Industry experts call for wider approach to adviser due diligence on offshore bonds

When advisers are considering the appropriateness of offshore bond providers and their products for clients, they should consider a wide range of factors and not place undue emphasis on historical perceptions of company ownership structures, a new report from offshore consultancy firm Acuity has found. 

Acuity's report entitled 'The times they are a-changin' concludes that the strategic intent of the product provider, including its commitment to ongoing investment in offshore business, is now one of the most crucial assessment factors for advisers.

Simon Willoughby, managing director of Acuity said: "Against the background of significant M&A activity in recent years in a rapidly maturing market, when advisers are considering the financial strength and sustainability of the product providers they recommend, their assessment needs to ‘look under the bonnet' of how the company is run and managed, and not rely solely on proxy indicators.  

"A company's ownership structure is less important than how it's managed, supervised, capitalised, and how it treats its existing and new policyholders. Although some advisers may continue to place a high level of importance on the ownership of an offshore life company, if the past few years have taught us anything it's that a change in ownership is just as likely to occur to a company owned by a major life group as it is to a private equity-owned business."

Wider perspective

The Acuity report highlights developments in the offshore life market and beyond, particularly over the last 10 years, that have made the due diligence process for advisers more nuanced. The sector now displays a more diverse range of ownership structures with its companies' evidencing strong solvency margins. As a result, advisers' due diligence needs to focus on a more complex mix of criteria.

Bryan Low, managing partner at Acuity, said: "For many advisers the key appraisal of life company ownership will be an assessment of its strategic intent, manifested in the owner's ongoing investment in the business and its focus on the offshore market as a core part of its own strategy. 

"Key questions to ask are, is the parent life group or private equity owner investing in the company's ability to compete for future new business and to service it efficiently and effectively, or is there a lack of investment in products and service capability or potentially a deterioration in the company's solvency margin?

"Ultimately an advisers' choice of provider is heavily influenced by the provider's ability to execute a core range of product features and services to a high standard in a way that fits best with the adviser's own business model and systems. The administration, service and technical support levels provided by each company are key to the successful delivery of its proposition. 

"Of course, different adviser firms have different needs and for advisers focused on platform business the choice of offshore bond provider is increasingly defined by those available on their selected platforms and the product's ability to be integrated into the holistic financial planning strategies adopted for their clients."

Acuity's 'The times they are a-changin' report can be downloaded free of charge. 

Please click here to see the report. 

By Bryan Low, managing partner, Acuity Consultants