Beware of self acclaimed "Wealth Managers".
Beware of self acclaimed "investment counselors".
Foreigners living here, as well as Thai people, for the most part remain confused about what they should be doing with their hard earned savings. Net after tax bank deposit rates remain at low levels, even less then inflation. At the banks "the principal and interest is guaranteed"; I would say more like a "guaranteed yearly loss". As currently inflation rates are considerably higher then local bank deposit interest earned. Small and large, all savers, not just Expats, remain anxious to achieve better long term rate of returns.
Many of you have seen the occasional advertisements in various newspapers on foreigners here calling themselves such names as investment planners, wealth managers, financial planners or some other such glorified titles. While they may have some good initial suggestions, as a way of legitimizing their service, the reality comes later. As one common example: "first, you should have a last will & testament". Soon after, a forced savings plan it highly advocated so to promote a group of packaged mutual funds and/or insurance related products, or a derivative of these two attached with a fancy name.
The Swiss, as just one example, have been known for promoting guaranteed annuity contracts around the world. These contracts are supposed to be all things for all people or "the holly grail" of savings. They are "guaranteed" and besides carry a Swiss name, so one is supposed to instantly & unquestionably trust them. BTW, the Swiss currency has dropped about 4-5% in value vs. the Thai Baht, over the past 2 years.
"The principal is never lost", they are quick to assure repeatedly. But it assumes the contract is kept to maturity or at least for a period of some years. Many then often have complicated formulas on any early withdraw options.
Some have additional sweeteners, example, the annual premium is paid if the client can prove he/she is totally disabled. That’s fine, but check the small print: like what is the true definition of "totally disabled"?
In practice there are just too many variances that can go wrong or end-up surprising. What some such plans provide is not much more then a death benefit along with a below average rate of return on capital, over the many years. (And if the promised death benefit is only paid in a case of an accidental death, it should be least valued). Life insurance is fine -but not in disguise; let’s not confuse it with the real thing: a competitive & rewarding, high yielding long term savings plans with no early withdraw penalties.
In the US there are strict definitions on what may be called savings and deposits, vs. instead of what it is, namely "premiums". This is due to much historical abuse on reps. calling themselves investment experts, when in fact they are promoting a (often hidden) commissioned insurance or annuity product.
A few such "investment experts" advertise in printed publications and then actively solicit expats to "invest" in so called "smart or guaranteed savings plans"; but are these just life insurance policies in disguise? Don’t kid yourself, the added side benefit of insurance, is always paid for by the client. In most cases, it shows-up by a rather meagre long term investment return.
Further, cashing the plan out before the end of the contract, or say within the first 3-5 years, can result in various stiff penalties. After all, the commissioned sales/insurance rep. had to get paid, right? So investor beware, stiff penalties can apply for early redemptions.
These contracts/plans should not be called -or advertised as - savings "programs" or "deposits" because this is misleading. Of course there is a great variety of such plans. Fancy names and features seem always a part of the marketing. Many work in similar uncompetitive fashion some have a death benefit, others do not.
To often these reps have little educational & practical background in finance or investments. Some may represent some good enough stock or bond funds, but often they have unique features attached to them which make them expensive or commission loaded.
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Consider… Capital earning interest at a low rate of say 4% per year, will double its value in about 19-20 years. Capital accumulating at 8% doubles in value in only about 7-8 years. Hence, "getting all your money back, while the insurance is free" 20 years later, is in fact, a horrible long term rate of return. It cost you dearly. Many such schemes are nothing but hybrid of both (insurance combined with savings) - and perhaps even not too much of either. Any way you slice it, this is a very expensive way to save. |
Then, there is another aspect to all this. In most countries insurance, annuities and other such other saving contracts must be registered with the state or government. This may not be the case here. Also don’t assume that policies or so called savings plans offered here are necessarily the same contracts as marketed in the company’s home country, despite having the same company name.
While some may be fine and perhaps even a touch competitive, I have not seen any. Web sites of these companies are often vague and unclear. These too often just camouflage & confuse their pitched investment product -with investment planning.
How can they compete? Global Bond yields are between 4-7% depending on the currency and country. Real Estate Investment Trust (REIT) yield at best 8% here in Thailand. Don’t forget these institutions must invest in the same stock/bonds/fixed income, real estate assets which are available to all of us, on global financial markets. And bonds and REIT’s in the EU or US$ currency generate smaller returns the in developing countries. So any promises on "guaranteed higher returns", with no hidden clauses & charges, are indeed "de facto’suspect.
These "wealth managers" are always highly skeptical on investing any amount in stocks because the world is just "far too risky". They live and strive on fear. Instead of encouraging investors to investigate all options and choose the most suitable for their temperament and wealth level, many such "investment experts" just push far too hard their own marginal contracts, so gaining high commission rates for themselves.
In the long run, as I have shown some in previous articles here, investing in value shares with high dividends has a proven very good track record over the past century, this as compared to other classes of investments. Impressive, because the past 100 years has been a very volatile period. (2 World wars, high inflation, currency & political volatility, terrorism, energy crisis, AIDS, Bird Flu etc.). Yes, there are many credible statistics on this. It’s a proven fact, stocks over time, beat just about anything else.
Back to these glorified "Wealth managers", here are some key questions you should ask:
What exactly will I get back (if anything), if I for whatever reason must stop paying/saving on this contract in the first 2-5 years?
What is the true rate of return on saving money consistently, and for many years, at a comparable guaranteed interest rate, vs. this advocated policy/contract’s actual guaranteed rate of return? As the difference is what your hidden or real costs truly are.
Is this contract the same contract as offered in the country in which the company is headquartered? Too often the contract has a great company name and reputation, but the contract sold in Thailand may be different then in their competitive & more regulated home markets.
Beware that these type of "savings/investments" list among one of the very top consumer complaints/abuses in developed economies. Too often the saver has not been told all the fine print.
As an investment professional in the securities markets, I point out with total conviction that a rational fully diversified stock portfolio, over some time, has historically again and again produced far superior results. The key is the word "guarantee". Stock investing is like life, there are no guarantees. But don’t let that "G" word, scare you into never getting above average returns. After all, we all cross the road everyday, even while there are no guarantees in life.
The challenge for some is to get beyond all the negative & inflammatory daily gossip and propaganda which the news report (and these commissioned sales people spread) and start opening the eyes that there are some great true investments to be had right here on the SET. But you must be pro-active and seek them out. And I regularly do.
And while no stock portfolio can ever give a guaranteed return, perhaps its better then a guaranteed yearly loss especially during the now more inflationary times.
Best Regards,
Paul A. Renaud.
