Is my financial advisor ripping me off?
The offshore financial services industry is great at making you feel good while ripping you off. They're also great at confusing you so much that you can't even figure out how badly you're getting ripped off. To make smart financial decisions, you need to realize how your "advisor" is getting paid and how his pay structure may affect the advice he gives you.
These advisors can include financial planners, IFA's etc. Different compensation methods can create various conflicts of interest-situations where your best interests are not the same as your advisor's best interests. What you will read here can save you many problems and oceans of money.
These advisors get paid a commission when you buy a product. The products they sell are mostly the various insurance-linked investment schemes or unit-linked life assurance plans (offshore executive investment bond, offshore savings plan etc.).
The problem with this compensation structure is that the advisors are influenced to sell you products that give them a higher commission. This could mean selling you inappropriate or sub par products with high fees. You often don't realize the cost of these decisions because the commissions are rarely disclosed in an honest, upfront, and easy to understand manner. It may seem like you're getting cheap or free advice, but you end up paying much more in the end because of the commissions that are built into the products you buy.
Commission-based advisers are also much more likely to persuade you to make many transactions (buying and selling investments many times) because this increases their pay.
You are best served by steering clear of commission-based advisors whenever possible. If you must work with someone who earns their fees by commissions, make sure you get full disclosure on their compensation and always get a second or third opinion on their advice. Do your homework, and you can avoid getting ripped off by commission-based advisors-but there are often better ways you can get help with your financial decisions.
Fixed-fee advisors like expatweatlhatwork are paid a flat fee to provide certain services you agree upon. There are very few of these advisors around in the offshore financial services industry, but their fee structure can eliminate many of the problems with commission-based advisors. You may also hear this fee arrangement referred to as a "retainer".
The major benefit of fixed-fee advisors is that they will not be tempted to advise that you purchase high-fee products with a 10 to 25 years term or to put more money under their fund management. Since their compensation structure is separated from your assets, they are able to focus on your best interests when they provide advice.
Other Things to Keep in Mind
You might find an advisor who uses some combination of these 2 fee structures. Proceed with caution! The more complicated the advisor's compensation the harder it is for you to understand exactly how he is getting paid. With any type of adviser, make sure you get full disclosure of their compensation in writing. A simple and clear charging structure would be 0.5% management fee per annum and a $250 annual membership fee to invest your money through a fully transparent and cost-effective investment platform with no 18 months - 25 years lock-in periods.
Never be afraid to get a second opinion on your advisor's recommendations. You can easily go to a fixed-fee advisor. For a few thousand dollars, you can get this second opinion and avoid a much more costly mistake.
Always remember that your advisor should be teaching and educating you throughout the process. If the advisor is reluctant to explain his recommendations, I would be very wary of trusting him. By finding an advisor who is a true teacher at heart, you can be more confident that the advisor is honest and trustworthy. The best advisor should be working to make himself completely unnecessary at some point!
Don't fall for slick marketing, a round of golf, free dinners, or nice gifts! Advisors who spend a lot of money in these types of "client appreciation" or advertising areas are simply using the money you pay them to give you "free" stuff just to make you feel good about getting ripped off. You should remember that the advisor is not going to give you so much "free" stuff that they don't make a profit. While it may feel good to get that "free" round of golf, you should never forget that you've already paid for it when you paid the advisor's fee. Don't fall for the illusion that it feels good to get ripped off! If you really want those things, pay for them yourself and stop paying through the nose to get it from your advisor.
If you are looking for fair, independent and transparent financial advice, contact us today!