Is my financial salesman ripping me off?

02/14/2021

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 realise how your "salesman" is getting paid and how his pay structure may affect the "advice" he gives you.

These "salesmen" 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 "salesman's" best interests. What you will read here can save you many problems and oceans of money!


Commission-based Salesmen

These salesmen 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 portfolio/investment bond, offshore savings plan etc.).

The problem with this compensation structure is that the salesmen 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 realise 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 salesmen 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 salesmen 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 salesmen. There are much better ways you can get help with your financial decisions.

Performance Fee Advisors

Performance fee advisors like expatweatlhatwork are paid a fee ONLY for generating positive returns. This is as opposed to being paid commissions, which is charged without regard to any positive returns. 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 salesmen. 

The major benefit of performance fee advisors is that they will not be tempted to advise that you purchase high-fee products with a 5 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 a salesman who uses some combination of these 2 fee structures. Proceed with caution! The more complicated the salesman's compensation the harder it is for you to understand exactly how he is getting paid. With any type of salesman, 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 $150 annual membership fee to invest your money through a fully transparent and cost-effective investment platform with no 18 months up to 25 years lock-in periods.

Never be afraid to get a second opinion on your salesman's recommendations. You can easily go to a performance fee advisor. You can get this second opinion and avoid a very costly mistake.

Always remember that a trusted advisor should be teaching and educating you throughout the process. If the salesman is reluctant to explain his recommendations, I would be very wary of trusting him. By finding a trusted 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! Salesmen 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 salesman 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 salesman'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 salesman.

If you are looking for fair, independent and transparent financial advice, contact us today