How toxic is your investment portfolio?

Photo by Adrien King on Unsplash

Having almost a decade of experience in the UAE financial services, I’ve came across many “toxic” investment portfolios.

To put it in plain English, the assets held by many clients, are chosen by their advisers not for their client’s best interest but for the commissions (many times hidden) that those advisers might be receiving for advising the purchase of those assets.

While for a fund, the AMC (annual management charge) generally doesn’t change much from a “toxic” share class to a “clean” share class, the OCF (ongoing charges figure) does. Also, upfront or “exiting” charges will usually be associated with “toxic” assets.

Some (advisers) might argue that ongoing advice shouldn’t be offered for free, which I tend to agree with however, while you can apply transparent, in client’s control fees, there is no need of you (the adviser) to be paid by hidden, unknown by the client fees or commissions.

Also, the payment of a commission to an adviser, to select a particular asset, has proven many times to be an incredibly bad move, as in many cases the so called “asset” went missing with investor’s money (some of you might have come across Strategic Growth Fund, LM Managed Performance Fund, Premier New Earth Solutions, Mansion Student Accommodation etc.) or while markets were flying, their portfolios weren’t as the charges were heavily weighting and killing their performance.

I am also noticing the “very popular” use of Structured Notes. Let me make a point very clear: The regulatory framework for structured products is hazy and they may fall in legal grey areas, without a solid secondary market (potentially lacking liquidity) which can make your money disappear if at a (1) particular date something is not right (even if the day before and after everything is right) and if the issuer (the investment bank) goes bust (ask any Lehman Brothers Structured Note holder what happened to his/her money).

Photo by Sharon McCutcheon on Unsplash

With all of the above in mind, try to use advisers which are applying transparent fess, that you can keep (paying) or remove based on their service quality, performance etc, instead of those advisers only asking to be paid by “introductions” but they get paid loads by hidden (or non hidden) commissions for recommending “toxic” assets.

Also, make sure they use NON COMMISSION PAYING assets, daily traded (liquid) without any minimum “holding” time requirements (no penalties to sell).

If you want to have a good look into your current portfolio, in order to understand how “clean” or “toxic” it is, please get in touch.