Taken For A Ride – A cautionary tale of wealth-management  

Many expatriates may not feel comfortable placing their hard-earned income with Swiss investment advisors because of language or unfamiliarity with local customs. But relying on fellow foreign nationals operating out of Switzerland also has its pitfalls. Claire Doole explains how she lost a small fortune after being taken for a ride by a Lake Geneva-based British financial consultant – and how she was not the only one. On reflection, she believes, perhaps working with a respected Swiss bank or firm might have been the better option.

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Geneva — I gulped. My voice quavered as I took in the bad news. “Eleven and a half thousand pounds? I have to pay you eleven and a half thousand pounds whether I quit today or in 2019 – how can that be?”

The young man at the end of the phone paused – registering he was now dealing with a middle-aged woman on the brink – not of bankruptcy but certainly of losing her composure.

“Under the terms and conditions…” he began.

“But my financial advisor told me that there would be no surrender penalties?”

I was seeking to withdraw all my money from a financial product, whose investments made by my financial advisor had been an unmitigated disaster.

A second-life insurance bond, suspended by the UK regulator in 2011, had dropped in value by £12,000. I had just found out that another investment had lost 85% in value – losing me £27,000 in one fell swoop. And now I learned that I had to pay £11,500 pounds if I wanted to close the account.

How had I got myself into this mess? I had entrusted my savings to an advisor recommended by a friend and active on the Geneva expat professional networking circuit.

On his website he states that “trust is hard won and easily lost so ask friends or colleagues to share their experience” before appointing a financial adviser.

So I am sharing my experience so you don’t make the same mistakes and steer well clear of advisers like him.

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The town of Versoix on the outskirts of Geneva.

With the benefit of hindsight

 I should have seen the signs.

At our review meetings he was strong on the macroeconomics but weak on the micro. He could reel off the front pages of the Financial Times but was less able to provide me with a proper performance analysis. If an investment had dropped in value, it was always me who brought the subject up.

I accepted that every investment carried an element of risk, but as I started investing in 2009, when the markets were bullish, I should have been capitalizing on a period of growth.

The problem was I didn’t understand the statements I was getting from the financial product he had put me in.

He would tell me over lunch that everything was doing fine, and I blindly accepted his word.

I should have asked more questions. (And insisted the reviews were held in his office and not over lunch!)

I was told that my portfolio was diversified across different asset classes and geographic locations, but I didn’t have a clear idea of exactly where my money was invested.

We had agreed that my risk profile was balanced, but I didn’t think to question if the investments matched the profile. UBS later told me that the investments were far too risky for my profile and were invested in obscure funds that even they had not heard of. They were also not sufficiently diversified.

I also had not asked about surrender penalties – hence my shock that I was locked into the investment until 2019. I had not understood that every time I made an investment I was locked into paying establishing charges for a further eight years. I only learned from my adviser that they were high for eight years, but would drop afterwards when he was trying to persuade me to stay.

I should have been more proactive.

I should have double-checked everything the adviser was telling me with the investment company directly. When I did ring them they were very helpful, even if they were at that stage delivering bad news.

I should have asked my tax consultant to check how much I was paying in fees to the financial adviser and to the investment company. I only gathered too late that these fees had in any case wiped out my profits, regardless of the suspended and collapsed funds.

I should have insisted that he be more proactive.

I should have made him work for his fee and the 0.5% commission he was receiving from the investment company. I should not have waited for the annual review, but had an ongoing conversation about how my investments were doing.

I also took out with him a life insurance policy for my “third pillar” pension in Switzerland. I later found out that he could have advised me to raise my monthly payments when he saw the interest rates fall year on year. Instead, I kept on making large top-up payments at the end of every year at lower rates of interest.

I should have got a second opinion earlier.

Tipped off by a friend who had similar concerns I went to UBS for a second opinion. They advised me on the right questions to ask. As a result, I was told that a fund that was losing value was “under scrutiny”. Unfortunately, it was not scrutinized enough, as this was the fund that lost 85% of its value. I was not alerted by my financial adviser when this happened at the end of 2014, but discovered the bad news from reading my quarterly statement in March 2015.

 I should have asked friends who had invested with him about their experience earlier.

However, it is perhaps cultural that English expats don’t talk about money. And certainly not at all if they are losing it. Too much stiff British upper lip!

But I was soon to find out that I was not the only mug in town.

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Would Calvin have approved? Not the way to do business.

One born every minute”

 You may be thinking how could I have been so naive and make so many mistakes. I run a communications consultancy, which means I am much more at ease with words than numbers. As a busy person, I thought it made sense to pay someone for the expertise that I don’t have.

I am not alone. A couple that heard my story from a friend, immediately knew the financial adviser in question.

“He was charming but dim”, they recall,” putting us in a number of obscure and toxic investments,” My friend said the couple is financially savvy but that a number of years go they had lost a small fortune with him.

Other acquaintances have lost six figure sums and have wound up their investments. They do, though, have a better chance of recouping their losses as they hold well-paid jobs. It will take me many years and some wise investments if I am to make up the £45,000 I have lost so far – the equivalent of my final annual salary at the BBC.

Five questions to ask before appointing a financial adviser

 The website of my former financial adviser lists five questions you should ask before appointing a financial adviser. They cover regulation, experience, services, transparency and reputation.

With the benefit of hindsight, I would like to add five more: 

  1. Are they receiving a commission either paid out of your investments or from the company you are investing in? Could this compromise their independent and impartial advice?
  2. Is there an external and independent company checking that the investments made match your agreed risk profile? In the UK these companies exist as a check and balance.
  3. What is a realistic return on investment for your risk profile?
  4. How much will you be paying in charges from the financial adviser, the investment company and the individual fund managers?
  5. Are there any surrender penalties and how long do you have to be in an investment before charges drop?

And finally if a wealth manager fluttering his business card and offering a free consultation from his lakeside base of operations outside of Geneva approaches you, don’t be taken for a ride!

Claire Doole is an independent communications consultant, running training and video production services in Geneva.

www.doolecommunications.com

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