Investment is a Risk Business
The press has been busy over the weekend with articles about professional footballers and their more unusual investment and losses. Some of these accusations have spilled into the specialist financial media, as there have been comments over the commissions or fees taken on some of these transactions.
From the mainstream press, here are some examples:
From the financial press:
Often the most interesting part of these stories are the comments from the public or the financial audience at the end of the article, which varies from the sarcastic, to the acid and even to the constructive.
For me as an independent financial adviser, not active in the footballer’s market, there are a number of lessons to be drawn:
All investment is a risk business; there is always a chance you will not get some or all of your money back. If that is a risk you cannot take, then you should stick to guaranteed investments like bank deposits.
Anyone investing needs to understand the risks; if they cannot be explained to you in a way you understand, do not invest.
No investment advice is free; you need to know who is being paid and how much. Total commissions of more than 5% suggest that the investment is higher risk and potentially more high-pressured, when it comes to selling.
Using an adviser or “consultant” recommended by another of your contacts does not mean you do not need to do any “due diligence” on them. You must check that they are who they say they are and that they are registered with the professional bodies they say they are.
You need to check to see if there is a potential conflict of interest between your close advisers and anyone they introduce to you. Someone promised 10% of your investment, as an introducer’s fee will not be as objective as someone with “no skin in the game”.
As an investor, you need to understand the difference between “regulated” and “unregulated” investments. If an investment is unregulated, your chances of any compensation for miss-selling are very small.
Almost all tax-mitigation schemes are outside of regulated investments and can place you in a worse position than just paying the tax in the first place, if the scheme fails. As there can be a long delay between the earnings that would normally be taxable and the eventual failure of the tax scheme, running out of cash is highly likely. Having no cash can lead to bankruptcy, even if you have a lot of assets.
Always do the boring stuff first. Pensions, ISAs, EIS and similar products are regulated and offer some recourse if things go wrong. Build a sound foundation before looking for anything out of the ordinary.
Our company policy is to steer well away from unusual transactions as the success rate appears to be very small over time. Paying some tax is inevitable, so be very careful that the potential tax saving does not dominate the choice of investment.
Contact me with queries
If anyone is looking for general advice, then please write in to the blog and I would be happy to help with anonymous advice posted here. Alternatively, please call us on 0116 253 5600 and ask to speak to an IFA, (Independent Financial Adviser), for a no-obligation discussion.
If you know you need formal advice, have a look at http://bankfield.net/personal/savings-investment/investments/, or ask around for a recommendation, it might even be me.