July 7: The Offshore Broker – What To Really Expect

by David Jenyns on July 7, 2007

Whether you’re new to investing or an experienced player, offshore brokers can play an important part in your financial decisions. This critique aims to help you recognize what precisely an offshore broker does, and how he or she can help – or hinder – you with your fiscal affairs.

In essence, offshore brokers are individual who want to sell you something and unless you understand that someone’s motivation is earning a commission, you’ll get taken to the cleaner’s every time. Now, there is nothing erroneous with turning a few bucks in this manner; what makes it wrong is when the commission is the primary goal and the client is a secondary concern that an offshore broker’s activities can become problematic.

Let me give you a few details to better frame this discussion on brokers in the field of offshore investment. In the year 2000, a study conducted in the US on 8,000 brokerage recommendations found that only 24 were available to sell.

Even when some stocks had lost over 70% of their value, these offshore brokers muttered things like dollar cost averaging or told their clients how lucky they were to be getting such a bargain.

I once heard an offshore broker described as someone who is broker than you or me; after all, if they knew the secret to attaining great wealth, why would they be sitting in an office taking your call?

Warren Buffet – perhaps the greatest investor of all time – was once rumored to have asked why investors in Rolls Royces drove down to Wall Street to ask the advice of people who took the subway to work.

You may have gathered by this that I am not a fan of the offshore broker. In that you would be only half correct: while I do have a dislike for many offshore brokers, they are still a necessary evil. They are useful for the purchase of mutual funds, stocks and so forth, but investors – regardless of their level of experience – must be very wary of any advice given to them by an offshore broker.

There are, obviously, exceptions to the rule and if you can find an offshore broker that is also a successful millionaire, then that is worth his or her weight in gold.

However, do not assume just because an offshore broker is wealthy that this makes them an expert in the field of investing: I once had an offshore broker that was exceptionally well-off but later found out he made his money in real estate, and not in the types of securities that he was recommending.

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