I recall a seminar, many years ago, about investment trusts. I think I had been an IFA only a couple of years at the time and this was when I first heard the comment ‘Vanilla and Tutti- Frutti’ in respect of investments. The former being somewhat boring and the latter being far more interesting. These interesting investment trusts were more complex (eg splits- with high gearing and cross investment into other splits).
I got the feeling at the time that the sales pitch was really aimed at selling the more complex Tutti-Frutti investment trusts and the more glamorous brochures would appeal more to the investors. I guess, in a way, it is no different than people wanting the latest iPhone when a far less expensive mobile phone has more functions than most of us will ever use.
Well, it all went swimmingly well for a few years until 2002. You can read about some of the effects here .
Financial Advice – Offshore
While we will always have colourful characters in more regulated jurisdictions like the UK, it is outside of the UK that I want to focus on.
As the title of this blog suggests, you should be wary of the Tutti-Frutti Adviser and perhaps also speak to a Vanilla Adviser.
Tutti-Frutti Adviser
There will be the expensive suit and watch/jewellery, with the supercar parked up outside. (I saw an offshore IFA a couple of weeks ago tweeting about his new order for a Tesla.)
Typically, this adviser will be in sales mode and will have the brochures to hand and will recommend all sorts of interesting and alternative funds while predicting future high returns and giving assurances with no basis in fact. There won’t be a lot of effort to properly diversify (and reduce risk) investments, just a recommendation for a couple of popular funds of the month. The adviser will inflate the importance of qualifications they have, without providing evidence, or even make them up. One such tactic is to become a member (any member of the public can join) of the Chartered Insurance Institute just to get on the register . Of course, this is mentioned on the websites/bios of the advisers to give the impression of professional level qualification when in fact being on this register with no title means no qualifications at all.
There will be little discussion about you and your objectives and how they could be realistically met. There won’t be any cash flow planning to demonstrate if the recommendations are remotely achievable or whether there will be shortfalls in capital and income in the future. All of this service will be offered without charge as ‘the client does not pay me, the product companies do’- and no discussion about the effect this will have on your money, which could be devastating.
Vanilla Adviser
The Vanilla Adviser will probably have a bio about the advisers in the firm and their qualifications and the regulator information will be displayed on the website but there won’t be any song and dance about it. The clients can check anyway. There is not likely to be an expensive office suite with Porsches and Ferraris packed outside.
There won’t be an offer of free advice but of a report for a fee. Before preparing a report, there will be a lot of questions you will have to answer and probing questionnaires to be completed and discussions about risk. The report will be comprehensive and will have cashflows and lots of information about costs and whether the recommendations can meet your objectives. The report may even suggest that your investments and pensions are already in the right places and there is no need for a product to be sold.
If investments and pensions are to be recommended, they will be vanilla investments. Ordinary, individually tradeable investments that can be bought and sold on a daily basis. There will be a properly diversified portfolio with lots of key information (technical) guides – one for each fund. The vanilla adviser will not get paid to switch investments- managing investments will be for a clearly specified fee. No confident predictions of high returns will be made as if they are somehow certain.
The cost of implementing the investments will be laid out in the report, with no attempt to hide the remuneration to the adviser firm. While this may appear, at first sight, to cost more than the Tutti-Frutti adviser who hid the costs, it is likely that it will cost 25% to 30% of the amount being paid to the Tutti-Frutti adviser at outset and likely as not annually 40% of the cost going forward.
Summary
Choose your adviser carefully and you may find the ones that appear to be boring, or not as interesting, are the ones that will really provide you with better returns and lower fees.
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 accept 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 republished on 23rd April 2019
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