If an investment looks too good to be true, it generally is. So, how do you protect yourself from the kind of investment scams that have bedeviled Thailand’s expatriate community in the past few years?
WHILE there are many sound professionals and highly credible firms operating within the investment and financial services industry, fly-by-night Independent Financial Advisers (IFA) continue to damage the sector’s reputation and increase the risk of investors not getting the best returns on their investments, or even losing all of their capital in a worse-case scenario.
As such, potential investors should ask an adviser as many questions as possible to ascertain that the adviser has the right mix of knowledge, ethics and interpersonal skills to manage the investments.
As such, potential investors should ask an adviser as many questions as possible to ascertain that the adviser has the right mix of knowledge, ethics and interpersonal skills to manage the investments.
If an IFA does not like being asked questions, they are probably not the right person to care for someone else’s money.
Be wary of insider tips, “once-in-a-lifetime” and “never to be repeated” investment opportunities. Such recommendations should be taken with a pinch of salt.
Products which offer higher returns are likely to have a relatively high risk, with that risk increasingly significantly as projected returns rise. So if an adviser suggests such a product, ask for more detail on risk. If they say the investment is safe or sound with little or no risk, it’s probably better to look elsewhere for advice. Also, avoid unsolicited emails and any ‘cold calls’ from unknown sources.
Get more detail on the background of the IFA, their experience and the products and services they are selling.
Ask these questions:
• How many years have they worked in the industry?
• Do they have a Thai work permit (you may ask to see this)? If not, why not?
• Who were their previous employers?
• What related qualifications do they have and have they kept any qualifications and licenses up to date?
• Where do they see themselves, and the company they work for, being in five years’ time?
• For evidence of a company registration in Thailand.
Also, ask the adviser what savings and investments they have. If these are significantly different from what they are recommending, ask them to explain why.
There are many sound reasons why an IFA may not invest in the same products due to their age, investment horizon or risk appetite, but they should have no qualms or problems in explaining why.
Also find out what their current clients think about them by asking for testimonials.
Be wary of insider tips, “once-in-a-lifetime” and “never to be repeated” investment opportunities. Such recommendations should be taken with a pinch of salt.
Products which offer higher returns are likely to have a relatively high risk, with that risk increasingly significantly as projected returns rise. So if an adviser suggests such a product, ask for more detail on risk. If they say the investment is safe or sound with little or no risk, it’s probably better to look elsewhere for advice. Also, avoid unsolicited emails and any ‘cold calls’ from unknown sources.
Get more detail on the background of the IFA, their experience and the products and services they are selling.
Ask these questions:
• How many years have they worked in the industry?
• Do they have a Thai work permit (you may ask to see this)? If not, why not?
• Who were their previous employers?
• What related qualifications do they have and have they kept any qualifications and licenses up to date?
• Where do they see themselves, and the company they work for, being in five years’ time?
• For evidence of a company registration in Thailand.
Also, ask the adviser what savings and investments they have. If these are significantly different from what they are recommending, ask them to explain why.
There are many sound reasons why an IFA may not invest in the same products due to their age, investment horizon or risk appetite, but they should have no qualms or problems in explaining why.
Also find out what their current clients think about them by asking for testimonials.
Fees and commissions
Normally, an IFA makes money via direct commissions, fees or a combination of the two. This can change depending on the specific product in question, so any adviser should be happy to explain in detail how they earn an income from your investments if they have nothing to hide.
Ask for precise commission percentages and fee levels, as well as when they receive payments. Typically there can be an initial commission (on both the policy and the funds), trail commission (throughout the life of the policy) or underlying fund-based commission based on the value of the investment held within the policy. Unscrupulous advisers have been known to take all of these commissions, without telling the hapless investor.
These questions will help you better understand if the adviser’s motivation is to make money for you or for you to make money for him or her:
• Who manages the funds and why select this fund manager?
• What qualifications does the above fund manager have?
• Does their company have any interest in the funds recommended? It is relatively easy to set up an offshore fund, thus allowing an IFA to take a lion’s share of the management fees. So it is important to determine the IFA’s involvement as this can create a conflict of interest which is often undeclared.
• How are the funds valued? If they are not quoted on a recognised stock exchange on a regular basis, ask why not and be very wary.
• How are you protected if the product provider/fund enters into financial difficulties and what are the processes for claiming compensation?
• What gross commission is paid by the product/fund, both initial and trail?
• Are there any penalty fees for exiting the product/fund at any time?
Once your adviser has satisfactorily answered the above questions, you can start to weigh up the pros and cons of the proposed investments.
Interestingly, most IFAs in the UK now outsource the important job of managing clients’ funds to qualified professionals; this is called Discretionary Fund Management (DFM). This a highly regulated, low cost and flexible form of investment that is now widely regarded as the future of the industry. It is now available in Thailand, so investors might may want to ask an IFA if they can provide this service.
From Charles Ponzi to Bernard Madoff, the one common theme of every investment con is the offer of high returns, often in the form of income, to lure in the naive investor.
Remember, if you are offered a high “guaranteed” yield on your investment, you should look elsewhere for advice.
This article was submitted by South East Asia Capital (www.seac.asia) and edited by The BigChilli
