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 significant psychological barrier. There is no longer a real need to have your brokerage account online 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 become more popular in Europe than in North America, with larger online brokers like Saxo Bank and Swissquote offering services specifically tailored for investors outside of their home countries.

However, North American investors are also becoming more adventurous, opening more and more accounts with foreign banks and brokerages. Such accounts can be opened as individual US citizens or, more commonly, through offshore corporations or fiduciary 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 between different institutions in different base currencies.

These sophisticated investors have potential 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 foreign 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 electricity bill and, in many cases, with much more security.

The first of these precautions is to invest through a reputable company. Do some due diligence on the company behind the service. Just as 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 with them in person and find out what experience they have. You should also inquire about the security arrangements on their site and what protection they offer in the event of DDOS and other types of hacking attacks. Many offshore brokerages are actually fully licensed banks, making them more secure and facilitating due diligence.

Once you have decided where to open your brokerage account, it is 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 business from a laptop connected via Wi-Fi, which is notoriously insecure. Also remember that, like those antiphishing warnings from online banking at home, foreign 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 any link or taking any action. Try to meet a single executive at the brokerage firm who recognizes your voice over the phone.

What services do you need?

Like at home, investment services abroad can vary greatly in terms of costs and features. Even within the same brokerage, there are often different packages available. Rates can differ significantly depending on the features, information, and access you request.

If you are considering 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 stocks in real time. In this case, a ‘supermarket of funds’ account offered by a European bank would suit you. But be sure to check what products from which fund managers are available, and if the broker is prepared to negotiate fees or rebate commissions that you receive from fund managers (many will, especially in larger amounts, but only if asked. ).

Other banks and brokerages will offer discretionary portfolio management. This is suitable for investors who do not want to have to monitor their accounts every day and are looking for a Swiss-style ‘private banking’ feel in their brokerage. Having access to quality investment advice is of great importance in this case, so ask what kinds of management skills the bank has access to internally. Larger schools are more experienced, but may be busy chasing bigger 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 will 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 Client”) to bankers.

If you take the time to do your homework, investing abroad and online is not only safe, it can also be very profitable, cutting costs, diversifying risk, and taking charge of your own future. Are you ready for the challenge?