Generally speaking, members of the public rely on professionals to provide services that they do not have the knowledge or experience to do themselves. I have tried to replace a toilet cistern with quite amusing results and now rely upon the services of a plumber.
I should imagine that if DIY dentist kits (drill included) were available in the supermarket, they would not be a good seller.
We do tend to rely upon the professionals that we choose to help us with our lives but as with all professions there are a few cowboys amongst the decent tradesmen. This includes Financial Services. When financial advice is given with the main objective being benefitting the person giving the advice, then serious long-term financial problems can result.
In 2013 EFPG decided to not to recommend commission paying products for our regular personal pension and savings plans – unless we were specifically asked to. We thought them inflexible, expensive and had extremely confusing and complex charging structures. Instead EFPG decided to design our own products with simple and clean charges, no commissions and as a result the plans are extremely flexible. We take great care in listing every cost that our clients’ savings and investments will face. EFPG wants our clients to have a pleasant investment experience with no hidden surprises. We also offer on-line 24 hour access so that our clients can monitor their investments. By doing this we hope to be seen as transparent, honest and trustworthy.
Not every IFA has the same philosophy. In 2015 we were approached by an introducer that had pointed clients to two Advisory companies who then advised these clients into pension transfers and a truly awful investment.
The Cayman Island Fund
EFPG was presented the fund by the introducer to see if we would accept it in our overseas pension if they arranged the financial advice. We rejected it because on reviewing the investment prospectus our interpretation was that it offered no investor protection whatsoever. The directors and investment manager could do pretty much as they pleased and invest pretty much without restriction.
Time proved us to be right.
The introducer also controlled the fund’s investment management company. The investment management company invested in assets that the introducer also controlled. The investment management company also made investments in a way that the fund was not permitted to make. Additionally the same introducer also acted as the financial adviser to everyone (that I know of) who invested in the fund either from his own company or as a representative of another advisory company.
Currently the fund is being liquidated (meaning that the fund’s assets are being sold) and investors are facing very significant losses and delays in getting what they can out of the fund. Some investors were relying on the income from their pensions – income that has not been forthcoming for over 2½ years.
Although pension providers are not expected to be investment experts, a cursory glance at the fund and the surrounding arrangements should have set off all kinds of warning signals. Additionally, the fund had only just come in to existence, as had the investment manager.
There are a couple of easy methods that enable us to reject an investment offhand without spending too much time and effort reviewing the proposal. Firstly we look at the companies that provide services to the fund (auditors etc.). If the companies are not well-known this is a warning sign. Secondly we look at the Conflicts of Interest section and if it isn’t blank or short, we steer clear. Conflicts are a clear sign that a scheme exists not to achieve returns for investors but for insiders to strip out their cash in fees before it inevitably collapses. The investment mandate is also good reading as it permits us to judge how risky a fund is – risk with respect to liquidity and capital being the most pertinent elements of risk for a pension investment.
Obviously the stress and financial hardship suffered by the investors is the worst aspect of this mis-selling fraud/ investment fraud. However, the IFA acting in such a duplicitous manner compounds the issue – the investors have been betrayed by a trusted “professional” and as a result are extremely unlikely to seek financial advice in the future which could mean they would continue to make bad decisions.
The above shows that you do need to do your homework when seeking financial advice. Get personal recommendations, look online, make sure that the investments being advised are regulated and suitable for retail clients and if you are being shoe-horned into an investment bond, find out about the costs to you and the inflexibility of the product.
EFPG has forged excellent relations with an expert in the Indian market with links to some of the best fund managers. Here’s a quick overview of some interesting fact and figures relating to India’s growth.
India is the fifth largest economy in the world – hot on the heels of the UK.
India’s economy is the fastest growing economy in the world – annual 9.4% growth in GDP between 2006 and 2016
Forecasts consider that the economy will double in size to GDP €5 trillion in 6 years and to overtake the US by 2030.
There are 25 million new births every year – that’s one Australia every year.
The Real Estate market is expected to hit $650 billion in 6 years and $1 trillion by 2030.
India has seen significant growth in infrastructure spending. It’s been estimated that India needs $5 trillion in infrastructure investment to sustain its economic growth.
Initiatives like ‘Make in India’ are aiming to make India a global manufacturing hub.
In July 2018, Samsung inaugurated the world’s biggest mobile phone factory in Uttar Pradesh and will double the company’s mobile phone production capacity to 120 million units by 2020.
The country is in a tech start-up boom. This start-up ecosystem is now the world’s third largest and is maturing rapidly. It has attracted over $20 billion inward investment in the past three years.
9th largest Civil Aviation market in the world. 464 airports and airstrips today, with the aim to increase the number of operational airports by 250 by 2020.
India has expanded its solar generating capacity eight-fold since 2014 and achieved the target of 20 GW of capacity four years ahead of schedule. India plans to generate $200–$300 billion of new investment in renewable energy infrastructure over the next decade.
Tourism is expected to grow by nearly 5% year on year.
As per our previous post about investment fraud, the most important point is to avoid it in the first place. Get regulated advice, get a second opinion and trawl through the internet.
Once your money has been invested in a fraudulent scheme it is likely that it has gone. Often any recovered funds are eaten by liquidation and legal costs in a process that can take years to conclude.
There are good alternative investments out there than can provide good returns but sorting out the wheat from the chaff is perilous.
In the media this week there has been another major mis-selling scandal that has cost investors £236 million. London Capital & Finance (LCF) secured the investment mainly from elderly investors who were looking for a way to achieve better than bank interest rates on their savings. LCF were offering around 9% p.a.
To manage to secure nearly a quarter of a billion pounds in investment LCF used the services of a marketing/distribution company and paid 20% commissions on the investment that they raised. Some simple maths here:
If an investor is expecting 9% return on their £100 investment, after one year they should have £109. Now, since LCF paid 20% commission £80 needs to grow to £109 – that’s over 36%. Admittedly that is a little sensationalist – although I have not read the terms and conditions of the LCF investment I should imagine that there would be a minimum term of 5 years or so in which case to generate 9% for the investor, LCF would have to make a minimum of 14% every year but more realistically closer to 18%-20% to cover costs and to make a profit for the company.
Regardless of whether LCF would have had to generate returns of 18% or 36% – they would have had to take very high risks with their investors’ cash to achieve this. Considering that banks might charge in the region of 5-8% for a secured loan to a small business, why would a company resort to paying 20% p.a. for a loan? The answers being that either they have no other options or that they have no intention of repaying the loan.
This story reminded me of an investment that was brought to EFPG a few years back.
The Providence Funds
On the face of it this investment appeared to be a little off the wall but had possible merit.
A salesman presented the opportunity to us as a pension investment with the advice being provided by other financial advisory companies. EFPG would only be supplying the pension.
The Providence funds invested in Brazilian factoring offering low risk 12%-13% investment returns. Factoring in simple terms is buying a company’s invoice at a discount, improving cash flow for the company instead of waiting for the invoice to be paid. Factoring is quite a commonplace activity.
EFPG rejected the proposal twice. The risks involved were too high.
Firstly, the Brazilian economy was in a poor state – perhaps a significant number of the purchased invoices might not be paid.
Secondly we were not convinced that the funds invested in Brazil would be managed to the standards as we are used to in the EU.
Finally and most importantly – the fund was being marketed as low risk but offering market beating returns.
Unfortunately EFPG was proved right. When the investors’ money (having been invested via a regulated Guernsey fund) arrived in Brazil, over 30% of it was not used to buy company invoices and could not be accounted for. Also undisclosed commissions were paid out.
A judge for the Royal Court of Guernsey described the Providence Funds as “a reeking pile of guano” and was told that there is no available cash to return to investors who put more than £37 million into the collapsed investment business.
It is quite possible that the salesman was duped by the investment company and was drawn in by the prospect of large commissions. Equally, if any pension provider had permitted the investment, the temptation of volumes of business and fees may have over-ridden any doubts about the quality of the investment.
EFPG has not researched the fraud fully and so we do not know whether it was limited to Brazil or if people further afield were complicit. Regardless, the warning signs were there. A huge carrot was being dangled – a virtually risk-free investment offering 12% returns.
EFPG took the decision to stop using radio as a means of advertising a while ago. We thought it was expensive and we were doubtful as to whether it was effective. Also, to relay our vision to our clients (both present and future) is not easily done squeezed between George Ezra songs.
EFPG’s aim is to be a lean mean pension machine – we cut down on our operating costs so we can afford to offer pensions with lower fees and no commissions. Obviously we cannot spread this message if we are paying a small fortune to do so.
The obvious solution was to switch to social media.
Currently EFPG posts a blog on our Website which we then post on Facebook, Twitter and LinkedIn. We use a free version of Hootsuite which enables us to schedule three posts on all three platforms. As we do not intend to annoy people by constantly bombarding them we just need to set up the schedule once a week.
Our aim is not to simply sell via Facebook as people would quickly get tired of seeing the EFPG logo with a boring sales pitch beneath. Being a Facebook user myself, when I see an advert I feel like my privacy has been impinged upon. So what we attempt to do is mix some sales-orientated content with interesting content that in a roundabout way illustrates our core values; namely transparency, low costs and quality advice.
Currently we only boost our posts on Facebook (due to the demographics of Facebook users). By “boost” I mean we pay for our posts to appear on people’s news feeds. In the last week we spent the princely sum of £8.28 and our posts reached nearly 6,500 people out of whom 300 people actively engaged with them. We have seen 25% increased web traffic compared to last month since we boosted our posts. These figures came from the Facebook native analytics tool – Insights – which allows us to see what content we post is effective and what is not. I’m sure we will look into Twitter and Instagram a bit more seriously in the future but for now getting to grips with Facebook and creating content is enough.
Considering more than two billion people use social media every day and the average person spends 135 minutes per day on social networks it is unsurprising that the number of small businesses advertising on Facebook has doubled to 50 million in recent months.
A final point to consider is that although you may be attracted by spending only £8.28 a week on advertising and engaging with 300 prospective clients, there are additional costs. You have to pay someone to create content and that content must look and feel good. So if you don’t have members of staff that have the requisite skills or suitable software, you will have to pay someone else to do this for you.
I hope you find the above of interest but unfortunately EFPG cannot advise you on social media marketing – just pensions, investments and protection plans.
More and more people are putting their money where their mouth is when it comes to investing and consider their own ethical values when making investment decisions.
“Sin stocks” such as shares in tobacco and arms companies are obvious omissions from portfolios. Inclusions may include shares in companies that have a positive ethical stance on environmental, social and governance (ESG) factors.
For most people the work involved in selecting appropriate companies to invest in and then trying to find a mix that will provide them with a profit is too complex and time-consuming. Fortunately there are fund managers specialising in sustainability and ethical investing that can cater for those with such investment requirements. The funds may not be an exact match for every investor’s principles but they can provide a good compromise solution if investing is not your forte.
EFPG has written a brief article about Ethical investing, expanding on the above and also covering what it means to invest ethically, a very brief history of ethical investing, comparisons in profitability between ethical and unrestricted investments and EFPG’s preferred solution.
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