Today, Philby – not his real name – is typical of an unknown but, some say, large number of expatriates who are deeply dissatisfied with the way their life savings have been handled by the advisers to whom these monies were entrusted.
Philby, who worked as an accountant for the first 18 years of his career, says he originally stipulated certain conditions that he expected to be met with respect to his investment, the main one being that he would be able to access his money “at all times”.
At first, Philby’s investment performed more or less as expected. But as the global financial crisis began to take hold, the net asset value of his fund began to plunge. And before he knew it, Philby says, he was told that the fund had been closed to redemptions, since the value of its assets, at the new, lower market rates, had fallen so far below the total that had originally been invested.
Now, not only does he still not have access to his savings, he is continuing to be charged a management fee for the tax wrapper, which he says he now understands that he never needed in the first place.
‘Determined to raise alarm’
At a loss what to do next, Philby is bitter, as he is convinced that if his original instructions to his adviser had been heeded, he would not be in his current predicament. And he is determined to raise the alarm.
“I am sure I have not been singled out for this type of treatment, and I feel that this situation should be made very public, to at least protect any future investors, and hopefully help the existing ones as well,” he says.
“Listening to the latest news about the payment protection insurance mis-selling scandal [in the UK], it seems that I have been treated exactly the same way by my so-called advisers, to whom I am now paying fees for nothing. The whole industry is like the banks.”
Philby, it seems, is not alone in being an out-of-pocket and grumpy-about-it expat.
One need only look at some of the toxic postings on certain expatriate and consumer complaint websites, or talk to lawyers who specialise in looking after investors in offshore jurisdictions who are taking their wealth managers to court, to realise that there are some unhappy people in such popular expat destinations as the United Arab Emirates, Spain, Thailand and elsewhere on the expat trail.
In July, The Lawyer, one of the legal profession’s most respected publications, ran a special report detailing what it said has become a “perfect storm” of litigation in the offshore space, “as investors and creditors seek redress for losses sustained in the financial crisis”.
“The scale of this, say offshore lawyers, is unprecedented,” the article reports, as it goes on to quote global litigation partners from some of the largest offshore law firms.
Journalists, including those at International Adviser, have been on the receiving end of a growing number of phone calls and emails in recent months from people who are either dismayed about their treatment by financial services companies, or who are advisers themselves, and frustrated by having to share a marketplace and an industry with companies they say they are sure are knowingly ripping off their clients in an effort to make a profit.
Anonymous email and telephone tip-offs about advisers whose businesses have either been quietly shuttered, or the subject of scurrilous gossip on offshore websites, have also increased since the beginning of the year.
“Business models need to change in the offshore space, away from being based on commissions to being fee-based, and there needs to be more accountability on the part of the directors of the offshore advisory firms,” says one financial adviser who looks after expat clients in Asia.
This adviser, who requested anonymity, sought out an International Adviser journalist during a recent trip back to the UK, in order to vent his frustrations because, he said, he did not know how else to attempt to bring about a change.
"Commission-based advisers are under tremendous pressure to sell, because if they don’t, they don’t earn,” this ex-pat adviser, who is British, went on.
“But how can offshore advisers claim to be providing ‘independent advice’ when their choice of investment provider is governed by the size of the commission being earned?”
The adviser is also adamant that trustees must take greater responsibility for the investment products they look after on behalf of their clients, rather than “relying on disclaimers to cover themselves” when things go wrong.
Global response by regulators
To be sure, the pain being felt by expat investors has hardly gone unnoticed. As reported here in May, regulators just about everywhere have responded to the unprecedented losses realised by millions of unsophisticated retail investors during the recent global financial crisis by overhauling the way investment products and services are sold.
In the last few weeks alone, both the United Arab Emirates and Labuan, Malaysia have unveiled plans to boost advisory standards.
Deen Sanders, chief professional officer for the Financial Planning Association of Australia, told International Adviser in May that the global regulatory overhaul was a delayed response to a need that few regulators saw developing until the financial crisis brought it to the fore.
“Countries around the globe, including many newly-emerging Asia Pacific financial centres, have found themselves having to deal with very complex financial products being made available to consumers, without any traditional regulation, or even long-evolved sense of market structure and market integrity that, say, New York, London and Australia have had,” Sanders said.
Regulators had begun address such concerns prior to 2008, but the financial crisis focused attention on the need to act swiftly, he added.
In the meantime, though, individual investors like Philby are facing years of hardship, as they wait for their investments to recover. And like him, many of them are not prepared to accept their fate without a fight.
This is one reason so many have turned to the internet, where websites with names like “PissedConsumer.com” and “BrokerCop.com” are enabling them to express their frustrations.
James Dunlap, the Atlanta, Georgia-based lawyer behind BrokerCop.com, says websites like his can be a force for good, as they will help to ensure that business dries up for inept and/or unscrupulous financial services providers, and goes instead to good and conscientious practitioners.
“Avoiding a bad investment in the first place is infinitely cheaper than trying to undo the harm afterward,” says Dunlap, who launched the website at the end of June, after decades of representing clients whose brokers, he says, are normally protected from negative publicity by the existing US system for dealing with investor complaints.
Not so simple
Some advisers and representatives of the financial services industry, meanwhile, challenge the idea that there are significantly more unhappy clients of advisers in the international space than was the case four or five years ago, or that poor quality advice is to blame for all, or even many, of the investment losses advisers are getting the blame for.
What is sometimes forgotten, they say, is that clients often ignore the sensible advice they are given, and insist on investing far more than they should in highly risky, speculative investments that have done well in the recent past.
Such investors are said to be driven to ignoring common sense by a variety of emotions that ideally are best left at the door when investing large sums of money – including greed, a false sense of being the next Warren Buffett or Neal Woodford, or, as Colorado Springs, Colorado adviser Craig Evans Carnick, of Carnick & Co puts it, “the sudden realisation at age 50, 55 or 60 that they are not where they feel they ought to be financially at this stage in their lives”.
“They may have seen their portfolios decline, or their businesses fail, and they start getting desperate, and willing to take a higher risk,” he adds.
Among those calling for a sense of perspective is Paul Stanfield, chief executive of the Federation of European Independent Financial Advisers, the advisory trade group.
While his organisation is “aware that some sections of the expat population are particularly disaffected” by the recent global downturn, “we haven’t been alerted to any significant increase in complaints recently,” he says.
Stanfield adds that he would not be completely surprised to hear that an increase in unhappiness had been experienced in some quarters, but he says that in these situations, it is likely to be due to a combination of unregulated and poorly-monitored advice “allied to issues that have arisen due to the global economic conditions”.
“The public is likely to become increasingly vocal with regards to the former, particularly in a world where views can be expressed and shared so easily via online media,” he says, “whereas the latter has created major liquidity issues, which has adversely affected most asset classes in one way or another, and some assets and investment strategies in particular, such as property funds.”
Tomorrow: Experts suggest ways of dealing with the problem of the ‘spank shop’