Towry Law teaches lessons in offshore investment

Since the days of the South Sea Bubble more than 200 years ago, punters have been falling for the allure of easy money in foreign parts. But there are new lessons from the Towry Law case.

Offshore investors are foolish if they put their money with any financial institution that is not either a registered local financial institution of the country they are resident, or a major international financial institution.

To entrust money to funds introduced by a third party of less than blue-chip credentials is almost inviting the inevitable disaster. Even with the blue-chips you need to keep your head.

So wise up people! When Mr. X, the newly arrived pension's specialist corners you at a business group give him a polite elbow. The man who seemed to know all about trusts at a party? This is the last man you should trust.

Should you decide to have a 'wealth check', just remember whose wealth the person you are talking to most interested in helping? A clue: it is not yours!

However, there are exceptions to every rule. I know a nice English financial adviser who refunds commissions from funds to his clients and takes a flat fee. His only problem is that the UAE Central Bank will not let him have a license at present.

Now in the particular case of Towry Law, it is hard to accept - as one of their executives told AME Info - that this firm is innocent of all wrong-doing, correctly advised its clients and is only shutting its offices in Dubai and Bahrain due to poor trading worldwide.

I can recall attending an evening reception in the UAE organized by Towry Law for the Circus Capital Protected Growth Fund which has now lost 80 % of its clients' money. My suspicions were aroused by the talk of investing in 'military technology for civilian use' and the vulture-like flock of salespersons moving from table to table.

Perhaps the words 'Capital Protected' might be thought to safeguard 100% of the investment? Indeed, the list of banks at the back of the prospectus seemed solid enough, but of course how do you know that these banks had agreed to the inclusion of their names?

This is the problem with offshore investments: the goal posts move around, and goal posts you thought were there turn out to have been a mirage.

Now the former clients of Towry Law International are left to pursue a class-action, and have to place their future in the hands of success-fee lawyers whose reputation is doubtless impeccable. It would not be for this correspondent to dare to suggest otherwise.

But there is bad news for many more investors to come. A lot of investments over the past year or two have been offering high returns through excessive leverage - that is borrowing against their own assets. This works fine if markets move in your favor, if they move against you this is how to loose most of your capital.

In any major market downturn - and US interest rate increases almost always cause markets to fall - then the woes of Towry Law's clients will be the tip of the iceberg. There will be hundreds of funds that hit the wall.

So if you have placed any money through independent financial advisers, you are strongly advised to check-up on your policies and funds, and if you have any doubt, get the money out.

Of course, caveat emptor, Towry Law was only acting as a third party advisor and so can claim it was offering best advice and was itself a victim. The lawyers will not have an easy fight.