International
Financial Advisors
by Caroline Maxwell,
June 2006
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Why do you need an international
financial advisor?
Managing
your investments is seldom easy, and for an expatriate,
the sheer amount of knowledge and technical expertise
required can be bewildering. Investment guides, magazines,
and finance and investment sites (such as Investorsoffshore.com,
ahem!) can provide you with a working knowledge of strategies
and types of investment, but (hopefully) you wouldn't
perform open heart surgery on a loved one because you
had found a great medical website, so when tackling
the intricacies of international tax and investment
planning, there is no shame to enlisting a qualified
professional to offer guidance and support.
You might,
of course, already have relationships with several qualified
professionals. You might feel that another qualified
professional in your life is just exactly what you don't
need. However, an IFA can be the one that ties it all
together, streamlining the financial planning process
in the long run.
For example,
you may have access to the services of an international
stockbroker who is excellent at picking exactly the
right stocks and funds (and if this is the case, in
these volatile times, I suggest you keep very quiet
about him). However, without access to information concerning
your overall financial situation, he may not be able
to provide the proper information about sheltering those
assets for estate planning purposes.
Equally,
your accountant may be doing a fantastic job of tax
preparation, but may not be able to help you reposition
your assets so as to achieve optimum tax efficiency.
So whether you are just starting to consider financial
planning as the result of an international move, or
want to streamline an unnecessarily bulky planning procedure,
hiring an IFA may well be the way to go. He (or she)
should be able to help you address the current situation,
set goals for the future, identify alternatives, select
and implement a course of action, and review the situation
on a regular basis.
As previously
mentioned, the amount of technical expertise and knowledge
required to manage the finances of an expatriate will
usually be much greater than that needed for a 'static'
employee. Although in the domestic sphere there are
doubtless many financial advisors well able to juggle
shrewd investment management with advice on asset protection,
retirement planning, and finance management, as an expatriate,
you will ideally need someone able to do this on an
international scale.
Dealing
with, for example, the EU Savings Tax Directive, UK
capital gains tax, French inheritance tax, and the implications
of citizenship for personal taxation is likely to require
the expertise of an international financial advisor.
Also, depending on your personal circumstances and net
worth, you may want to establish an offshore trust or
company to protect your assets from future threat, or
to hold retirement income, and a domestic financial
advisor may not be completely up to date or knowledgeable
about the processes and legal issues involved. As many
people have found to their cost, and with international
tax authorities bearing down ever more heavily on 'offshore'
income, a badly set up offshore structure can do more
harm than good, and it is therefore worth making that
little bit of extra effort, and hiring an international
professional.
Which
method of compensation?
Financial
advisors, whether onshore or international, can be compensated
for their services in one of several ways, and while
we are not suggesting that an IFA compensated in one
way is preferable to an advisor compensated in another,
it is essential to be aware of how an advisor is paid
for his services, not least from the point of view of
your own budget. Below are some of the ways in which
an advisor can be compensated:
-
Fee
only. Many financial advisors will charge an hourly
rate, and your fee will depend on how long they
spend on your situation. Depending on the complexity
of the financial planning necessary, this could
prove expensive, however.
-
Fee
and Asset Management. Some advisors will charge
an initial planning fee for helping to select investments,
insurance, and other financial vehicles, and will
charge a percentage of the assets annually for monitoring
and updating your portfolio as necessary throughout
the year.
-
Fee
plus Commission. Some advisors charge a fee for
assessing your financial situation and making recommendations,
and then may help you to implement these recommendations
by offering you a choice of certain investments
on which they earn commission. Commissions (as with
all charges) can vary greatly from one type of product
to another, and from product to product (for example
with mutual funds), so if your advisor receives
a fee plus commission, don't feel uncomfortable
about asking how much commission he receives on
any given product. Also, be aware that although
you may have decided not to have your IFA manage
your assets, with a fee plus commission advisor,
there will usually still be a yearly charge (worked
out as a percentage of portfolio performance) whether
'hands-on' asset management is taking place or not…
-
Commission
Only. A commission-only advisor will develop recommendations
for your circumstances and goals, review these recommendations
with you, and discuss ways in which they can be
implemented. However, the only way in which they
will be compensated is if you choose to buy the
products or services that they are offering.
-
Salary.
Many banks, credit unions, and other financial organisations
offer financial planning services, and in some cases,
the financial advisors on their staff are just paid
a salary. However, in the majority of cases, financial
advisors affiliated with a financial organisation
will also receive commission on any products purchased
from them. The organisations themselves are compensated
through the sale of their investments and/or services.
Many have
concerns that the way in which an advisor is paid will
affect the quality of their advice - this however, usually
depends on entirely different factors. Some people believe
that only a 'fee only' advisor will be able to offer
impartial advice, and that financial advisors that receive
commissions have a conflict of interest. However, it's
really a question of the integrity of the IFA, as opposed
to the method of compensation. If you choose a knowledgeable
and trustworthy advisor with a thorough understanding
of your financial situation, and a sensitivity towards
your financial goals (ah, but how do I find this perfect
creature? I hear you cry, Read on for our due diligence
guide…), this shouldn't be an issue. However, if
in initial discussions, an IFA refuses to reveal how
he or she is compensated - run away! This issue should
not affect the quality of financial advice being given,
and if it is veiled in secrecy, then this may well be
a red flag.
What
services are offered?
Although
you would think that the answer to this would be obvious,
(financial advice - duh!) the range of services and
products offered by international financial advisors
can vary widely. Some advisors offer a wide selection
of products covering all aspects of expatriate living,
such as personal portfolio management, offshore capital
investment, life insurance, retirement planning, and
even school fees planning, which is often an area of
concern for expats. Others choose to specialise in one
particular area, such as pension planning.
Although
it may seem counter-intuitive to hire more than one
financial advisor (given that in most cases, the idea
of taking on an IFA is to streamline financial planning)
you may decide that specialisation necessarily implies
a deeper and more thorough knowledge of the areas in
question. Or you may decide that you would rather deal
with an IFA offering a wider range of products for the
sake of greater convenience and efficiency, and because
you feel that this will enable them to better tailor
a solution to your requirements. The decision needs
to be based on your circumstances and requirements,
so there is no right or wrong choice. However, areas
of expertise and products offered should certainly be
a consideration when selecting an advisor.
Do
your due diligence…
It may
seem that finding a qualified, objective, and international
financial advisor may seem almost as challenging as
doing the investment research yourself, but do not be
tempted to skimp on the due diligence- remember that
you are entrusting your hard earned money to this individual,
so once you have narrowed down the field to advisors
offering suitable products and services, it is worthwhile
taking some time to make sure that you are compatible.
Interviewing
prospective advisors could be the best way to do this,
and although this can be achieved over the phone, you
may find that you'll get better results from a face
to face meeting. Obviously, this may not always be convenient,
or even possible for an expatriate, but hopefully you
have not been so zealous in your quest for a truly international
financial advisor that you have chosen potential advisors
on the other side of the world - apart from anything
else, if you do decide to take them on, you don't really
want to have to set your alarm clock to speak to them!
As with all other international investment decisions,
although geographic location of the person or service
is not the prime concern, it should be taken into consideration.
When interviewing
potential advisors, it would be a good idea to compile
a list of core questions, and ask each one roughly the
same, so that you will have some comparable information
to evaluate them. The following questions may provide
you with a starting point (although this is obviously
not a definitive list):
-
What
services do you provide? See above.
-
What
kind of clients do you serve? For example income
level, profession, investment needs.
-
Which
jurisdiction are you established in? Although this
should not bias the standard or breadth of investment
and financial planning advice offered, it is still
useful to know.
-
What
are your professional credentials, and are you registered
as an investment advisor in the jurisdiction in
which you do business? When you have this information,
and have narrowed your choice down to one or two
advisors, do a background check on this information
if possible. Call the accrediting organisation or
the relevant regulatory authorities.
-
Are
you licensed to sell financial products, and if
so, do you sell financial products for a specific
company/companies? If decide on a commission and
fee based advisor, but are worried that commission
charges may raise the costs of the service, or cause
a conflict of interest, make it clear that you would
like to take advantage of the advisory service offered
on a fee basis, but will be purchasing investments/services
direct from the provider.
-
What
is your preferred investment style? As previously
discussed, you will probably be happier working
with someone whose approach to investing and asset
management mirrors your own.
-
What
is your area of expertise?
-
How
long have you been in practice? This again should
be fairly easily verifiable after the interview.
-
Can
you provide references from previous/current clients?
If not, is your performance record verified by international
sources? Some IFAs will provide professional references,
but prefer not to divulge details of other clients.
Try to get independent references as well.
-
How
are you compensated? As previously discussed, an
ethical and trustworthy financial advisor should
not allow this to affect the financial advice given,
but you still need to know.
-
What
services do I receive for my fee? Obviously only
applies with fee based financial advisors!
-
How
often will my financial situation/portfolio be reviewed?
There is
also the more general (but still important) consideration
of whether you hit it off with the advisor on a personal
level. Did they have time for you, regardless of the
amount of money in question? Did they seem responsive
to your opinions and financial goals? Were they prepared
to explain the options to you clearly and concisely,
or did they use large amounts of financial jargon?
What
to expect when you've found one…
First of
all, expect the tables to be turned! Instead of asking
the questions, you will, in the initial stages at least,
be answering them. Your financial advisor will need
to know (among other things) your stage of life, your
long-term financial goals and short term responsibilities,
your tolerance for risk, and the degree to which you
want to be personally involved in financial decision
making. Your country of tax residence, country of current
residence, and future career plans (if known) will also
have tax and investment implications, and an international
financial advisor should be able to help formulate a
strategy for profitable and tax efficient saving and
investing. Having a qualified professional on your side
may also help to keep your emotions in check during
times of change in the markets.
However,
you must make sure that your financial advisor is adaptable.
Your circumstances and goals will undoubtedly change
over the years, and it is vital that your investment
portfolio and financial planning reflect this. ABG
International, for instance, offer a free international
consultation in which they get to know their clients
needs and circumstances, followed up by regular reports,
reviews, and meetings to discuss any change of strategy
necessary.
So to conclude,
if your financial circumstances and liabilities have
recently changed due to expatriation, or you are already
investing, but without a long-term plan, you may want
to seriously consider engaging the services of an international
financial advisor. Even if you are a relatively experienced
investor, it may still be worth considering. Presumably,
(unless you are a finance professional yourself, in
which case you are probably capable of advising yourself!)
you will not be able to devote huge amounts of your
time to financial planning, so why not delegate at least
some of this responsibility to someone that has made
it their career?
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