Six top tips for avoiding financial disaster when investing in a fund
Following numerous investor complaints to the South China Morning Post about the behaviour of financial advisers in Hong Kong, here is a quick list of things to check before you invest.
1. Diversification. Diversification. Diversification. If your adviser tells you to put all your money in one fund, or one fund house, as was the case with some clients of the now failed LM Investment Management fund group, get a new adviser.
2. Is the fund licensed by the Securities and Futures Commission? If not, ask your adviser why he or she is recommending it and what due diligence was done on the fund. If your adviser did not tell you the fund is unlicensed, he or she is breaching regulations. Get a new adviser.
3. What commission rate is the fund house paying your adviser? Not all fund houses pay commission. If the fund house does pay commission, is it a market rate - that is, less than 3 per cent - and are there similar funds available that don't pay commissions? If your adviser refuses to tell you, get a new adviser.
4. Don’t lie on the application form. If the adviser is recommending a fund, don't sign a form saying buying it was your idea. It is certainly not a good sign if you are being asked to lie when investing your own money. If you sign such a form, an adviser can deny responsibility if something goes wrong. If you are being asked to lie, get a new adviser.
5. How is your adviser remunerated? Is it through commission, management fees or a fixed charge, and does the fee structure align your interests with your adviser's? If they are not in alignment, get a new adviser.
6. Caveat emptor: buyer beware. Research your advisory firm, investment products and fund selection before investing.
