What an eye-opener!

Sam Kelly DipPFS, EFA, BA (Hons) Managing Partner, Chorus Financial.
Sam Kelly.

By Sam Kelly,
Managing Partner,
Chorus Financial

I’ve been writing these articles in Spain for many years now, but it still surprises me that people are signing up every day to overpriced or unsuitable pension transfer and investment plans, without getting a second opinion, or fully understanding the recommendation.

The most common policies that I see issues with are Spanish compliant bonds, and there are various providers in the market, including Prudential International, Lombard International, Quilter International, STM, SEB etc, and pension transfers, which may be to an International SIPP or QROPs. Under the right circumstances these products can offer many benefits.

People often come to me for a second opinion and at Chorus we have reviewed over 100 third party recommendations in the last 12 months, and nearly every one has contained inappropriate underlying fund recommendations.

What generally happens is you’re sold the benefits of a pension transfer or investment bond, with reasonably clear and simple charges, but then you’re given very little information about how your money will be invested once it’s placed in those products, and the additional layers of charges that will apply.

Often an investment recommendation consists of a pile of vague fact sheets, and little idea of the philosophy behind the portfolio.

Remember that the funds within your bond or pension are separate products, and it is equally important you understand these before you sign ANY paperwork. Sadly, financial advisors in Spain can be notorious for choosing lower quality funds which may pay them commissions or have arrangements in place with their Head Office.

Just as one example, this means if your IFA is looking to place say 6% of your portfolio into a US Equity fund, rather than having hundreds of US Equity funds in the open market to consider, they will always use the same fund. This means that even if this fund is overpriced, and underperforms, you will end up invested in it, and unless you are an experienced investor, it can be very difficult for you to spot this risk.

High quality funds generally cost between 0.2% to 0.95% per annum – anymore than that should raise alarm bells. There should never be an entry charge or a tie in on a fund… ever! All these extra fees are designed purely to pay your financial advisor additional undisclosed commissions, and effectively mean your money is being placed at greater risk for the benefit of your advisor.

Until the European regulators put a total ban on fund-based commissions, Brits living here in Spain will fall victim to these practices.

Any kind of investment carries a degree of risk. I would never sit and promise my clients a particular annual return, or that the markets will never have a bad run. Successful portfolios will always have ups and downs along the way. What I will promise my clients is that they will be fully aware of the total cost of their investments each year. Even more importantly, those portfolios need to be built with your needs as the number one priority, from well-known and trusted fund-houses, rather than simply fund houses that offer a back-hander for the recommendation.

Chorus have saved countless clients from signing up to inappropriate investment and pension plans here in Spain, often simply off the back of an email or short telephone call. When you’re considering what to do with your life savings or pensions, no amount of time spent on due diligence is wasted.

As always, if you want to discuss anything in this article, without pressure or obligation, simply send me an email on [email protected], call me on +34 664 398 702 or visit www.chorusfinancial.es for more information.

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