5 Questions To Ask Your Expat Financial Advisor
Rules and regulations covering expat financial advice differ significantly around the world, meaning you're not always entitled to regulatory protection like in locations such as the UK, US or Australia.
With so much information for expat financial advice available it can be difficult to know where to start, and once your choice is made, some expat investment products make it difficult to reverse your decision. Years can pass before issues arise, usually when you eventually need access to funds and discover restrictions on liquidity or exit fees.
Commission-based products are still common so closing investments, switching platforms or changing advisors can be fraught with complications. An advisor should provide a breakdown of fees at the earliest opportunity, but there are ways to gloss over the inhibitive nature of some investments.
Ask relevant questions that a good prospective advisor would welcome. Being confident and having an understanding of the technical aspects of investing will help you avoid expensive mistakes and quickly weed out unsuitable expat advisors.
We’ve created a list of simple questions to ask 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 huge. A fee-based advisor receives ongoing income for the services provided which is usually linked to investment value. Getting paid for giving advice and not by the product provider means your investment potential is optimised and your advisor’s objectives are aligned with yours.
A commission-based advisor receives payment at the outset, often 'by the institution’. This indicates commission is derived from charges amassed over a defined period with early exit fees applied if not completed. Lock-in periods are also a red flag.
2. Where Are You Regulated?
It should become evident quite quickly if your advisor has your interests at heart. The pedigree of investment provider and underlying funds recommended should minimise the need for any regulatory intervention later. However, it’s better to understand your position in case there are unforeseen issues, so do your due-diligence to prevent a lengthy and stressful complaints process that may not turn out how you want.
3. Can You Provide 'aggregated costs'?
The smoke and mirrors of some offshore products deliberately complicate charges. If an advisor can’t explain product and advice fees easily and clearly, don't invest. There should be clear distinctions between product and advice fees and ultimately, advisors should provide a full report on why their recommendations represent the best solution for you.
However, if numbers aren't your strength, before committing you can 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 ability should be able to understand product fees 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 should be easy for your advisor to provide.
4. What Are The Fund OCF's & TER's?
The ongoing charge figure and total expense ratio are fund running costs. Inexperienced investors often focus on overall returns, but the effect of the OCF or TER can be huge as they are deducted from results. 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 receiving part of the OCF, or incurring 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 1.5% 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 and know that qualifications don't guarantee quality, as the potential rewards are sometimes just too big for some advisors to refuse.
It could be years since your advisor took their last exams, and that's ok, as long as they keep up-to-date with their Continuing Professional Development (CPD). This ensures that knowledge and changes in the industry is maintained and more importantly, the organisation they represent is enforcing high standards. CPD logs should be updated at least annually, so why not ask advisors for evidence?