Our guide to avoiding costly mistakes

When you are making financial commitments overseas, knowledge is essential. Working with an advisor in our network ensures you get the information you need to make informed decisions with total peace of mind. 

As an expat, local financial services can lack regulation. Investment products are available overseas that cannot be sold in the U.K. owing to high charges, commission structures and restrictive liquidity, so it's vital you understand the commitment you are making as it could prove very costly. 

Below are some of the more common mistakes we see that can be easily avoided, saving you time, money and a lot of stress.

Unregulated collective investment schemes 

Collective investment schemes (CIS) contain a basket of assets managed by a fund manager and are marketed for sale to members of the public. Sometimes referred to as 'pooled' investments, underlying assets may include stocks, property, and corporate and government bonds. The majority of CIS funds are overseen by regulators such as the Financial Conduct Authority (FCA) to ensure investments guidelines are adhered to and protect investors.

If a scheme is not recognised or authorised it is classed as an unregulated collective investment scheme (UCIS) and should be treated with caution. UCIS funds do not adhere to the same restrictions as regulated schemes, creating a higher probability of funds being suspended, wound up and in severe cases, loss of capital. The strategies and underlying assets can be more  obscure and riskier by nature and have in the past, included overseas property, forestry plantations and high risk debt such as payday loans.

UCIS funds cannot be recommended to the general public. However, this  still happens and thousands of people have invested into UCIS funds unaware of the risks and lack of protection from the Financial Services Compensation Scheme (FSCS). The funds can be marketed to those that accept the inherent risks involved or can absorb loss of capital, including:

  • 'Sophisticated' investors

  • Certified high net-worth investors

  • Those already invested in UCIS schemes

  • Self-certified 'sophisticated' investors

Not to be confused with UCITS (undertaking for collective investment of transferable securities) which is a stamp of quality, UCIS funds can be more expensive than regulated funds and far more unpredictable. It is worth knowing that a primary reason for selling UCIS funds is generating commission, so it is vital to consider  who will benefit most from the purchase, more on which can be found below.

Fund commissions 

In 2013, the introduction of the UK Retail Distribution Review (RDR) changed how advisors were paid. Previously, incentives for 'selling' products created doubt over if funds were being selected in the client's best interests or to generate commission, potentially influencing advisors to make decisions for their own benefit, not the clients. 

In the UK, transparency how customers are charged is required. Fees are often a percentage correlated to the size of assets is agreed, keeping advisors motivated to protect the income it provides and using 'clean' share classes of funds as they are usually much cheaper to own, improving returns as a result.

Offshore funds 

Advisor commission is still widely accepted overseas for selling funds and is generally deducted from initial invested capital. Other options offer free entry but charge for early redemption, so ask your advisor to clarify what you are purchasing as you could be unknowingly paying commission and/or a trail payment, which increases costs considerably.

As a general rule, 4%-5% commission is the standard payment to advisors, the cost of which is either added to the running costs and charged as a penalty for selling the fund, of the fund or taken from the investment on purchase. Our page on hidden fund costs funds explains more.

Choosing an advisor

The quality of advice overseas varies as much as the products for sale and it's always a requirement to be qualified to give advice. Regulators protect investors, however, the need to involve them at all should be avoided at all costs. Doing due-diligence at the start can prevent problems as even established regulators can take many years to resolve disputes and complaints.

An advisors' approach to investing and the pedigree of solutions they recommend provide real security for investors. It's should be obvious if an advisor has your best interests at heart or not, so here are some pointers of what to look out for when choosing yours:

  • Scaremongering is common. It's said that people invest through fear or greed, so if you feel pressured because of 'offers' or time restraints, walk away. 

  • If fixed investment terms and redemption charges apply or the advisor is 'paid by the institution', ask for clarification on how much they get paid and how.

  • Look for firms offering fee-based investment advice, with transparent set-up fees and charges that are fully disclosed and agreed upon before completion of business.

  • Other than set-up and ongoing management fees, advisors should be looking to reduce platform charges as much as possible, receiving remuneration only for the services they provide and not from institutions.

  • Ask for clarification on underlying fund charges. Your advisor should be reducing these as much as possible to give you every possibility of a positive outcome.

  • Look at the fund institutions being recommended and check regulations, track record and key statistics such as assets under management.

Your financial decisions have a huge impact on your life, so don't be scared to ask questions. If you are looking to initiate an investment, would like a second opinion before taking a decision or just looking for a review of your investments, get in touch and an advisor will provide open and honest guidance. 

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