5 simple questions to ask your expat financial advisor
The rules and regulations covering expat financial advice differ significantly around the world and you are not always entitled to the regulatory protection you would be in locations such as the UK, US or Australia.
With so many options for expat financial advice available, it can be difficult to know where to start. Once you have made your choice, the structure of many expat investments make it difficult to reverse your decision. It can be years before issues arise when you eventually need access to funds, and it’s then you discover there are restrictions on liquidity or exit fees.
With commission-based business models still commonplace, closing investments, switching platforms or changing advisor can be fraught with costly complications. Advisers should provide a breakdown of fees before taking you on as a client but there are ways to gloss over the inhibitive nature of some investments.
So it’s time to sharpen up and ask relevant questions that a good prospective advisor would welcome, and a bad one not so much. Being confident and having an understanding of some technical aspects of investing will help you avoid making expensive errors and quickly weed out unsuitable expat advisors.
We’ve created a list of simple questions that should always be asked and a couple that aren't but should be, to help measure the integrity of the firm you are talking to. You can then invest with peace of mind and enjoy building a long-lasting, trusted relationship with your new advisor.
1. Are you commission or fee-based?
The difference between the two options is stark. A fee-based advisor will receive an ongoing income for the service provided which is often linked to the value of your investment. Getting paid for advice and not by the product provider means that by making the best investment choices for you, your investment potential will be optimised and your advisor’s objectives are aligned with yours.
A commission-based model means that your advisor receives payment at the outset and often 'by the institution’. This usually indicates that commission will be derived from charges amassed over a defined period and early exit fees applied if the period is not completed. Lock-in periods are also a red flag.
2. Where are you regulated?
If your advisor has your best interest in mind it should become evident quite quickly. If so, the pedigree of the investment provider and underlying funds they recommend should minimise the need for any regulatory intervention later. However, it’s always best to understand your position just in case there are unforeseen complications. Doing your due-diligence first can prevent a lengthy and stressful complaints process that may not produce the result you were hoping for.
3. Can you provide 'aggregated costs'?
The smoke and mirrors of many offshore products make the charges difficult to understand. If your advisor can’t explain product and advice fees easily, clearly and quickly, don't invest. There should be a clear distinction between product and advice fees and ultimately, your advisor should provide an investment report why they believe their recommendations represent the best solution for you.
However, if maths is not your strong point, prior to committing to a report you could ask for an actual monetary value of fees in addition to percentages based on the amount you want to invest. Even those with minimal mathematical knowledge should be able to understand product fees and make comparisons if explained correctly. 'Aggregated disclosure' is the total cost of the investment process and how those fees affect your investment, but asking for a simplified version before committing should be simple for your advisor to provide.
4. What are the fund OCF's / TER's?
The ongoing charge figure or total expense ratio is the underlying costs of running a fund. Inexperienced investors often only focus on overall returns, but the effect of the OCF or TER can be significant and they are effectively deducted from your returns.. Whilst low fund costs don’t guarantee quality, it does send a clear message of whether your offshore advisor is using funds that are paying hidden commissions, either by taking a portion of the OCF that incur with an exit fee reducing from 5% to 0 over 5 years. Fund OCF’s start as low as 0.1% pa so anything above 1.75% - 2% is worth querying.
5. Can you evidence your CPD?
Qualifications are obviously important as you’ll want to work with a qualified advisor. In our opinion, demonstrating integrity is equally as important as the qualifications as we often see that exams don't always guarantee you'll be recommended the best options. The potential rewards are sometimes just too big for some advisors to refuse.
It could be many years since your advisor took their last exams which is fine, but they should also be keeping up-to-date with their Continuing Professional Development. This will ensure that knowledge of any recent industry changes is maintained and more importantly, the organisation or network they represent is enforcing high standards. CPD logs should be updated at least annually, so why not ask for recent evidence?
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If you would like to speak to an expat financial adviser with the answers to all of the questions here, you can contact us today and our team will get right back to you.