Q WE ARE in our late 40s, are self-employed and have three teenage children. Many years ago, we made a profit from our components trading business, but it was mostly in US dollars.

Business is very bad now and our monthly expenses are coming from a bank account holding US dollars, which we have depleted to around US$500,000 (S$708,000).

With the greenback sliding against the Singapore dollar and rising inflation, we're thinking of putting the US dollars into short- and long-term investments for our children's education and our retirement.

We're a conservative couple and do not know how to make a secure investment with a decent return with inflation factored in.

We have always feared unscrupulous financial advisers who could put us into wrong investments because of their quota targets.

We bought some unit trusts from banks like DBS and OCBC, and these are worth around $50,000.

Are there independent advisers, not contracted to any bank, selling funds and what kind of price do they charge for their advice?

Could you recommend any good, trustworthy advisers who can help us, and do you have any idea on what we can do with our US dollar savings?

A THE charges vary among independent financial advisers (IFAs). They charge according to three different models when dispensing advice: Commission-based, fee-based and fee only.

The commission-based model would typically cost you a one-off sales charge of 2-5 per cent on any new investments you make with them.

A fee-based model would cost you a fee and any commission they earn on top of the fee. For example, if the fee is $2,000 and the commission is $3,000, they will charge you the $2,000 fee, return you $2,000 of the commission (equal to the fee amount), and keep the excess commission of $1,000 ($3,000 - $2,000).

So, they still earn $3,000 as in the case of the commission-based model.

The fee-only model will charge you a fee, say $2,000, and return you all the commissions ($3,000 in the earlier example). In the fee-only model, it is clear that large investment sizes tend to enjoy better savings.

Besides the one-off charge, IFAs typically charge a wrap fee or annual management fee of 0.5-1.5 per cent on your investments. For example, if your investment size is $100,000 for that year, the wrap fee of 1 per cent would be $1,000.

For this wrap fee basis, any switches you make with the existing investments (change from one fund to another) would not invite further sales charges.

If you should decide not to go on a wrap account basis, you can avoid paying the annual wrap fee. However, any switches made will incur new sales charges. Thus if several switches are typically made in a year, you would end up paying much more in terms of sales charges compared to the fixed wrap fee basis.

You have most of your savings in US dollars mainly because of the nature of your business, but the outlook for the greenback is poor as interest rates in America are trending down.

But inflationary pressures may force rates there to go up in a few years once the problems in the US economy have worked themselves out. So the prognosis for the greenback is weaker in the short term but may recover somewhat over time.

You are right to note that inflation is a concern here, and that it should be factored into your return objectives.

If you intend to provide for your children's education and retirement here, you should ideally have more allocation to the Singdollar to protect against possible further weakness in the greenback.

If you are interested in making your savings work harder, it is always good to diversify your investments.

We advocate an investment portfolio of different asset classes, comprising equities, bonds, property, commodities and hedge funds.

Investing in different asset classes will help you to manage the volatility of your investments as they tend to be less correlated to one another.

With a diversified portfolio, your investments will also be naturally diversified across different currencies. So if you buy European shares, you will get exposure to the euro and the British pound.

Having a diversified portfolio of different asset classes and currencies will help you reduce the overall volatility of your savings and investments. This will give you more peace of mind as you mentioned that you tend to be conservative in nature.

The actual allocation of these various asset classes will depend on your risk profile. If you want less risk, more of the money should go to fixed income investments.

A reputable financial adviser will recommend the ideal investment portfolio with a risk level that you can take.

It appears that you can only take low-to-moderate risks - low risks for your children's education needs and possibly moderate risks for your longer- term needs.

However, this needs to be confirmed as we have to take into account other factors such as your ability and need to take risks.

Ernest Low
Head, Fund Analytics
Providend

Advice provided in this column is not meant as a substitute for comprehensive professional advice. E-mail questions to a1admin@sph.com.sg.

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