Residency-by-investment programs are an attractive option for some HNW individuals, but may be designed to the detriment of the country in which the program is available.

According to our 2016 Global Wealth Managers Survey, 18.7% of total HNW wealth is held offshore. HNWIs may invest in markets outside their country of origin for several reasons, such as geographic diversification and access to a better range of investments.

Offshore investments can also be driven by wealthy investors seeking to live outside their country of origin. Whether to gain access to a larger trading bloc (such as the EU) or provide their family with a better quality of life, obtaining residency of more than country can be beneficial to HNW individuals. Many countries offer programs which grant residency to individuals who invest a specified amount into the country.

This investment can take many forms, which in several cases contributes to the country’s economy, property market, or even culture. For example, Portugal’s residency-by-investment program allocates a portion of the funds to scientific and technological research, as well as refurbishment projects for national heritage buildings. These residency-by-investment programs can be rewarding for individuals who participate because of the ability to help improve the country, whether through job creation or quality of life.

Unfortunately, this is not the case for all investment programs. In 2011 Hungary introduced a residency bond program whereby wealthy foreigners can obtain a permanent residency permit from the Hungarian government in exchange for an investment of €300,000 into the country’s debt securities. Boldizsár Nagy, an associate law professor at Central European University, has authored a report that argues that the program had minimal impact on Hungary. In conjunction with the Investment Migration Council and Transparency International, This, in turn, did little to help the country as a whole and contributed less than 0.5% to financing state debt.

While the Hungarian residency bond program was not created to improve any aspect of the country’s economic or financial condition, there is a responsibility on behalf of governments to seek solutions for bettering the lives of residents. Residency-by-investment programs should be designed so that they are of benefit to the investors and the country for which the program is offered.

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At the same time, many HNWIs care about how the money they’ve invested is used beyond the process of granting residency. With a number of residency programs available, investors are likely to favour those that can have a meaningful and positive impact on the country in which the residency is offered. Wealth managers should recognise this need and make sure they fully inform their clients about their options and the consequences of their choices.