Real Estate vs. Diversified Portfolio

By Jozef Spiteri
This article is published on: 26th April 2022

26.04.22

Owning property is important to many people and is probably one of the first goals of young adults once they enter the working world. People in their twenties and thirties usually make their first real estate purchase for residential reasons, sometimes renting a room out to generate some extra income. When people enter their mid to late forties, especially in Malta, they tend to start considering purchasing more property, this time as rental investments. This is what I will be looking at more closely in this article.

In the past, the main aim of people entering the latter end of their working lives was to accumulate as much property as possible to be able to live comfortably off the rental income generated. That doesn’t sound like the worst idea in the world, especially if you have the means for it. The more property one has, the more income is coming in and the risk of being caught out with periods of no rental income decreases. A question no one seems to ask though is, “What return am I really making?”

This is a question I have been asked quite a few times, and I will make use of a numerical example. Imagine someone has €1,000,000 laying around to invest in property. This could potentially be enough to purchase 4 apartments valued at €250,000. Assuming this investor has these apartments rented out all year round on a long-let basis earning him €1,000 per month each (€4,000 total), the annual return made would be 4.8%. This is assuming there are no months where an apartment is vacant and not taking into consideration maintenance costs and taxation; which means the net return can be substantially lower.

Is there an alternative though? One solution to the real estate approach is building up a portfolio invested in a diversified selection of assets. Such portfolios include property too, but they also allow exposure to many other asset classes which will help increase returns. The advantages of such an approach do not stop at the increased returns. Clients will not have to deal with the headache of maintaining their investment as they will have investment managers doing that for them. Another plus is that investment portfolios are more liquid than real estate and investors can take money when needed, leaving the rest of their funds in the portfolio to continue growing for them.

If you are interested in having a discussion and need some guidance on what your next steps should be, feel free to reach out to us. All our first consultations carry no charge and there is no obligation to proceed further.

Inflation in Spain

By Jeremy Ferguson
This article is published on: 26th April 2022

26.04.22

Life just seems to be getting so much more expensive nowadays.

Over the last few years we have seen a quite incredible chain of events unfold. Covid reared its ugly head, and caused a massive change in the way in which we live and travel. During this period of lockdowns and people working from home, spending habits took a massive turn. No one had the chance to go out and spend money in bars and restaurants, go to the cinema, or take weekend city breaks to name but a few.

When things started to go back to normal, we saw big supply chain issues coming to light. Microchips for cars meant new car deliveries became more and more delayed, pushing up the price of second hand cars. Demand for consumer goods for the home, having gone through the roof, also meant the cost of these items started to rise.

Many companies wound down production during the covid period, and then all of a sudden were caught short by the sudden surge in demand. You can argue this happened in the fuel industry, as we saw panic buying and massive queues in the UK at petrol stations.

Then, just as we started to look for a hint of normality, with people slipping back into their old spending habits, the war in Ukraine started, immediately hitting the price of fuel, and the one that surprised me, sunflower oil!

All of these factors have meant that the cost of living for all households is increasing at an alarming rate, inflation is with us again, having been dormant for quiet a while. The one that has really hit most people here in Spain is the increasing cost of Electricity. In December the cost rose from its lowest point by almost 500%, something I have no living memory of happening before. For many people, that is creating a huge dent in their disposable income each month.

Most people I deal with are retired or semi-retired, with their income generated by drawing down from their pensions, and then normally substituting it with drawdowns from Investment Portfolios and cash savings. At this stage of their lives, I believe in most circumstances fear tends to be the driving factor behind their Investment decisions, as protecting the money far outweighs trying to get too high a return each year. That makes perfect sense as income streams during retirement have typically ceased, so the ‘pot’ needs to be looked after carefully. Making plans for how long your funds will last is easy to a degree, when the cost of living simply increases a little each year, but now, with the way things are, the plans that previously seemed sensible will certainly need a bit of a shake up.

If interest rates rise as predicted, then maybe people will be able to look for their cash in the bank to increase in value by earning some interest, but that is something none of us can predict at the moment. If inflation continues at today’s current levels, many people will either have to change their lifestyle, or look to try and increase the annual return on their savings, but by doing that, it typically involves taking more risk, which is completely against where people normally want to be at this stage of their lives.

With the changes we are seeing with outgoings, Investment returns, interest rates and inflation, it has never been more important to spend time regularly looking at financial plans, and adjusting assumptions to make sure you have a realistic handle of how things will look going forward. It’s not rocket science, and I am here to help if you find it all a little daunting, so please free to get in touch via the form below or please email: jeremy.ferguson@spectrum-ifa.com

Sustainable & Ethical Investment funds in Spain

By Chris Burke
This article is published on: 25th April 2022

25.04.22

More and more people are contacting me regarding sustainable investments in order to understand the choices available, whether they offer a good return on your investment and would you get any more return if you didn’t invest sustainably/ethically? We all know the planet needs our help but we also want to know that our hard-earned monies are working for us – it can be a difficult emotional trade off.

Sustainable & Ethical investing has hit the world by storm over the last few years. By the end of 2019, professionally managed assets using sustainable strategies grew to $17.1 trillion, a 42% increase compared to two years prior, according to the U.S. SIF Foundation (2021). The organization also estimated that $1 out of every $3 under professional management is now invested under ´´sustainable practices´´.

Recent studies have also shown that Sustainable Investment funds, as well as providing ways to invest responsibly, provide both financial performance and lower levels of risk. For this reason, in part, many deem including sustainable investments in their portfolio is a ‘no brainer’.

Let’s say for example that you are in the market to buy a new dishwasher. You’ve analysed several products and have narrowed your choice down to the last two. Both products cost the same amount and wash dishes equally as effectively, yet one of them uses less electricity and is considered safer due to the addition of extra safety features. Which one would you pick?

When comparing the returns of sustainable funds and traditional funds, is there a financial trade off?
A common belief held by investors when comparing mutual funds that are performing to a similar standard is that the one with a sustainable investing model may not perform as well. However, a Morgan Stanley (2019) report has debunked this myth. The report analysed the performance of 10,723 mutual funds from 2004 to 2018 and found that the returns of sustainable funds were in line with comparable traditional funds, stating that ‘there was no consistent and statistically significant difference in total returns’.

When comparing the levels of risk of sustainable funds and traditional funds, is there a trade off?
The Morgan Stanley (2019) report found that sustainable funds experienced a 20% smaller downside deviation than traditional funds, a consistent and statistically significant finding. In years of higher market volatility (such as 2008, 2009, 2015 and 2018), sustainable funds downside deviation was significantly smaller than that of traditional funds. The study took an in-depth dive into in the last quarter of 2018 during which we saw extreme volatility in the US equity markets. Despite negative returns for almost every fund, the median US Equity sustainable fund outperformed the median US Equity traditional fund by 1.39%, and also had a narrower dispersion.

These findings may come as a surprise to many. There is a general consensus amongst investors that by investing in sustainable funds, you will also miss out on financial gains. The research based on concrete evidence of market performance over the past few years suggests that this is not the case, and that there is in fact no financial trade off when investing sustainably. Over the forthcoming years, I believe that the adoption of sustainable investments will continue and that we will continue to see the opportunity gap between investor interest and adoption narrow.

If you would like to speak with an expert on Sustainable and ESG Investments, Chris Burke is able to discuss with you the new investments in this area. Chris is also able to review your current pensions, investments and other assets, with the potential to make them more sustainable moving forward.

If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or click the button below make a direct virtual appointment.

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Sources:
“Sustainable Investing Basics, 2021,” US SIF Foundation: The Forum for Sustainable and Responsible Investment, https://www.ussif.org/sribasics. Accessed March 24, 2022
“Sustainable Reality – Analysing Risk and Return of Sustainable Funds, 2019,” Morgan Stanley, https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf. Accessed March 24, 2022

Financial adviser in Portugal

By Mark Quinn
This article is published on: 19th April 2022

19.04.22

“British expats, your financial adviser may well be a bandit!”, this was the title of a 2016 article by Jason Butler in the Financial Times. He painted a depressing picture of the state of the advisory market for expats and some of his key observations still hold today.

So what are some of the issues you need to be thinking about when you are seeking a Financial Adviser in Portugal?

Fees
One of the main points from the FT article was the importance of focusing on fees and charges. Butler states that unlike the UK, which abolished commission in 2012, many expat destinations suffer from “eyewatering expensive financial products laced with enormous commission payments”.

It is therefore important to have a clear understanding of what you are being or will be charged, and importantly that these are fully disclosed. This is something not all advisers have done and is fast becoming an issue for them as a result of the MIFID II directive which is forcing them to disclose their charges.

Qualifications
The other area of focus was on qualifications, with Butler citing a lack of qualifications in general. In fact, in Portugal, there is no minimum qualification requirement so in theory, anybody can set themselves up as ‘advisers’.

In the UK, the minimum standard to advise is ‘level 4’ but the gold standard is ‘level 6’, which is Chartered status. These higher qualifications are awarded by the CISI and CII (UK) and the average pass rate for the Chartered status examinations was just 56% in 2020.

You should also seek advisers who are tax qualified, or at the very least work with a firm or individual that is, and who fully understands cross-border issues. This is important given the relatively complex nature of expats’ financial affairs.

Download my financial guides to living in Portugal

So, why might you need a financial adviser?
If you are considering setting up or reviewing a complex structure such as a pension or investment, looking to put inheritance and succession planning in place, or restructure your affairs for tax efficiency, you should seek professional advice so you do not end up with something that is unsuitable or has unforeseen negative implications.

Your adviser’s role is to help you achieve your objectives by advising you on the best course of action to take and if necessary, research the market to find suitable structures that can be tailored to your personal situation.

How to choose your adviser and advisory firm?
Firstly, you should shop around and meet with several advisers to discuss your circumstances. Advisers will usually offer an initial discussion free of charge and this will give you the opportunity to evaluate them, their firm and gauge if you can work together long term.

Some initial questions you should be considering are:

Is the firm regulated?
Are they able to offer impartial advice or are they restricted in what companies and products they can offer due to exclusivity agreements?
Do they have indemnity insurance?
Is the adviser qualified? If so, to what level?

You should also do your own research but bear in mind, some firms are known to remove any negative reviews from the internet.

What if you already have a financial adviser in Portugal?
David Blanchett, the head of retirement research for Morningstar Investment Management, wrote the following for the Wall Street Journal in February 2020, “the adviser-and advice-who was a good fit for you 10 years ago, may no longer be a good fit now. Even if you have no major complaints about the service you have been getting, it is a good idea to ‘shop around’ every few years. You may not realize that you are missing out on better advice or costs until you do a comparison. Conversely, you may reinforce that the adviser you have still is the best fit.”

Where am I resident and where should I be paying tax?

By Mark Quinn
This article is published on: 12th April 2022

12.04.22

There is a lot of confusion around the difference between residency, tax residency, Non-Habitual Residency and domicile so this week I will try and cut through this complexity.

Legal residence
Legal residence is the right to reside in a country. So, if you are an EU citizen, you have the automatic right to reside in any other EU country without the necessity for a visa. If you are coming from outside the EU, you must apply for a visa to establish your residency rights.

Legal residence is important as it determines how long you are allowed to spend in a country and your right to benefits such as healthcare and social security. Legal residence however does not impact or determine your tax status.

Tax residency
Generally, tax residency is determined by your physical presence in a country and Portugal, along with many other countries, uses the 183-day rule for determining tax residency.

Understanding your tax residency is important because it determines which country has the taxing right over you and can avoid double-taxation issues when you have links to more than one jurisdiction.

It is possible to have legal residence in Portugal, but not actually be a tax resident e.g. if you have the right to stay in Portugal but you do not spend enough time in Portugal in a given year to be considered tax resident.

Non-Habitual Residence (NHR)
NHR gives successful applicants a special tax status in Portugal for 10 years, but its name is somewhat misleading, as you must be a resident to apply for it.

‘Non-habitual’ actually refers to the requirement that you must not have been resident in Portugal in the 5 years prior to application, so it is aimed at attracting new people to Portugal.

Domicile
Domicile is something that is often confused with residence. It is a very complex area, but the very loose definition of domicile is ‘where you are considered to originate from’. It is a common-law concept and is most likely to be a consideration for British nationals, individuals married to British nationals, or those who are not British but either hold assets in the UK or spend a considerable amount of time in the UK.

Your domicile does not affect your income tax position in Portugal but it can have tax implications, most notably UK Inheritance Tax. (We will elaborate on domicile in next week’s article).

Myths

Many people are under the misconception that, as long as they are paying tax somewhere, they are meeting their obligations but it does not work that way. It is crucial you have a clear understanding of where you are resident to avoid being taxed in more than one jurisdiction
Registering yourself in Portugal does not automatically make you a tax resident. It is determined by your physical presence, so it is important to check your tax residency every tax year, as it could change
Your nationality or citizenship does not change by coming to live in Portugal and becoming resident, although you do have the option of applying for Portuguese citizenship after 5 years

Planning

Have a clear understanding of the tax residency rules of the country you are leaving. e.g. you can be tax resident in the UK by spending as little as 16 days there, or if leaving Spain a presumption of residence can remain if your family or your economic interests remain there
Prior to departing your current country of residence, utilise any remaining annual allowances and pension contributions, consider reorganising your affairs via inter-spouse transfers, and unwind any structures free of tax that may otherwise be taxed on arrival in Portugal
It may also be possible to create periods where you are not considered tax resident in any country or establish residency in another country prior to moving to Portugal for tax planning purposes

Mark Quinn is a Chartered Financial Planner with the Chartered Insurance Institute and Tax Adviser, qualifying with the Association of Tax Technicians.

Download my financial guides to living in Portugal

Measuring investment performance

By Mark Quinn
This article is published on: 11th April 2022

11.04.22

There are several different ways of measuring your investment performance, and I will run through some simple tips to allow you to dig deeper into your portfolio.

Firstly, do not forget to factor in fees such as adviser and management fees and structure costs when looking at returns. I have seen the cost of some investments run as high as 4% p.a. through hidden commissions and explicit charges. These have been disguised by strong market performance over recent years, but are likely to be exposed if we experience leaner years in markets in the future.

Simple benchmarking
A simple and quick method of comparison is looking at interest rates on cash accounts. If your investment returns are generating the same returns as cash on deposit, why are you taking the market risk?

Similarly, take into account inflation. If you generate a 3% return and inflation is 2%, your net return is just 1%; is this what you thought you were achieving?

Lastly, look at what similar passive investments have done. These types of funds simply track a stock market index and are inexpensive. If you are paying a fund manager to outperform and add value by trying to achieve higher returns, have they done this?

More in-depth methods

Market indices
A market index tracks the performance of a group of shares or other investments e.g. the S&P 500 index which tracks the performance of the largest 500 shares in America. They can be a useful barometer for the ‘health’ of an investment market as a whole but it is important to use them appropriately.

For example, you cannot meaningfully compare the performance of the S&P 500 index (100% shares) with a portfolio that consists only 40% of shares. Similarly if you are comparing a euro denominated portfolio with the US market which is denominated in dollars, then again this is not necessarily an appropriate comparison.

The downsides of using indices as a comparison are therefore addressed by the use of:

Peer group
A peer group allows you to compare investments that are similar in nature e.g. a specific class of investments or geographical region, and because you are comparing “like for like” it can be a more meaningful comparison tool.

Morningstar.com is a particularly useful tool in this respect and can guide investors with regard to an appropriate benchmark and peer group.

Quartile rankings
These are used to compare returns of investments in the same category over a period of time. Investments in the top 25% are assigned quartile rank 1, the next 25% quartile 2 etc.

They can be useful in tracking consistency – what is important is not the quartile ranking in any one period, but they allow you to track trends over multiple periods and time frames.

There is no one way, or right way, to compare performance and you will likely need to combine several measures to get a more accurate reflection of performance. Even more importantly, this should be done regularly to ensure you are doing all you can to achieve your financial goals. Finally, you should take into account the risk you are taking to achieve a set level of return, and this will be the focus of a future article.

If you would like to discuss your performance or how best to build your own portfolio of investments, please get in touch.

Wealth Tax in Catalonia

By Chris Burke
This article is published on: 7th April 2022

07.04.22

How to reduce it and know how it works

Catalonia is a great place to live for so many reasons. However, like the majority of places in the world, there are taxes to pay too. Although nobody likes to pay taxes, there is a societal need for them. They help fund the public health system, providing care for our families and for ourselves in later life, schools, so our children can receive a formal education and roads, so we can safely and effectively travel. However, in spite of this there are ways in which we can organise our taxes in an efficient manner to ensure that we are paying no more than the amount that we need to pay.

The Wealth Tax (known as ‘El Impuesto de Patrimonio’ in Spanish) is an example of a tax which is an additional tax in Catalonia that many people deem to perhaps be unfair. I mean, why should you pay tax just because you have done well in life, or your parents have and passed this wealth onto you? In summary, it is a tax that you pay on your net wealth (assets owned minus liabilities). The tax is paid on the assets that you hold which fall over a certain threshold. The threshold in Catalonia is €500,000 whilst the threshold throughout the rest of Spain is €700,000. There is a €300,000 exemption for your main residence, meaning that you will not pay tax on your main residence if it is valued under this amount. If your main residence is worth more, you can deduct €300,000 from the valuation and you will only be liable to wealth tax on the excess amount.

Here is a list of the assets that are and aren’t liable to Wealth Tax in Catalonia:

Assets that Wealth Tax is applicable to	Assets that Wealth Tax is not applicable to
Real estate	Household contents (except for Art)
Savings	Shareholdings in family companies
Shares	Commercial Assets
Cars	Intellectual Property and Pension Rights
Boats
Jewellery
Art

Source: Balcell’s Group

The rate of wealth tax depends on the amount by which you are over the threshold. The general rule is that it ranges from 0.20% to 2.50% in Spain. However, in Catalonia the rate is slightly higher, ranging from 0.21% to 2.75%. You are required to declare your wealth as part of your annual declaration (in Spanish, ‘Declaración de la Renta’) on form 714 at the end of the calendar year, making any payment by 30th June the following year. The below tables display the Wealth Tax rates for Spain as a whole and the variation of the wealth tax to pay depending on the autonomous community (Communidad Autonomo) in which you reside. However, this is an overview to what is a complex calculation, so if you require personalised information, please get in contact with Chris.

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Settlement basis up to (euros)	Fee (Euros)	Other net base up to (euros)	Applicable Rate %
0.00	0.00	167,129.45	0.20%
167,129.45	334.26	167,123.43	0.30%
334,252.88	835.63	334,246.87	0.50%
668,499.75	2,506.86	668,499.76	0.90%
1,336,999.51	8,523.36	1,336,999.50	1.30%
2,673,999.01	25,904.35	2,673,999.02	1.70%
5,347,998.03	71,362.33	5,347,998.03	2.10%
10,695,996.06	183,670.29	Thereafter	2.50%

Source: Balcell’s Group

Autonomous Community	Wealth Tax % Variation
Catalonia	Between 0.21% and 2.75%
Asturias	Between 0.22% and 3%
Region of Murcia	Between 0.24% and 3%
Adalusia	Between 0.24% and 3.03%
Community of Valencia	Between 0.25% and 3.12%
Balearics	Between 0.28% and 3.45%
Extremadura	Between 0.30% and 3.75%

Source: Balcell’s Group

There are ways in which you can mitigate the wealth tax you are required to pay, as noted in the above table, some assets are exempt. Therefore, if you transfer your wealth into these assets then they will not be included as part of your wealth tax calculation. For example, you may not be liable to wealth tax on assets that you transfer to shareholdings in family businesses or certain household or commercial assets.

However, this is not a straightforward process and certain criteria must be met. For example, if you transfer your capital to a ‘family business’, then there are strict regulations on what constitutes a family business, which assets qualify and how you do this. And if you were to utilise your capital to purchase household contents, certain items such as art are not exempt.

Another way to mitigate wealth tax is by relocating. There are a few countries in Europe in which you would not have to pay the wealth tax such as Sweden, Luxembourg, Denmark, Germany and Austria or France. In the UK, they are considering implementing a wealth tax. If you prefer to stay in Spain, then residents of Madrid are exempt from wealth tax so it may be beneficial relocating there.

Finally, you can effectively double your wealth tax exemption threshold by getting married! The wealth tax exemption threshold will then be increased as everyone person is entitled to it. This also counts for the main residence allowance; therefore you may not be liable on wealth tax on your main residence up to €600,000.

Being efficient with your monies/assets from a tax perspective is almost as important as making your money grow. If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.

Disclaimer: Spectrum IFA do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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Financial planning for women

By Victoria Lewis
This article is published on: 6th April 2022

06.04.22

Does it have to be different and what are the nuances in terms of goals, investment outlook and risk and why is it even assumed that it needs to be different?

Victoria Lewis from The Spectrum IFA Group was recently asked to speak about this subject by the ‘Network Provence‘

Network Provence is a platform for women to promote their business, blog, club, project and to socialise. Networking allows one to socialise, meet potential clients and often offers possibilities to collaborate with other like-minded women on a variety of projects.

Victoria spoke about financial planning for women and some of the difficulties they face. Whatever your gender, if you live in France (or are planning a move here) and are interested in obtaining a confidential review of your financial situation, please contact Victoria.lewis@spectrum-ifa.com + +33 (0) 6 62 50 70 21.’

Please watch the video below

Planning for Non-Habitual Residence | Portugal

By Mark Quinn
This article is published on: 4th April 2022

04.04.22

The Non-Habitual Residence (NHR) scheme has been a great success in attracting new residents to Portugal seeking a favourable tax regime and is also the ‘icing on the cake’ for those moving to Portugal for lifestyle reasons.

NHR is a preferential tax status granted by the Portuguese government to new residents and lasts 10 years. I will not write about the specific benefits as we have produced a dedicated NHR guide which is available on our website. Rather, I wanted the focus of this article to be on the planning that is required because the benefits of NHR are not automatic; you have to plan to make the scheme work for your specific situation and objectives.

When talking with clients, I break down the planning required into three phases: prior to arrival, during the NHR period, and following the expiry of the NHR status.

The planning required before arriving in Portugal involves:

Utilising any tax breaks and exemptions in your home country. For example, in a UK context, you may wish to close any investments you have that work from a UK perspective but are not efficient in Portugal such as Individual Savings Accounts (ISAs). ISAs are tax free in the UK, but if you wait until you establish residency in Portugal to surrender, you are likely to incur unnecessary taxation
If you are relocating from countries such as the UAE or Singapore, you may wish to consider realising capital gains prior to departure
Considering taking advantage of your Pension Commencement Lump Sum entitlement (25% tax free cash) from pension schemes, as this is lost when you become a Portuguese resident

Download my guides on moving to Portugal here

Planning for Non-Habitual Residence in Portugal

During the NHR period it is important to:

Maximise pension income opportunities as NHRs benefit from a flat tax rate of 10% as opposed to rates of 20%, 40% and 45% in the UK. There is even the argument that any pension schemes should be fully depleted during the 10 year window, although this does have to be balanced against the inheritance tax efficiency of retaining money within a pension scheme
Plan well in advance of the 10 year period and ideally look to establish structures that can be effective post NHR. If your position does not allow for immediate restructuring and is tax efficient under NHR but not post-NHR e.g. property portfolios, you should start reviewing your position again around years 7-8 of the NHR period to prepare for life after NHR
Review your affairs regularly to take account of personal, family or legislative changes
For those of you taking salaries or a combination of salary and dividends from companies in the UK, you may wish to re-weight the focus to a dividend only strategy

After the end of the NHR period, you become a standard Portuguese tax resident and will pay tax at the prevailing rates. The effectiveness of your position is determined by the planning you have implemented during the first two periods.

A few caveats for you to consider:

There are subtle nuances to the NHR scheme and international tax rules meaning that in some cases it may be in your best interest not to apply for the NHR regime
For those of you enjoying the 0% tax rate on pension income (which applied to NHRs prior to April 2020), the planning will differ
If you are a non-UK domicile, there are further issues and tax-saving opportunities to consider, and again, delicate planning is required in this area to ensure success

As always please seek advice early and as the only UK Tax Adviser and Chartered Financial Planner in Portugal, I can analyse your situation from both a UK context and Portuguese perspective.

Download my guides on moving to Portugal here

Difficult questions your financial adviser may not want to answer

By Mark Quinn
This article is published on: 30th March 2022

30.03.22

I like being asked tough questions –

It shows that clients have a real grasp of the key issues involved, which is great. It forces me to regularly reconsider the advice I give, and to make sure it continues to be the very best and most cost-effective solution. Also, and speaking from bitter personal experience of poor, disjointed advice I received in an area on which I am not au fait (renovating my property), I truly believe that clients are in a much more powerful position if they are aware of all the salient facts and issues.

With that in mind, and to put you in the most powerful position in your existing adviser relationship, I would start by getting the answers to the following:

Are you truly impartial or are you restricted to only recommending certain structures and funds? I come across many clients with the same structure managed by the same investment manager. How can one structure and fund be the most appropriate for all clients with a wide variety of issues and situations?
What qualifications do you have to advise? When you visit a professional one assumes they are qualified and good at what they do. It is remarkable therefore that many ‘advisers’ operate in Portugal without qualifications, and some even purport themselves to be tax advisers who do not have any formal tax qualifications. Those coming from the UK may be aware that ‘Chartered Financial Planner’ is the gold standard for advising clients, and ‘level 4’ is the minimum level of qualification required to advise.
How much am I being charged? One of the most damaging issues to the performance of your portfolio are the charges that are being taken from your policy. Many times, these are ‘bundled’ or paid discreetly out of the back end of the product. Ask for an explicit breakdown in writing between each fund’s ‘Ongoing Fund Charge’, product/structure charges and the fees or commissions your adviser is taking, and from where.

Find out more about Mark Quinn here

Have you disclosed the full charges to me? If not, why not? This is a contentious issue for some firms at present as, due to an EU directive, they now have to inform clients if they have not disclosed the true costs of the investments that they have set up and managed for them; obviously leading to many disgruntled people and tainted trust in the advisory relationship.
What is my number? Does your adviser tell you how long your money will currently last and under what conditions? Do they paint of picture of different scenarios and how these would impact this projection? Or how you can tweak your planning to achieve your goals?
How much risk am I taking? People often focus and compare the returns they might achieve but neglect to consider the level of risk their adviser is taking with their money. For example, two portfolios can achieve 5% a year return, but fund 1 may be down 50% at any point during the year, and fund 2 just 10% – clearly these two are very different investments, with fund 2 being superior.
Is my fund outperforming a tracker fund? One chooses to invest in a fund if the manager has a proven ability to deliver attractive returns relative to the market, and for this you pay the fund manager a fee, typically around 1% per annum. But are they doing their job and is it worth the cost? A 0.5% reduction in fees may sound trivial, but I recently showed a client they could save in excess of £200,000 in fees over time.

If you would like an independent analysis of your position,
it would be our pleasure to help you.