Performance Fee-Only Advisor vs. Commissions Broker: What does it mean to you as an Expat?
Performance Fee-Only Advisors are licensed specialists who assist expat investors with their financial goals and objectives, whereas commission-based brokers are not always controlled by the authorities. Although they may appear to be on the outside looking in, performance fee-only advisors and commission brokers play very different roles and provide very different sorts of services in the delivery of financial services to expat clients.
A commission broker is described as somebody who is in the business of executing transactions (buying and selling stocks) on behalf of others. Despite possessing a variety of titles (such as wealth manager, wealth adviser, investment consultant, financial advisor, and registered representative), commission brokers are not considered to have a fiduciary duty to their clients. Instead of being compelled to put their clients' best interests ahead of their own, commission brokers adhere to a very low level of care for their clients. Furthermore, unlike performance fee-only consultants, commission brokers are not obligated to disclose upfront.
A performance fee-only advisor operates differently than a commission broker and follows a tight set of regulations. A performance-fee-only advisor is expected to behave in the best interests of his clients, always placing the client's interests ahead of his own. The 'fiduciary norm' refers to both the operating philosophy and the legal necessity. A performance-fee-only advisor is required by the fiduciary standard to provide advice that he believes is best for the client. Fiduciaries must also uphold the duties of loyalty and care. Furthermore, a performance fee-only adviser subject to the fiduciary standard is obligated to disclose all potential conflicts of interest to the client before entering into a contract for advising services with that client. As a result, a performance-fee-only advisor is legally banned from providing financial advice that may conflict with their client's needs.
As previously stated, there are significant differences in terms of industry rules, regulations, and legal requirements between how a commission-based broker delivers financial services to expat clients and how a performance-based fee-only advisor delivers financial services to expat clients via the "fiduciary standard."
Compensation: A Critical Component and Difference
Advisors that work on a performance fee basis are paid a proportion of the expat client's assets under management. Brokers are paid commissions for trades they place on behalf of their expat clients and/or products they sell to them. As previously stated, brokers receive compensation in the form of commissions on the products they sell. Unlike performance fee-only advisors, who must follow a fiduciary standard, commission brokers are not required to explain in full how their pay is obtained. As a result, because the broker's compensation depends directly on the financial items he gives to his client, their methodology may lead to serious potential conflicts of interest.
Industry Momentum: Expat Investors Are Realising
Over the last five years or so, expats have grown much more aware of the significant distinctions between the commission-based broker/sales business and the performance-based advisor/fiduciary approach. Investing expats continue to 'vote with their wallets,' preferring the performance fee-only advisor model over the commission-based broker model. As a result, Asian and Middle Eastern brokerage firms have been rapidly losing market share to independent performance-based fee-only advisors. According to statistics, assets handled by independent performance-based fee-only advisors have nearly tripled in the last five years. We expect this tendency to continue.
The world of expat investing advice can be riddled with conflicts of interest, obfuscated disclosure, and a general lack of transparency. Seeking out a fiduciary advisor can help alleviate many of the issues connected with the commission-driven, product-focused broker paradigm. Because a fiduciary is required by law to provide full and complete disclosure of how they are compensated as well as any potential conflicts of interest that may exist before doing business with any prospective client, the investing expat public is in a far better position to make an informed decision.
Where Does Expat Beleggen stand?
Expat Beleggen have always acted in a fiduciary role. Our client-centric approach to assisting expats and their families in achieving their financial goals and objectives has always prioritised the client's interests over our own. As a performance fee-only fiduciary advisor, we strongly believe that it is not just the legal requirement but also the ethical thing to do. We also believe that acting as a fiduciary puts us in a better position to address the needs of our clients. We will continue to fight for our clients' best interests and will be firm supporters of the fiduciary model. We feel that an advisor held to a fiduciary standard is in a position of unique trust and confidence when working with clients since he is obligated to operate with undivided commitment to the client. Furthermore, we believe that it has been clearly proven and validated in the expat marketplace to be the better model for the expat investor due to the dramatic reduction in conflicts of interest, greater choice of investment options, and no sales of proprietary investment products to clients.