Historically low interest rates, inflation eating away at savings, questionable bank security and sometimes-complex tax regimes have all increased the need for professional financial advice in expatriate communities. With many companies purporting to offer such services, to a better standard, and even claiming to have access to publicly unavailable solutions, it’s no surprise that people don’t know where to turn for advice.
With this in mind, below is a guide to some of the points that should be considered when choosing an International Financial Adviser, both at the outset and at regular intervals afterwards.
In Cyprus, CIFSA exists to promote and maintain the highest standards of ethics and professional conduct. More information can be found on CIFSA’s website, along with a list of member companies. Full Members are companies regulated here in Cyprus, and Associate Members are companies regulated in another EU territory. Non-EU regulated IFA companies are not accepted as members.
Since the accession of Cyprus to the EU, responsibility for regulating the International Financial Advice industry has passed from the Central Bank to ICCS (Insurance Companies Control Service)and CySEC (Cyprus Securities & Exchange Commission).
As a result of ‘passporting’ rights/legislation under IMD (Insurance Mediation Directive) or MiFID (Markets in Financial Instruments Directive), it is also possible that a company offering financial services is regulated in another EU member state.
Always make sure that the company you intend to deal with is properly regulated. This means that due diligence has been carried out by the authorities, certain legal requirements have been adhered to and the necessary qualification criteria have been met, and the appropriate operating licence has been issued.
It is also important to find out how easy it may be to deal with the respective regulator, and what scope and level of protection such regulation extends should the need arise. Broadly speaking, the strength/criteria of regulation in one EU member state should equal that of another, although this is sometimes difficult to ascertain. If the regulator is in a different country, it may be important to consider issues such as time differences, language and cost of phone calls. If a company is not locally registered, always ask why this is the case. Locally registered companies are locally committed and will meet locally required standards.
An informative, professional website clearly outlining what services are offered and what regulatory authority the company is subject to can help. Ask things such as:
- How long the company has been established
- How long the advisor offering services has been in Cyprus
- Will the company be able continue to serve you should you choose to move on
- How many clients does the company have
- Does the company have a fixed office address
- Are there support staff in the event of your adviser’s absence
Aim to deal with an individual who has been in Cyprus for some time or whom you genuinely believe has the intention to stay, so you can build an ongoing relationship with someone you trust and who knows your personal situation. Try to avoid advisers who you feel may not be around in the future.
Qualifications, CPD and Professional Associations
It’s surprising how much we take for granted the level of professional qualifications required of UK bank staff or financial advisers, particularly Independent Advisers. In the UK, the minimum would be a Certificate/Diploma in Financial Planning issued by the Chartered Insurance Institute (CII). Standards overseas can sometimes be lower, so ask the advisor what qualifications he/she has. You should be satisfied that your adviser has the professional competence to deal with your financial planning. Be sure to check for yourself; organisations such as CIFSA can help.
In an ever-changing marketplace, it’s important that your adviser keeps up to date with any changes that may affect you, whether it be market changes, legislative changes, or regulatory changes. It is reasonable to expect your advisor to undertake regular efforts to keep up to date by way of proven Continuing Professional Development (CPD).
Professional associations will often offer membership only to individuals or companies that commit to abide by a set code of conduct, maintain strict ethics and levels of professionalism, and always act on a ‘best-advice’ basis, meaning every effort is made to ensure that only suitable recommendations are made to clients.
In Cyprus, CIFSA membership shows a commitment to such standards.
There really is no substitute for experience. Some companies may operate models whereby an agent merely gathers details from the client, the ‘advice’ is provided by another authorised individual, and then presented by the original agent. This can mean that the person the client considers to be providing the service is neither qualified nor experienced. Ask what experience the adviser has, and how long he/she has been carrying out his/her role. Don’t accept ‘financial services’ as sufficient experience – ensure that the adviser has dealt with individuals in an advisory role. If the adviser is inexperienced, be sure that they have had experience of dealing with clients in conjunction with a qualified IFA supervisor prior to dealing with clients on their own.
Recruitment Due Diligence
You should be confident that the company your adviser represents has checked his/her qualifications and background, and ensured their legitimacy. Doing this independently is beyond the scope and responsibility of a client, but should be an absolute minimum for the advisor’s management team. Ask around, do some research – be sure you can trust the company as well as the individual.
Advice Based upon Individual Circumstances
One size most certainly does not fit all when it comes to financial planning. Whilst similar products or structures may often be used, any recommendation should always be tailored to the specific circumstances of each client. So, for example, if a friend whose circumstances are entirely different from yours refers you to an adviser, the strategy recommended to you should also be entirely different. Always ask your adviser to justify in writing how the recommendations made meet your objectives, and how they meet the goals set out in your initial meetings.
Transparency of Fees – Terms of Business
It’s true that many IFA companies work on a commission basis. It’s important to remember that an appropriately qualified IFA company will have carried out significant professional training and invested time and money into both the company and its members. For this reason, the commission factor should not deter you from consulting an IFA. Commission (versus charging a fee) can be justified provided that the IFA provides a continuing service.
All IFA companies should provide you with a Terms of Business document to ensure that you are aware of the scope of their services, advice, and charges prior to entering into any agreements. Many studies have shown a commission basis can often be more attractive (and cheaper) than a fee-paying basis. Commission rewards IFAs for their professional work undertaken after years of training and studying – commission should not be the reason you choose not to consult a good IFA.
Track Record & Referrals
Don’t feel awkward about asking your adviser how their previous recommendations have performed, and if they would be happy to provide any references or suchlike. It may be that you have been recommended to the advisor, so do ask those recommending about their own experiences. Equally, if you feel you have received a good service, then the IFA concerned deserves to be recommended to others; this ensures that IFAs maintain their good reputation and enhance the reputation of the industry, and could help other members of the public receive quality advice.
If in any doubt, CIFSA (www.cifsa.org) is here to help the general public and potential clients. The CIFSA board represents a large number of companies on the Island, has considerable experience in the financial services industry and is well placed to provide any guidance needed. CIFSA is a free service to members of the public.