Why do retirees marry in Thailand ?

[AyG]

Thai financial advisers have a pretty bad reputation for abusing their clients' money. I recently came across a situation where a UK IFA was treating a client abysmally.

The individual concerned is an elderly woman, living in Thailand, with no investment experience. She has no pension, and depends upon her savings for all her income. Wanting to get a better income than what the banks offer she placed a large sum of money with a large, well known UK IFA, initials CS, to invest at their discretion. What could go wrong?

To start with, CS charged her 1.5% per annum for managing her investments, and on top of this another 1.5% commission for every purchase and sale. Effectively they were taking something like 50% of all income from her investments; half for her, half for themselves. The amount concerned was many thousands of pounds.

But were CS doing a good job of managing the investments? In my opinion, no. The portfolio was invested as follows:

23% cash (And remember she was paying 1.5% a year on this in fees.)

15% a single USD-denominated corporate bond

34% individual equities (3 UK, 4 US, 1 Canadian)

28% investment trusts (2 UK income, 1 global, 1 Canadian)

For someone living in the UK this would be poor: too much cash, too little diversification. But for someone living in Thailand with expenditure in baht, the exchange rate risk is unacceptable. What was supposed to be a bespoke service, tailored to her situation most obviously wasn't. In my opinion, this looks like a firm's model portfolio for a UK-based, risk averse income-seeker. It didn't in any way take into consideration her particular circumstances.

In my opinion, the IFA has taken advantage of her inexperience.

So why am I posting this? Because I suspect there will be others out there in a similar situation, and want this to be a warning to them that they are being bled dry by greedy financial advisers who aren't investing their money appropriately. Just because your IFA wears a nice suit, has a nice smile and a firm handshake doesn't make him an honourable man.

Edited June 12, 2015 by AyG

[meatboy]

why not put your concerns to the financial ombudsman.

phone 44 20 7964 1000

or e-mail [email protected]

or write financial ombudsman service

exchange tower

london E14 9SR

[thrilled]

Whenever you have someone helping you investing your money is you need to ask what the fees are and do your math.

Many advisors are not forth coming.With so many internet companies today ,they don't want you to know their fees

Cause the internet companies are usually so much cheaper.It is up to the buyer to ask how much all of this will cost.

[DogNo1]

I have had no good experience with any financial advisor. They all have made mistakes and lost me money, sometimes a lot of money. I now read newsletters and manage my own money. I haven't made much money but have no net loss so far and manage to collect 4-5 % dividends and interest each year. Of course, I have to pay a lot of tax since few of my holdings are 15% qualified. For people who don't want to actively manage, I recommend Vanguard funds which have quite low fees. They have retirement funds which hold various other Vanguard funds to achieve the right investment objectives. I'm not sure if they are available to people who are not US citizens but I have a Japanese friend living in Japan who owns a lot of US funds through her Japanese brokerage. Surely there must be Thai brokerages through which you can buy US funds.

As the OP points out, 3% is an unconscionable take for just managing investments. I'm sure that at Vanguard you could get it below 1%. I'm not sure what a local intermediary would charge though. BTW, there are many investment - related threads on TV. Just search on investments in the TV search bar.

[KittenKong]

Maybe this elderly woman should have used a Thailand-based IFA who would probably have separated her from all her money in no time, with little or no protection available from anyone.

Is 23% cash unreasonable for an elderly woman? I'm not yet elderly (several years to go before I claim my UK state pension) but I have more cash savings that that and am perfectly happy with it (though of course I dont pay anyone any commission on my interest as I manage my own finances).

I live in Thailand but do I worry about exchange rate exposure, or have more than 10% of my total wealth (including property) in anything related to Thailand? Not at all. I dont understand the way Thais think (nor do I really want to), I dont have much faith in the Thai government and I dont have any right of abode here (nor will I ever) so why on earth would I want to invest a lot of money here?

Whilst I would be the first to label IFAs as time-wasting and incompetent vampires, this particular one seems to have done a fairly sensible job for a UK-based IFA, assuming that he was dealing with a client who had UK links. He has charged a fairly standard fee for the job even if the going rate is far more than I think the job is worth, but that's the price you pay when you go to an IFA (which is why I would never use one). And he is subject to UK rules and regulations that should mean that this woman is protected if the IFA is shown to have done something wrong or unprofessional.

But before pursuing this I would want to know exactly how the woman answered the client profile questions that should have been asked, as it may not have been made clear to what extent she is permanently divorced from the UK, if indeed she is.

Edited June 13, 2015 by KittenKong

[KittenKong]

Whenever you have someone helping you investing your money is you need to ask what the fees are and do your math.

Many advisors are not forth coming.With so many internet companies today ,they don't want you to know their fees

Cause the internet companies are usually so much cheaper.It is up to the buyer to ask how much all of this will cost.

UK-based IFAs are obliged by law to make their fees clear from the start.

[AyG]

Whenever you have someone helping you investing your money is you need to ask what the fees are and do your math.

Many advisors are not forth coming.With so many internet companies today ,they don't want you to know their fees

Cause the internet companies are usually so much cheaper.It is up to the buyer to ask how much all of this will cost.

UK-based IFAs are obliged by law to make their fees clear from the start.

Indeed, they are. They're not, however, obliged to make them reasonable.

Unfortunately, someone who is inexperienced isn't going to know to know what a fair fee rate is. The same person isn't likely to question the rate quoted perceiving an IFA as someone who's there to help them, rather than someone who may be just trying to maximise their own personal income.

[Berkshire]

Is the company Credit Suisse? Anyways, I can never understand why people would go with a financial advisor instead of doing their own DD. Nevertheless, the question at the end of the day is could she have done better on her own? If not, then whatever they charged was worth it, wouldn't you say? If she's really that inexperienced, she could have done much worse.

[AyG]

Is 23% cash unreasonable for an elderly woman? I'm not yet elderly (several years to go before I claim my UK state pension) but I have more cash savings that that and am perfectly happy with it (though of course I dont pay anyone any commission on my interest as I manage my own finances).

There's no need for most people to hold more than, say 2 or 3 years' living expenses, preferably in the currency of expenditure. The woman concerned already had way more than that in bank accounts. The IFA should have known that. Even if he didn't, there was no need for so much cash within the portfolio. The problem with cash is that its value is eroded over the years by inflation.

Incidentally, the commission wasn't on the interest - the IFA was taking 1.5% of the cash each year as commission - far less than the interest received. Effectively the IFA was eating into her capital for doing nothing.

I live in Thailand but do I worry about exchange rate exposure, or have more than 10% of my total wealth (including property) in anything related to Thailand? Not at all. I dont understand the way Thais think (nor do I really want to), I dont have much faith in the Thai government and I dont have any right of abode here (nor will I ever) so why on earth would I want to invest a lot of money here?

One doesn't need to have all one's investments inside Thailand, but they should be spread across a range of markets and currencies to minimise risk through diversification. By having all the cash and almost all the investments in USD and GBP the foreign exchange risk is unnecessarily high.

Whilst I would be the first to label IFAs as time-wasting and incompetent vampires, this particular one seems to have done a fairly sensible job for a UK-based IFA, assuming that he was dealing with a client who had UK links. He has charged a fairly standard fee for the job even if the going rate is far more than I think the job is worth, but that's the price you pay when you go to an IFA (which is why I would never use one). And he is subject to UK rules and regulations that should mean that this woman is protected if the IFA is shown to have done something wrong or unprofessional.

1.5% management charge plus 1.5% dealing charge is very much on the high side. Just picking a firm at random, Rathbones charges 1.2% on the first 250k, 1.0% on the next 500k, and lower rates above that. With them there is no additional dealing charge.

But before pursuing this I would want to know exactly how the woman answered the client profile questions that should have been asked, as it may not have been made clear to what extent she is permanently divorced from the UK, if indeed she is.

She loathes the UK and has no intention ever of returning there. The IFA knows this. She's so averse she doesn't even want to hold cash in GBP in her bank accounts. She tells me has also told him on more than one occasion she wants investments outside the USA and UK.

[AyG]

Is the company Credit Suisse? Anyways, I can never understand why people would go with a financial advisor instead of doing their own DD. Nevertheless, the question at the end of the day is could she have done better on her own? If not, then whatever they charged was worth it, wouldn't you say? If she's really that inexperienced, she could have done much worse.

Not Credit Suisse.

I think many people aren't interested in investment as a subject and are glad of other people to manage their investments for them. I look after the investment portfolios for a number of family and friends since they don't want to (and I enjoy doing so). Others will prefer to pay someone to take on the task for them. In either case there's an expectation that the person managing the investments will match the investments made to the person's circumstances. CS didn't do this.

[KittenKong]

But before pursuing this I would want to know exactly how the woman answered the client profile questions that should have been asked, as it may not have been made clear to what extent she is permanently divorced from the UK, if indeed she is.

She loathes the UK and has no intention ever of returning there. The IFA knows this. She's so averse she doesn't even want to hold cash in GBP in her bank accounts. She tells me has also told him on more than one occasion she wants investments outside the USA and UK.

In that case it would certainly seem that the IFA has not done his job. Luckily as he is UK-based there is a system for complaints and compensation in place.

But if she is so vehement and certain about this one wonders why she has her savings in the UK and why she uses a UK-based IFA at all?

Edited June 13, 2015 by KittenKong

[KittenKong]

UK-based IFAs are obliged by law to make their fees clear from the start.

Indeed, they are. They're not, however, obliged to make them reasonable.

Unfortunately, someone who is inexperienced isn't going to know to know what a fair fee rate is. The same person isn't likely to question the rate quoted perceiving an IFA as someone who's there to help them, rather than someone who may be just trying to maximise their own personal income.

Caveat emptor. The job of government and law is to outlaw trickery and deceit and incompetence, not to standardise prices across the board.

It should not be beyond the wit of most people to make enquiries about pricing and levels of service with several providers before making a final decision. And if it is beyond their wit then maybe someone else should be looking after their affairs for them?

[KittenKong]

Is 23% cash unreasonable for an elderly woman? I'm not yet elderly (several years to go before I claim my UK state pension) but I have more cash savings that that and am perfectly happy with it (though of course I dont pay anyone any commission on my interest as I manage my own finances).

There's no need for most people to hold more than, say 2 or 3 years' living expenses, preferably in the currency of expenditure. The woman concerned already had way more than that in bank accounts. The IFA should have known that. Even if he didn't, there was no need for so much cash within the portfolio. The problem with cash is that its value is eroded over the years by inflation.

Incidentally, the commission wasn't on the interest - the IFA was taking 1.5% of the cash each year as commission - far less than the interest received. Effectively the IFA was eating into her capital for doing nothing.

Commission is indeed the drawback of using an IFA. What can you do about it?

I dont have any dealings with them myself but as far as I know they all like to take their yearly cut. Up to the client to remove the cash part from the pot so as to avoid paying commission, or negotiate fees or to go elsewhere.

As for cash, the need is not important. Security is important; more so the older one gets. I have a lot of cash on long deposits that are protected by government-backed insurance and that pay just under 5% with inflation at a much lower rate. I am happy with this. If they weren't so overpriced I would buy gilts but the fact that they are overpriced indicates to me that others share my view of the desirability of having cash (or similar) rather than investments that have no absolute value like shares or property. That doesnt prevent me from owning shares and ETF trackers and property also, but now I like to keep it below 50% of the total. When I was younger it was a very different story, but the world was a different place too.

[xylophone]

This is an interesting post and there are lots of good points made by various posters.

In the world of financial planning, lots of things come into play, and the first one is usually a risk profile which is done on the investor to see their attitude to risk. Of course associated with this comes the age of the individual which is more often than not built into the risk profile which is completed, however there can be some conflict even in the most clearly defined of financial planning best practices.

As a general rule, as one gets older and stops working (therefore having no working income) the emphasis upon investment switches from "risky" investments to more stable cash type investments. However there is a problem with this because the cash/interest rates worldwide are very low so once fees are taken into consideration, the investor could well be losing money.

The financial planner should take this into consideration and look at ways to generate a return without the unrealistic fees involved, because not do so would be almost "malpractice".

Someone mentioned low fees with regards to Vanguard, and that is very true because as they are an "index tracker" their fees are some of, if not the lowest in the marketplace and although it's a long time since I have had dealings with them, I believe they do have money market/cash type funds which may be a better bet than what is currently in place for the investor.

On another note, dividend yields from investing in shares can be a good bet, however this is what would be known as a "risky" asset class for someone who is older and not working, so perhaps a small proportion of funds could go into this asset class, however this of course is open to "debate" because I know of many older investors who are quite happy being in the sharemarket!!

As regards bonds, well there are still some corporate bonds paying 4 to 5% in other countries and looking for a portfolio to include these should be part of the financial planners job, whilst taking into consideration currency risk etc.

As regards currency risk, well it is always there if one is investing in one country and living in another, and as many experts will tell you, it is so difficult to predict and over the long-run all the strategies used to mitigate currency risk usually end up somewhere around even.

Finally, I do agree with the OP that the fees are high and although the financial planner will be governed by law to disclose all fees etc, the overriding factor should be, "am I doing the best for this investor", and on the evidence provided, I would say that the financial planner comes up short on that question.

[SantiSuk]

I have advised myself reasonably successfully for 35 years. Normally I keep at least 10% in cash/deposits. At the moment I have 28% of my portfolio in that category. Maybe Charles Stanley takes the same view I currently take on global equity risk.

Otherwise I agree with your observations OP@

[xylophone]

Quote KittenKong: “I live in Thailand but do I worry about exchange rate exposure, or have more than 10% of my total wealth (including property) in anything related to Thailand? Not at all. I dont understand the way Thais think (nor do I really want to), I dont have much faith in the Thai government and I dont have any right of abode here (nor will I ever) so why on earth would I want to invest a lot of money here”.

You make a very good point and one which I have often seen mentioned as regards the amount of money one invests/keeps in Thailand.

I have around 5% of my total wealth in Thailand, with the rest of it earning on average between 4.5 and 5% per annum (upon which I pay no tax being a non-resident for tax purposes) and I bring it over to Thailand when I need it, usually to qualify for the yearly extension based on retirement scenario.

I did have money invested in two houses but soon came to my senses and divested of those and feel much better for doing so.

As a friend has said, why on earth would I invest money in this country when:-

– The country's finance minister can lie when it suits him….. "The finance minister can lie about some things, such as export targets. But these are white lies" Kittirat said.

– The elected government can be overthrown by the army whenever it feels like it.

– A foreigner cannot own land (except in exceptional circumstances).

– Corruption is rife from the top to the very bottom.

– For no rhyme nor reason, the rights of a foreigner being here or in investing in this country can be changed at the stroke of a pen (like KittenKong has said, "I don't understand the way Thais think, nor do I really want to".)

And for the record, "why would I invest in a country where drivers haven't fathomed out such a simple thing as how to use a roundabout!!!!”