Getting Quality Financial Advice is Hard, But Even Harder if you’re an Expat!
Being an expat means that you live and work in a country other than the one where you were born. Despite this label, you are the same as everyone else — You derive some sort of income, you seek to manage that income to meet your current needs, and you put money aside in savings and investments for future needs, for example, retirement. Admittedly, not everyone is very good at all these tasks and not everyone tries equally hard, but let’s assume that if you’re reading this article, you’re at least trying to do the best you can.
In this article, I’m going to address some of the difficulties you might have as an expat in getting quality financial advice. Firstly, we’ll look at why getting quality financial advice is hard for everyone. Secondly, we’ll look at some additional barriers that make it hard for expats to get quality financial advice, and finally, what you can do about these barriers.
Why getting quality financial advice is hard for everyone.
The first reason why getting quality financial advice is hard for everyone comes down to people asking or caring about the wrong things. The wrong thing is to equate financial advice with investment tips. Asking, “Should I invest in Tesla stock?” or “Should I invest in ETFs or individual stocks?” will get you opinions. But opinions do not equate to quality financial advice. What you need is a financial plan. A quality financial advisor will ask you questions about your financial goals, investment time horizon and risk tolerance, etc. To manage your money well, you need to manage individual investment decisions in the context of an overarching plan.
Even if you know the right questions to ask a financial advisor, the second reason why you might not get quality financial advice comes down to incentives. I mean the financial incentives of the financial advisor. Being a financial advisor is a job like any other, it’s a way to earn an income. By understanding how a financial advisor gets paid, you can better ensure that you get quality financial advice. The majority of financial advisors earn their income from the sale of financial products. This could be a commission for selling a financial product or it could be a bonus for meeting a sales target. In other words, the financial advisor is getting paid based on short-term sales targets, not for your long-term financial success.
Why getting quality financial advice is especially hard for expats.
Quality varies. The quality of education provided to financial advisors will differ from country to country. In one country, a degree together with specialized training may be required. In another country, a person just has to register themselves as a financial advisor and there are no education requirements.
Regulation varies. The standard of regulation of the financial advice industry also differs significantly from country to country. Whether a financial advisor has to disclose their payment incentives to you or whether they can suggest a financial product to you simply because it pays them the best incentive regardless of whether it is a good product for you, should not be taken for granted.
Product offering varies. I have lived in countries with sophisticated financial markets, where hundreds of financial products were available and easily researchable. I’ve lived in countries where there were only a few mutual funds or stocks available locally. Yes, the world has moved online but you may not qualify to purchase financial products in other countries and local financial advisors may not be able to advise you on products that they have not been trained on.
Language. A very simple, non-financial reason why it could be difficult to get quality financial advice as an expat is that you don’t know the local language.
You’re not an ordinary case. As an expat, you may one day return to your home country or move on to yet another country from where you are now living. Even if you are going to stay where you are for the long term, at the very least, your financial life is more complex than the average person who has lived in a single country their whole life. Financial advisors are not likely to have been specifically trained to advise someone in your specific situation.
Tax planning is complex when you’re an expat. Related to the preceding point, your tax situation is also more complex than for the average person. Unless you find a financial advisor with a very unique skill set, they are likely not knowledgeable enough to give you tax-efficient financial advice.
You may be walking around with a $ sign on your face. I know it’s a sensitive topic but as an expat, you might find yourself in a situation where your perceived wealth as an expat can make you a target of the unscrupulous. This is a topic that we all have at least one story about. It’s hard to know when you’re being taken advantage of but be aware that there will always be those that try.
What can you do about it?
# 1 Educate yourself! The single most important thing you can do to ensure you get quality financial advice is to educate yourself. I’ve said it already — your situation is unique and the likelihood that you’ll find a financial advisor who can advise you according to your specific situation is incredibly low. Read and absorb as much financial information as you can. Build your awareness about financial products and tax issues so that you can assess the advice you’re being given. Educate yourself so that you are empowered to make your own decisions.
#2 Plan before you buy. As the saying goes, “measure twice, cut once”. Don’t start falling for salesperson tactics and start buying investments before you have a clear, overarching financial plan. Then, before you buy any financial product, make very sure that the product falls within this plan and that it will get you closer to your goal.
#3 Find out how things work in your location. You need to be prepared to ask tough questions about how financial advisors in your location are compensated for their work, what educational requirements and certifications exist, and how financial advisors are regulated. Regarding compensation, financial advisors generally fall into one of three categories i.e. fee-only advisors who charge their clients a flat fee, hourly rate, or a percentage of the funds they manage for you. Fee-based financial advisors also charge you for their services but earn commissions or fees from the products they sell in addition. A commission-based financial advisor won’t charge you anything but will earn their money from the financial products they sell you. In addition, there are two types of regulation standards applied to financial advisors. When financial advisors are held to ‘fiduciary standards’ in regulation, they are required to put their client’s interest first, even when it may conflict with their own (i.e. compensation). In other cases, financial advisors are only held to a ‘suitability standard’ which means they are required to propose financial products to you that are suitable but not necessarily the best. For example, if you want to save for retirement, a financial advisor can steer you toward any retirement product that is suitable for your needs and pays them a high sales commission even if it isn’t the best for you.
#4 Don’t ignore financial planning and investing because it’s hard. It’s OK to feel overwhelmed and not know where to start. But it’s not OK to do nothing. One small step you can take to start is to build up an emergency fund with 3–6 months’ worth of living expenses in a savings account so that you have a cash buffer in case anything untoward happens. Then make sure you are living within your means so that you have a surplus with which to start working towards your financial goals. These two steps can keep you busy for a few months while you start educating yourself and deciding on future steps to take.
