Updated: Feb 12
To make the best investment decisions possible, any investor MUST identify all of the above, otherwise the investment being made is no better than a “stab in the dark”. Paul Overy outlines the questions you should ask investment salesman to ensure you have the information needed to make the best investment decisions for you and your family.
The reason so few of us know the answers to the COST & RISK question is that, for the most part, we are SOLD investments by agents of the product manufacturers. These “independent advisers” are being paid to SELL us pre-packaged products, into which are, before you are asked to buy, enshrined the institution’s and the salesmen’s profit, placing your profit in no better than third place.
Recognising advisers as salesmen, you can surmise that it is NOT their job to explain all the COSTS, nor all the RISKS for that matter, as neither helps sell the product. They will focus almost exclusively on the BENEFITS. Thus, it is up to you to either seek out a truly independent adviser (like me), who will charge a fee and allow you to access the investment without most of the COSTS, or to arm yourself with a set of questions to be asked before you make any decisions.
The questions I recommend are:
What are the maximum returns possible from this investment and what evidence can you provide that proves this potential? – While the past performance of any fund being offered is informative, most past performance figures DO NOT include charges and so what you want here is an example of a real investor, who invested for a period of time and who received back more than invested. If this cannot be provided then, other than in brand new funds that have no history, I would suggest avoiding the investment being offered.
What are the maximum losses possible from this investment and what evidence can you provide to prove your answer? – Knowing both the maximum positive and negative returns possible clearly demonstrates the RISK being taken and will allow you to avoid investments that promise high returns (which are always attractive) but often have the potential for 100% loss too.
How much of the amount I invest reaches the investment fund and what will be the value of my investment the day after I invest? – This will give you an indication of the up-front COSTS being levied and will also allow you to manage your own expectations as any future positive returns will not be on the total investment, but on the net amount after initial charges.
What is the Annual Management Fee (AMF) and how will this impact on future returns? – Let’s imagine the AMF is 1.5% and the maximum potential return being suggested is 6% per annum. What you want to see is a quotation that estimates the future value of your investment if 6% per annum was added to your investment amount and then, what will be the estimate based on a 4.5% per annum return too. Comparing the results will clearly show you the impact of the AMF COST.
What is the investment term and are there any early redemption charges and, If so, what will they be? – While if you are investing in, say, a property, the investment term is up to you, most fund investments come to market either with fixed terms and/or early redemption charges, with the latter often used to hide up front charges from investors. So, for example, you ask the third question listed earlier and are told 100% of your investment (and sometimes it might be even more, as extra allocations can be added for larger investment amounts) is allocated, you may think there are no charges. However, such funds will typically come with these early redemption COSTS, which will fall away as years pass. So, you may be told the early redemption costs in year one are 5%, year two are 4%, year three 3%...etc and now you know the up-front COST in this example is “5%”.
What taxation will be paid if the investment delivers positive returns? – The success of any investment can only be judged based on the amount of future gain you get to KEEP and so having this question answered means you will know the COSTS of investment success. Some funds have internal taxes, some are subject to Income tax, others to Capital Gains Tax, while still others can be completely tax-exempt. This means that taxation could be as low as 0% and could be as high as 52% (income tax, plus PRSI, plus USC) and, of course, the tax charged changes the end result. You need to not only know this COST, but also need to ensure you do not choose an investment that exposes you to more taxation than you need to pay.
So, there you have them, questions that will allow you to truly identify all COSTS and RISKS (I have ignored benefits as the salesmen are usually very proficient at outlining them) of any investment you care to consider. One last piece of advice, make sure you get the answers “in writing and on the letterhead of the adviser/institution SELLING the product” as Ireland’s Financial Regulator has but one mantra: -
“If it isn’t in writing, it doesn’t exist”
If you would like to discuss the above further with Paul, he is happy to meet any prospective client on a “no foal, no fee” basis. He will follow up preliminary meeting with an outline of the services that can be delivered, their costs and benefits, in writing If any product/service does not deliver the promised benefits, he has a fee refund guarantee
Call Paul on 086-4103638 or email him at firstname.lastname@example.org