Shanghai Financial Advisers for Expats – The good and the bad !



You get the calls from IFAs – or Independent Financial Advisers in Shanghai and other big business centers in Asia. Sometimes they seem like an unwelcome intrusion, but the irony is that some of these guys really do know what they’re talking about and can really help you get a handle on your long-term financial planning. But some don’t. How do you tell the difference?

Begin your due diligence with a few basic questions. Start from the perspective that there are two ways for an advisor or planner to ruin your life. Some are simply dishonest – and these bastards are evil and toxic. But even more dangerous is the well-meaning incompetent who really, truly believes that highly leveraged forex contracts are appropriate for middle-aged managers trying to send their kids to university and retire comfortably. These are the guys who slip under your radar and get past your defenses because they are honest and sound credible. In time, they’ll learn their trade – or find their dream-job in investment banking – but you don’t want to be the horror-story that helps them find their way.

The single most important question to ask is “where is my money going”? Good planners will never take possession of your funds – they are representing BIG, STABLE institutions that will be around come hell or high-water. When the world ends, the only thing left will be cockroaches and insurance companies – and cockroaches don’t offer fund management services. (insert your own insurance/MBA banker/lawyer joke here)

5 burns that China-based financial planning clients need to beware of.

1) The Big Promise.

If it sounds too good to be true, it probably is. If the phrase ‘guaranteed’ is in the same sentence as ‘above-average returns’, you have a potential problem. There are instruments out there that do offer certain guarantees, but these are usually linked to bonds – and pay out in the neighborhood of 4 – 6% per year over 5 – 10 year terms. No one can guarantee that they can double your money in one year. This is more of a local issue than an ex-pat one, but those of you with wives, girlfriends and associates who day-trade may find yourselves tempted. Don’t go there.

2) Churn & Burn.

Some brokers and companies get paid by the transaction—not the performance. Switching from one fund to another can be expensive – in some cases VERY expensive. It doesn’t matter how blue your blue-chip instrument may be – when those chips get tossed around too much you can expect to lose a few – or a lot. Good planners will make sure that your account is not getting traded unnecessarily often – or that you are not paying for the trades.

3) Selling proprietary products.

Different instruments and services can have wildly different commissions for the seller – regardless of performance. Big fund management companies like Merrill Lynch and HSBC don’t really care that much about individual front-line sales organizations (like your financial planner), and offer similar deals across the board. Property developers, commodities traders, structured products, gold mines and other special situations should be analyzed on a case-by-case basis. Some may be fine. Others could be far riskier for you than for the guy offering you the inside track. (The big banks and institutions have been offered EVERYTHING first. If you are getting in on the ground floor, it’s because Wall Street and Exchange Square have already passed on it.)

4) Opaque fee structures.

This is a tricky one, because the best insurance companies tend to have the most maddening contracts and fee structures. A good planner will take the time to attempt to explain things as clearly as possible. It’s normal (but not necessary) to see entry fees, exit fees, administration fees, management fees and set-up fees. The underlying mutual funds that will ultimately grow your investments have their OWN sets of fees.

You are looking for 2 things from a good planner, and the first is an illustration or projection that is NET of fees. (For instance, the firm I work with uses internal projections of 12% returns, but shows clients samples based on a 9% return – net of fees, and then some.) The second thing to ask about is official documentation covering the significant fees and charges. Your contract (and yes, you not only need to receive a contract – but you really have to read it) will include everything – but is very hard to figure out.

If you are investing in mutual funds through a large insurance company, you can expect to pay something in the neighborhood of 2 – 3% per year OVER THE LIFE OF YOUR INVESTMENT CONTRACT. Don’t be afraid of high charges at the beginning – or fooled by seemingly inexpensive products that have big exit-fees or administration charges. Your planner should be able to give you a life-of-contract fee breakdown (or at least an estimate), in addition to itemizing each individual charge or fee.

5) Good intentions.

Who is making the ultimate decision about where your funds end up? Some front line salesman who is minding your portfolio while reading the financial headlines (or football match scores) – or a professional fund manager who does this for a living. Selling and managing are two completely different jobs. Balancing your portfolio shouldn’t be a hobby and it shouldn’t be a sideline. No matter how much you may trust or respect the person selling you the funds, you need to know that he is supported by an organization with a systematic approach to investing that will remain in place after your man is back home with the lads at the local.

This is list is just the beginning –and it may be more appropriate in China than it would be back home. You should be skeptical, but not cynical. The best way to protect yourself against financial planning trouble is to be proactive about educating yourself and checking out your prospective advisers thoroughly.



15 COMMENTS

  1. If you make a list of topics for a financial advisor to discuss with clients in order of priority, life assurance should always be at the top. Quite simply, within the financial services arena this is the absolute beginning.

    Simply put, anyone that has children or debts or shared responsibilities or virtually any type of financial commitment should have life assurance. How much they should have is another matter, but for now, let us settle on the requirement to have something in place.

    Whether you or I like it, any type of financial responsibility means that someone is dependent upon us and our abilities to earn and pay. This may mean that if you die you will leave debts to your relatives, or perhaps they use your income to survive (children and a spouse or an aged parent?) or you travel extensively and it will be costly to have your body transported home.

    The reason is, to a certain extent irrelevant. What matters is that if you are in such a situation and need to have life assurance cover but do not, you are now aware.

    From here, it is important to understand the approximate level of cover that you need. Before I launch into this, I ought to point out that virtually everyone on earth thinks that they either need no cover or they ‘have enough’. However, the real situation is that most people need several times more life assurance than they have!

  2. The bigger your earning, the more important it is to identify your ‘free cash flow’ or excess income that you can set aside for investment. This is much harder to do in Shanghai and other major Asian capital cities because costs and charges are so different, expats’ spending habits change and many big items are covered by employers.

    Financial planners calculate your ‘excess’ income which is free to be invested as:

    Net salary – expenses – discretionary spending (travel, restaurants, clothing, etc)
    If a plan doesn’t take into account the last part of the equation – the discretionary income that defines your lifestyle – then it is not going to be effective or long-lasting. A good planner will focus on doing everything possible to maintain your standard of living and range of activities. Be on the lookout for aggressive financial planners or advisors who intentionally pad your excess income in the hopes of boosting their commissions from the bigger investment.

    The true danger here is that many people have a distorted view of their own spending. They tend to under-count their expenses –and ignore their discretionary spending all together. Early iterations of your financial plan may indicate that your excess cash-flow at the end of the month is 70% of your salary. While this may turn out to be accurate, it is more likely that you are grossly underestimating your true expenses. If you are spending over $500 every month on restaurants then you can’t calculate your food budget based on the maids supermarket budget. You have to be realistic about your habits, customs and lifestyle. If travel, restaurants, shopping, bars or anything else is a significant part of your life, then you have to count it.

    One advantage to doing this kind of rigorous analysis of your own finances is that you will have better information about the amount money you can comfortably invest. A second benefit is that if you find that you are falling short of your goals and need to save more, then this is precisely the information you need to adjust your free-spending ways.

  3. Does anyone know any good fee based financial advisors in shanghai? (Not those [[email protected]#$%^&*] guys that call and drive me crazy!) I’d never trust them with my money — they can’t even tell me where they got my phone number.

    • I’ve never heard of a fee based financial advisor in Shanghai. Certainly would be scope for one but financial advisors have gained such a bad name from the commission based salesmen that cold call everyone.

    • I have been using one for last 7 years for some part of my portfolio (offshore funds
      on developing markets, hedgefunds, gold etc.).

      If you would be interested in ok advisor, you could pm me. I could ask him to contact you directly.
      Fee based he is not.

  4. I honestly don’t believe in this cold calling also, I think it is so unethical. If you would like to see one of the consultants here email me, and I will get you to see one that actually has passed all his exams and so knows what he is talking about. There are some here that haven’t done that.

    • There is no such thing as ‘ a good financial advisor’. There are financial advisors who are more ethical and client oriented than others. Cold calling has got nothing to do with that. That’s only a way to get new clients and says nothing about the quality of the advice or the products they are selling. Banks also only (in general) sell there own products.

      You want to know how to invest? Read a basic book about the subject and pick some basic products from a dull, old reliable bank. EG Savings account, a dull bond fund and a ‘world’ stock fund.

      Want to beat the market? You lose in the end, except the advisor….

      • What I do know is that there are some good products we have available, but the best thing is to sit with a few advisors, and see how you get on and see what you think is best for you.

        Different consulting companies because of their size have alliances with different banks so they will all have some very good deals that you can not get your self.

        So shop around and see what you feel is best for you.You can contact me if you would like to meet one of my managers and to just discuss your options available to you.

    • @IFAJAmes Go buy yourself a banner on this website if your products are so good… If they were, you wouldn’t need customers to invest would you? All banks pension funds and hedge funds would have maxed them.

      Obviously they didn’t.

      Makes you wonder for who exactly these products are good for. The client or the ‘ advisor/seller’

      • You are getting it wrong. Independent financial advisors work for the individual not the company and funds at all.

        And all different pension funds use different advisors. Independent advisors search the whole market for the individual, and see what is suits them best.

        Thats why the customer needs to shop around and see which suits them best.

        All the advisor companies have is people who have passed the exams and so know what they are looking for and understand what is there on the market.

        They can get hold of better funds and notes because of their size.

        • I am not getting it wrong at all. ‘ independent’ financial advisors get to pick and sell the products that give them the biggest kick back. And they do!

          It works that way all over he world.

          • So you must have had a bad advisor then before because in places like England, Australia and Geneva, and even Singapore to a certain extent, they are all fully regulated and you have to advise the client in their best interests. So if you do advise the client badly you can now be struck off. So really you should actually look into it before you say comments such as that.

            I’m a fully qualified accountant from England, and i know what exams IFA’s have to do and how regulated it is. It is getting more and more regulated which is why the exams have now been changed in England and you now have to do the Diploma if you want to be fully recognised.

  5. 1 – very few financial advisors are fiduciaries and are required to put the client’s interest first. Laws are usually based on ‘suitability’ which is much more liberal, and shouldn’t be misrepresented as putting the client’s interest first.

    2 – “i know what exams IFA’s have to do and how regulated it is” – you’re not in the UK anymore.

    Speaking of the UK, the FSA banned commission for financial advisors starting in 2012. Why do you think the UK would want to do something like that?

  6. I’ve met with a few guys… felt like they were used car salesman.

    they tried to make me sign and do everything “quickly,” and wouldn’t explain the fees.

    it’s true that the penalties for taking your money out is massive – for example, if you put in 100,000$ in a 25 year plan, and you aren’t happy with it and want to take it out after the first year – you only get back 8,000$!!

    Yes, that’s not a typo… that’s saying that you are penalised 92%!!!!

    If you want to take your money out at 24 years, let’s again say 100,000$…. you can get back $80,000… so only penalised 20%!

    On top of that, as OP mentioned, you have these MASSIVE yearly “maintenance fees,” which they don’t want to tell you about.

    Based on my calculations, with the fees included, you’ll be lucky to turn a profit even in a bull market… and if it’s a bear market, kiss your money bye bye.

    I feel bad for people who get caught up in these scams – they can really **** you over.

    My suggestions: scottrade… be your own financial adviser.

  7. On the topic of health insurance, the benefit of using a good broker is that they know all the questions and possible variables factors that may affect the type of insurance you might need.

    Also a broker who represents alot of other clients can sometimes have leverage with the insurer and I have actually found I get treated better by the insurer when using a broker.

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