How To Choose The Good Financial Advisor
You get the calls from IFAs (Independent Financial Advisors): sometimes they seem like an unwelcome intrusion, but the irony is that some of these guys really do know what they're talking about and can really help you get a handle on your long-term financial planning. But most don't. How do you tell the difference?
Begin the due diligence with a few basic questions. Start from the perspective that there are two ways for an advisor to ruin your life. Most are simply dishonest and they are evil and toxic. But even more dangerous is the well-meaning incompetent who really, truly believes that 25 years offshore savings plans and portfolio bonds are appropriate for middle-aged expat managers trying to send their kids to university and retire comfortably. These are the guys who slip under your radar and get past your defences because they are honest and sound credible. In time, they'll learn their trade - or find their dream-job in investment banking - but you don't want to be the horror-story that helps them find their way.
The single most important question to ask is "where is my money going"? Good advisors will never take possession of your hard earned money. When the world ends, the only thing left will be cockroaches and financial advisors - and cockroaches don't offer fund management services.
5 burns that expat clients need to beware of
1) The Big Promise
If it sounds too good to be true, it probably is. If the phrase 'guaranteed' is in the same sentence as 'above-average returns', you have a potential problem. There are instruments out there that do offer certain guarantees, but these are usually linked to bonds - and pay out in the neighbourhood of 6 - 8% per year over 5 - 10 year terms. No one can guarantee that they can double your money in one year. This is more of a local issue than an ex-pat one, but those of you with wives, girlfriends and associates who day-trade may find yourselves tempted. Don't go there.
2) Churn & Burn
Some brokers and companies get paid by the transaction-not the performance. Switching from one fund to another can be expensive - in some cases VERY expensive. It doesn't matter how blue your blue-chip instrument may be - when those chips get tossed around too much you can expect to lose a few - or a lot. Good advisors will make sure that your account is not getting traded unnecessarily often - or that you are not paying for the trades.
3) Selling Proprietary Products
Different instruments and services can have wildly different fees for the seller - regardless of performance. Big fund management companies like Merrill Lynch and HSBC don't really care that much about individual front-line sales organisations (like your financial advisor), and offer similar deals across the board. Property developers, commodities traders, gold mines and other special situations should be analysed on a case-by-case basis. Some may be fine. Others could be far riskier for you than for the guy offering you the inside track. (The big banks and institutions have been offered EVERYTHING first. If you are getting in on the ground floor, it's because Wall Street has already passed on it.)
4) Opaque Fee Structures
This is a tricky one, because all these insurance companies in Isle of Man, Guernsey, Cayman Islands, Mauritius etc. tend to have the most maddening contracts and fee structures. A good advisor will take the time to explain that all those offshore savings plans and portfolio bonds are just rip offs: you will see entry fees, exit fees, administration fees, management fees and set-up fees. The underlying mutual funds that will ultimately grow your investments have their OWN sets of fees.
The alternative is a unique, smart and low-cost investment platform with NO SURRENDER CHARGES or NO LOCK-IN PERIOD and YOUR MONEY FULLY ACCESSIBLE FROM DAY ONE.
You are looking for 2 things from a good advisor, and the first is an illustration or projection that is NET of fees. The second thing to ask about is official documentation covering the significant fees and charges. Your contract (and yes, you not only need to receive a contract - but you really have to read it) will include everything - but is very hard to figure out.
If you are investing in mutual funds through a large insurance company, you will pay something in the neighbourhood of 3 - 4% per year OVER THE LIFE OF YOUR INVESTMENT CONTRACT. You better opt for the inexpensive investment platform with no big exit-fees or administration charges. Your advisor should be able to give you a life-of-contract fee breakdown (or at least an estimate), in addition to itemising each individual charge or fee.
5) Good Intentions
Who is making the ultimate decision about where your funds end up? Some front line salesman who is minding your portfolio while reading the financial headlines (or football match scores) - or a professional wealth manager who does this for a living. Selling and managing are two completely different jobs. Balancing your portfolio shouldn't be a hobby and it shouldn't be a sideliner. No matter how much you may trust or respect the person selling you the funds, you need to know that he is supported by an organisation with a systematic approach to investing that will remain in place after your man is back home with the lads at the local.
This list is just the beginning -and it may be more appropriate than it would be back home. You should be sceptical, but not cynical. The best way to protect yourself against financial planning trouble is to be proactive about educating yourself and checking out your prospective advisors thoroughly.
We offer complimentary second opinion reviews on your investment portfolio. Each review comes with absolutely no obligation but could provide greater clarity, confidence and control over your future. Ready to get started? Contact us today: email@example.com