COMMISSIONS BROKER VS. PERFORMANCE FEE- ONLY ADVISOR: WHAT ARE THE DIFFERENCES? WHY IS IT IMPORTANT TO YOU AS AN EXPAT?
Performance Fee-Only Advisors are licensed professionals who assist expat investors with their financial goals and objectives whereas Commissions Brokers are not necessarily regulated by the authorities. Although their roles might seem like an outsider, performance fee-only advisors and commissions brokers perform very different roles and provide very different types of services in the delivery of financial services to expat investors.
As outlined above, there are significant differences regarding industry rules, regulations, and legal requirements in the way in which a commissions broker delivers financial services to expat clients and the way in which a performance fee-only advisor delivers financial services to expat clients via the 'fiduciary standard'.
COMPENSATION: A Critical Component and Difference
Advisors that operate on a performance fee-only basis are compensated a percentage of the expat client's assets under management. Brokers are compensated through commissions for the trades they place on behalf of their expat clients and/or the products they sell to them. As described above, brokers earn compensation from fees which they receive in the form of commissions from products they sell. Unlike performance fee-only advisors operating under a fiduciary standard, commissions brokers are not required to inform their clients in detail how their compensation is earned. As such, their model may create significant potential conflicts of interest because the broker's income is directly affected by the financial products he sells to his client.
INDUSTRY MOMENTUM: Expat Investors are Beginning to Understand
Over the last 5 plus years expats have become much more aware of the distinct differences between the commission's broker/ sales model and the performance fee-only advisor/ fiduciary model. The investing expats have been 'voting with their wallets' as they continue to choose the performance fee-only advisor model over the commissions broker model. As a result, the Asian and Middle East brokerage firms have been steadily losing market share to independent performance fee-only advisors. According to research assets managed by independent performance fee-only advisors have nearly tripled in the last 5 years. We believe this trend will continue.
The world of expat investment advice can be fraught with conﬂict of interest, opaque disclosure, and an overall lack of transparency. Seeking out an advisor who will act as your fiduciary can help to potentially eliminate many of the problems associated with the commissions-driven, product-focused broker model. Because a fiduciary is required, by law, to give full and complete disclosure of how they are compensated as well as any potential conflicts of interest that may exist before doing business with any prospective client, the investing expat public is in a far better position to make a more informed decision.
SUMMARY: Where Does Expat Wealth At Work Stand?
Since the founding of Expat Wealth At Work in 1994, we have always operated in a fiduciary capacity. Our client-centric approach to helping expats and their families achieve their financial goals and dreams has always put the client's interests ahead of our own. We strongly believe that, as a performance fee-only fiduciary advisor, it is not only the required way of serving expat clients from a legal perspective, but also the right thing to do. We also believe that by acting as a fiduciary we are in a better position to meet our client's needs more effectively. We will continue to be champions for the best interests of our clients and will always be staunch advocates for the fiduciary model. We believe that an advisor who is held to a fiduciary standard occupies a position of special trust and confidence when working with clients because he is required to act with undivided loyalty to the client. Further, we believe strongly that it has clearly been proven and validated in the expat marketplace to be the better model for the expat investor because of the dramatic reduction in conflicts of interest, greater choice of investment options and no sales of proprietary investment products to clients.