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Expat investors fooled by FA manipulated fund yield calculations
| Published: | 19 Jun at 6 PM |
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The impact on returns of the many methods of charging for advice and fund management is being minimalised by commission-grabbing FAs via clever presentation of percentages.
Whilst investors in the UK are now offered financial advisor fixed fee structures or charges based on time spent, the vast majority of expat investors and savers are paying for the service on a percentage basis of the funds under management. In addition, FA commissions, set-up fees, annual establishment charges and fees for each and every transaction total a considerable chunk of any returns gained.
The lack of transparency regarding how fees are presented leaves inexperienced investors unaware of exactly how much is being shaved off the returns on funds offered by their FA. Total fund charges are mostly represented as an insignificant percentage of returns, but add up over the years to a massive reduction of the investment’s value.
For example, an investor able to save £1,000 a month for a period of 20 years is offered an annual yield of 6 per cent, totalling £458,852 by the close of the savings period. Management fees of 1.5 per cent immediately drop the percentage rate to 4.5 and reduce the compounded total by £70,869, a huge loss on expected returns if the fund has performed well and a disaster if it hasn’t.
Fund switching involving commissions and transaction charges shave even more of the bottom line, suggesting that alternative investments and savings plans are preferable in the long term. Gross rates are pushed by advisors to tempt inexperienced investors, with the true net rates and their effects on yields rarely part of the sales pitch.
Many expat financial advisors working overseas are tied to a relatively small number of offshore insurance companies. Investors should note that customer service in offshore financial jurisdictions has taken a nose dive in recent years, fuelled by the need to keep investors trapped in funds by imposing massive withdrawal charges, even if their financial circumstances have drastically changed.
Whilst investors in the UK are now offered financial advisor fixed fee structures or charges based on time spent, the vast majority of expat investors and savers are paying for the service on a percentage basis of the funds under management. In addition, FA commissions, set-up fees, annual establishment charges and fees for each and every transaction total a considerable chunk of any returns gained.
The lack of transparency regarding how fees are presented leaves inexperienced investors unaware of exactly how much is being shaved off the returns on funds offered by their FA. Total fund charges are mostly represented as an insignificant percentage of returns, but add up over the years to a massive reduction of the investment’s value.
For example, an investor able to save £1,000 a month for a period of 20 years is offered an annual yield of 6 per cent, totalling £458,852 by the close of the savings period. Management fees of 1.5 per cent immediately drop the percentage rate to 4.5 and reduce the compounded total by £70,869, a huge loss on expected returns if the fund has performed well and a disaster if it hasn’t.
Fund switching involving commissions and transaction charges shave even more of the bottom line, suggesting that alternative investments and savings plans are preferable in the long term. Gross rates are pushed by advisors to tempt inexperienced investors, with the true net rates and their effects on yields rarely part of the sales pitch.
Many expat financial advisors working overseas are tied to a relatively small number of offshore insurance companies. Investors should note that customer service in offshore financial jurisdictions has taken a nose dive in recent years, fuelled by the need to keep investors trapped in funds by imposing massive withdrawal charges, even if their financial circumstances have drastically changed.
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