Expats are in a very specific position when it comes to finding a financial adviser, because depending on where their chosen adviser is based, they may or may not be stringently regulated. There is no reason to think that all advisers are the same, and even those that are regulated may not be that good at what they are doing, but getting to know a bit about your adviser before you sign up to their service is essential, and these questions produced by AES International should go a long way to help.
How do you charge for your financial advice?
“There is no initial charge. I earn a commission and I am paid by the product provider so this isn’t something you pay or need to worry about.”
First, advice is never free – particularly good advice. The majority of advisers operating in international markets earn their money through commission which 99% of the time isn’t fully disclosed, let alone clearly explained to the client. This is why most advisers will claim the advice they are offering is free.
In reality, these commission payments usually consist of a very large up-front payment made to the adviser on day one of the policy (which will then eat into returns for years to come through an ongoing charge).
Aside from the high costs associated with this model, this structure encourages advisers to sell products which pay the most, not those which are necessarily right for the client.
”I charge an upfront fee for my advice, typically between 1% and 3% of the amount you invest, and then an annual management charge based on the value of the initial investment if you would like ongoing service and for me to review risk profile, portfolio and the continued suitability of my initial recommendation at regular intervals.”
This answer is transparent and the financial planning and asset management fee structure is clear and simple, as opposed to being comprised of hidden commissions and fees.
Additionally, the explicit annual management fee in return for a clearly defined service proposition tells you that the adviser has a reason to look after your wealth on an ongoing basis and an obvious incentive to assist you in growing your investments and act in your best interest.
What qualifications do you have? How long have you been a financial planner and what is your experience?
“I have passed all the necessary exams to allow me to give you financial advice.”
This answer is far too vague. Depending on which country you and the adviser are based, their advice will be subject to different rules and regulations. Some countries have no regulation regarding who can give a client financial advice. You want your adviser to be upfront and specific about his experience, knowledge and qualifications, as well as the regulatory framework in which he operates, regardless of which country he is based in.
”I am a Certified Financial Planner (CFP) and my organisation is fully licensed and regulated to operate in this country.”
”I am a qualified financial adviser in my home country and my organisation is fully licensed and regulated to operate in this country. This is my certificate – level 4 means I have a Diploma.”
These answers are more detailed and show the adviser is prepared to disclose the details of their training and education with you.
The mention of the organisation being fully licensed and regulated indicates that they are operating as part of a professional organisation from which you could also benefit of being a client.
The answer also shows that they are aware of the regulations of the region in which they’re operating and believe that there is more to being your adviser than simply saying that they have passed ‘some exams’.
If in doubt, ask to see the various financial and operating licences and qualifications that the ‘adviser’ holds. You should also double check online whether a company is regulated by the local authority.
What support do you have from your organisation?
”I operate completely independently and will handle all aspects of your financial needs and management.”
Beware of someone who professes to be a jack of all trades; they are likely to be a master of none, having spread themselves too thinly.
”I give independent financial advice within the framework of my organisation. I benefit from the central research, product expertise, compliance supervision and administration assistance of a professional team, and these people will all assist me in helping you meet your financial objectives.”
Financial advice should be independent and tailored to your needs, but having a dedicated team of people behind your adviser will only improve the quality of advice and service that you receive. The very best financial planners would never profess to be investment experts as well. How could they be, with tens of thousands of funds to research and check, let alone keep up with all the tax laws they will need to know and the investment structures to help protect your money.
Can you offer me a low cost way to invest?
“The best way of accessing investments is through the buying power of a contractual product or ‘wrapper’ supplied by a life insurance company.”
There is often no need for you to buy a product before you make an investment into a fund. This is often just a way of generating extra commission for the adviser – or the adviser lacks the right tools to allow you to invest. Tax wrappers, when needed, can normally be acquired much more cost effectively than buying a packaged insurance based investment product.
“Yes. If you do not want or need advice and are simply looking for a way to invest, we can provide you with the tools to manage your own investments.”
Not everyone needs advice and you certainly shouldn’t be paying ongoing commissions or fees for advice you don’t value. There are many ways of accessing investments without paying for advice and a good company will be able to help you get started.
What sort of risk would I be taking on when investing with you? Will I be involved in any risky investments?
“We will assess your attitude to risk by looking at a scale. You tell me where on this scale you feel you sit, with the far left being risk averse and the far right being risk-tolerant. We will then buy products based on this scale.”
Risk assessment is complicated and your investment objectives should not be based on an oversimplified “risk scale”, sketched out in seconds in front of you.
“We will ask you to complete a detailed risk profile questionnaire, covering different areas of investment risk which will provide a starting point for more detailed conversations with you. This will build a picture of your attitude to risk which we will use to guide us in making investment recommendations best suited to you.”
There are many different elements to investment risk, and what people perceive as ‘risky’ can vary significantly between individuals (and advisers!). Your adviser should be able to fully explain and document the risks relevant to you, and choose investments that are suited to your appetite, understanding of, and tolerance for those risks.
What is your investment philosophy? Where does your research come from?
“We have relationships with the biggest banks on Wall Street and will get you preferential access to their products. We also have a range of structured products and non-correlated investment funds.”
A good company will be able to take its own view on investment markets and not be sold to by big name product providers looking to push their latest fund.
“We have a dedicated team of investment professionals who research international markets to find what we consider the most attractive and cost-effective investment opportunities to tailor for nearly all investment objectives and needs. We have a range of passive and active investment solutions which are continually reviewed and monitored by our investment services team.”
You should ensure that your adviser is proactive in finding the best investment solution for you and your circumstances, independent of product providers. Ideally, the adviser will have a range of funds which have been researched and given a seal of approval by the organisation he works for which can help form the basis of a successful portfolio.
How much contact would we have?
“We will be in touch to arrange follow-up meetings as and when your circumstances change or when we find new investment opportunities for you.”
An adviser who wants to arrange follow-up meetings with you on an ad hoc basis, or when “new investment opportunities” arise, is likely to just want to encourage you to buy new investments or churn your existing investments in order to boost their commission payments.
“We will keep you up to date with market developments and other financial news which may impact you via our centralised communications team. Otherwise your adviser will always be available to speak with you when you need or meet face-to-face annually to review your investment progress.”
A professional company will have a marketing and communications team which will keep you updated with market and other financial news as well as investment research and ideas. How often you meet your adviser should be dictated by you and should focus only on reviewing the progress of your existing financial plan, not selling you more products. Remember it is you that is directly or indirectly paying for the adviser’s time, so it is only worth meeting to get something you need and value.
What will the first meeting involve?
“When we meet I will talk you through your options and we will decide what the best course of action for you is.”
Nothing should be decided at a first meeting. If you feel pressured into doing anything during a first meeting this adviser could be bad news and not right for you.
“During our first meeting I’d like to get to know what your current financial and personal situation is and gain an understanding of what your financial needs and goals are. Following this, I will go away and complete a detailed analysis which will project some assumptions about how your financial future may look based on different options.”
A first meeting is all about both you and the adviser getting to know each other. It’s an opportunity for you to ask questions (such as these here) and for them to work out how they may be able to help you. Be extremely wary of anyone trying to sign you up to a plan or product at the first meeting, or trying to get you to provide names of family, friends or colleagues that may also be interested in his services.
Do you have clients in a similar position to me and can I meet or talk to them?
“Due to data protection rules, I can’t provide you with the names of any of my clients, although you can read testimonials on our website.”
This line about data protection is nonsense, but is surprisingly often used in international markets to dupe investors. All good companies will have clients willing to provide referrals. Verifiable testimonials with photos on websites are a good sign.
“Certainly. I can provide you with two or three of my long-term clients who will be happy to talk to you about their experience of my company and my advice.”
A decent advisory company will be able to provide more than one client happy to provide a referral. You should also try to speak to someone who has been a client for a long time as any issues will usually take a while to come to the surface.
Choosing a financial adviser is arguably one of the most important decisions you will make with your money, and getting it wrong can be catastrophic. The most important thing we would urge any would-be investor to do is to take their time and do their research. Time spent in reconnaissance (due diligence) is very rarely wasted.