The shocking facts financial advisers don’ t want you to know
As you have downloaded this guide, I guess you are an expat with an offshore investment bond.
The facts you are about to read may surprise,perhaps even shock you. They may make you feel aggrieved. But they could also help you gain control, security and peace of mind.
Before we go any further I want to get one thing straight: there is nothing inherently wrong with offshore bonds.
They are just a ‘tax wrapper’. If set up the right way, they can be a perfectly appropriate investment. However, not every expat needs one. In fact, for many people living outside the UK, the tax savings are largely irrelevant and other options will often provide more
Flexibility.
What is wrong with the vast majority of offshore bonds is how they have been set up. By this I mean the commission paid to your adviser; the investment advice you have been given; and the ongoing service or lack of it.
Let me explain.
There is a famous story of a visitor in New York City more than a century ago. Walking along the docks, he admired the yachts owned by the heavy hitters on Wall Street. He then wondered where the customers’ yachts were. Of course, there were none. All the benefits had gone to the advisers rather than the clients.
This is exactly the problem with offshore investment bonds.
Do you realise that when you buy a bond, it is not unusual for the vendor to receive 8% commission from the bond provider? And, on top of that, up to 4% for the investments they recommend within it.
So, if you invest £100,000, your exceptionally friendly and attentive ‘adviser’ could receive £12,000 in initial commission. I say ‘could’ because in stark reality, they could receive significantly more. Once all the smoke and mirrors have been deployed, it is not impossible for advisers to take upwards of £17,000 commission on a £100,000 bond.
That is a startling £17,000 or more over time on every £100,000 you invest, which would devastate your returns!
So where does this money come from? Quite simply, you.
And if you do not recall ever signing a cheque to your adviser, there is a simple reason.
Commission payments are often far from explicit. They are gradually deducted as investment and account charges over the first few years. You are contractually forced to pay them and may well find yourself locked into the bond for years to come, despite what your adviser tells you.
So where does that leave you?
Even with good investment growth, you may not make any money for the first 15 years of an investment (you can see all the figures, on page 5). That is assuming the commission payable is a conservative 6% rather than the 17% I mentioned.
Moreover, crippling charges are not the only problem. There is another related factor likely to prevent you from achieving the investment returns you deserve and hope for.
Although a bond allows you to invest pretty much anywhere, not all investments pay the same commission. So, advisers will often recommend the highest commission-paying funds, rather than those best suited to you.
In my career I have come across hundreds of clients invested in unsuitable and expensive investments. Even worse, many have no idea until they decide to cash in their bond and find it is worth far less than expected, sometimes much less than they invested in the first place.
Lastly, there is yet another problem: service or lack of it. Again, this goes back to the commission. Your adviser receives all the commission upfront on day one. Hence, once the policy has been sold, they have very little incentive to service you unless you can give them more money or introduce them to your friends (referrals) from whom they can also make money.
No boss would ever pay an employee the whole 10year salary on their first day at work. If they did, would the employee turn up and perform well day after day? Probably not.
This is exactly what happens here. If you have even the slightest concern that anything I have said may apply to investments you hold or are considering, please do read the following pages carefully. We explain in simple terms what bonds are, show the effect of charges and investment selection on your returns, and tell you what practical steps you could consider to avoid or minimise these risks.
At the very least, this guide will help you avoid nasty surprises, and, even better, hopefully build a more prosperous and transparent financial future.
