Picking your financial advisor

Since the collapse of Towry Law just over a year ago, Gulf expatriates have been understandably wary of Independent Financial Advisors.

Towry Law came with what seemed an almost blue-chip pedigree, and its associates were often seen dashing around business group functions and in the best of company. Unfortunately a couple of the funds that it recommended turned out to be complete duds, and one an out-and-out fraud.

Now it may be that Towry Law and its associates were entirely innocent and acted in the spirit of the best available information. But it is clear that they still let their clients down with advice that proved to be, at best, very poor.

This has made life hard for other IFAs, struggling to help expatriates to handle their wealth efficiently. As this column has noted in the past the IFAs of the Gulf are very lightly regulated, and this always leaves temptation for the unscrupulous.

IFAs not all bad

But that said, provided that the actual investment companies recommended by an IFA are sound - your money should be safe. However, you should always be careful to check on the true level of commissions paid to the IFA, for in the securities business IFAs are known for the highest cost of sales with payments from the investment house to the IFA still common.

Savings plans, for example, sometimes pass the first year of 'savings' back to the IFA, and the client merely enjoys say 14 instead of 15 years of investment.

For most people, the international banks probably still offer the best option as a financial advisor. These banks operate in a highly regulated environment, and have a big reputation to protect. Thus out-and-out fraud is virtually unknown, and your only risk is the risk of the investment you make.

Wealth Management

The banks have also done a lot of work in recent years to enhance their own Wealth Management operations, which used to be rather secondary considerations. Now there are generally several tiers of advice available, depending on the amount of funds for investment.

It is remarkable how people who spend a great deal of time working very hard to create a 'nest egg' then rush to invest with the first person or institution that they come across. Rather like marriage, investment is something you may do in haste and repent at leisure.

However, sticking to known brand names, diversification and taking a conservative, long-term approach to saving, is the only guaranteed route to financial independence.