Avoiding Costly Expat Investment Mistakes
Knowledge is essential making financial commitments overseas, and an expat financial advisor with your best interests at heart will help you make decisions with total peace of mind.
Expat financial services abroad can lack regulatory protection, making sophisticated investments even riskier than they are already. Many overseas investment products can't be marketed to the general public in places such as the UK unless you qualify as a 'sophisticated investor'. These funds often have complex strategies and structures, so not understanding the commitment you're making could prove very costly.
Below are some of the common mistakes we see being made which are easily avoidable, to help save you time, money and a lot of unwanted stress.
Unregulated Collective Investment Schemes (UCIS)
Collective investment schemes (CIS) contain baskets of assets and are marketed to the public. Also known 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 UK's Financial Conduct Authority (FCA) to ensure investments guidelines are adhered to and protect investors.
If a scheme is not recognised or authorised, it's classed as an unregulated collective investment scheme (UCIS) and needs treating with caution. UCIS funds don't have the same restrictions as regulated funds creating a higher probability of fund suspension or in severe cases, lost capital. Strategies and assets can be more obscure and risky by nature and have previously included overseas property, forestry plantations and high risk debt such as payday loans.
UCIS funds can't be marketed to the general public, but it still happens and thousands invest unaware of the risks and lack of protection from regulators or compensation schemes. Those who the funds can be marketed to can accept the inherent risks or 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 - a mark of strict criteria being met), UCIS funds can be more expensive and unpredictable than regulated funds. It is also worth noting that a primary reason for selling UCIS funds is commission, so always consider who will benefit most from the purchase, more on which can be found below.
Offshore Funds
Commission sales are still prevalent overseas which are deducted from initial invested capital. Other options offer free entry but with charges for early redemption or advisor trail payments generated by higher ongoing fees. Always ask your advisor to clarify the share class options available as you could be unknowingly paying commission, trail payments and much higher costs.
In general, 4%-5% commission is the standard payment to advisors which is ultimately funded by you. Our page on hidden fund costs funds explains more.
Choosing an Expat Advisor
Advice standards overseas vary as much as the products on sale, and it's not always necessary to be qualified to advise. Regulators protect investors, however, the need to involve them to resolve disputes should be avoided at all costs. Doing your due-diligence before investing can prevent huge problems as even established regulators can still take years to resolve disputes.
An advisor's approach to investing and the pedigree of solutions they recommend has a massive impact on investor security. It's should be obvious if an advisor has your best interests at heart or not, so here are some pointers to look out for when choosing yours:
-
It's said that people invest through fear or greed and scaremongering is common. If you're feeling pressured because of 'special offers' or time restraints, walk away.
-
If fixed periods or redemption charges apply, or the advisor is 'paid by the institution', ask for clarity on how much they get paid and how.
-
Look for firms offering fee-based investment advice with transparent set-up fees and fully disclosed charges that are agreed before completion of business.
-
After competitive set-up and ongoing management fees, advisors should be looking to reduce product fees where possible and be remunerated for the services they provide, not by providers.
-
Ask for clarity on underlying fund charges which should be limited as much as possible to give you the best possible outcome.
-
Look at the funds being recommended and check regulation, track record and key statistics such as assets under management.
-
Take a look at our page on 5 simple questions you should ask you expat financial advisor.
Your financial decisions have a huge impact so don't be scared to ask questions. If you are looking to initiate an investment, would like a second opinion before a decision or looking for a review of your assets, get in touch for the open and honest guidance you're looking for.