Author’s Note: When I published this story on October 13, 2019, all links were active. Two days later, a representative from Finsbury Associates asked me to remove my post, suggesting that I was picking on them. They didn’t realize that I’ve been writing about evidence-based investing for years. If a firm promises something that contradicts peer-reviewed academic financial studies, it’s important for people to know. This has been the premise of my professional writing since 2001: with my Globe and Mail column (Canada’s national newspaper), with my Canadian Business magazine column, with my AssetBuilder column and with my Internaxx column. It’s themes, such as these, that made two of my stories finalists for Canadian national magazine publishing awards. Those articles also echoed the theme in my two bestselling books: Millionaire Teacher (Wiley 2011, 2017) and Millionaire Expat (2018). Finsbury is the only financial company that has asked me to remove a story about them (with the exception of Teacher’s Wealth, a firm that wasn’t regulated to do business in the UAE). The Finsbury links were active at the date of this story’s publication, and the quoted elements came from those active links.
When a financial services company offers investment advice to expats, it’s important that prospective clients do their homework.
There’s nothing illegal about offering services that don’t adhere to peer-reviewed, financial academic principles. But it’s good to recognize when a firm says they can do something that evidence suggests they probably can’t. Finsbury Associates might be such a firm.
EVALUATION AND SELECTION
At Finsbury Associates, we’ve developed an investment fund evaluation and selection system to help ensure the very best solutions for each of our clients, every time. The system is based upon four key principles
PHILOSOPHY
Does the fund manager know how to exploit market inefficiencies effectively? By purchasing securities that undervalued, or by short-selling securities that are overvalued, skilled managers can reduce risk and enhance returns for clients.
It’s unlikely that Finsbury Associates can find fund managers who can exploit market inefficiencies and short-sell stocks that are overvalued. Warren Buffett once bet a million dollars that a group of hedge fund managers couldn’t achieve this. He bet they couldn’t beat the S&P 500 index over a ten year period. He won that bet. But Finsbury Associates believes they can find fund managers who can do what hedge fund managers can’t do.
These articles below show how this is highly unlikely:
Has Your IRA Beaten The World’s 20 Biggest Hedge Funds?
Hedge Funds Return Less Than 1% Over 13 Years
The Embarrassing Side of Buffett’s Million Dollar Bet
Is There Such A Thing As A Stock Picker’s Market?
Should You Add Some Actively Managed Funds To Your Porfolio of Index Funds?
Why It Keeps Looking Worse For Actively Managed Funds
Stocks Are Going To Crash, So Are You Ready For It?
PROCESS
Has the investment manager adopted a disciplined process, which is repeatable? Repeatable investment processes are consistent in strategy and offer more stability for investors.
Investment processes are repeatable. But evidence suggests that strong, actively managed performance isn’t typically repeatable.
Process and performance are two different things. We can base this evidence on something called the SPIVA Performance Persistence Scorecard. It shows that fund managers that win during one time period almost never repeat their winning ways. Evidence suggests it’s much better to invest in a globally diversified portfolio of low-cost index funds. Investors and fund managers should not speculate.
PERFORMANCE
Is the success of the investment supported by the manager’s own trading patterns and investment approach?
We have strict criteria for all of the funds we recommend, and we apply this system rigorously to ensure that we filter out those not worth our clients’ time or money. Even once they’ve been selected for inclusion in one of our portfolios, we carry out on-going performance, volatility and risk appraisals to ensure that selected funds maintain their position on merit.
The “Performance” section above might not make sense.
Here’s what we know. According to Morningstar, over the 10-year period ending October 12, 2019, U.S. stocks have gained 333 percent. The global stock market has gained 238 percent. Neither was a result of a “manager’s trading patterns.” A rising tide raises all boats. We should be careful not to confuse a trading strategy with the upward movement of the markets.
Here’s a practice that should NOT be followed:
“Even once they’ve been selected for inclusion in one of our portfolios, we carry out on-going performance, volatility and risk appraisals to ensure that selected funds maintain their position on merit.”
It sounds intuitive. Pick actively managed funds that perform well. When they don’t perform well, replace them for actively managed funds that do perform well. But the SPIVA Persistence Scorecard says this doesn’t work.
Expats, especially, need to be careful with their money. Finsbury might not be doing anything illegal. But investors should be like smart consumers. Are you eating cotton candy or a well-balanced meal?
Here are several points to remember as an expat investor:
- Never invest in a product with a lock-in period. If you can’t withdraw everything you have invested, at any time, without paying a penalty, please don’t invest.
- If the investment company calls your investment contributions premiums, please don’t invest. They will be trying to sell you an investment scheme coupled with an expensive and ineffective insurance policy. I’ve written about some examples here.
- Read a book about investing in low-cost index funds – any book on index fund investing. I listed several books here. I’ve written one for expats called Millionaire Expat. Here’s the Amazon UAE link.
Finsbury, here’s my challenge to you:
- Build client portfolios using low-cost index funds.
- Build the portfolios based on the clients’ tolerance for risk (lower stock allocations for the risk-averse).
- Ensure that the portfolios are always globally diversified.
- Don’t speculate with investors’ money and don’t hire managers who will speculate with investors’ money.
- Don’t put any clients into a product with a lock-in period. Allow your clients to ALWAYS withdraw their money, penalty free, at any time.
Financial literacy is improving in the UAE. Investment firms that adhere to sound financial principles will thrive. Those that don’t, will find far fewer future clients than they might expect.
Expat Investors
If you would like to increase your financial literacy, you could join one of these Facebook groups:
SimplyFI: Common Sense Personal Finance and Investing (UAE division)
Expats and International School Educators: Financial Advice (UAE and global)
Please remember…as an investor, you should ALWAYS empower yourself.
Financial literacy is powerful.
Financial education, after all, can beat financial exploitation.
