far as financial services go, Australian citizens are some of the best served in the world. The country’s A$2trn (£960bn) compulsory superannuation system has spawned a vast industry of pension funds, fund managers and financial planners, as well as an endless array of products to choose from that exploit the significant tax advantages of ‘super’, as it’s typically referred to.
And like it or loathe it, the Future of Financial Advice (FoFA) legislation – Australia’s version of the UK’s RDR – means Australian financial advisers are also some of the most scrupulously-regulated in the world.
But for many of the estimated one million or so Aussies who decided to live and work overseas, things are not quite so rosy.
For one thing, the financial advice industry for Australian expats specifically is, experts say, all but non-existent, leaving them vulnerable to bad advice from local, expat-focussed advisers who don’t understand Australia’s unique tax laws for investments (or indeed, don’t even know that they exist).
Then there are those in the offshore space who prey on expatriates of all nationalities.
One very high-profile Australian expat who was the alleged victim of this sort of ‘adviser’ was actor Paul Hogan, aka Crocodile Dundee.
Hogan’s now infamous adviser, Phillip Egglishaw – known Down Under as the “bowler hat Englishman” – got his client into serious trouble with the Australian Tax Office, and then allegedly defrauded Hogan and many other clients of millions.
Though widely-publicised, Hogan’s experience was not unlike those of many less-well-known Aussie expats who put their trust – and their nest-eggs – in the hands of people who turned out to be dishonest, ignorant about financial matters, or both.
Meantime, Aussie expats who aren’t particularly literate financially can find themselves targeted by unscrupulous real estate agents, or ‘property spruikers’, as they’re known in Australia.
Growing awareness of the market
Some advisers and businesses, though, are beginning to wake up to the existence and specialist needs of this sizeable and little-tapped market.
One of them is Brett Evans, managing director of Queensland, Australia-based Atlas Wealth Management, which specialises in advising Aussie expats, mostly from its Southport, Queensland base.
Evans says he’s often astonished at the poor advice some of his new clients have received previously during their time abroad.
“The amount of times that we meet someone for the first time,” he says, “and they sit down and say, ‘Okay, this is what I’ve done.’ And we look at them, a bit perplexed, and say, “What did you do that for?” And they say, “Well, I met so-and-so in a bar, and this is what he said I should do.”
These clients are often earning very good money, Evans points out, but nevertheless rarely know the first thing about investing, which makes them particularly vulnerable to bad or dishonest advice.
“I reckon that 70% of what we do at Atlas is educate,” he says. “The other 30% is execution.”
Australia, Evans notes, is like many other governments in that it does “a very poor job communicating with its expatriates” on financial matters, or what they should be watching out for. And when these expats eventually run into financial difficulty abroad, and need help from the authorities back in Canberra, the usual response, he notes, is to tell them to “get professional advice”, which as Evans has already mentioned, barely exists.
“That’s one of the many reasons why we set up Atlas at the start,” he explains.
Chris Humphrey, principal of Chris Humphrey Private Wealth Management, a Brisbane-based advisory firm, also specialises in advising expats. And he agrees with Atlas Wealth’s Evans that advisers specialising in Aussie expat advice are few and far between.
“There’s probably some good people out there, but I would say there’s nowhere near enough,” he says. “And there’s certainly people masquerading that they do know things when they don’t.”
Non-Australians tend to be only vaguely aware of Australia’s so-called “superannuation” system, or “super”. Basically it’s a government-supported and encouraged way of getting people to save for their retirement, with employer contributions – equal to 9.5% of an individual’s income – at its foundation. This amount, known as the ‘superannuation guarantee’, is generally paid into a privately-run superannuation fund, which employees don’t normally get to choose.
While this system is great for people who otherwise wouldn’t make pension contributions, it has the downside of encouraging disengagement, a sort of “the government has it sorted so I don’t have to think about it” mentality, according to Humphrey, who says it can be a real problem for Australians when they move abroad for the first time.
Atlas Wealth’s Evans agrees. “I was talking to a gentleman not long ago in LA, and he said, ‘Oh, my super’s all fine and dandy’. And I said, ‘Listen, hear me out, just drop the super fund an email and make sure everything really is copacetic and fine.’
“Anyway, he came back to me very quickly, and said that not only had they told him that everything was not fine, but …that he had just 28 days to roll his super out of their fund, because they didn’t want expats in it.”
Another issue relating to super, says Humphrey, is hidden charges, particularly on life insurance provided through an individual’s super. He says an expat could end up spending as much as AU$600 a year on an insurance policy that, were anyone to actually look at the fine print, doesn’t cover expatriates.
Inside or outside super?
For Humphrey, the big question is whether Aussie expatriates currently living in a no- or low-tax jurisdiction should even bother with a super at all.
For clients who want the freedom to access their money if need be, keeping their savings outside super (which taxes earnings at 15%) can be a good option – providing, of course, that they actually do put at least some money aside, he notes.
The disadvantage of this is that, unlike in super, if the client returns to Australia, as many expats do, they may have to pay capital gains tax on any realised earnings.
“Two clients of mine – a couple in Zambia – are in their early 30s, and we’ve taken the decision to invest outside super, because once you put money into super, you can’t get it out,” Humphrey says.
“So if you’re really in that accumulation stage of your life, committing money to super [when you’re living outside of Australia, and in certain countries like Zambia] is a very, very tough decision.”
But it’s not a hard and fast rule: expat Aussies living in countries with more developed tax regimes than Zambia’s may require all residents from other countries – including Australia – to declare all their income, including that which they derive from investments.
The UK and especially the US are so draconian, for example, that Chris Humphrey Wealth’s advisers “have to work with tax advisers” on the ground in both these places, Humphrey says.
Expats living in what Humphries calls “very Third World” countries, on the other hand, have little to worry about, since their tax systems aren’t geared up to go after resident foreigners’ worldwide incomes.
As for China, it has something called a “five-year rule”, which Humphries says can be “reset very easily”, and which means “all the investments they [Aussie expats living in China] have in [back in] Australia won’t be assessable”.
One of the hazards of being a relatively well-to-do expat is that there are a lot of so-called advisers who are only too happy to invest your money, taking advantage of the regulatory no-man’s land of the offshore space to rip you off.
Humphrey says that the danger for all Australian expats of being defrauded, Paul Hogan-style, is real, if they don’t take certain precautions. And thanks to the Australian obsession with property, he says it’s the ‘property spruikers’ who are the most potentially dangerous.
Property developers pay these spruikers commissions of up to 10% of the sale of new units, he notes, “and you’re talking half a million, A$600,000 or A$700,000 for a unit or a town house. That’s really big money.
“And because they can make more money selling new stock than existing stock, you’ll find 95% of them will always flog new stock.
“The question that needs to be asked is, is that the best property investment for the potential client?”
The Middle East, Humphrey adds, is a particular hotbed of would-be spruikers right now.
[Part 2, tomorrow: Products and services for Aussie expats]