VERY few people are aware of it, but under Thai law, anybody engaging in the act of ‘selling’ a financial services product does not have to disclose any charges a client must pay for the contract he, or she, is being recommended.

This includes any disclosure of commissions that are to be awarded to the adviser.

The consequences of this are staggering, and indeed, alarming to would-be investors.

In order to give a full picture of what the effects are on your assets, a brief explanation is needed on how commission payments work.

Paying for advice by commission is one of the most commonly used, but often misunderstood, unexplained and financially detrimental actions used by off-shore financial ‘advisors’.

In the UK and other regulated markets such as Australia, the US, Canada and mainland Europe, it is a legal requirement for all representatives of financial services companies who give advice and recommendations on a product to disclose the amount of commission that is to be paid to that individual or firm.

The catalyst for such legislation was a weak regulatory regime which saw financial advisers manipulating customers into buying inappropriate financial products.

The advice being given which was in many ways entirely inappropriate to the client’s needs, objectives or attitude towards investment risk simply to line the pockets of unscrupulous, heavily targeted sales staff.

Although the events of the past year have demonstrated that the regulatory regime in the western world has a long way to go before it is free of flaws, legislation regarding commission disclosures was a step in the right direction.

Financial advisers can work on a fee or commission basis where seven per cent is generally the maximum commission taken on investment products.

One individual who invested almost £2 million via a ‘financial adviser’ in Thailand was not told about the level of commission the adviser was receiving but simply told that the commission was paid out of the charges that were inherent within the policy.

He wasn’t told that these charges could have been minimised significantly if the adviser had taken less commission.

Greed presided over integrity, honesty and transparency.

The commission paid out in this particular example amounted to almost £140,000, which is a good wage for somebody with no training or qualifications.

When I saw the documentation in the case, I questioned the contract which was recommended given the level of investor protection this product offered the client.

This is not only an issue of the ‘advisor’ taking a ridiculously high commission for doing very little work, it is an issue on how this affects the client and their investment performance.

Because the commissions are paid upfront, the amount is taken directly out of the client’s pot.

Charges are a must, but the extent of the charges is the issue here.

If you have made investments through institutions in South East Asia’s non regulated countries you are probably paying high management charges to the advisory company you made the investment through.

Adding lump sums or regular premiums will incur similar charges and commissions.

The lucrative part of the transaction is not just the initial investment but continues to be so throughout the term of the policy, depending on how the contract was originally set up.

The advantages of using an intermediary are countless, but the balance between the correct amounts you should be paying for the advice needs to be translated transparently.

The clients usually don’t realise things are so bad until they get their first statement.

The extent of the damage is determined by the level of commission taken and the investment performance of the funds chosen. Commission disclosure has been prevalent within the UK financial services sector for a number of years.

Clients should be given the choice between fees or commission.

It is transparent, fair and more importantly in the interests of the clients and not the lifestyle of luxury and retirement dreams of the financial ‘advisor’.

*Lee Wood Cert PFS is Director of Financial Planning for Sterling Assets and is Phuket’s only UK registered and qualified financial adviser.

For further information, call Sterling Assets on 076 326 301, 081 082 8464 or email lee.wood@sterling-assets.com