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The smart investor

10:48 17/10/2013
What to look out for when considering independent financial advice

Dealing with everyday financial matters takes time; learning about tax structures, pension planning and investments even more. As an expat, you may have a look to financial advisors or a bank for help, and it’s worth spending time finding the right support. A good financial advisor will make your life a lot easier.

An advisor’s job is to determine your investor profile and get a picture of your financial situation. Afterwards, he’ll prepare a detailed, personalised plan and provide suggestions on the best way forward.

There are two principal types of advisor: fee-only and commissioned. Fee-only means he receives compensation directly from the client for services delivered. Most charge a percentage of the assets managed. A commissioned advisor, on the other hand, acts as a broker and gets commissions on the investments the client makes through him.

In principal, the advantage of a fee-only financial advisor is objective advice. He should have a better knowledge and overview of stocks, bonds, mutual bonds and other investment possibilities than you have, and select them for you in an unbiased way. Fee-only advisors have a responsibility to choose investments that are in your best interest: the only thing that should be at stake for them is that you are a satisfied customer.

Commissioned financial advisors typically work for or with major financial institutions and can therefore make use of their facilities and specialists. But to receive this support, they have to provide the institution with revenues. As the advisors generate their income by trading commissions on the fees the client pays every time an investment transaction is made, there is a potential conflict of interest.

An alternative is to entrust your financial matters to a ‘family office’: a private company that manages investments for only one or a limited number of wealthy families. Clearly, this is not suited to everyone’s budget.

A relatively recent option is the online investment broker, who offers a platform to self-directed investors. It can be very efficient: such a platform allows you to carry out the transactions yourself, provided you know where to find the information to base investment decisions on and have the time to keep up-to-date on the best ways to invest. This service is limited to buying and selling shares, typically with no planning services available.

 

Know your needs

So, how can you obtain the management you want, including objective planning information tailored to your needs? First, you have to know what you want and what you need. A Belgian bank account will make your day-to-day banking a lot easier during your stay. Some banks even offer multi-currency accounts and allow international payments in multiple currencies.

Organise your savings on a regular basis: you can ask for an automatic transfer of a fixed amount to your savings account each month, or have the balance that exceeds a certain amount automatically transferred to your savings.

As interest rates are at an all-time low, the idea of getting rich via a savings account is unrealistic. Today, you should be happy if the return keeps up with inflation, and investment funds might boost this return. Most large banks have a range of investment funds that cover all regions and all sectors.                                                                                                                             

Banks who take the investor seriously also offer non-proprietary mutual or investment funds. They offer third-party funds, or investment funds developed by an external asset manager. That way, they can fill the gaps in their own portfolio and enhance the overall quality of their investment products. You can build a portfolio of these investment funds, in line with your appetite for risk.

 

The right timing

When is the right time to buy an asset? It’s too easy to say you should buy when the rate is low and sell when it’s high. You need a crystal ball for that to be successful in the long run. To make sure you don’t buy at too high a price, you could apply the same system to your investments as many do to their savings: invest the same amount every month. On a yearly or a more long-term basis, you will pay the average price of the inventory value of the funds you’ve invested in. It’s also important to know your investment horizon. If you need the money you invest in within a year, you may take a lot of risks.

To be fully aware of what happens in the world of investments, you should read the financial press and interact with experts. That’s a bit tricky – there are after all only 24 hours in a day, and the financial press doesn’t always present a united opinion. To comply with a key rule of the investment theory – diversify for less risk and a higher return over time – you could also consider an investment fund, which invests in many assets; several investment funds investing in many assets of different economic sectors or regions; or even in a fund of investment funds.

This last fund lets investors achieve diversification and an appropriate asset allocation with investments in a variety of fund categories all wrapped up into one fund. These are quite rare, but could be worth exploring. You invest globally, with investments spread between bonds and equities, regions and sectors so you can capitalise on economic trends. In fact, this kind of fund can put the whole investment strategy of the organising bank in one single investment product. A fund of funds combining several asset managers provides instant diversification.

This is just a taste, and by no means an exhaustive list of all the possibilities. Direct investment in real estate is also an option, as are gold and other raw materials, hedge funds and themed investments such as green, sustainable or social initiatives. Many of these can also be covered through investment funds.

 

This article was originally published in Expat Time, Spring 2013

Written by Katrien Wandelseck and Dave Deruytter

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