The importance of due diligence when it comes to your financial management

04/04/2024
By David Snelling

If you’re ever making any important decision regarding a substantial outlay of money, it’s likely that you’ll go through some sort of process to make sure it’s the right choice for you.

After all, if you’re buying a new household appliance, you’ll shop around rather than simply opting for the first washing machine or fridge-freezer you come to.

Even more so when you’re spending money on something more expensive like a new car. You’ll probably read reviews, speak to friends who have the same model, get in contact with a reputable dealer, and check that the price you’re being asked to pay is a fair one.

In the world of financial planning and investing, all that initial research might be commonly referred to as “due diligence”. Furthermore, given the sums of money at stake when it comes to investing, your due diligence should be even more thorough and, ideally, formalised than for any car or kitchen appliance.

This is especially true when you consider that the selling of opaque, high commission investment products to expats is still sadly the default option for many financial advisers and unscrupulous financial fraudsters.

We wrote about one such financial fraudster in our last newsletter

You may have read the article we wrote about Brite Advisors in our March newsletter.

This outlined the activities of a group of offshore financial fraudsters, who deliberately targeted expats, particularly those with UK pensions.

We’ve had several comments about that article since it was published, and the question nearly everyone has asked us is how intelligent, savvy individuals become victims in the first place and how fraudsters of that kind are able to get away with it.

The primary reason, as we alluded to in the piece, is regulatory failure. But there are other points you also need to bear in mind and make a point of looking out for. These could include:

  • You being offered “guaranteed” high returns on your investment
  • The investment option being touted as a great tax-saving opportunity
  • A “special offer” designed to make you rush a decision, such as lower charges for a limited period of time.

So, in this article, read about 7 of the ways you can help protect yourself from the likes of Brite Advisors by conducting some simple due diligence checks before you even think about signing on the dotted line.

1. Make Google your friend

When you are first approached with an investment opportunity, you’ll get the name of an individual and their company.

They may give you a well-designed sales brochure or direct you to a website to find out more about the company and their proposition.

Glossy images and warm words will be designed to lure you in. Luxury imagery is often intended to divert you away from the small print and details, or lack of them.

So, it’s important to look behind the façade and do your own research into the company and individuals you are dealing with.

Conduct a Google search on individual names, particularly the person you have direct contact with and the owners of the business, as well as any significant others referenced in literature and on their website.

Also do a Google search on the company itself and scroll down below links to the website to news stories about the company and individuals associated with it. You might also find the news tab on Google useful. You are looking to unearth any skeletons that might be in the proverbial cupboard.

If you’re wondering what you should be looking for, the Brite Advisors article will give you an idea.

2. Take a close look at their website

Many websites for offshore investment companies will say that “we believe in being open and transparent”, so you need to test that contention.

See if you can find out how they are remunerated and whether they charge fees or are paid commission. If you can’t find this easily, or the wording seems vague or deliberately misleading, that should be a warning sign to you that there is something they are trying to hide and they are not actually living by their stated values.

If there are a lot of big promises about how well your investments will perform, that is often another red flag, particularly if there are references to previous investment performance and how other clients have been rewarded.

You should always remember the old maxim that says: if something is too good to be true, then it probably is.

3. Cross-reference individuals and businesses on social media

As well as Google searches, you may well find out a lot about individuals and companies using social media in general, and LinkedIn in particular, subject to them having up-to-date professional profiles on the site.

As a business and employment-focused platform, it will give you some useful background of the individuals, who they have worked for, and the time they spent with each company.

You can then cross-reference with information on other social media platforms, as well as going back to Google and checking business details there.

Obviously, if an individual has worked at a particular company with a bad reputation for a significant period of time, this clearly warrants further investigation.

You should look to ask the individual a direct question about their time with that company and why they left. At the very least, you should hope they at least say that the ethics and culture weren’t aligned with their own, and they wanted to do things differently.

4. Speak to other people in the expat community

As you have already read, unscrupulous financial fraudsters will target expats as they will tend to enjoy high salaries and commonly have substantial pension and investment assets accrued in a low-tax environment.

Fraudsters will also try to take advantage of the lax regulatory regime in some tax jurisdictions.

This means that, if you are offered an investment opportunity of the kind you have read about here, it’s always worth mentioning the name of the investment company to colleagues and other contacts in your expat community.

However, as the case of Bernie Madoff proved, this approach can’t be guaranteed to succeed.

5. Look behind the curtain at regulation and the investment provider

The adviser company website should tell you who they are regulated by.

You should take a look at the regulators website, to check they are actually regulated, and look again those specific people involved in the business to see if they have any notifications or judgements against them on the regulatory register.

Likewise, you ought to check that the investment provider is also regulated. Assuming it is, is it a reputable jurisdiction and what consumer protections are in place in case of insolvency of the company?

Also check their website to see if there is any common ownership between the investment provider and the financial adviser. If there is, that’s one of the reddest flags of all.

6. Look at the management and ownership of your investment

I would suggest you contact the relevant investment provider directly, using a contact number or email you have found from the providers website and not one provided by the individual adviser, to best ascertain the validity of what you have been recommended, including charges, before sending any money to fund your account.

You should ensure that you understand who the legal and beneficial owner of the account will be. Ideally both should be you unless there is a good reason, such as a trust arrangement in place.

7. Confirm that you have control over your money

You should find out what controls are in place when it comes to accessing your investment.

Usually if the adviser is providing ongoing investment services, they may be able to buy and sell investments on your behalf, but under no circumstances should they have the ability to make withdrawals from the account, other than a bank account in your name.

You should also make sure you have your own online access to a portal provided by the investment provider, not the firm advising you.

It’s then advisable to verify that the link to the provider website is legitimate and not simply a mocked-up site that gives you no access to other parts of the site.

Get in touch

We know the market and the products you are being offered, and we have a clear understanding of the regulatory regime, or lack of one.

So, if you’re in any doubt whatsoever, the best thing to do is to get in touch and we’ll do our best to help you.

You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.

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