Big Money Knows
Guest Comment by Larry Grossman, Certified Financial Planner, managing director of Sovereign International Asset Management Inc. and a member of the Sovereign Society Council of Experts.
Dear A-Letter Reader:
What do America's big money boys know that you don't know? Watching what the experts who manage billions in US pension funds are doing can teach us a lot. For more than a decade the trend of pension funds has been towards more and greater foreign investment. In 1980 less than 1% of US pension fund assets were invested abroad. By 2000 that figure had risen to 20% and it's higher today. These guys know where the profits are to be made, increasingly in emerging and other foreign markets.
So if offshore investment is so great for these major pension funds, why not for you too? (And keep in mind that taking your retirement plan offshore is fully legal under US law).
For many years I've extolled the virtues of taking your IRA/Retirement Plan offshore. But to do so usually means fighting your current US plan custodian or broker. These guys don't want you to know what those big pension fund managers know -- that many of the world's best investments are only available outside of the US. And that broker opposition comes because going offshore with your IRA doesn't put any money in their pockets. Instead, it puts more money in your pocket.
Some of this broker opposition to offshore and the tactics they use to discourage it is astounding. One of my clients, TK, had experience as an international investor having dealt with a Swiss money manager for years. With this background TK thought it was a simple request when she asked her broker at a major US brokerage firm to transfer her IRA to her Swiss investment advisor. What happened next will shock you!
And I quote a letter from her broker: "Dear Ms. TK: Due to laws, regulations and monitoring requirements of the Patriot Act and offshore activity, we have concluded that we must require you to transfer all of you (sic) accounts out of our company". This, from a major US financial firm!
Granted there may be more to the story than I was told, but I have copies of all the documents and I see only an innocent request to have a well known Swiss advisor, with whom TK already had experience, manage more of her assets in the form of her IRA. The response from her US broker was to tell her to close all of her accounts! Since when did it become illegal to invest offshore?
Another prospective client of mine suffered a similar rebuff, then sent me this note: "After a last call today to my local trust company, wherein I learned that they're not interested in doing business with me if I'm investing in anything having to do with 'that country', I am requesting forms for conversion of both my retirement plans." This clients crime: she wanted to buy real estate in Nicaragua using her IRA. The rules governing US retirement plans specifically allow funds to be invested in foreign real estate, but this trust company would not allow it.
Recently a small business owner I know had his retirement plan audited by the IRS. They looked at all his investments over the years and all his paperwork. The IRS said in effect: "Congratulations. Your investments have been perfectly in line with the rules." But the IRS agent demanded a plan amendment required by a 1981 law, about which the plan owner knew nothing. Because of a missing piece of paper, the IRS ruled the plan would be disqualified and was now fully taxable. The plan totaled $145,000 and the IRS wanted to assess a $60,000 penalty! The owner was forced to settle with the IRS for $10,000 and got stuck with $13,000 in legal fees.
There always has been a lot of bad advice about what you can and can't do with your US retirement plan. But there seems to be a clear attempt to bully people into investing in the same bland US investments Wall Street always tries to sell you -- but now they label you as a possible money laundering criminal if you want to go offshore!
There is another reason to move your retirement plan investments offshore. That's the government's continuing attack on wealth, including laws that have all but abolished US domestic financial privacy and allowed property confiscation by police fiat -- all this wrapped in the US flag held high in the phony wars against drugs, money laundering and, the latest ruse to gain government power, anti-terrorism.
These cases prove that the attack on honest wealth continues and grows worse by the day. If you have a pension or retirement plan, you should consider moving your plan outside of the US, not just for greater investment diversification and better profits, but to give you the sort of iron clad asset protection only available offshore. But do it now -- while you still can.
Larry Grossman, CFP