Geoff Birch has 28 years of experience in financial services and established the online brokerage Offshore-Rebates.com in 1999. In this interview we learn more about Geoff's background and ask his opinion on a number of expat investment issues, including the effect of the current economic crisis.
Expat Focus: Can you tell us a bit about your background and how Offshore-Rebates.com came into being?
Geoff Birch: It’s actually a very long story.I give my background to all new clients but if I tell all now it will occupy an inordinate amount of space.
So if I may give a very quick potted history instead, I started in this business in January 1980 with Prudential in Brighton, UK. I rose through the ranks with 5 promotions but after they restructured the company in 1991 I became frustrated in my new role of Sales Manager and by 1992 decided to leave. A year before, I had been happy and doing well, so had thought I would stay with Prudential until I retired. However once I’d decided to leave I realised I not only wanted to leave the job but also wanted to find a new scene altogether. My wife was up for it so we decided to “go for it” and leave the UK.
After some looking about, I was introduced via a friend of a friend to a job in the Gulf, which I took and I spent 5 years there.
Although I loved being out of the UK and my new life, I hated the business environment I had landed in. I had however burnt my boats and wasn’t about to go crawling back, so I stuck it out until I could afford to do something about it.
I also thought there had to be a better way of doing things. All of the advisers I have encountered seemed to have a default position of offering a unit linked life assurance vehicle to suit whatever need. “You have a lump sum to invest Mr Client? Then you need a single premium bond. You don’t have a pension plan? Then you need one of these offshore pension plans”.
The trouble I have with these solutions is that they are horrendously expensive and very inflexible. In the case of the regular savings vehicles, which tend to be labelled as pensions when they are actually whole of life assurance plans and just a way of accumulating a lump sum, they have an agreed term of years over which the client is expected to meet every payment. Okay, we all know that we need to save for our retirement, I do it myself and hope you do, but there are other ways too. Seriously can someone tell me why we need a method of saving that is so rigid that it actually penalises you if your circumstances change? Maybe you cannot save that amount any more or perhaps you repatriated and have products such as an ISA and pensions with tax relief available so maybe that style of product is no longer the best for you. Should we expect to get an arrears letter or threatened with lapse penalties because we didn’t feel able or willing to save for a few months? Should we pay a penalty for the privilege of accessing our own savings? Or stopping because our needs changed? Twenty or even ten years ago I had no idea where I would be living today or what my circumstances would be and I’d bet you didn’t either, so why do we sign up for long term inflexible plans?
A personal example is I still have 10 years to run on a 30 year endowment, originally designed for a mortgage. It’s doing badly as an investment and I keep getting letters warning me it will not provide enough to cover my mortgage. However I no longer have a mortgage. If I cash it in I only get a surrender value and if I sell or keep it it’s a terrible investment. At least it’s got some life cover on it I suppose but overall you get treated as if it is not your money in there at all and sorry to say I find this whole concept just ridiculous.
Sorry I’ve digressed, but all this leads back to how Offshore-Rebates.com started. So being unhappy with the work environment I left Dubai early in 1997 and based myself and my home in Cyprus while for the next couple of years I worked with a friend in Johannesburg. I also did a few business trips to Eastern Europe, which was just opening up then and gained some more clients. I enjoyed the travelling for a while but only those who don’t do much of it find it exciting and I soon got sick of airports and planes.
So by 1999 I was living in Cyprus and my clients were in Eastern Europe, in South Africa and I had retained clients in the Gulf. Also a good few clients had moved on to new countries or gone home to places as far flung as Australia and New Zealand amongst others, and we were keeping in touch via the then new medium of email. It gradually occurred to me that I didn’t need to travel and could slash costs for myself and the clients by just doing everything by email. This also meant I could cover a lot more ground as I didn’t have the time involved in travelling and it didn’t matter where I or the client was or indeed if ether of us was on the move because you can pick up your email anywhere.
So in October 1999 Offshore-Rebates.com was born and I am pleased to say it has carved out a real niche for itself. As mentioned I still had and indeed still have clients who date back to when I first went offshore and these people helped me enormously by word of mouth recommendations and repeat business which has grown the company to what it is today. All of my new business finds me and I have been very fortunate in never having to wonder where my next deal would come from.
Almost every investment we make is directly into investment funds and I would very rarely use a life product unless there was a specific client need to do so. However to give you an idea how often I think these needs occur, I haven’t used one since mid 2007, and I used a total of four in 2007. I think it was 2005 before that.
Expat Focus: What services does Offshore-Rebates.com offer?
Geoff Birch: The business is very much investment focused and my business works very much along the lines of a client will come to me and (s)he will say I have X amount to invest. From that we will have a bit of a discussion based around some background info and upon how much volatility the client can accept and what I think the best opportunities are. I try to educate the client to really understand what it is we are discussing because I think once a person has all the facts they can make their own decisions.
I would also make the point here that I believe risk and volatility are not the same thing and that sometimes you have to accept a bit of volatility to access the best opportunities. Often when you take out all the volatility you end up with a situation where you have also taken out all the reward too. Most of us would like to get a steady return of 10% pa and have almost no risk, but that’s Utopia and those days are gone now. These days I see it as my job to identify which strategies and in particular which funds will do well in the prevailing conditions and to try over time to build a client a diverse portfolio. I tell clients I cannot make the markets or indeed the funds go up but I can and do make it my business to look very hard at the funds and the conditions and if I recommend a fund it is because I believe 100% that it has a better than average chance of doing well if we get a half a chance from the markets.
I use active managers and a whole gamut of strategies. I have used equity trackers in the past on the premise that “the average manager doesn’t consistently beat the index”, but that’s evolved over time and I think that I would sooner just avoid the average manager and concentrate on those who can really do well for us. I also believe that the conditions have changed and with index levels this year back around 1998 levels and in Japan’s case the same level as 27 years ago, I think the passive investing idea is finished for now. I know they say “n the long term” but how long do you have in most cases? We can look at several 25 year periods in history and find that apart from a few rallies and crashes in the interim that the market was at the same level 25 years later. Who has 25 years to waste? Diversification of assets classes and strategies is especially important in present times.
I’d mention also that I do invest for my own future too and most of my clients own the same funds that I do but maybe in different proportions according to their needs or means. I might not have all the same holdings they do and they may not have all the same holdings I do but in most cases there is a strong overlap. As the funds are good you would expect that.
Expat Focus: What is a typical day at the office like, Geoff?
Geoff Birch: As a rule I check my messages as the first thing I do when I get up and the last thing I do before I go to bed. Messages generally come in steadily through the day and I make a point wherever possible to turn them around the same day.
I deal with the post, any admin and I read. I read a lot. I also make a point of knowing most of the managers I deal with personally. I have telephone conversations with them and I try to visit them at least once a year. I find this very useful and I like to be able to speak to them for an opinion when I need to. I don’t deal with a vast number of companies or products because I have by now identified who is good at what and what is the point of offering say 10 different bond funds or 10 different emerging markets funds? I think then you end up having a little bit of business with a lot of managers and being unimportant to them all. I would sooner be a valued client at fewer firms and get better support that way.
Expat Focus: What are the major issues expat investors should be aware of?
Geoff Birch: I have told you above my view of the products you are likely to encounter as an expat. I think to be honest that probably 90% + of all financial products are poor and likely to make more money for those that run or sell the schemes than those that buy them – unless they get lucky. In my experience I cannot nowadays think of a single top investment manager who works for an insurance company, or bank, and I find even the advice given by banks to clients is more driven by the adviser’s sales targets than the client’s investment needs.
I also told you already that I cannot see the point of giving your money to an insurer to give it to a fund management company and in many of those cases I don’t personally rate the underlying fund management company much either
Therefore, in a nutshell, “keep it lean, keep it flexible and diversify both amongst strategies and assets.”
I think the major issues are
1) To only buy products that allow you penalty free access to your money.
2) To only buy products that allow you to stop saving whenever you wish. Not after a “qualifying” or “initial period” but that allow you at least technically to decide to invest today and to stop or disinvest tomorrow without penalty.
3) To make sure that your cost of buying into these plans is no more than say 5% tops. Most offshore funds have 5% entry costs. I discount these for my clients but even if I didn’t these would still be more suitable in terms both of costs and flexibility for most people than buying a life vehicle or other wrapper for it. Also should you repatriate to the UK these days the rate of CGT on a qualifying fund is only 18% and then after a generous annual allowance, as opposed to income tax at your highest marginal rate on an insurance product.
4) Putting a bit into UK equities and a bit into Emerging Market equities is not diversifying. Apart from equities, look to have some fixed interest, some property, some decent hedge funds, perhaps some managed futures and at present maybe even a bit of precious metals exposure.
Expat Focus: What do you think of the present situation?
Geoff Birch: What a mess, really. It has been horrendously difficult to find anywhere to hide in 2008 and especially the latter half of this year. I did actually see a big problem coming but the sheer scale of it and the effects have been beyond my expectation. I guess beyond everyone’s expectation to be honest. Have we avoided all losses? Sadly not but we have had some good stories too. We did very well on global bonds and a couple of macro hedge funds, one of which did very well out of all this for us thank goodness, and some of our other managers did well not to lose too much, so we are generally not too badly beaten up and most people have some gains to offset some losses.
I think that 2009 could be pretty difficult too but from this will also come opportunity. I believe that corporate bonds will be a better bet before equities recover because they are all currently priced at default levels and clearly they wont all default. Also this is secured debt and companies will bust a gut not to default because if they do the cost of raising capital in the future rises alarmingly. Corporate debt has to be repaid from income before profits and dividends are declared so I think they will recover first. I also see opportunities in Distressed assets but that is a long term holding and an investor in it needs to be thinking 3-5 years minimum really
At present the scenario is deflationary and this is why government bonds have done so well but the only door out of this room will be to inflate the debts away and governments are already working on this. The amount of new money in circulation will rise enormously and hard assets like commodities and precious metals will probably do well in that environment. A bit like the 1970’s. Horrendous for cash as inflation robs the thrifty and rewards the debtor. This is what I expect will unfold anyway but we’ll make a new plan if and when the circumstances change.
Expat Focus: What are your plans for the future?
Geoff Birch: I restructured the business and relocated it out of Cyprus during 2008 and having completed that am now very settled again. Fortunately as an Internet based business it doesn’t much matter where anyone is and I am very lucky in that I have a great business which I can run by myself and I have no plans to expand it. I find that this is a very personal business and I very much enjoy the personal interaction between myself and my clients. I have made friends of all sorts of nationalities, I lose track but based in 53 or 54 countries at last count, and I really do go the extra mile to look after them. We do business but we also chat about life in general and it’s great. I tend to view it as a big family really and as such I don’t intend to employ any one else to advise clients because at present I know exactly what has been said and I don’t ever want to be in a situation where anyone I have employed is in a position where they may be incentivised to make an unrealistic promise or deliberately withhold some important information. Neither do I want to be in the position where I teach someone else what I know and how I work only to find a bit later they are setting up in competition and trying to take clients they consider theirs with them. All of the investment advice is given by myself and will continue to be so. If I reach the point where I cannot deal with any additional clients I will raise the bar as regards entry levels or just say “sorry no more new clients at present”. I see this as important because I don’t want to lose the personal contact and service levels we have now.
Overall, fortunately for me I am at a very contented stage of life where I have no real pressures so we just tick along nicely and I can treat people the way I would like them to treat me. I never chase anyone for business or to make decisions and it’s a very relaxed environment. It works so basically I plan to just keep on keeping on.
Expat Focus: What do you do to relax?
Geoff Birch: Well, my wife says I am a workaholic but I think that’s because I actually enjoy what I do so much that reading and learning more, or talking to fund managers and clients isn’t really work to me, even though it provides our living. I do however own a small open sailing boat, a Drascombe Lugger, and I have supported Arsenal since about 1970. I also enjoy reading, absolutely love my music – all types from pop, rock and country to classical – and I enjoy a dinner party with a few glasses of wine and a chat with friends.
Expat Focus: Thanks very much for your time, Geoff!
Geoff Birch: Thank you too. I wish you and your members a very happy, healthy and safe 2009!
Any readers who are interested in Geoff's services may contact him through the Offshore-Rebates.com website.