Ubiquitous 1% servicing fee on Expat Investments
Expat investments are becoming very much the subject, given the move towards transparency. Is being transparent enough for expat investments? Just because you can see something, does this make it good value?
While I hate to call it a racket, the 1% fee for providing very little value is money for old rope when it comes to a lack of service, or a service that provides ability only for self-selected investments, or passive involvement and minimal administration (which we do not mean passive trackers necessarily).
Expat Investments-Passive involvement or Passive trackers
What is a passive involvement? This is where the advisory firm sets up an investment wrapper or platform and provide limited investment recommendations or set-up a tracker fund or funds and then never review them again. These 1% firms aim to obtain large amounts of funds “under management” while providing little “management” at all!
Expat investments run like this provide poor value and, make no mistake, these limited offerings will be targeted by more modern thinking adviser firms, after the introduction of MiFiD II, which will show up the 1% passive involvement model for what it is. An expensive folly marketed on the basis that passive investments outperform active management! Active management can indeed recommend passive trackers as part of a strategy but passive trackers in isolation without review only work in bull markets.
So, in 2017, why are passive trackers the “thing” and why is that being confused with passive management. The confusion is that over certain time periods it is absolutely true that in certain markets that around 60-90% of active fund managers underperform the index they are targeting. However, you do not need to spend 1% per annum of your investments to get this revelation – and it ignores the fact that your adviser should still be active with their management and servicing! Value is derived from many factors.
Expat Investments – Client Questions
Any expat that finds that a 1% annual fee is being paid from their investments should ask-
1. Am I being provided with regular reviews and ongoing regulated investment advice and recommendations- and what are included in the costs of 1%?
2. If 1% annual fees are being taken from funds in an insurance bond, are these additional fees on top of the other 1% servicing fees and what value do I obtain from these?
3. Can I get a better deal (value) that would include a full-service for this 1% pa, or lower fees (say 0.25%) for passive involvement if no regular investment advice is required.
Time for a change
Value for money is all important and, for too long, some advisory firms have taken 1% pa fees and sat back and lived off the proceeds while giving nothing in return. If you wish to passive invest and do nothing then pay passive fees like 0.25%.
Don’t allow advisers to pretend that passive tracking of markets with no other service for 1% is anything other than a bad deal for the client. Contact us for further information.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 4th April 2017
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