The rules for financial advice giving in the UK are about to change significantly. From December 2012 advisers will no longer be able to accept commission payments, and as a result some UK IFAs seem particularly disaffected.
Rumours abound about how many advisers will leave the business because advice giving may no longer be profitable. In the meantime, misinformation is being spread via expat forums and living abroad websites about how financial advisers working with expats will be affected.
Some of this misinformation is being spread because of a lack of understanding about the new rule changes in the UK, and how offshore financial advisers are actually regulated. But some is as a result of UK IFAs effectively giving expats bad offshore financial advice. They are basing what they say on their own new set of circumstances and this is dangerous and wrong. Expats need to beware…
To set the record absolutely straight for expats looking for the best offshore investment advice possible for their money matters, we’re going to clarify how you can ensure the adviser you speak to is regulated correctly, comes recommended, is properly qualified, and truly independent.
And if that’s not enough to ensure you get best advice…we’ll explain how you can complain if you believe the advice you’re given is wrong.
However, before we begin it’s critical to state that ShelterOffshore.com is a publication only – it does not provide legal or financial advice. The website does not endorse any investment, adviser or other service or product, and the material on the site, including this article, does not constitute advice. You should not rely on any material on the website to make (or refrain from making) any decision or take (or refrain from taking) any action.
Commission or Fees – How is Your Adviser Paid and Why Should You Care Anyway
First things first let’s get this argument out of the way.
Independent financial advisers, i.e., those who are not tied to giving advice based on one bank’s products only, currently charge a fee for the advice they give, or they receive commission after they have placed your business with the best bank or financial institution that meets your personal requirements. (Occasionally some companies charge a fee and receive commission!)
The UK is changing the rules about how financial advisers in Britain receive payment from next year, and all advisers in the UK will only be able to charge fees for advice giving. This is apparently to bring greater transparency to financial advice giving in Britain.
As an expat, rather than being forced to speak to an IFA in the UK who may misunderstand your new tax status or who may only be able to recommend you use often unsuitable savings and investment products onshore in the UK, (such as ISAs you’re no longer eligible for when you become non-resident and pensions on which you cannot receive tax relief), you can call on the services of an offshore financial adviser.
Offshore financial advisers may refer to themselves and international wealth managers, expat financial advisers or just independent financial advisers.
Currently, such advisers based in Europe, (not UK), are still free to charge a fee for advice giving, or to take commission.
Some of the better advisories that ensure they maintain an ongoing client relationship, by offering a regular review of an expat’s financial arrangements to make sure they are still suitable, receive an ongoing management fee rather than a one off commission from an institution they have placed a client’s business with.
This is to ensure they stay right on top of the client’s changing needs at every life stage.
When you choose an adviser, (more about how to choose your adviser next), you must ask them how they will be paid for giving you advice. Most advisers will offer this information up front anyway. And where a fee is chargeable this must be agreed with you in advance. Where commission is paid this must be detailed to you transparently.
Fee based IFAs claim their method is best because it means they are not ‘encouraged’ to place your money with the bank that pays them the highest commissions.
A commission based IFA will claim that their method is best because they are fully incentivised to continue working with you, their client, forever. What’s more, they always point out that once a client has paid a fee for advice and invested their money, they are always reluctant to have to pay another fee every 3 months just to have the adviser check that they are still correctly invested.
This can mean an expat doesn’t keep on top of their financial portfolio as often as they should if they choose a fee-based adviser.
A commission-based IFA will offer this financial review service for free on an ongoing basis, thus ensuring an investor’s portfolio is very regularly checked to make sure it still matches the client’s circumstances.
The type of adviser you choose will obviously depend in part on whether you prefer to pay a regular fee every time you need to ask a question or change an investment approach, or whether you’re comfortable for your adviser to receive commission or a management fee from a bank/finance house when they do a good job for you.
How Are Offshore Financial Advisers Regulated?
In the EU there is the Markets in Financial Instruments Directive which: “provides harmonised regulation for investment services” throughout the EEA. Under this directive the concept of ‘passporting’ exists.
Passporting is a term that is relevant to how an offshore financial adviser, based in Europe, is regulated to give you advice.
An offshore IFA based in the EU should be regulated somewhere within Europe; common countries for regulation include Belgium, Ireland and Germany because other member states deem them to have the best regulation procedures in place. Once regulated therein an advisory can give advice. They can also have a branch office elsewhere in Europe for example, from which they may advise expats too, and because of “passporting” they can advise expats in other EU member states.
In other words, passporting is: “a term describing the right to conduct financial services across the EU based on a single authorisation or approval.”
So, you need to ensure the company your IFA works for is regulated and therefore licensed to give financial advice. You need to ensure that they are regulated in a jurisdiction within the EEA where you are afforded good protection. What’s more, you need to find out about their indemnity insurances in case things go wrong, and discuss how their compliance processes work too.
Contrary to some of the bad offshore financial advice being given to expats by those who do not understand how expat financial advisers work, there is strong regulation within the financial advice arena in Europe. Regulated advisories must abide by the terms of their licensing in the jurisdiction in which they are regulated.
How Expats can Avoid Being Given Bad Offshore Financial Advice
As an expat you need to understand what you should be expecting from an advice giver. By understanding the expectations you should have, you can make sure any adviser you approach is best placed to offer you best advice.
Here’s what you need to know (this list is not exhaustive): -
1) The company your adviser works for should be regulated within the EU
2) If the adviser is not based in the nation where the company is regulated, this must be because the company is correctly regulated to enable them to ‘passport’ their service to other countries within the EEA
3) Your adviser should work for a company with clear compliance procedures in place to prevent everything from mis-selling to money laundering
4) Your adviser’s company should have indemnity insurance in place to cover you and them in the event of a mis-selling complaint
5) Your adviser should be qualified to give advice (see below)
6) Your adviser should be experienced in working with expatriates because expats have unique opportunities for the saving and investment of their money offshore and onshore
7) Your adviser should give best advice on an ongoing basis by offering you a quarterly review of your financial portfolio. This is because markets move, circumstances change and new products and financial solutions become available regularly
8) Your adviser should be able to give you testimonials proving their companies good service. (In fact, the best advisories will ask you to pick one of the financial service companies with whom they have terms of business, and they will then get you a reference/testimonial from them about how they rate the advisory.)
Finally for this section, we compiled the 10 rules of offshore saving and investing that expats need to follow. This list details exactly what you need to know before you proceed to invest your money with a financial adviser’s assistance.
It includes tips on understanding your own risk profile and checking out anyone you trust to give you advice.
A Word About Qualifications so Expats Can Avoid Being Given Bad Offshore Financial Advice
No one would knowingly take medical advice from an unqualified practitioner. Therefore no one should take financial advice from an unqualified financial adviser.
Despite the fact that the UK rules relating to financial advice giving no longer apply and cover you when you’re an expat, living abroad and taking financial advice from an offshore financial adviser, the UK’s qualifications for financial advisers are still among the best in the world.
What’s more, as Britons living abroad and considering investing our money offshore, we are most likely to favour a British adviser to give us best advice.
This is because there are many technical elements to understand – from what constitutes a good fund to where is the safest offshore jurisdiction for your money. And to understand this most Brits probably prefer to speak with someone who is a native English speaker!
So, whilst this is not a hard and fast ‘rule’ – you can perhaps be more reassured that your financial adviser knows what they’re talking about if they have the likes of the CFP certification for example.
CFP (Certified Financial Planner) certification is from the Institute of Financial Planning, and here’s what they say about the qualification: “CFP certification is an advanced qualification which tests a candidate’s ability to apply their detailed knowledge and skills in order to produce an effective financial plan…Becoming a CFP professional is not easy. It’s a real challenge and that is why CFP certification is highly respected as an international standard.”
Alternative qualifications to look out for include the International Certificate in Financial Advice from the Securities and Investment Institute and the FPC qualifications from the Chartered Insurance Institute.
When Should You Take Offshore Financial Advice
Some people seek advice from offshore financial advisers about their financial affairs even before they expatriate. They may find that they cannot be given advice until they leave the UK however, because of FAS rules.
Others wait until they are well settled in their new nation…however, the optimum time to seek advice is during the first 6 months following your relocation.
Prior to this you may have had different financial priorities anyway - from funding the relocation to buying a new house, and after this time you may lose some (although not all) attractive offshore opportunities potentially available to you.
However, even if you’ve been living abroad for most of your life and you have yet to seek any financial advice at all, there are reasons to expat wealth management at every life stage.
What Can You Do if You Receive Bad Offshore Financial Advice?
From the outset, a good financial adviser will have informed you about where their company is regulated and licensed and how their compliance processes work.
The license they have in place should give you peace of mind that they are a professional financial brokerage in the business of giving best advice. Rather than conmen who are out to steal your money (who would hardly bother to get licensed)!
Defining the compliance procedure should make it clear to you that they carefully check that advice given is right based on elements such as your risk profile and country of tax residence for example.
What’s more, it is in a professional advisories best interest to actually ensure you get best advice, as their best business referrals come from satisfied clients.
Having said all of this, there are occasions when expats could have cause to complain.
You can ask your adviser for their complaints procedure before you even consider trusting their advice. Or, if you need to make a complaint later on, approach the advisory first to see if they can put right whatever element you need to complain about.
If the adviser or brokerage cannot or will not help (remember it really is in their best interests to do so), it is our understanding that your right to complain should go back to the regulatory authorities in the country in which the company is regulated and licensed.
We really hope this article has cleared up some of the confusion that has been created by some UK IFAs, who have perhaps inadvertently been giving expats bad offshore financial advice, based on UK rules rather than EU rules.
Always ensure any adviser you work with is correctly regulated, qualified, licensed and experienced – and you need an independent adviser who can open up the whole offshore and international financial marketplace for you if you’re an expatiate living abroad. Do your own careful due diligence on anyone you consider trusting to give you financial advice.
Wed, January 18, 2012 at 11:52 AM
You have quoted the Certified Financial planner (CFP), but why no mention of the highest qualification - Chartered Financial Planner (APFS or FPFS)