For those of us living in the UK, the days when financial advisers had carte blanche to take enormous (often hidden) commission from their clients as payment for the services that they provide are now over. The regulation of the financial industry, which is overseen by The Financial Conduct Authority, has led to greater transparency and a virtual prohibition on commission payments. Instead, advisers must charge a fee and this has resulted in an overall reduction in the cost of investing and a greater feeling of security amongst potential investors.
Unfortunately, this is not the case for many British Expats, who have lost billions of pounds through falling prey to some rather shady advisers employing dubious investment strategies and the recent pension changes, which permit the over 55s to access their entire pension pot, are only likely to make matters worse. Some of the techniques used by these largely unregulated and often poorly qualified advisers include:
- Taking significant amounts in commission – sometimes amounting to tens of thousands of pounds – for their fees. One particular way in which such substantial commissions are taken, entirely legally, is through the sale of “insurance bonds”. In this type of investment, the insurers who provide the bond frequently pay the financial advisers in commission.
- Failing to advise their clients of the exact nature of the investments and the risks, withdrawal penalties, fees and commissions involved.
- Advising clients to invest all of their cash in high risk investments rather than diversifying to minimise risk.
- Advising clients who need easy access to their cash to enter into investments that tie up the funds for many years.
- Advising clients to invest in unregulated funds. In the UK, these investment funds can only be marketed to investors who are either wealthy or have considerable experience and expertise. This is not the case for British expats who have been persuaded to invest in very risky funds only to find that the fund has been suspended and their cash frozen pending the winding up of the fund and the sale of any remaining assets.
Whilst this situation does affect British expats living in Europe, it is even worse for those in the Far and Middle East, Africa and South East Asia, where there is effectively no regulation at all. The situation is exacerbated by the fact that many of these financial advisors are either working for the foreign limb of a UK company or operating under a name that gives the appearance of legitimacy, both of which create a false sense of security for potential investors.
As we have already mentioned, this is a problem that is unlikely to go away. British expats should exercise extreme caution when investing abroad. Obtaining independent advice from a UK based financial adviser may minimise the risk as might returning to the UK temporarily to invest in UK funds, where the protections afforded by the Financial Conduct Authority will apply.
If neither of these is possible, the least that an investor should do is to research the financial advisor thoroughly and obtain a clear fee structure, a schedule of any withdrawal penalties, a detailed risk evaluation and confirmation that no commissions apply to the investment.