Reports on investment mis-selling have barely been off the front pages in recent years, with banks and building societies publicly held to account.
While this has led to a clean-up of the industry here in the UK, with greater transparency and reduced sales commissions, expat investors are finding themselves back in a minimally regulated world of high-risk investments, poor financial advice and pressurised salespeople.
A recent investigation by Telegraph Money found that many of the 5.5 million Britons living overseas have been battered by some seriously high charges and commissions on their investment products – in some cases over seven times more than what they would have paid in Britain.
According to our Head of Investment Claims, Michael Jordan, the elderly were hardest hit by poor financial advice and the consequential losses: “Now that those over 55 can have free access to their entire pension savings, they are firmly in the sights of some unscrupulous advisers who claim to be associated with established UK companies, sometimes by practicing under a deceptively similar name. Of course, this couldn’t be further from the truth as they tend to be neither trained nor regulated.”
He continued: “Retired, well-off Brits heading abroad in their droves run the risk of being persuaded to invest their pension pots in ways that are clearly unsuitable and being charged a fortune in commission in the process. As Telegraph Money report, one instance saw a temporary overseas worker being advised to transfer a final salary pension into a risky fund and at a cost of more than £45,000 – it’s frightening.”
Unregulated advice amounts to hefty bills
Investment malpractice is particularly widespread in Asia, Africa and Eastern Europe. It’s almost impossible for the Financial Conduct Authority (FCA), Britain’s watchdog responsible for regulating investment firms, to intervene.
Investment regulation on the level of the FCA is virtually non-existent in places such as Dubai, with instances of hidden commissions, psychological manipulation and underhand tactics comprising just some of the horror stories now filtering their way back to the UK.
Similarly to the cases of British investment mis-selling in recent years, many investors have complained they were not made fully aware of the charges or risks involved.
We can confirm that such tales of woe are particularly costly with unregulated funds, many of which seek returns from high-risk assets such as property or wine.
Head of Investment Claims Michael Jordan explains: “Here in the UK, unregulated funds are only supposed to be marketed to experienced investors. However, this isn’t the case overseas. Around three quarters of unregulated investments result in a loss, meaning a huge number of savers are ineligible for compensation of any sort.
“This is terrible news for people who have pumped their hard-earned money into what they were led to believe was a sure-fire investment winner. There’s no doubt that people overseas need to be made more aware of the far-from-credible financial advice that is being imparted overseas.”
Overseas investment mis-selling: what to look out for
There is rarely any way back once you’ve signed on the dotted line in a country where financial advice is unregulated. Before you put pen to paper, here are a few tips on how to avoid being caught out:
- Do your research. Never head into an appointment without knowing what you need or why – a commission-thirsty adviser might immediately regard you as an opportunity. In the same way as if you were buying a house or car in another country, be sure to shop around for the best investment product options.
- Be clear on the fees. You must be able to make an informed decision based on knowing exactly how much and for what you will be charged. You may need to be persistent in order to get them to lay all charges out clearly for you. Once you know, you can understand whether you are getting a good deal.
- Set out your requirements. Be as clear as possible about what you want to get out of your investment. Whether it’s to set aside for the children, pay off your mortgage or top up the retirement coffers, make sure your adviser has a good idea of what product will suit your needs (and, more importantly, what won’t).
- Read the small print. If an untrustworthy adviser is trying to catch you out, the small print is one place that may include hidden clauses and extra fees – ensure you check these thoroughly.
A fine line between advisers and salesmen
Thanks to the lack of regulation overseas, individuals are able to trade as financial advisers when they are no more than unqualified salesmen, looking to push certain products at the expense of those that may be more appropriate to your investment needs.
The Telegraph Money report described a situation where a retired couple lost most of their life savings after dealing with an “adviser”, credible in appearance, who worked for brokers with no authorisation to sell investments.
“It’s outrageous that companies and individuals are able to legally operate without the need to be regulated,” says Michael Jordan. “Our advice would be to only deal with UK-based companies who work within the jurisdiction of the FCA and seek to get the best deal for their customers.”
He adds: “Investment mis-selling in the UK is becoming a thing of the past, but mis-selling is rife and maybe even on the rise overseas, due to the absence of financial regulation. We urge all expats or Brits working overseas to keep their wits about them and tread with care when taking financial advice away from these shores.”