By Darren Beech, Wealth Planner Expat Financial Planning (Globaleye)
The Offshore Financial Industry Backdrop
The offshore market has been saturated with investment and savings plans from companies based in the Isle of Man. 2019 promised to be a better year for consumers, with the Isle of Man regulator bringing in legislation that forces advisers to disclose the product charges and commissions they earn through recommending Isle of Man products. For someone like me, having recently arrived from the better regulated and more transparent UK market (where built-in commissions were outlawed in 2013), I felt this was a welcome step towards transparency and the first step to bringing down charges. However, after various lobbying, the Isle of Man regulator in its wisdom decided to exempt some jurisdictions so that disclosure is once again not compulsory. Back to square one. Back to my personal crusade.
And therein lies the issue. The regulations and standards offshore are not where they need to be to protect consumers at all levels. You may come to realise that in lesser regulated jurisdictions (like in South East Asia) the harsh reality is you ARE more likely to come across a scam, be sold an expensive product or come across advisers without proper training or internationally recognised qualifications. Thailand is a particular risk as the majority of firms are not authorised with a regulator.
So for an expat seeking financial advice, finding a trustworthy adviser who provides robust advice can seem somewhat of a minefield. Furthermore, a quick search on DuckDuckGo.com may also bring to light some bad experiences with either the product terms, the firm or the adviser. But do not fear, there are good advisers and solutions out there, you just need to put more effort into finding them.
What you should do
So you’ve finally decided you need financial advice but you don’t know where to start. The amount of financial information out there is vast and as I’ve highlighted above, there are industry shortcomings and pitfalls. Getting started can be overwhelming but the process can be simplified if you break it down into simple steps; know what you are looking for, how to look and what to ask!
Here are some pointers and questions to ask advisers. Also, shop around, always speak to more than one adviser. You will find that where the regulation is thin, the preferred solutions and ethics applied rest with the adviser.
- Referrals
Ask your friends or colleagues if they have or know an adviser worth recommending. More often than not, they will not refer you to an adviser they are not happy with or have heard negative things about.
- Find out the adviser’s credentials.
Ask for their background and experience. Is the firm regulated? Where have they been over the last 10 years? Do they have industry qualifications or designations? Review their LinkedIn profile – financial people always have a LinkedIn page!
- What is the adviser’s business model?
You need to know what you are paying, how and to who, so ask how they are remunerated? If the investment pays a commission don’t be fooled into thinking you haven’t got to pay for this. You will. And dearly. You’ll also probably be locked in. Commissions create bias and is one of the reasons the UK banned them.
If an adviser charges fees or fees plus an ongoing percentage, this helps eliminate bias and conflicts of interest. It should minimise ongoing costs and is likely to mean the solutions provide better flexibility.
Ask what information will be provided prior to signing the application. Will you receive a formal advice letter or suitability report before advice is implemented? This final document contains the details you need to review the advice before you proceed. You can gauge the detail and thoroughness of the advice from the report and you should not submit any application forms before you have read this.
- Technology/planning tools.
Does the adviser use additional tools or software to add value and deliver advice? In more developed markets like UK and Australia, software providing cashflow modelling/forecasts or lifestyle planning are common. Here is a link to show how a forecasting tool can be tailored to your circumstances and goals: https://youtu.be/36oVC2MaEvU
- The type and line of questioning.
Assess whether they provide holistic financial planning or are a product salesman. Look at the type of things the adviser is asking. Is he taking an interest in your circumstances and your future by asking delving questions or did they mainly talk about a product?
- Investment strategy.
Make sure you understand and are comfortable with the investment strategy. Single company shares are generally riskier than funds. Is property involved? Has a structured note been suggested? What is the liquidity of what is being offered, can it be disinvested or changed quickly and easy enough? Make sure the proposed funds are authorised and regulated.
Ask who is monitoring the funds/portfolio. The adviser is unlikely to have the time or the expertise to be a portfolio manager too, so who is doing this?
How much will the underlying funds/holdings cost? Many offshore funds and structured notes provide further commissions/kick-backs to the adviser, so ask if this is the case. Again, make sure you know what you’re paying for at every level and whether they tie you in.
- Proposed Solutions
Interrogate the charge structure. Is there a penalty period? If so, high commissions have probably been paid and need to be recouped by the product provider. What are the annual product and investment management costs – more than 2% is high. (This doesn’t include the cost of the underlying holdings).
Portability. Flexibility. Access. Can you withdraw capital if your circumstances change? Is the plan portable? Is there any guidance given for known future circumstances or relocations?
