Compounding Commissions with FX Strategies

Financial advisers (IFA) for too long have had the same old products to provide for a client base that is constantly evolving. Historically, life companies provided indemnified commissions for regular savings plans and offshore bonds for investment and pension transfers in all their forms. With the advent of technology, increased pressure on fees, regulatory oversight and so on, it has become more difficult for IFAs to make money.

Unfortunately, many are tempted to move away from regulated solutions and financial advisory altogether by offering passports, real estate, loan notes and similar products that offer little comfort to the client but a large upfront fee to the IFA. Invariably, the client is locked in and when liquidity is required and it is not available, this is when the truth comes to light and the relationship falls apart impacting the referral network too. So the IFA is back to square one with the unenviable and expensive task of finding another client and all-important referral network.

FX remains the largest and most dynamic market however it is mostly overlooked by IFA because of the lack of upfront commission. But the IFA that has learnt from the mistakes mentioned above will understand the importance of residual income and providing flexibility to their clients to protect the referral network. Imagine being paid more than traditional products every year, giving exemplary returns to your client, allow the flexibility of liquidity as required which can only result in more referral business.

Being paid 0.5% every month on your client’s portfolio which is increasing can have a significant impact on your earning potential and allow you to remain a financial adviser so there is no need to sell questionable products to supplement your income. Most IFA’s know that many of the products they sell are unlikely to perform but do it in the need to make short term income. By deploying dynamic residual income means that you can become the great adviser you always intended to be in line with your expectations, values, qualifications and the perception of your clients.

What does this look like in actuality?

If we consider the 1 year actual trading period on $100,000invested, then it would look like this:

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This is almost 10% of the invested capital, but you do have to wait for the year to receive it all.

Now if this same amount of commission was reinvested each month into the same trading algo, then the compounded commission would have grown to $15, 881.

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And, this is where it gets really interesting …

If we assume the same 1-year performance on the same amount of original monies invested, but projected that over years 2 and 3, this is what the earnings would look like.

This is how your monthly commission income can grow on the same $100k invested, just over $7000 per month.

And again, if this same amount of commission was reinvested each month into the same trading algo, then the compounded commission would have grown significantly.

This is why dynamic residual income with compounding should not be overlooked. It is appreciated that this is merely a guide and we cannot forecast what will happen in future based on past performance, but it highlights what is possible. Similarly, it is expected that IFA will take income initially, but as their AUM in FX grows then you can see it makes sense to have a portion of your earnings remain within the same strategy as your clients.

All the pivot tables for the commission calculation are available on request.

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