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IS THE FINANCIAL SERVICES MARKET IN SPAIN IN DIRE NEED OF A RADICAL SHAKE UP?

Fiduciary Wealth Team

EUROWEEKLYNEWS INTERVIEW PAUL CORREA OF FIDUCIARY WEALTH MANAGEMENT.

Give us some background information about the history and origins of your firm?

We are the “specialist private wealth arm” of the Fiduciary Group a leading provider of financial services in the Iberian Peninsula since 1982. The Group is affiliated to Gibraltar’s oldest legal practice Isolas1892 ranked a leading law firm by The IFLR1000. We find that clients value the fact they are dealing with a long established practice with “legal roots” that can trace their history back 120 years.

In an uncertain world most clients are looking for stability and longevity, not the here today gone tomorrow approach which can never satisfy a client’s long term needs or requirements.  We always try to encourage prospective clients to visit us at our principal offices to help understand what makes us tick and it doesn’t take long for people to realise that we are not your typical IFA practice.  In fact we are a totally different proposition offering the quality of advice that clients are crying out for.

What is your line of business?

In a nutshell, we are a boutique financial advisory and consulting practice offering bespoke wealth management solutions, (with integrated tax planning strategies) investment management and a whole range of financial planning services to private clients throughout the Iberian Peninsula and UK. Our business is all about helping clients create, preserve and transfer wealth to secure the futures of those who depend on them.

What specific services do you provide?

We offer a wide range of services across all our key markets and a good proportion of our business tends to be of a cross border nature between the UK and Spain. Many expats continue to structure their savings, investments and retirement plans as if they were still UK resident and quite often these are totally inefficient from a Spanish tax perspective. And of course there are those looking to return to the UK whose financial affairs need tidying up too.

As a firm we provide solutions across the whole range of financial planning services from wealth management through to tax and retirement planning, life & general insurance and mortgage broking. Our advice extends to assisting those seeking or already holding tax residency in Gibraltar.

Where are you based?

Well the simple answer to that question is wherever our clients are. We are a Gibraltar regulated firm therefore our head office and administrative support centre are locally based but the expatriate communities we serve are spread across the Spanish coastline from Costa del Sol to Costa Blanca including  Mallorca.

How do you differentiate yourselves from your competitors in mainland Spain?

That is a very good question. We don’t share our competitors’ perceptions about how business is supposed to be conducted. The financial services industry remains deeply entrenched in old practices which don’t always conform to the universally accepted principle of providing “best advice” to clients. This might sound harsh but in our view the majority of firms in our sector have built business models to serve their own needs and preferences rather than the clients.

We have an unwavering belief that financial advisory practices should serve their clients based around the mantra of integrity, service and quality of financial advice. Our role is to legitimately try to help clients reach their financial goals and we feel a genuine passion about what we do.

Can you provide some specific examples?

The vast majority of firms have adopted a “one size fits all” approach to financial planning. For example regardless of the client’s financial circumstances or problems the solution almost always involves the use of a Spanish Compliant Bond commonly known as a tax wrapper. Don’t get me wrong there is nothing fundamentally wrong with the product, in fact, it can provide considerable tax benefits. However while the wrapper is sometimes the best vehicle to restructure assets tax efficiently in Spain on other occasions it is an unnecessary and expensive additional layer of costs.

Take the case of QROPS or QNUPS. In the majority of cases the wrapper is often a completely unnecessary layer of costs and is only there to generate additional upfront and often hefty commissions for the adviser. This is precisely what we mean by building a business model which serves the interests of the firm and its advisers and not necessarily their clients.

Are you suggesting there is something wrong with the pricing structure?

Well that is a source of great concern. The pricing model is skewed towards taking as much up front commission as possible sometimes as much as 7% to remunerate the “commission-only advisers.” Whilst there is no such thing as “free financial advice” these commission rates are excessive in the extreme  and of  course advisers working with this type of model pay scant regard to the long term needs of the client and the ongoing servicing of their investments preferring to chase the next new piece of business. That’s why we keep saying that our industry is in dire need of a“radical shake up.” 

What about fees and commissions aren’t these disclosed to clients?

There is a “legal obligation” to do so. Financial services firms that operate within the European Union are legally obliged to comply with a Directive called Markets in Financial Instruments Directive (MIFID) which requires the full disclosure to clients of any fees and commissions as well as any non monetary benefits connected with the transaction.

The law might say one thing but the regulatory regime in Spain is so weak that it is rarely enforced. It is not unusual for clients “not” to receive a proper “letter of advice” which discloses commissions or provides details of professional indemnity insurance.

There is no such thing as a free lunch and clients should always be prepared to pay for quality advice, however the layering of fees and commissions of up to 10% is what we find “obscene.” In every business transaction there is a moral challenge to see that both parties come out fairly. It should be based on the spirit of win-win for long term relationships to flourish.

What are your views on the quality of financial and investment advice which is being provided in the marketplace?

That’s a really good question. Well it depends on what you define by financial advice. There is a need to refocus on the “real needs” of the client. When it comes to investment and portfolio advice in many cases the client might be better off making their own decisions. This is an area where we specialise and can add considerable value.

People rightly or wrongly believe that financial advisers should drop the “independent tag” as the advice is hardly impartial. What are your views?

It’s a fair comment and we wouldn’t disagree. We have been talking about open product architecture for the past decade and for many advisers (and private banks are the biggest culprits) it is a myth more than a reality. You cannot promote yourself as “independent” when you are a tied agent. To offer “best advice” you need to be truly independent and yet in our sector, even the most dominant of players would appear to offer no or little choice. Clearly firms which rely on one supplier for the tax wrapper, provide in house trust arrangements and recommend one investment house will struggle to offer truly independent advice. We want to bring our perspective to bear on an industry where things haven’t changed for a while and where there are much better ways of delivering solutions. We have embraced open product architecture and our advice is objective, impartial and tailored to support our clients’ financial goals.

What should expats be concerned about?

New initiatives continue to be put into place to further international tax cooperation and the recent Modelo 720 reporting requirement in Spain is only the latest in a series of measures being taken to ensure that offshore assets are identified and reported. Expats should finally realise that there is no longer a way of avoiding tax and instead focus on working to restructure those assets to make them tax efficient in Spain. Many expats are burying their heads in the sand but time is running out for them! There is an opportunity to put things right before the taxman catches up and applies punitive charges. We have advisers available on a 24/7 basis for private consultations to review individual cases. All they need to do is to call our hotline Tel: 674 632 219 to arrange a meeting in your local area.

The other concern has to be the possibility that the Euro breaks up in the not too distant future. Expats holding assets in Spanish banks run a convertibility risk; if Spain reverts to its national currency and suffers a major devaluation. These risks need to be properly managed.

We understand you are looking to recruit how difficult is it source financial advisers who share your firm’s philosophy and business model?

We are looking to expand our operations across the whole of Spain. The objective is to provide the expatriate community in the various markets with a “local service.” We need to bring on board people who can add value to the firm, who share our values and identify with our business model.  Unfortunately the majority of advisers who have been working in Spain for a long while get used to a certain way of doing things and are incapable of making the transition and adapting to a different regime.

However not everyone is the same so we would happily consider applications from quality advisers who are considering a fresh start and recognise that there is a better and more ethical way of providing financial advice. Anyone interested should send an email to wealth@fiduciarywealth.eu

What are your firm’s views on the future direction of stock markets?

There is a growing disconnect between market prices and underlying economic fundamentals. We are concerned that earnings estimates are somewhat optimistic based on growth projections which are likely to disappoint. The rally has been fuelled by quantitative easing which has driven down yields on safe assets forcing investors out along the yield curve into riskier assets. We feel that stock markets are looking increasingly vulnerable to changes in investor sentiment consequently we would advise clients to reduce their risk exposure and adopt a more cautious approach.

How do you see the future of the financial services industry serving the expatriate community in Spain?

We expect the expat community to be much more discerning in their choice of financial advisory practice. The emphasis will be on “quality of advice” not just tax but also financial and investment advice. Expats have a plethora of financial advisory firms to choose from but many remain entrenched in old self serving practices.

Firms with a “client centric” business model which genuinely put the client first have a very bright future ahead. Clients require sound independent investment advice and a business partner they can trust. If any of your readers are looking for the highest standards of wealth management advice and service from an independent financial adviser then we are right firm for them.