Avoiding Costly Investment Mistakes


When making financial commitments overseas, knowledge is essential. Working with an expat financial adviser with your best interests in mind ensures you get the information you need to make informed decisions with total peace of mind.

As an expat, local financial services can lack regulatory protection, so investing in sophisticated funds can be fraught with dangers. Many investment products can be sold overseas that can't be marketed to the general public in markets such as Europe and the UK, unless you qualify as a 'sophisticated investor'.

These funds can have restricted liquidity and complex structures, so it's vital you understand the commitment you're making before investing as it could prove very costly.

Below are some of the more common mistakes we see being made but are easily avoidable, saving you time, money and a lot of unwanted stress.

Unregulated collective investment schemes (UCIS)

Collective investment schemes (CIS) contain a basket of managed assets and are marketed for sale to members of the public. Sometimes referred to as 'pooled' investments, underlying assets may include stocks, property, and corporate and government bonds. The majority of CIS funds are overseen by regulators such as the Commission de Surveillance du Secteur Financier (CSFF) in Luxembourg or the Financial Conduct Authority (FCA) in the UK to ensure investments guidelines are adhered to and protect investors.

If a scheme is not recognised or authorised, it is classed as an unregulated collective investment scheme (UCIS) and should be treated with caution. UCIS funds do not adhere to the same restrictions as regulated schemes, creating a higher probability of funds being suspended, wound up and in severe cases, loss of capital. Strategies and underlying assets can be more obscure and riskier by nature and have in the past, included overseas property, forestry plantations and high risk debt such as payday loans.

UCIS funds cannot be recommended to the general public. However, this does still happen and thousands still invest into UCIS funds unaware of the risks and lack of protection from organisations such as Fonds de garantie des dépôts Luxembourg (FGDL) and Financial Services Compensation Scheme (FSCS). Funds can be marketed to those that accept the inherent risks or can absorb loss of capital, including:

  • 'Sophisticated' investors
  • Certified high net-worth investors
  • Those already invested in UCIS schemes
  • Self-certified 'sophisticated' investors

Not to be confused with UCITS (undertaking for collective investment of transferable securities) which is a mark of strict criteria being met, UCIS funds can be more expensive than regulated funds and far more unpredictable. It is also worth noting that a primary reason for selling UCIS funds is to generate commission, so it is vital to consider who will benefit most from the purchase, more on which can be found below.

Fund commissions

In 2013, the introduction of the UK Retail Distribution Review (RDR) changed how advisers were paid. Previously, incentives for 'selling' products created doubt if funds were being selected in the client's best interests or to generate fees, with dome advisers making recommendations for their benefit, not the clients.

In Europe and the UK transparency over charges is required, with adviser fees often a small percentage of the assets being managed. This keeps advisers motivated to protect the client's interests by using the best 'clean' funds available, improving returns and retaining the client income as a result.

Offshore funds

Adviser commissions are still widely accepted overseas for selling funds and are generally deducted from initial invested capital. Other options offer free entry but with charges for early redemption, or with trail payments generated by higher ongoing fees. So always ask your adviser to clarify which share class options are available as you could be unknowingly paying commission, trail payments and much higher costs.

As a general rule, 4%-5% commission is the standard payment to advisers which is ultimately funded by you.

Choosing an Expat Adviser

Advice standards overseas vary as much as the products for sale, and it's not always a requirement to be qualified to give advice. Regulators protect investors, however, the need to ever involve them to resolve disputes should be avoided at all costs. Doing your own due-diligence before investing can prevent massive problems as even established regulators can still take years to resolve disputes.

An adviser's approach to investing and the pedigree of solutions they recommend provide real security for investors. It's should be obvious if an adviser has your best interests at heart or not, so here are some pointers to look out for when choosing yours:

  • Scaremongering is common. It's said that people invest through fear or greed, so if you feel pressured because of 'special offers' or time restraints, walk away!
  • If fixed investment terms and redemption charges apply or the adviser is 'paid by the institution', ask for clarification on how much they get paid and how.
  • Look for firms offering performance fee-based investment advice, with transparent set-up fees and fully disclosed charges that are agreed before completion of business.
  • Other than set-up and ongoing management fees, advisers should be looking to reduce product fees as much as possible, receiving remuneration only for the services they provide and not from providers.
  • Ask for clarification on underlying fund charges. Your adviser should be limiting these as much as possible to give you every possibility of a positive outcome.
  • Look at the fund institutions being recommended and check regulation, track record and key statistics such as assets under management.​

Your financial decisions have a huge impact on your life so don't be scared to ask questions. If you are looking to initiate an investment, would like a second opinion before taking a decision or just looking for a review of your investments, get in touch and you get the open and honest guidance you're looking for.

Request a no obligation consultation: info@expatwealthatwork.com