Now that I’ve covered the basic concepts of financial management and demonstrated its practice with real clients, it’s time to pivot into the world of investing. And, as mentioned in my previous article, this month’s focus is on investment contracts. I know this is an important topic to cover having had multiple yachties message me requesting that I look over their current or potential contracts.
Ok, let’s start at step one. Why might a yachtie even find themselves sitting before an investment contract? Well, it’s likely their intention is to build wealth. A huge component of financial success is implementing a system in which money makes money, aka investing.
Typically, this is outsourced to financial advisers or other finance professionals due to a perception that building wealth is too difficult, time-consuming or unattainable for the average yachtie. These misconceptions give the stage to financial advisers who show up on Google, your Facebook feed, local bar or even worse, your crew mess.
Some finance companies use targeted advertising to prey on yachties as we are the perfect client: disposable income and very little time. Subsequently, yacht crew trust and commit huge amounts of money to such companies/advisers with the expectation of positive financial returns and transparency. More often than not, this is not the case.
Now, this is not to say yacht crew money is being illegally traded or stolen. What I mean is, that money isn’t being used to the best of its ability and is more about lining the pocket of the adviser than it is lining the pockets of yacht crew.
It’s similar to buying a car from a private citizen versus a dealer. We know the dealer will charge more for their services, and we could probably find a better deal on our own with a bit of research. Buying a car from a dealer doesn’t guarantee it’s a better car, much like hiring a financial adviser doesn’t necessarily mean they’ll do a better job than we can.
I interviewed an old client of mine and he described his experience with financial advisers and contracts this way.
Having left school to join yachting, he suddenly found himself earning more than he knew what to do with. His parents suggested he look into investing his money and capitalizing on his new earning power. So, like any millennial would, he Googled “yacht crew investments” and went down the list until he found what he thought was the best fit.
He contacted a particular company and was almost immediately set up with a phone call. From there, they inquired about his salary, goals, how much he was willing to invest and what his investing timeline was. Due to his lack of investing knowledge, he entrusted his money with this adviser. You see, he was too afraid to ask questions at the risk of sounding uninformed or being “annoying”, so he just went along with it. As far as he was concerned, he could tick this box off his to-do list and not look into it any further. This is fantastic for the adviser, an easy catch.
Fast forward 18 months to when his boat sold and he lost his job. He could no longer afford the $1,200 monthly contribution and consequently didn’t have enough savings to fall back on (another reason to have an emergency fund). He requested that his adviser withdraw his money on the assumption this would be easy and his balance would be more than his initial investment.
Now, before I arrive at the obvious conclusion, you know how people never read the fine print? Yeah, exactly. Much to his surprise, his final balance was less than his investment due to “early withdrawal” fees and a multitude of other penalties. Depending on the contract, this first year can often be just paying all your set-up fees without even beginning to scratch the surface of real money investing.
For those yachties who currently have an investment adviser, ask them for a full breakdown of fees and apply this to your money. You’ll quickly see how small fees, even 1.5%, can hugely eat into your profits. Remember, no one cares about your money as much as you do.
A final note: Not all financial advisers/companies share the same methods or practices. Some are legitimate, helpful and trustworthy. And please, do not take this article as financial advice. This is simply a forum where I share my experiences.
Bosun Alex Kempin has worked on yachts for more than three years and combines his passion for personal finance and his degree in psychology to share personal finance information for yacht crew at themoneydock.com or themoneydock on social media. Comments are welcome below.