Each week, millions of expatriates build small backyard fires.
They pull out matches. They take $10 bills out of their pockets. Then they burn them. Every week. Every month. Every year.
That’s what it’s like when you pick the wrong kind of financial advisor. Before hiring anyone, ask these questions.
- Can I Sell My Investments At Any Time Without A Penalty?
If the firm says no, run. This is non-negotiable. Firms like Friends Provident, Zurich International, Royal London 360, Generali Worldwide, Hansard International, Alexander Beard and Old Mutual (Royal Skandia) offer products with high fees and long lock-in periods. Avoid such products.
- Do you invest only with low cost index funds or ETFs?
If the advisor says no, walk away. Some active funds do beat their benchmark indexes. But nobody can consistently pick such funds ahead of time. Looking for the funds that have done well in the past is a bad idea. Each year, S&P Dow Jones Indices publishes The Persistence Scorecard. Their data shows that actively managed funds with strong track records rarely keep winning. Low costs are better predictors of strong fund returns. That’s why index funds or ETFs give the best odds of success.
- How do you earn your money?
Don’t hire an advisor who gets paid commissions. They could be choosing investments based on how well these products help them make their Mercedes payments. David Melnyk, a Financial Planner with Florida-based Verus Wealth Management says that the fee-only model is better at aligning client interests with those of the advisor. “Advisors typically charge their fees by a percentage of their clients’ assets, commonly 1 percent annually. When the portfolio’s value falls, the client pays a smaller advisory fee. This model gives advisors every incentive to grow portfolios while also reducing investment risk.” If you don’t know exactly what your fees are, or you think the advice is free, you are probably the victim of a hefty commission.
- Can experts predict where stocks are headed?
If an advisor answers yes to this question, move on. Nobody knows whether stock markets will rise or fall this year or next. “If an advisor says they can forecast the market’s direction, that’s immoral,” says Paul Ruedi, of Ruedi Wealth Management Inc. “It puts any serious financial plan in jeopardy.” There’s no room for a foolish fortune teller in your portfolio’s future.
- Can I see a model financial plan and portfolio?
There are two reasons you should ask for these. When an advisor explains something, you need to understand it. If you don’t, it’s not your fault. It’s the advisor’s problem.
What the advisor says about the sample portfolio is also important. They shouldn’t try to wow you with past returns. Instead, the advisor should stress the importance of asset allocation, diversification, and rebalancing. “A definitive allocation and rebalancing policy will help deal with the uncertain outcomes of the various asset classes,” says Jim Winkelmann, of Blue Ocean Portfolios, LLC. “Every major pension plan, endowment and high net worth investor has well developed and relatively simple allocation policies.”
- What credentials do you have?
There are many financial advisory credentials. The Certified Financial Planner designation (CFP) is the most rigorous. Jamie P. Menges, of PDS Planning, Inc. says, “the CFP® designation is important because it shows not only intellectual competency, subscription to an ethical paramount, and an integrated fiduciary standard, but it ensures they are working with an advisor committed to his or her profession in the most basic way.”
- Is The Firm Fully Regulated?
Ensure that the firm you deal with is properly authorized for the services it delivers. Sam Instone of AES International says, “The international market is jam packed full of charlatans. Most have been kicked out of tighter regulatory environments. Check the adviser’s website for a regulatory number and then double check this on the publically available register in that country.” Ensuring high quality regulation can mean independent recourse if things go wrong. It can also provide potential benefits such as professional indemnity cover, qualification checks and strong corporate governance. Never invest a penny without checking this first.
- Do They Use Separate Platforms For Americans and Non-Americans?
Some investment firms offer the same funds for their American and non-American clients. Run from such firms. If non-Americans buy U.S. domiciled funds, their heirs can get slapped with a hefty tax bill. If Americans buy non U.S. domiciled funds (even if they’re Vanguard funds domiciled offshore) they attract crushing levels of tax or the possibility of the investor running afoul of the IRS.
Below, you’ll find ten financial advisors that I recommend for expats.
Index Fund Investment Advisors / Firms For Americans
|
Firm |
Annual Portfolio Management Fee |
Minimum Required |
|
0.9% (for accounts below $500,000) |
$100,000 |
|
|
0.3% to 0.4% |
$10,000 |
|
|
1.2% |
$750,000 |
|
|
0.4% to 0.5% |
$500,000 |
|
|
1% |
$250,000 |
|
|
$96 / year |
No minimum |
Index Fund Investment Advisors / Firms For Non-Americans
|
Firm |
Annual Portfolio Management Fee |
Minimum Required |
|
(Based in Dubai) |
1.25% |
$75,000 |
|
(Marc Ikels Consulting) |
1% |
$500,000 |
|
(for Canadians only, read my post) |
0.35% to 0.6% |
$5000 |
|
(British investors only) |
0.9% (drops after first million GBP) |
500,000 GBP |
