“I couldn’t understand why their financial advisor recommended that fund!”

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JUST AS we were expecting to be winding down for a long hot summer, Chorus has experienced an influx of people coming to see us to have their existing investments and pensions reviewed.

One such gentleman, we’ll call him Mr Smith, had a feeling all was not right with his portfolio.

Around 18 months ago, Mr Smith’s advisor here in Spain had recommended he sell all the funds in his portfolio and buy a fantastic ‘exclusive’ fund his financial advisory’s company now had access to. To gain access to such a special fund would cost Mr Smith 5%, but Mr Smith was assured it would be worth it.

Eighteen months later and Mr Smith hadn’t even covered that 5% entry charge, and despite strong markets his portfolio has gone down in value. So, what had happened?

One tool I use to research funds is a website called Trustnet. This is the world’s largest independent analyst of funds, and always a good place to start if you want to do a little research yourself.

This ‘fantastic’ fund Mr Smith had had his retirement pot put into was in fact number 295 out of 314 funds in that particular fund class… so in the worst 6% of funds available!

Whilst the benchmark fund in that category had returned 45% over five years, this particular fund had only returned 14% over the same period. It also carried a risk factor around 20% higher than the average fund in this class, meaning the client had been taking 20% more risk to make less than a third of the returns.

Even worse was that this fund was costing a whopping 2% a year, with the average fund cost in that category around 0.5%. I just couldn’t understand why their financial advisor had recommend that fund!

After our meeting, I decided to call the Fund-house offering this fund to find out what possible reason Mr Smith’s current advisor had for recommending such a fund.

It turned out that all of the 5% entry fee had gone to Mr Smith’s advisor, and that of the 2% annual fee, half was being paid as a hidden ‘trail’ to Mr Smith’s advisor each year. This practise is illegal in the UK, but sadly still practised by the majority of firms out here in Spain.

I explained to Mr Smith that Chorus clients benefit from truly independent advice, and that when we choose funds for our clients we promise to never receive any fee from the fund provider.

This means that our choice is based purely on the very best, most appropriate funds for our clients from thousands available worldwide, following extensive research, rather than one or two ‘in-house’ options that offer incentives to financial advisors.

If you are currently considering an investment, including a pension transfer or Spanish bond, or would like a second opinion on an existing investment or pension, please call me on 664 398 702 or email s.kelly@chorusfinancial.es.

• Chorus Financial is a trading style of Tourbillon Limited, authorised and regulated by the Financial Services Commission (Gibraltar), licence Number FSC1118B and registered with the UK FCA, ref. 539348.

 

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