Experiences with Financial Advisers

[Konjou]

I have always taken a simple approach as an investor , focusing my energies on the things that I can control-such as saving, spending, costs, taxes and sound financial planning. Looking for ways to control the leakage from my investments caused by fees and taxation.

I have in the past enlisted the help of financial advisers to help evaluate and keep me on purpose during my financial journey even though they like to take a rather large slice of the cake.

In Japan, made the decision to consult with a financial advisor, given a change in circumstances and the complexities of complying with Japanese tax laws.

After hearing a few horror stories from other expats, proceeded with caution.

Initially spoke with a few Japanese advisors/planners who didn't inspire much confidence and seemed to be pushing their own agenda i.e trying to sell insurance.

Contacted two more expat firms based in Tokyo , talked with 2 of the nicest people you could ever hope to meet. No mention of IDECO or NISA options and interestingly both firms offered the same solution to all my needs, an international insurance company based in the Cayman Islands.

'An open-architecture, portfolio bond product that provides investors around the world with flexible solutions that adapt to their investment requirements. '

Looking at an 8 year lock-in period with an annual 1.2% administration charge, which then falls to 0% after the 8 years, 0.5% adviser fee per annum and ETF charges from 0.2% . Both sang its' praises , highlighting the tax advantages and as a way to avoid any future Japanese exit tax complications.

Having read 'Millionaire Expat' by Andrew Hallaw he recommends several firms, most of which weren't interested because of being located in Japan.

Another firm based in Dubai, proposed opening a Nedbank Private Wealth Focus Account and invest using ' an evidence based portfolio'.

They have an initial charge of 3% on funds invested (which decrease if you have more to invest) , portfolio charge of 0.44%, platform charge of 0.35% and an ongoing adviser charge of 1.25% of A.U.M.

Vanguard offers a financial adviser service, for their products at 0.3% compared with 1.25% of the dubai firm or the 1% fee of the robo-adviser.

I believe that a 'good', certified, financial, fiduciary advisor brings many advantages ; industry knowledge, suitable solutions to specific financal events in your life , exclusive products, and to a certain extent peace of mind that someone is keeping up to date on all the latest developments and financial laws of the land but a 'bad' adviser can set you back years in terms of your financial goals.

Ultimately with a little time and effort, and advice from Retire Japan, you can take full control over your own finances.

[RetireJapan]

Thanks Konjou

Welcome to the forum. Thanks for writing about your experiences. It's unfortunate you didn't find any good options.

I believe that DIY is a good option for many people in Japan.

In the future I would love to start a RetireJapan advisory service, but that is a long way off. For now we have coaching and of course this forum.

[KyushuWoozy]

Coincidentally I had a consultation with a Brit financial adviser a few days ago. He claims to specialize in expats. He offered me an ‘investment plan’ specifically ‘international executive bond’ because it offers tax free growth and tax savings on withdrawal due to double-taxation treaty with UK. Investments are in index funds.

He will make comparison of investing in index funds in this plan versus investing in index funds myself (which I already do). I guess it boils down to whether the alleged tax savings will outweigh the management fees of that plan.

I'll share the info when you gets back to me with the details.

Interestingly, he claimed that in Japan portfolio growth is taxed even if that growth isn't withdrawn as dividend. Is that correct?

[RetireJapan]

Coincidentally I had a consultation with a Brit financial adviser a few days ago. He claims to specialize in expats. He offered me an ‘investment plan’ specifically ‘international executive bond’ because it offers tax free growth and tax savings on withdrawal due to double-taxation treaty with UK. Investments are in index funds.

He will make comparison of investing in index funds in this plan versus investing in index funds myself (which I already do). I guess it boils down to whether the alleged tax savings will outweigh the management fees of that plan.

I'll share the info when you gets back to me with the details.

Interestingly, he claimed that in Japan portfolio growth is taxed even if that growth isn't withdrawn as dividend. Is that correct?

Would love to hear details about the supposed tax-free bonds. I am somewhat sceptical

With the 'portfolio growth taxed' comment I guess he is referring to capital gains tax? If not I don't understand the assertion.

[goodandbadjapan]

Coincidentally I had a consultation with a Brit financial adviser a few days ago. He claims to specialize in expats. He offered me an ‘investment plan’ specifically ‘international executive bond’ because it offers tax free growth and tax savings on withdrawal due to double-taxation treaty with UK. Investments are in index funds.

He will make comparison of investing in index funds in this plan versus investing in index funds myself (which I already do). I guess it boils down to whether the alleged tax savings will outweigh the management fees of that plan.

I'll share the info when you gets back to me with the details.

Interestingly, he claimed that in Japan portfolio growth is taxed even if that growth isn't withdrawn as dividend. Is that correct?

I've had some go on about the tax benefits but I don't get it either. If you are in Japan you will still have to pay CGT when you sell but all growth is tax free until you sell, isn't it? It is fluctuating all the time and is unrealised until you sell, so I really don't get what he means by 'it offers tax-free growth' as an advantage. A double taxation treaty surely just means not paying tax twice, and you won't be doing that anyway if you are doing the investing yourself in Japan. Would love to hear more, but suspect it will be somewhat underwhelming when you get into the nitty gritty. Do report back when you hear more.

[captainspoke]

...
I believe that a 'good', certified, financial, fiduciary advisor brings many advantages ; industry knowledge, suitable solutions to specific financal events in your life , exclusive products, and to a certain extent peace of mind that someone is keeping up to date on all the latest developments and financial laws of the land but a 'bad' adviser can set you back years in terms of your financial goals.

vs.

Ultimately with a little time and effort, and advice from Retire Japan, you can take full control over your own finances.

Not to pick on you, but I think those two POVs are distinct. First, even in the states, the requirement for agents to be fiduciaries has been almost completely neutered/watered down, so I doubt anyone will find an actual fiduciary anywhere else.

And a common thing I've read that I agree with (= the second part, above): By the time you know enough to vet a good financial advisor, you'll be able to do it yourself.

[Konjou]

Thank you RetireJapan for the welcome and thank you for putting this site together.

With regards to the comments about 'tax benefits' , the following is part of a communication I had with one of the Tokyo based firms ;

Our Japan-based clients are of different nationalities and unfortunately there is no one-size-fits-all solution. For example, to avoid increased accounting requirements for our US-taxpayer clients we use platforms; as there is no benefit to be had with an insurance-based account. For our UK-passport holding clients (as well as some other nationalities, particularly those coming from common-law based jurisdictions) the insurance-based products benefit from gross roll-up (avoidance of incidental tax on income and gains in the account until monies are withdrawn) and increased scope for inheritance tax planning (insurance policies have preferential tax treatment in some countries, as well as the ability to assign part, or all of a policy to a family member for the purpose of generation planning).

So, 'the insurance-based products benefit from gross roll-up until monies are withdrawn' and then you will have to pay capital gains tax on any profits. The benefit with regard to any future Japanese Exit Tax ,cash and cash deposits, and non-financial assets such as real estate and insurance are not covered assets.

The additional costs and commission paid on the products I was offered made them an expensive option an in my opinion, commission paying insurance companies with opaque structures are unable to treat clients fairly.

even in the states, the requirement for agents to be fiduciaries has been almost completely neutered/watered down, so I doubt anyone will find an actual fiduciary anywhere else.

This is a valid point , rather I was referring to fiduciary as it applies in an ethical sense to any situation in which one person justifiably places confidence and trust in someone else and seeks that person's help or advice in some matter, with the lack of regulation surrounding financial advisors/planners in Japan any legal application of the term would indeed be a moot point.

[DragonAsh]

Looking at an 8 year lock-in period with an annual 1.2% administration charge, which then falls to 0% after the 8 years, 0.5% adviser fee per annum and ETF charges from 0.2% .

<SNIP>

Another firm based in Dubai, proposed opening a Nedbank Private Wealth Focus Account and invest using ' an evidence based portfolio'.
They have an initial charge of 3% on funds invested (which decrease if you have more to invest) , portfolio charge of 0.44%, platform charge of 0.35% and an ongoing adviser charge of 1.25% of A.U.M.

Dear god those fees are obscene. 2% in annual charges? And on top of that the second one takes out 3% off the top?

And those are only the fees etc they told you about, I'll be dollars to donuts that you'll also get squeezed on spreads for buying and selling (instead of NAV), the 8-year lock-up is a disaster waiting to happen (ask what the penalty is if you withdraw early) and they haven't actually told you what the product you're buying is or how it generates returns.

I sure hope you told them to take a hike. Not when you can get essentially the same thing via mutual funds or ETFs for less than a tenth of the cost.

Having more money does not mean you get better financial advise. Having more money can mean you get better *tax* advice, and that's probably the main reason someone would want a financial advisor. This includes not just advice, but not having to waste time on it - which is something you could probably say about investment advice - seriously, investment planning shouldn't take more than a couple hours a year, any more time than that spent on it to me is probably a waste.

Other than the potential for better tax advice / options, IMHO the only other real benefits to a financial advisory service (full disclosure - I'm lightly involved in this as a side business) are saving time, and having someone to help 'save you from yourself', so you don't do something stupid like buy Bitcoin at the top of the market or dump all your investments because the market is down 15%. A good financial advisor, having understood your situation, goals, temperament etc, can put forward low-cost, low-tax options for you to select, so that you don't have to spend time / effort researching all the options. They can help you establish an investment plan ahead of time and talk you through things to help steady the boat when the water gets choppy. In Japan, there may also be a language element involved (navigating Japanese-only options can be a major hurdle if you don't speak/read/write the language).

A financial advisor suggesting they have this special product for you that you have to buy through them is, almost by definition, a fraud and a scammer. Ignore them.

[Konjou]

Dear god those fees are obscene. 2% in annual charges? And on top of that the second one takes out 3% off the top?

From my experiences that is pretty much par for the course.

From the Tokyo based advisors that I spoke with, their annual administration charge was 1.2% for the first 8 years. The penalty for early withdrawl was equivalent to the unpaid charges based on your inital investment.

The real kicker was, if the value of your investments fell during those 8 years, you were still required to pay the administration charge based on either the inital value of your investment or the current valuation whichever was higher, so basically heads they win, tails they win even more !

Also, with regard to the platform charges, advisors were able to adjust the rate at their own discretion, I was quoted an annual platform charge of 0.35%, but after contacting the offshore investment platform directly found that their rates were tiered and started at 0.25%, this was later justified as an administration charge on the part of the financial services company.

Makes you wonder how many other 'administration charges' are included.

Both Vanguard and Morningstar did studies and concluded that a financial advisor ' adds 3%' to the value of a clients investments

https://advisors.vanguard.com/iwe/pdf/FASQAAAB.pdf

I have also read a number of articles which breakdown and dissect the value of this '3%' number.

So basically;

-Use broadly diversified, low-cost index funds to build your portfolio.

-Watch your expense ratios, keep them as low as possible.

-Preferentially put high-expected return, tax-inefficient asset classes into tax-protected accounts and vice versa, make use of your iDECO and NISA allowances.

-Don’t focus on income, focus on the total return.

-Save at least 20% of your income for retirement and don’t sell all your stocks in the depths of a bear market.

-Rebalance once every 1-3 years.

-Spend taxable assets first in retirement, then use tax-deferred assets up to the top of an appropriate tax bracket, and tax-free assets after that.

You can reduce the '3%' figure Vanguard uses to less than what most advisors charge with some time and effort.

If you do decide to speak with a financial advisor get a second, third and fourth opinion, and make sure that they are adding real value and can justify their fees.

In the end, I found doing a great deal of research and speaking with a Japanese based tax accountant, proved to be the most beneficial.

[DragonAsh]

Dear god those fees are obscene. 2% in annual charges? And on top of that the second one takes out 3% off the top?

Both Vanguard and Morningstar did studies and concluded that a financial advisor ' adds 3%' to the value of a clients investments

https://advisors.vanguard.com/iwe/pdf/FASQAAAB.pdf

No, they didn't. They prepared marketing materials that make that claim. Remember - Vanguard is trying to sell you something.
The devil is in the details - for example, a big chunk of that 3% in the Vanguard paper comes from assuming that the investor moves from a fund with an average expense ratio to one of Vanguard's ETFs.

More importantly: most financial advisers won't be recommending you that low-cost ETF! Why would they, they don't make any money from having you put money in low-cost ETFs, something you can do on your own without paying a financial adviser.

Also remember that while the Vanguard's '3%' claim was after taxes and transaction fees, it was *before* advisory fees.