The added value of an independent advisor

03/05/2021

Before the coronavirus became a pandemic, we regularly held presentations for a group of interested expatriates to explain the added value of an, preferably independent, investment advisor. The offshore financial services is still not an industry that excels in transparency and unambiguity. It is therefore striking every time how far the expectations of our expatriate guests differ. What follows is a small anthology of our experiences.

We usually start by asking a few questions.

  • Who has ever had a wisdom tooth pulled? Given the age of most of them, all hands usually go up. If we then ask who did that themselves, nothing usually happens. Even the dentist does not pull his own wisdom tooth.
  • The next question is who ever gets their car repaired at the workshop. Almost all hands go up again. Replacing a bulb is often still possible, but even for that we prefer to drop by our workshop.
  • The third question is then who manages his own investment portfolio, without the help of an advisor. Roughly half of the hands go up ... ?!?

Where we prefer to outsource the replacement of a bulb to someone else, we often take our financial future into our own hands. And that is very strange because it depends quite a bit on whether or not you will achieve your financial goals (pension capital, mortgage repayment or the education fees for your children). Where the result of a treatment at the dentist or the replacement of a bulb can be determined in the short term, the results of an investment portfolio can only be measured over a longer period of time. Because the factor of luck does not play an insignificant role, as an investor you can actually only say after 10 years whether you have made the right choice or not. One good (or bad) year, even three good (or bad) years is not at all a guarantee for a long-term performance. As an investor you will find out too late to rebalance your portfolio and your financial dream can turn into a nightmare.

This is precisely why we choose to base our investment philosophy on a lot of research. Precisely because we cannot look into the future, but we can assess independently what has worked in the past.

This comes down to the following:

  • Investing is totally different from speculating;
  • Financial markets work efficiently;
  • Return and risk go hand in hand;
  • Spreading the risk is essential and diversification is the key;
  • The ratio of shares to bonds (asset allocation) explains most of the return to be achieved;
  • Low costs mean higher end capital;
  • Discipline is an important factor in achieving your goals (or not).

And just as important, what's not working:

  • Market timing doesn't work, other than because of the luck factor;
  • Stock picking does not work, idem ditto;
  • Actively managed portfolios fail to beat their benchmark in 85% of the time;
  • Emotions are every investor's worst enemy.

Too often expatriate investors are still tempted with beautiful brochures, awarded prizes for best this or that and unrealistically high return expectations, all trumpeted around by financial salesmen. Afterwards you will realise that all of this is paid for by you and that this is at the expense of your returns and financial objectives. This type of risk is also referred to as "Adviser Risk" and is just as much a risk to investors as the above risks.

Then what?

It is proven that an independent advisor can add up to 5% extra return on your investment portfolio. Simply by doing his job, without glass balls or unsubstantiated statements about the future.

When we finished our presentations, we always had a chat with our expatriate guests while enjoying a snack and a drink. Even then it is nice to know that the wine just tastes like wine, the beer like beer and that the snacks have a structure and taste that can be expected and are not the result of what the cook had that day in mind about whether or not adding extra chilli pepper or other surprises. Maybe boring but we know where we stand. And so it should be with your investments.

Need our Expertise? Now is the time for a Free Portfolio Review! Find out if you are on track to meet your financial goals. We will provide you with a free, no-obligation portfolio review to help you understand:

1. If you are taking too much risk.

2. If you are paying too much in fees (hidden commissions!) to financial salesmen.

3. If you own investments that are unsuitable or inappropriate for you based on your individual or family situation.

Please contact us: info@expatwealthatwork.com - thank you.