According to Treasury officials on the Isle of Man, three out of four people who were affected by the collapse of Kaupthing Singer & Friedlander (KSFIOM) will get all of their money back. On the surface that’s a great statement, one that leaves you feeling positive and comforted…but dig a little deeper and you realise that far from being comforted, one should be horrified.
Of those who will not get their money back are around about 2,000 people who had £300 million in the bank via life assurance bonds. That’s an average of £150,000 per person affected – could you afford to lose £150,000? For many, many people this is the majority of their life savings, money they have sweated and strived to earn and save – and all for nothing. What makes it even worse is that many of these people had not even invested directly in the bank!
So what has the Kaupthing Singer & Friedlander collapse taught us about offshore investments in general? Well, we need to look much more closely at investor protection schemes, we need to understand that as a bottom line all offshore and onshore financial institutions are businesses rather than charities who care about their customers, and that you have to tread exceptionally carefully with all financial decisions you make…
I consider myself an average person financially speaking, I’m not wealthy, I’m not living in poverty - and over the years I have attempted to get financial advice for a few small decisions I have had to make – such as where to save for a pension and how to look after my loved ones through life insurance if the worst were to happen to me. I have also had the dubious honour of once having worked as a tied FA for a financial services company who then made me and all my colleagues redundant because they couldn’t attract enough ‘customers.’
So what can I tell you that will help you as an expatriate who’s looking for the best way to secure and further your wealth?
Well, I can tell you that most financial advisers are self-serving individuals who, whether tied in to one financial services company or not, will only ever want to sell a handful of products at a time as they are the only ones that fit their own pocket in terms of the commission they pay out. Therefore, you have to tread carefully and be savvy and as an absolute minimum you have to ask the following five questions and have them answered to your absolute satisfaction: -
1) Are you a tied or an independent financial adviser? (A tied adviser will only be able to sell you the products of the company he works for, so an adviser tied to HSBC will only be able to sell you HSBC products for example. If you want best advice, my advice is that you need to find a good independent financial adviser – but it is up to you ultimately.)
2) Are you paid for the advice you give me by me on an hourly basis for example, or will you receive commission if you sell me a product or solution? (You need to know up front, and choose the path you are most comfortable with. Even if you don’t take the advice of someone who charges you for their time, you will have to pay their fees. Whereas with an adviser who is paid in the form of commissions, if you don’t sign up to their suggestions you don’t pay – but double check your financial obligation before you sign up to anything.)
3) Which companies are offering you the most commission at the moment? And therefore, how can I be sure that the product you recommend to me is the best on the market for me, rather than the best returning for you in terms of the commission it pays you? (A good answer to this question should make you feel comfortable to proceed).
4) Why does this product that you have recommended to me suit me – tell me in layman’s terms? (At this point they may say that their recommendations are outlined in the product literature they have provided you with, but get them to talk about the product in relation to you and your circumstances and see if it really does sound like a good fit).
5) How am I protected if the company I invest through or the companies it then invests in collapses? I understand that not all those who have been affected by the collapse of KSFIOM will get their money back, and not all those who have lost their money had even invested directly in the bank, talk to me about the security of my money please. (At this point an adviser should give you all the reassurances you need, explain to you how any investor protector scheme works, show you how you are eligible for it – or, if you’re a higher risk investor, how the risks you are opening yourself up to in the hope of higher returns, could impact you financially speaking if a given institution collapses or a protection scheme defaults or fails for example).
All of these questions are designed to give you as much information as possible about how your adviser works, why they are suggesting certain solutions to you, and whether you are comfortable and 100% happy with the way the solutions work and with the advice you are being given.
There are good advisers out there – there really are, just as there are some fantastic financial products, services and solutions out there. But you need to be very careful with your cash, and know that anyone trying to get it off you (i.e., an adviser or a financial services company), will be at least in it for themselves in some small way. If you never forget this fact, you will have the right attitude towards the people you speak to and the decisions you finally make. Rather than holding a financial adviser up to be some sort of money god, you will simply see that they are doing their job. Those who do their job the best will have a loyal customer base of happy individuals who are doing well financially speaking from the advice they have been given. Make sure your adviser is such an individual!
