What the FIFA scandal can teach you about money

on Thursday, 4 June 2015. Posted in , , , ,
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fifa-logoThe FIFA scandal has been a huge black eye for the sport and a long time coming, but oddly, it does have two important lessons for personal investors.  We can see two key lessons that everyone with their finances should take note.

 

1. Governments are getting almost complete access to global payments networks.

In the FIFA case much of it is based on leaks of data, but that won’t be necessary in future.  American authorities can collect data on US dollar transactions done by banks anywhere globally.  This is the result of FATCA which all banks globally comply with unless that is, they don’t want to use the US dollar and be locked out of the US dollar payment networks.  And no-one wants that.

fatca_uncle_samSo, to repeat the US government can see every transaction you do in US dollars.  Don’t think that other currencies are going to offer much security in the future.  Pretty soon governments globally will be able to do the same for their native currency and 75 countries have signed with practically all of Europe as well as Canada, Singapore, China and Australia on data sharing standards.  This isn’t some nutty conspiracy theory for the future.  By 2017, which is two years away it will be the current reality.

The compliance of global banks with FATCA and the combined ability of computer and data mining software means you won’t be protected by the $10,000 USD limit on reporting either.  That was in the paper reporting pre-computer age and was anyway a myth since it is called structuring and is illegal.  Myth or not computers can put together a big picture regardless of the transaction size.

You can also see why no government will support the development of a sucessful crypto-currency.  Transparency to find money to tax is an addictive power I wager most governments will not easily relinquish.

The lesson is that if you aren’t tax compliant you have a small window of the next two years to get your affairs and tax strategy in order.  There are still ways to prepare, but you need to do it now.  Or as Brazil’s soccer team sponsor Nike says, “Just do it”.

2. A conflicted environment leads to conflicted behavior.

What is striking about the protests of Sepp Blatter before his resignation and the group charged by the FBI is how passionately they believe they are innocent.  If you look in their eyes you see real shock and anger.  Given how guilty they are, how is that even possible?  They truly believe what they are doing is OK. How did that happen?

peer influenceIt was their environment and their friends.  Many studies show that behavior and beliefs are shaped by your peer group and also by your environment.  The effects of this build up over the years.  If your financial adviser, awesome honest guy though he is, is paid by commissions and surrounded by commission earning salesmen, then it is certain that his ethics and advice will be slowly transformed with a slow, imperceptible change over time.  For example having fat friends is likely to make you fat.

It reminds me of a something that happened to me years ago when I worked in a previous organization.  I recall “The Boss” suddenly pulling me aside to say “You are an amazing adviser, so ethical, informed and diligent.  You are the guy I’d pick in this whole company to look after my money,” he suddenly informed me one day after months of not recognizing my existence.  “You’ve done some good deals in the last month or so.  If you just bent your moral ruler a little more you’d be an even more successful adviser”.  That was probably the worst pep talk in the history of the world since his speech triggered a lightning bolt of adrenaline from a question that hit me.  How much had I changed already?  Was I changing to be more like a handful of colleagues I despised who sold the highest commission paying product always?

I knew at that moment I needed to find a way to leave the company somehow as soon as possible.  Ultimately that’s what led me to co-founding my own firm.

I was lucky.

I’ve seen many other good guys slowly corrupted over the years from, “I believe I have the best solution” to “It’s the best solution in its class”, to something less like “this investment can help protect against inflation” to the final cop-out excuse of “at least it ensures the client puts something away for retirement”.  That’s the final justification veterans use.  I know financial advisers in Shanghai and beyond that today continue to torture logic in that way.  Just like FIFA executives they really believe their reasons and explanations.  That’s how advisers and good guys can continue to sell their high commission paying product despite the fact they know the client will be lucky to make a positive gain, even in the long term, yet can still look people in the eye.  The pressure of peers and environment over time in insidious and very real.

The Lesson:

Is that you should look for a financial adviser working on a management fee basis with a guarantee of no hidden commissions.  Even though your adviser is an awesome guy and probably the best in his company, the drip, drip, drip of pressure from earning a commission or being compared against a colleague more prepared to say what it takes to get a deal, will get the best of him over time.  If your adviser is advising you to lock-in your investment to “protect you from yourself” or some such, then watch out.  He probably believes that, but just like FIFA officials he has lost all connection with what good honest advice for his client looks like.



About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients' interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and havenow been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.
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