{"id":737,"date":"2013-10-19T12:31:57","date_gmt":"2013-10-19T12:31:57","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=737"},"modified":"2013-10-19T12:35:05","modified_gmt":"2013-10-19T12:35:05","slug":"high-costs-for-poor-returns","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/investments\/high-costs-for-poor-returns","title":{"rendered":"High Costs for Poor Returns"},"content":{"rendered":"

\"Investing\"<\/a><\/p>\n

I recently received a plea from a lady living in Thailand to warn people against a well-known locally-based financial adviser to expats for \u201clocking clients into long-term investment products promising high returns, but in actuality delivering low returns and high fees.\u201d<\/p>\n

Her own experience has included suspension of two of five funds in which her money was invested (including \u201ca risky real estate scheme in Australia,\u201d as well as \u201cmisleading and dishonest reporting,\u201d by the adviser, followed by\u2026 silence.<\/p>\n

Unfortunately this is typical of the experience of many expats living in Asia. They trust advisers who operate within the law, but generally channel clients\u2019 savings into investment products that give them the largest and most immediate commissions.<\/p>\n

The most widely-promoted of these are investment-linked assurance schemes (ILASs), where policies with reputable insurance companies are used as the vehicle to channel savings into various investment funds.<\/p>\n

The insurance content is minimal. Investment returns are mediocre at best, and the funds recommended often much higher-risk than appropriate for the investor\u2019s circumstances. Quality of reporting to the client is usually poor.<\/p>\n

But substantial charges make these products highly profitable for the companies and for the financial advisers selling them. So they are promoted heavily. In Hong Kong, it was reported not long ago, about three-quarters of all investment products sold to individual investors are these ILASs.<\/p>\n

\u201cIt is not unusual for a client to see his first full years of contributions to an ILAS paid out to cover commission costs \u2013 money that goes to the person who recommended the plan,\u201d Nicky Burridge reported in the Morning Post. \u201cThe fact that an adviser gets paid his commission in one large upfront payment means the adviser has little incentive to stay with the client after the sale\u201d and provide ongoing guidance.<\/p>\n

To pay such commissions and run their own profitable businesses, insurance companies levy high charges. You can often see how high, if you plough through all the paperwork and understand the complexity and the jargon (of course \u2013 doing that before you sign up, not after).<\/p>\n

One of the more reputable firms says of one of its savings plans: \u201cEvery time you pay a contribution, we deduct a single bid\/offer spread charge. This can add up to 7 per cent of the amount invested.\u201d It also levies a 1 per cent management fee, while the fund managers will also charge their fee, \u201cusually between 1 per cent and 2.5 per cent a year.\u201d And there are other charges.<\/p>\n

A familiar trap is that investors sign up to pay premiums for long periods, often as much as 30 years. But because of changed circumstances or anger at the low level of investment returns, few ILAS clients stay with their plans to maturity. Only about 7 per cent of them, according to one expert.<\/p>\n

Any client who insists on cashing in before his maturity date set years ahead faces heavy exit charges.<\/p>\n

Although there are occasional exceptions, it\u2019s generally a bad idea to sign up for any investment plan routed through an insurance company. It\u2019s also a bad idea to use a financial adviser who does NOT charge you an annual fee for his\/her services (therefore depending entirely on commission income).<\/p>\n

It\u2019s nearly always preferable to manage your own investments, putting your savings into directly-owned assets such as shares, exchange-traded funds, bonds, real estate, bank deposits and gold.<\/p>\n

If you don\u2019t have the expertise to choose which one and to time when to buy and sell, just follow a simple formula plan. It\u2019s a concept first popularized in the US by Harry Browne.<\/p>\n

You decide on a simple model such as 25 per cent into each of four categories \u2013 for example shares, bonds, cash and gold. You invest in the lowest-risk versions of each category. Then forget about watching your portfolio.<\/p>\n

Just once a year you tot up what you\u2019re worth. Where one of your holdings is substantially above its 25 per cent mark, you cash in enough to bring that holding down to the mark, immediately switching the cash into the asset category whose value is well below its mark.<\/p>\n

Any new cash available for investment, you accumulate and invest when you do the annual rebalancing.<\/p>\n

You\u2019ll very rarely lose money in any year, and if that happens it will be small. Every other year, your portfolio will grow.<\/p>\n

Over long periods, that\u2019s a proven way to get slowly but steadily richer, with virtually no losses, very few investment judgments to make, minimal fees to pay, and no stress.<\/p>\n

CopyRight \u2013 OnTarget 2013 by Martin Spring<\/p>\n","protected":false},"excerpt":{"rendered":"

I recently received a plea from a lady living in Thailand to warn people against a well-known locally-based financial adviser to expats for \u201clocking clients into long-term investment products promising high returns, but in actuality delivering low returns and high fees.\u201d<\/p>\n","protected":false},"author":1,"featured_media":738,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"amazonpipp_noncename":"","amazon-product-isactive":"","amazon-product-single-asin":"","amazon-product-content-location":"","amazon-product-content-hook-override":"2","amazon-product-excerpt-hook-override":"3","amazon-product-singular-only":"","amazon-product-amazon-desc":"","amazon-product-show-gallery":"","amazon-product-show-features":"","amazon-product-newwindow":"2","amazon-product-show-list-price":"","amazon-product-show-used-price":"","amazon-product-show-saved-amt":"","amazon-product-timestamp":"","amazon-product-new-title":"","amazon-product-use-cartURL":"","amazon_featured_post_meta_key":"","_amazon_featured_alt":"","amazon-product-template":"","footnotes":""},"categories":[8,3,9,170],"tags":[245,246,5,60,224],"class_list":["post-737","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-investments","category-news","category-opinion","tag-expats","tag-financial-advisor","tag-investment","tag-long-term","tag-thailand","has_thumb"],"yoast_head":"High Costs for Poor Returns - 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