British expatriates face losing tens of thousands of pounds through overly risky and poorly diversified investment portfolios, according to AES International.
Undertrained advisers operating in expatriate hotspots such as Spain, the Middle East and Asia, stated the international and offshore financial services firm, are jeopardising investors’ cash by recommending high-risk funds while also failing to properly diversify clients’ portfolios.
“All too often we come across new clients who have received poor advice in the past and have had their money put into a toxic mix of high risk-funds and poorly diversified portfolios,” said David Norton, head of investments at AES International. “Structured products and unregulated fund structures are particularly common.”
Some of the specific investments might not have been bad if they had been part of a well-diversified, balanced portfolio, said Norton, but when they make up a substantial portion of that portfolio and begin to lose money, they can become extremely costly.
“The Federation of European Independent Financial Advisers (Feifa) doesn’t tend to take or declare views on individual products or product types. It is not really our place to do so in most instances,” said the chief executive of Feifa, Paul Stanfield. “We are, not surprisingly, in favour of robust and well regulated products that provide potentially successful outcomes for investors, and are fairly and transparently priced and charged.”
A market source said that although the offshore advice market is no different from other markets and that it has improved around suitability and transparency “some of the structured products I see out there really are appalling.”
There are scores of examples of funds that have been widely sold in expatriate markets and have gone seriously wrong, said Norton.
“It is also rarely explained to investors that it is much harder to recoup losses once investments begin to fall,” he said, adding that if a portfolio falls by 10% it would need a gain of 11.1% to recover this loss. “Likewise, if a portfolio falls by 40%, it would need to increase by 66.7% to recover the loss and if it were to fall by 70%, an investor would need a 233.3% gain in order to break even.”
AES International is promoting among investors a free guide and a portfolio “X-ray” which provides clarity around underlying investments and charges to help them understand the full risks within their portfolios as well as the associated charging structures.
“We hope that by offering this free report we can open people’s eyes to the risks they are taking with their hard earned money,” said Norton.
A number of structured products issuers approached by SRP declined to comment for this story.
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