Expat investors are often given investment advice by offshore firms that are regulated. But, they are only regulated to give advice on insurance products and not investment advice and most peope do not understand the difference.
So, let’s try and put this into a story that should help explain what is regulated investment advice and let’s talk about a piggy bank.
The Piggy Bank Salesman
John has a lot of money in his bank and is contacted by Sam who gives investment advice. Sam actually has only a license to sell piggy banks but still offers investment advice to John who is impressed with his impressive piggy bank license.
John buys an expensive piggy bank and puts all his savings into it and asks Sam to look after it for him. Sam agrees to give the investment advice for the money in the piggy bank.
John thinks he has a bargain as he did not pay a penny to Sam, but John did not know that this piggy bank costs a lot of money to maintain.
After a couple of years, John starts to worry about the investment advice he is getting from Sam. The running costs of the piggy bank and poor performance are reducing his money. Sam is not answering his calls or emails.
In frustration John contacts the piggy bank manufacturer, stating that the investment advice he received was poor and he wants the manufacturer to replace the lost money. The manufacturer is puzzled by this request as the factory only makes piggy banks and does not give investment advice on the money inside the piggy bank. Not only that, the piggy bank is not broken and so there is no reason for the factory to pay to fix it.
John feels badly let down by the piggy bank manufacturer and contacts the Federation of Piggy Bank Manufacturers and Distributors (PigBMad) who give out licenses for the manufacture and distribution of piggy banks.
John claims, as they gave out licenses, that they are responsible for his losses and poor investment advice. The Federation sympathises with John but the fact is the piggy bank was sold as a piggy bank to hold money and that is what it did. They cannot help him.
John has had enough and so he tries to get his money out of the piggy bank, but he did not read the instructions when he bought it. There is an expensive key that he must buy if he wants his money back in the first 5 to 8 years (depending upon model). This adds insult to injury as Sam (who is long gone by now) never explained this to him.
The real world
This is fiction but:
Instead of piggy bank manufacturer, use the word – Offshore Insurance Company
Instead of PigBMad license, use the words: Insurance Median Directive (IMD)
A license to sell insurance is just that. It is a license to sell the insurance bonds (the equivalent of the piggy bank). It is not insurance against poor investment advice for whatever is inside the insurance bond/piggy bank. And it does not cover investment advice for pension products. That is a different license altogether called MiFiD. If an adviser does not have MiFiD do not use him for investment advice.
The Final Say
Taken from a website of an EU regulator. (Passport allows EU cross border advice)
“To give advice to clients on an insurance-based product, then you will generally need to make sure that you have the right to passport under the IMD.
Activities that fall under the IMD are:
- introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance;
- concluding contracts of insurance; and
- assisting in the administration and performance of contracts of insurance, in particular in the event of a claim. If you only advise on insurance-based products, and do not advise on investments, then you only need to have the IMD passport, requesting an IMD services passport to the relevant EEA State(s).
Do not take investment advice from a piggy bank salesmen – he is not licenced or insured and the manufacturer and Federations won’t be there for you if things go wrong. Only take investment advice from an adviser who is covered by MiFiD.
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.
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