How can you avoid the typical financial advisor relationship and save money?
We want to help you understand your options more, and wanted to present to you a scenario where you will be able to in part, remove the typical financial advisor relationship which will free up more money for you long term.
A case in point:
We were contacted by David H from Pissouri Cyprus, who was originally with a Financial Advisory Company that is no longer on the island.
He had £160,000 in a pension (QROPS) with Overseas Trusts and Pensions who held a bond in his name with Royal London.
The bond being the part where all the investments are placed.
His bond was set up with a charging structure of 1.38% of the premium per year which is chosen by the Financial Advisor based on how much commission they want to earn and not Royal London themselves.
Let’s dissect that a little
It was actually 1.38% per annum (p.a) of the premium amount or valuation amount, whichever is the higher.
So he was paying 1.38% p.a. of £160,000 (the premium) which is the amount he put in.
If the pension grows more than £160,000 then he still pays 1.38% p.a. of whatever the value is but if it goes down, lower than £160,000 he still pays 1.38% p.a. (the premium) of £160,000.
So, the simple math is this 1.38% p.a. of £160,000 = £2,208 p.a.
However, the value of his pension now is £100,000
There are many factors causing this, 1) he has taken out a lump sum and 2) has investments which show lower value until the day that they mature (structured Notes).
Regardless of the reasons the amount is £100,000.
So actually he is going to be paying £2,208 on a value of £100,000 which equates to 2.28% p.a.
So what did we do to save him some money?
We contacted the Pension Company and asked them to find out the surrender value if he cashes in (redeems) the Royal London portfolio bond. In his case there was no redemption fee. There needs to be a bond/policy for the investments so we helped him cancel the existing bond with Royal London and move all his investment to an Old Mutual Ireland Bond.
We make this easier for you
A very complicated procedure which we instruct his pension company to carry out and follow the process often having to educate them along the way.
So the Pension Company opened the Old Mutual Ireland bond and then instructed the in specie transfer for all the investments which means no investments were sold and therefore no fees applied.
The knowledge to make things better for you
We negotiated with a Financial Advisor who is needed to administer the application only, and quoted the rules of ‘execution only/insistent client’. We know exactly how advisors get paid so we managed to get a new charging structure of just 0.625p.a. based on the premium in to the Old Mutual Ireland Bond of £100,000.
So now he is paying £625 per year instead of £2,208 so we saved him £1,583 per year. That is 1.6% towards growth. Every penny counts.
Our only dealings with a financial advisor
We did have to engage with a financial advisor to administer the Old Mutual application only.
However, we also ensure that if there is any redemption cost then the commission payable to the advisor will actually go to the client instead to the value of the redemption fee. We achieve this because we quote the rules of insistent client and ensure that no undue commission is paid so the rules of churning are also not affecting the financial advisor.
Because we understand their charging structures and how they get paid we negotiate a better deal
Any redemption penalty he would have had to pay to Royal London would have been negated by any commission payable from Old Mutual that would normally go to the Financial Advisory Company. We only get this deal by special arrangement.
In this particular instance he is only paying 0.625% p.a. for 5 years and then it’s free.
When the task was completed we then help the client to avoid the typical financial advisor relationship. If you have experience with a financial advisor then you should be aware that they do not offer investment advice and it is you that is responsible for the investments you choose even though they are introducing you to investment options, which of course earn the advisor additional commission.
De-stress by speaking to ExPas
People come to us with the stress of making investment choices that have not worked as good as expected or in many cases the money has disappeared. We have to show them the paperwork they already have which states that they are responsible for those choices and there advisor has no responsibility for those choices. Only if those investments exceed their risk profile are we able to help.
Avoid the financial advisor
You can avoid the financial advisor relationship so that you do not have to make your own investment choices, as most people only see what the financial Advisor shows them which are no doubt commission payable to the Financial Advisors.
We have seen many pensions and savings invested in to direct funds rather than funds which are liquid or spread over many investments and assets.
We also see many more that are registered in jurisdictions which offer no protection. Just because a Financial Advisor shows you that the fund is registered in the Isle of Man does not mean it is regulated by the Isle of Man. The latest shock to the industry is the collapse of the New Earth Fund (NERR). You are not in control of business’s practice and they sold the assets off whilst going in to administration, leaving nothing for the investors as venture capitalists and Banks are first on the list.
A better way to invest
It is far better to use Discretionary Fund Managers so that your money is spread over different investment types and asset classes and let the experts with proven track records to manage this for you. Please check out people like Rathbones to get a good understanding of DFM. Rathbones will not normally talk to you unless you have over £500,000 but there are more options, this is just to give you further reading.
Discretionary Fund Management offers many benefits to clients. It frees them from the burden of day-to-day investment decisions, which can arguably be better made by a qualified portfolio manager attuned to the vagaries of the market. Delegating the investing process to a competent manager leaves the client free to focus on other things that matter such as enjoying life free from the stress associated with making your own investment choices.