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Nov 30 2011

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Zurich International and Friends Provident… Should You Invest With Them?


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 Zurich International and Friends Provident are two large investment firms selling Offshore Pensions, otherwise known as Investment Linked Assurance Schemes.  

zurich warning

I’ll explain how the products work, using the Friends Provident Zenith account:

 “A single premium life assurance policy specially designed to allow access to international investment opportunities.”

First of all, they offer a death benefit.  This comes into effect if you die, and your money is worth less than what you initially invested. It’s equal to “101% of the cash-in value”.

This means if you had invested $100 and got hit by a bus, your heirs would receive the $100 back, plus a $1 bonus. There’s no upward adjustment to cover inflation.

Investment Charges:

Friends Provident offshore pensions cost as much as 9% per year for the first 18 months, dropping to roughly 4% per year thereafter. But there’s always the possibility they could lower them significantly.  As mentioned on the company website:

“Friends Provident International Limited reserves the right to change its charges at any time at its discretion upon three months’ written notice to you”

A slew of economic Nobel Prize winners suggest investors shouldn’t pay high fees, recommending low cost index funds that charge 0.15% per year or less;

Warren Buffett also suggests investors should keep investment costs low.  “Buy index funds,” he says, when lambasting high cost financial “helpers” that (in his view) take more than their fare share of investment spoils.

Yale University’s endowment fund manager, David Swensen, echoes the same premise, also suggesting that “government intervention is required” to lower retail investment costs. 

Harvard University’s endowment fund leader agrees, with a particularly harsh sentiment:  

“The investment business is a giant scam.  It deletes billions of dollars every year in transaction costs and fees…You should simply hold index funds”

But there are no certainties in life.

 

It’s entirely possible that an advisor selling a Friends Provident Pension might know more about investing than these guys.

While Buffett and a slew of Ivy League economists recommend using investments costing 0.15% per year or less, perhaps the higher costs of a Friends Provident plan are still worth the money.

 

Here are the costs from the company website:

Administration charge 1.2% each year, debited directly to your unit value on the valuation day Bid/Offer spread Nil

Each year, your investments would incur a charge of 1.2 percent.  In a year where your investments made 4.4 percent, you would be giving slightly more than 30 percent of your profits to Friends Provident.  

 

There’s also an establishment charge, as pasted from their website below.

Establishment charge 0.4% each quarter (1.6% each year) of the premium for the first five years

When adding the administration charge to the establishment charge, your investments could make 5.6 percent a year for the first five years, and you would be giving away 50 percent of your profits to the firm.

Salespeople for Zurich International and Friends Provident also choose actively managed mutual funds (unit trusts) for their clients.

These are the very products that Princeton Economics professor, Burton Malkiel, suggests you avoid.

 

Taken from their website again, these products have internal fees costing up to:

3.35% per year of the fund value, dependent upon the fund chosen

 

It’s also important to understand what happens if you sell a Friends Provident Pension early.  

From their website again:

Early cash-in charge (applies for first five years only): of more than 10% of initial premium 5.0% of bid value of the amount of withdrawal or partial cash-in, in excess of the 10% withdrawal allowance, in year one, reducing by 1.0% each year to nil after year five.

Cashing-in Early cash-in charge (applies for first five years only):  5.0% of the cash-in value, in excess of the 10% allowance, in year one, reducing by 1.0% each year to nil after year five.

 

The Friends Provident account I recently saw had external fund charges (expense ratios) averaging 1.8 percent annually. 

Adding the annual admission charge of 1.2% provides an annual expense of 3 percent annually.  After adding establishment charges, investors would likely pay 4% or more each year in fees.  

In 1999, Fortune magazine named John Bogle as one of the four investment giants of the 20th century.  He earned his fame by championing low cost index investing, costing 0.15% per year or less.  

In his book, Common Sense on Mutual Fundshe explains that investors should keep costs low.  Total investment expenses of 1.5% per year are simply too high, according to Bogle.  And he strongly criticizes high cost equity linked schemes, calling for regulatory authorities to protect investors from such products.

“Equity-linked annuities, where downside protection is provided—at a grossly excessive cost—are but one more way to escape NASD regulations on the technicality that they are actually (exempt) insured products, not securities subject to federal oversight.  A BusinessWeek article describes them as a ‘suckers game dressed up to look like a free lunch.’  I hope the SEC [Securities Exchange Commission] will demand investor protection.”

While Friends Provident Pensions are popularly sold, Bogle disagrees with high cost structures. A 4% fee difference could do tremendous damage over time.  It can mean the difference between earning 3% per year, and 7% per year.

In the compounding interest example below, it could cost more than a million dollars.

  • $200,000 invested at 3% for 30 years =  $485,452
  • $200,000 invested at 7% for 30 years = $1,522,451

 

This doesn’t mean you shouldn’t buy a Friends Provident pension. The world’s financial academics could be wrong.  You need to make the decision yourself.  

 

Further Reading:

Royal Skandia’s high commissioned Investment Linked Assurance Schemes are similar to those sold by Friends Provident and Zurich International

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About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2011/11/zurich-international-and-friends-provident-should-you-invest-with-them/

389 comments

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  1. avatar
    Jesse

    Hey I think you just saved me a lot of money. Thank you! I am a teacher in Japan 37 years old (American Citizenship) I don't know where I will end up down the road back in the states or maybe stay in Japan or perhaps another country in SE Asia. How does your ultimate final destination effect your choice of investments? or does it? I am a newbie and need to make up for lost time and start planning for retirement. Thanks, Jesse

    1. avatar
      Karen Russon

      Hi Andrew

      I took out a Vista policy with Zurich International Life (ZIL) on 1 May 2008. The investment strategy was 100 per cent Euro Blue Chip Fund (EBCF). On 4 January 2011, I took out a loan against my policy that has led to two problems that I have not been able to resolve.

      First, the Loan Agreement that I signed, states “Sufficient funds will be switched to the Guaranteed Accumulation Fund to cover the value of the loan”. The value of the loan was US$40,000; ZIL took an excessive US$62,624.40.

      Second, the loan agreement also gave ZIL the right to take my money out of the EBCF and put it into a fund of its choice. It chose the US Guaranteed Fund.

      I repaid the loan on 12 March 2012. Upon that date, the investment strategy of record should have gone back in force–however, it did not. ZIL kept my money in USFG. As a result, I have lost substantial return on my investment.

      I brought this matter to the attention of ZIL’s CEO Clive Baker. In his response, Mr Baker stated that, upon repayment of the loan, I was obliged to submit a written request to repurchase units in the Euro Blue Chip fund.

      My investment strategy has been the same since I took out the policy. The notion that I should have to buy back into a fund (EBCF) that I never left is absurd.

      The Board of Directors supports the position of management. Mediation has been ineffective. I filed a complaint with the Isle of Man and Swiss regulators. Both indicated that their mandate is enforcing legislation, not consumer protection. Typical.

      As an American living in Europe, I have also filed complaints with the Federal Trade Commission and the Securities and Exchange Commission. I may lose money, but not without a fight.

      Regards,

      CR

      1. avatar
        Anonymous

        Karen, You have bigger problems than the lost return you’re complaining about. These are taxed horribly for Americans. And aside for the tax mess this put you in, your real loss is your surrender charge – much bigger than the lost return you’re complaining about. Stay in and get bled slowly or get out and see it taken all at once – you lost that money as soon as your initial period ended.

        1. avatar
          New Guy

          I guess my original post didn’t go through. Just want to chip in for a share of comments

          1. If you go ask around and you should be able to find out that when come to financial adviser earnings, term plan give them the most income as their company earn every single cents of your money and their agents get a bigger share from that nice cakes.

          2. When come to charges, everyone know nothing come free. You judge for yourself whether worth the value or not. Whether it’s a plan from vista, prudential, or any insurance company, judge on the fees charged versus what you get in return. I read some of the comments mentioned here and i did a google myself on Vista, if vista are true to offer opportunity to own up to 30 funds from worldwide funds, i personally feel it’s not really a big deal. If you walk into Fund-Supermart and buy 30 funds in 1 go, you might be paying more as an individual investor and some more some of the funds are exclusive funds which require minimum investment amount of $1 million

          3. How the charges being charge, get your financial adviser to explain in details on it. He should know else you shouldn’t engage him and pay him what he deserve. After all, his role is to advise you in financial planning. From what i understand, the charges is not as simple as what is shown by Andrew (Hi Andrew, i’m not targeting you in this). If you can, work it out in excel on yearly / monthly breakdown. It’s something fairly similar to stock or forex investment (By the way, I’m a Forex day trader that generate around 30% return per annum). To cut it short, you need to take your premium divide by the unit price at the time you purchase to get then unit you own. Then multiple the unit you own with the price at the time the charges is incurred to get your net asset value then multiple that 4% or 0.75%. If your fund is growing, then the charges is high, if not, then it might be quite low.

          4. When i read that a lot of people are pulling short of their investment, this is actually a very bad move. You’ll be a very sad person and your insurance company will be very happy cause they’ll charge you that penalty charges for early redemption. When your fund is not doing well, ask your adviser why is it so. Pester him as he should be the one to advise you on this and not google in the internet and get random advise which is disastrous. For all you know, the bad time are usually the good time for regular investors. This is Warren Buffet philosophy – dollar cost averaging. When you do a regular investment, you basically don’t look at the market performance, you wait till your planned “expire date”. You throw in money in fixed intervals. When the market is good, that’s great, your investment is growing. When the market is bad. That’s even better, cause the same amount you invest, you are getting more units in return. And this way, your fund don’t have to grow back to original point for you to break even, your fund will break even at even low points. If you don’t understand what i’m saying, go read Warren Buffet books. Get advise from real investors.

          5. Long term investment plan are not for everyone. You’ll have to ride it out for the full terms to enjoy the benefits. Although i’m a day trader, some of my investment are in for long terms. That’s the best way to ride the wave. If you can’t hold it out. Don’t buy in the first place. Usually for long term investment, you’ll only see a real returns at least 5 / 6 years into the plan. You won’t see much gain in the first 3 years.

          6. Diversify your nest. Even i’m a day trader, i don’t put all my money into Forex even though i know i can make 30% per annum. I will diversify my investment to reduce my risk. Similar to investment. Never put your investment into single fund, if you have options to get more funds in 1 go, do so, then your risk are actually reduce. Choose from low risk to protect your capital, medium risk to get you that basic returns and higher risks funds to get you your full earnings. Usually the higher risks funds are those that can generate you most returns but fluctuation are very wide as well.

          7. The main topic here discuss about charges, be fair to everyone. Everyone is out to earn a living. The only question, is it worth to pay that amount. You are basically hiring a person and in this case, many persons to do your investment for you. If you can invest yourself, can you monitor that many funds everyday. I myself can only manage 4 accounts with single investment in 1 go. These guys are monitoring multiple investment in single funds and in vista case, up to 30 funds in 1 go. You can do the maths yourself, how many investors / fund managers you are hiring to take care of your investment. You are not buying a policy, you are buying an investment so you need to pay the salary. Also, is your adviser doing his job by giving you correct advise? If they are doing a good job, why not? For all you know, when you plan mature, you might be earning few times more that what you have to pay.

          In conclusion, make a wise decision and ask around first before regretting for life.

          Don’t ask me how to invest in Forex as this is not the discussion in this topic and i don’t invest for people. Even if i do, i might charge at a even higher rate than insurance companies and likely i’ll ended up in another tread for charging people too high…:)

          1. avatar
            Andrew Hallam

            New Guy:

            You aren’t considering the biggest issue here. When in investing in funds, people lose to their respective indexed benchmarks in equal proportion to the fees paid. Plans such as these carry costs of roughly 4% per year. As such, over a long term, they will lose 4% per year to their respective benchmarks, on aggregate. Actively managed portfolios have very little chance of keeping pace with passive (indexed) portfolios. There’s no academic debate on that–it’s an unchallenged truism in every academic study. And when paying 4% per year to hold those active products (this includes all expenses and unit trust costs with a plan such as Zurich’s and Friends Provident) then yes, the investor will certainly under-perform over a long period of time. And by a lot.

          2. avatar
            New Guy

            Hi Andrew,
            I’m no Guru like Warren Buffet when come to investment. I’m just making my fair earning using his philosophy.

            One thing i do know is it’s not wise to ask people to cancel their long term investment especially those with insurance companies when the penalty charges are superbly high during the initial years. You are not losing the charges you paid but also penalty charges and it can cost more than half of your money. You didn’t even let their investment to have a chance to perform and make some returns through dollar cost averaging and you have ask them to cancel. This is disastrous. These people will be highly affected and insurance will be laughing with the fat earnings from the penalty. You are not helping the people but the insurance companies.

            From what i read in the internet on the charges incurred, it’s actually not 4%. If you do your maths correctly, it’s average out to range around 2-3% annually. Bank are charging about the same rate for their loans…

          3. avatar
            Andrew Hallam

            New Guy,

            You are forgetting unit trust expense ratio costs in your calculations. Total fees amount to 3-4% per year with these schemes. If you see the response I had for Mike, earlier today, you’ll note that I suggested he do the math to determine whether he should sell (and take the hit) or hang on.

            These schemes, let’s hope, will eventually go the way of the dinosaur when people figure out that they can passively invest in a diversified global portfolio and pay 0.2% per year, instead of 3.5% plus–while allowing them the flexibility to sell their investments when they want. You never know when a family member is going to need help with medical expenses, or a home rebuild after a disaster. Having funds wrapped up (and bleeding from fees) is a shame.

            You may not be Warren Buffett, but if you keep up your 30% FOREX investment returns, you will grow far richer than Buffett and Gates. This exceeds Buffett’s long term performance.

            Andrew

          4. avatar
            New Guy

            Agree that there’s other investments in the market that charge lower but you need to have the time and know how to do it. If not, you need to hire someone to do it for you else you might lose even more if you don’t have the know how.

            If you are depending on people to manage your investment for you. They are definitely going to charge you higher for doing it. You can’t expect people to manage your investment for you and charge peanuts for doing so.

            Go check around the market and see how much brokers are charging their client to manage their investment for them….:)

          5. avatar
            Andrew Hallam

            New Guy,

            You’ll learn, as you start comparing fee structures, that ILAS products such as these charge the highest fees in the world. Non ILAS advisors usually charge significantly less. I’m starting to think that you actually sell these products. I know the conflicts you must feel. You can earn a high income by selling ILAS products, but your clients (as you may be learning) will suffer. People can find great advisors charging just 1% on assets (or less) to build passive portfolios for clients with expense ratios of 0.2% or less. All told, fees would amount to 1.2% per year, compared to 3.5-4% for an ILAS product. And unlike the ILAS products, investors would have full flexibility to sell their investments, should they need to (without getting hammered by redemption costs). The compounding performance difference is exponential. What’s more, most non ILAS advisors tend to be much more educated than most ILAS sales reps. Take Tony Noto for example. He’s a CFP (Certified Financial Planner) and has his CFA. (Chartered Financial Analyst) Here’s a link his website http://www.notofp.com/

            At some point, New Guy, you will come to a moral crossroad. Most ILAS reps don’t realize the damage they do. The advisor profiled in this ILAS story is a case in point: http://www.scmp.com/business/money/investment-products/article/1262327/hong-kong-consumers-angry-after-being-sold?page=all

            They aren’t bad people, but they’re susceptible to selling expensive products for massive commissions–and this can have comparatively destructive results when juxtaposed with a lower cost, more flexible framework, managed by a (typically) more educated advisor.

            You can manage people’s money ethically. It’s not as lucrative as selling ILAS products, but it adds (rather than subtracts) value. And as more people become financially educated, ILAS platforms, which are under serious scrutiny already, will go the way of the dinosaur.

          6. avatar
            New Guy

            Andrew,

            I just based on my experiences and what i know to share…:) It’s still up to everyone to decide what to do with their money. I’m a no person to tell them what to do. What i won’t do is ask people to sell their plans when it’s the worst period to do so.

            I have friends as adviser, in fact my best friend is a adviser..:) that’s how i came across your website as we were talking about it and that’s how i know what is their earnings.

            What i do want to advise folks here is that just get your adviser to break down the cost in details for you before you sign your papers. You are paying them to do this, if they are not doing it, then he/she is not fit to be your advisers. Like Andrew was saying, not all adviser are fit to do the job and not all of them know what they are selling but it doesn’t mean all adviser are rotten eggs.

            Never sell your funds when it’s in the negative region. Most investment plan, if you diversify it well enough (provided your advisor do a good job for you) should break even half way through your plan. When i say break even, it’s the break even point whereby your surrender value equal to what you have already paid. Then cancel your contract. That way you will not be wasting your money.

            My broker charge me between $25 to $40 per transaction as my each investment is less than $50K. If i do a single $1K transaction per month, it work out to be around 2.5% to 4% annually. And that is for single investment, if i diversify my investment further, this figure will no longer stay in the 2.5% to 4% region.

            Do tell me that my calculation is wrong in the above as this is the amount i have been paying to my broker.

          7. avatar
            Andrew Hallam

            New Guy, a commission of 3% is not the same as an annual expense of 3%. The first is a commission taking 3% of what you deposited, but it’s just a one time fee. Annual expenses are forever.

            Using some small numbers for example:

            You invest $100 with a 3% commission. This leaves you with $97 to invest. Assume the investment makes 8% per year before fees, and 7.8% after fees. Your $97 would compound at 7.8%.

            If you invested the same $100 and paid no commission, but paid annual expenses of 3% each year, your $100 investment (assuming the investment made 8% before costs) would only make 5% per year.

            Over a lifetime, the second scenario would make far less money than the first.

            Annual expenses are a killer. Commissions costs, although a pain in the butt, have far lower consequences when the transactions are kept to 12 or so a year.

          8. avatar
            New Guy

            I guess i used a wrong example in this…:)

            Anyway, i’ll leave it at that for the folks here to think. This’ll be my last post here. I have no obligation to continue anyway. Everyone here is mature enough to do their own thinking.

            My initial intention posting in this forum is to get everyone aware that it’s disastrous to cancel your investment in the early years. Find out more before you do so.

            Always ask what are the charges incurred, be it insurance plans or saving account with bank before you sign on the papers (just a side note, Citibank are charging $10 a month if you don’t maintain the minimum amount in your saving account).

            Judge it for yourself whether is it worth it to pay whom you hire to manage your investment or saving.

            Bad time might actually be a good time for your investment if you play in the dollar cost averaging formula. This has been proven by many famous investors.

            Warren Buffet advise from http://www.aarp.org/money/investing/info-08-2013/warren-buffett-on-money-success.html

            On Thinking Independently

            You’re neither right nor wrong because people agree with you. You’re right because your facts and your reasoning are right.

            On Investing

            The first rule of investing is not to lose money. The second rule is not to forget the first rule.

            On Picking Stocks for the Long Term

            You should invest in businesses so good that even a fool can run them, because someday a fool will.

            On Bonds

            Bonds should come with a warning label. Most currency-based investments, such as money market funds and mortgages, are among the most dangerous of assets. Their beta [price volatility] may be zero, but their risk is huge. The dollar has fallen 86 percent in value since 1965, when I took over Berkshire Hathaway. It takes $7 today to buy what $1 did at that time. For taxpaying investors like you and me, over the past 47 years, the continuous rolling [over] of U.S. Treasury bills has produced … no real income after taxes and inflation.

            On Investing in America

            Investors need to avoid the negatives of buying fads, crummy companies and timing the market. … [For most investors] buying an index fund over a long period of time makes the most sense. Just make sure you own a piece of American business.

            Whether the currency a century from now is based on gold, shark teeth or a piece of paper, our country’s businesses will continue to deliver goods and services. These commercial “cows” will live for centuries, and proceeds from the sale of their “milk” will compound for the cows’ owners — just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

    2. avatar
      Zurich Customer

      I do not understand, why so many educated people, who know finance and basic math still buy such product.

      Just do simple compound interest calcualtions on your investments with fund based charges of 3%, then insurance company charges of (avg) 3% to 4%.

      Your monies are actually depleting at the rate of 6% to 7% every year. And all that special bonus schemes or promotions you see are actually not there. They are linked to you stay invested for 25 years means you have to bleed for 25 years. Now calculate the cost of charges you will pay on any such flimsy campaigns these companies are running.

      In my opinion even money under your pillow should worth more than investing in these products after adjusting for inflation.

      I just feel laughing when these companies in their AGM boast about ‘customer centricity’ which is modern day mantra to make dow jones sustainability index happy.

      You only need to answer if you have seen any customer centricity in this product and approach of these companies.

  2. avatar
    Andrew Hallam

    Hi Jesse!

    I'm so glad that you found this post.

    As an American, you must declare all of your investments with the IRS. As such, opening an account with a company like Vanguard or Assetbuilder (based in the U.S.) makes the most sense.

    Both of these companies use indexed investing strategies (as recommended by my book and streams of academics) and they are highly tax efficient and very low cost (unlike Zurich and Friends Provident)

    You will need to give a U.S. address when opening the account, even if you live overseas. It could be the address of a friend or relative. Vanguard can be sticky about expats, but Assetbuilder will welcome you.

    Here are their links:

    http://www.vanguard.com http://www.assetbuilder.com

    Keep me posted on any interactions you have with them Jesse. You can lead the way for many of your expat American friends in Japan.

  3. avatar
    MATHEW WILLIAMS

    Hi Andrew,

    Great (yet frightening) post. To my regret, i am currently invested in a zurich vista plan. What is your advice on getting out – take the penalty and pull out, stop any additional bleeding and leave as is or something else.

    Thanks,

    ~a fellow Canadian in Singapore

    1. avatar
      Andrew Hallam

      I did the math on that question Matthew. And it wasn't pretty. But each person’s situation and goals are unique.

      If you've read my book, Millionaire Teacher, you'll see that I profiled a Canadian in Singapore (Gordon Cyr) who did cut his losses. He cut his losses with Zurich and set up an account of exchange traded funds with DBS Vickers. But that may or may not suit you.

      1. avatar
        MATHEW WILLIAMS

        Hi Andrew,

        Thanks again for the thoughts. I do have your book and have seen the part on Gordon – seems we both are in the same boat. For me, I am 20 months in, so according to my agent, I can stop contributions now (for up to a three year period). If that is the case, it seems like a better idea to stay put (as the heavy surrender fees at the moment would take an epic hit). Just for my information, how are you 'crunching' the numbers that get you to the outcome that it's better to leave? What are some of the big determining factors (outstanding term, total contribution so far or is it purely the fees)? I'd be curious to get your views.

        In the meantime, I've set the steps in motion for DBS.

        Best regards,

        Mathew

  4. avatar
    Andrew Hallam

    Hey Matthew,

    I can’t suggest what you should do. But I will show you how fees hurt returns:

    Take a $10,000 investment making 6 percent a year for 30 years:

    Result: $57,434.91

    Scenario 2:

    Take $10,000, but erase $4000 of it.

    Take that $6000 remaining and make 9 percent a year for 30 years:

    Result: $79,606.07

    Zurich's annual fees (including their fund costs) wil be at least 3 percent per year higher than what I pay for investment fees. But you must make your decision on your own.

    Cheers,

    Andrew

  5. avatar
    WTF?!

    Andrew, Andrew, Andrew,

    I've just finished your book, went here to your blog, found this post…and feel-like-a-sucker. Total sucker! It's embarrassing. I'm stuck in a Friends Provident plan valued around 75,000USD and in a Hansard one valued around 80,000USD. I was struggling with the thought of cashing them both in and accepting the penalties (with tears), or reducing them to minimum, minimum monthly payments. However, reading your above description puts it all in perspective. Ouch.

    Did I mention I feel like a sucker?

    I am filed as a non-resident of Canada (living in Japan) and was wondering if there were any issues re: tax I should be aware of before I jump into the coach potato scheme?

    Lastly, when is the book coming out on saving for a university fund for the kids?

    Thanks again for the book!

    Regards,

    WTF

  6. avatar
    Mathew

    Hi Andrew –

    I am in a continued discussion with a Zurich advisor (well, 'independent' – but we doubt that). He has provided a document that states that with a $2000 premium, the expense charge equates to 1.3%. Admittedly it is still more than the low fees attached to index funds – but how can they make such a claim when you mention they are at least 3% higher?

    Another one: I am being provided with a few fund prospectus – and the growth figures are:

    1 mth: 17.07%,

    3 mths: -1.16%,

    6 mths: -16.3%,

    1 year: -17.91%,

    3 years: 134.94%

    Since inception (Jan 1, 2008) -18.24%

    How can they claim that the three year growth is over 100%, but then since inception (4 years ago) it's down almost 20?

    They state this is 'cumulative performance' – but I have also seen figures around compound performance. Should I pay more attention to that (which looks a lot lower of course).

    Thanks,

    Mathew

    1. avatar
      Andrew Hallam

      Hi Mathew,

      Your sales rep, unfortunately, has not added the hidden expense ratios for the unit trusts (actively managed mutual funds) that you own through this company, in addition to the extra costs charged to the account itself. You can't blame the rep for that, considering that he/she probably doesn't really know that those mutual fund expense ratio costs exist. The average investor doesn't bother to ask. Yes, your total costs do likely exceed 3% annually.

      I don't know why your fund returns on the prospectus are so oddly reported. But it doesn't really matter, either. Your costs are high; consequently, your returns will be lower. Unfortunately, since January 2008, you should have made a decent return, instead of experiencing a loss. For a benchmark, here's a link providing a variety of Assetbuilder's indexed portfolio returns. http://assetbuilder.com/GrowthofWealth/AssetBuild

      Each of the Assetbuilder model portfolios have different risk tolerances (some have more stocks than bonds and vice versa) but they have all made money since January 2008. Sadly, for you to recover from an 18.24% decline, you have to make more than 20% to get back to even. It might sound like strange math, but a 100% gain is required to recover from a 50% drop.

      I'm really sorry that you stumbled into this company's investment products, but there's a single silver lining: you're now aware of it, and you have an option.

  7. avatar
    Andrew Hallam

    Hey WTF,

    I'm really sorry to hear about your investment plan. But don't be too hard on yourself. You didn't learn this stuff in school, and our world (for better or worse) is based on free enterprise, so many investment firms will try to bleed its clients, if they can get away with it.

    As a non resident, you won't be able to invest in Canadian brokerages without potentially harming your residency status. But you may be able to open a brokerage account in Japan that gives you access to other international stock exchanges, allowing you to build a couch potato portfolio from Japan. For example, I live in Singapore, but my brokerage allows me access to the Toronto, New York, Singapore and Tokyo exchanges.

    Through my brokerage here, I can build a Canadian couch potato portfolio quite easily. Singapore doesn't charge capital gains taxes on investments. If Japan does, the percentage is likely to be low. As an expat Canadian, you can even open an account with the same brokerage I use, but you would have to fly here and open that account in person. From then, you would manage the account online, much as I would with my account.

  8. avatar
    Lisa

    Hi Andrew,

    I am a Canadian teaching at Saigon South International School in Vietnam. I am in the same boat as Matthew. I have been investing with a company called Generali International, Guernsey, Channel Islands. In 2007, I opened up a 30 year VISION retirement plan. Recently, I stumbled on to your website and then read your book. I immediately got in contact with Generali and basically all the 'administrative fees' and extra charges are almost identical to what was outlined in this post. I am in a state of shock. I will basically be getting half of what I put into this plan. I am cashing out this plan immediately. I have also stopped contributing to my Raymond James fund. I will now have a bit of money to send somewhere to invest in a couch potato portfolio.

    I am a non resident of Canada. I won't be able to invest in Canadian brokerages without potentially harming my residency status as you stated. I want to build a Canadian couch potato portfolio. I want to open an account with the same brokerage you use. That way I can manage my account online from Vietnam. What brokerage do you use?

    Andrew, I am so happy that I stumbled upon you. Thank you for any guidance you can provide.

    Sincerely,

    Lisa

    1. avatar
      Andrew Hallam

      Hi Lisa,

      I spoke at the EARCOS teachers conference in March, 2011, and there was a teacher from Vietnam who I was in touch with for a short while after. Unfortunately, I can't recall his name, but he flew to Singapore to open an account with DBS Vickers, which is the same brokerage I use. Through DBS Vickers, you could buy the couch potato ETFs, and your account wouldn't accrue capital gains taxes because Singapore doesn't charge capital gains taxes. Another Canadian teacher, from ISB at Bangkok, recently did the same thing. Give the brokerage a call and let them know that you would like to open a "trading account which would give you access to the Toronto Stock exchange" At some point, you will need to fly here in person to fill out the paperwork. It won't be, initially, very convenient to set up, but it will be much better than the expensive road you have currently started down. I'm really sorry to hear about the firm you got involved in.

  9. avatar
    Neil

    As I Canadian working in mainland China, I looked into opening an account with DBS Vickers Hong Kong, who turned me down. They do not open accounts for Canadian citizens, even though their website does not mention this. Saxo Bank Hong Kong have said that I can open an account with them, online. This might be an option for other Canadians who do not want to fly down to Singapore. Have you heard anything bad about Saxo Bank?

    PS. Bought the book and found it very informative. Like an above poster, I had an account with Generali but it was only a 10 year term with the lowest monthly deposits possible. I cashed it in last week and am waiting for the funds to be sent to my bank. Thanks Andrew for opening my eyes about this.

  10. avatar
    Andrew Hallam

    Hi Neil,

    I haven't heard anything bad about Saxo. Here are some questions to ask:

    1. Will I have access to the New York Stock exchange when making purchases?

    2. How about the Toronto stock exchange?

    You can make do without the Toronto, but you'll need the New York if you can't have Toronto.

    3. Any annual account fees?

    4. What are the commission charges?

    Good luck with this Neil, and please keep me posted. Also, if you have a few minutes, I'd be thrilled if you could review my book on Amazon! Here's the link: http://www.amazon.com/Millionaire-Teacher-Wealth-

    Thanks Neil!

    Andrew

  11. avatar
    Karenne G

    I have a Vista from Zurich which seems a killer to me. I want to make some partial withdrawal but the agent tells me I can take only 50% of my value today as they have to retain a bit.. I also took a Futura for which he told me Nil allocation period is 24 months. But I saw no allocation for atleast 28 months.. I think this whole thing is a scam where only ZURICH makes money..

    1. avatar
      Andrew Hallam

      It's a very unfortunate racket Karenne. Did you know that an American salesperson was recently given a short prison sentence for selling one of these products? Here's the link to my article which references it: http://assetbuilder.com/blogs/andrew_hallam/archi

  12. avatar
    M.G.

    Looks like this is the blog post comment section where all of us regretful ex-pats come for some advice.

    Bought the Kindle version over the weekend and plowed my way through it all the while kicking myself for not listening to other people's warnings about my financial advisor. Now I'm six years into his "plan" and I know that I've lost a lot of money due to management costs.

    I currently have about $20,500 in one of my managed funds. The surrender value will yield about $19,500. Looking at the advice you gave above, I think I'm going to cash this out and get into a Vanguard fund.

    The real problem is that I have another fund with my guy that is valued at around $55,490. I've paid into this about $49,000 in premiums since Feb. 2009. Hmmmmm . . . not exactly the return I was hoping for! Spoke to their rep. today and he said I would have a surrender value of $52,133. My fees are 1.55% per year. Should I:

    1) Cut my losses, cash it out and roll all of the above into the Couch Potato fund you reference in the book?

    2) Start The Vanguard with the $19,500 and then dial back my contributions to the other fund, only paying the minimum? If I am doing the math right, I would take a 6% loss on my money in the second fund if I cash in early. But I need to keep this money in for at least another 4 years, which is more than the 6%. Am I right?

    3) When I move this money over, am I incurring any other costs? Such as taxes? Or will all of that come later on down the road?

    Looking forward to fixing my finances and so glad that I was only a few years into this before I found your book. I also work at an international school here in Europe. And I will definitely be selling a few more book for you!

    Thanks for all of the great advice!

  13. avatar
    James D

    Andrew,

    I'm a 25 Irish engineer working in the UK. I've read your book a couple of times & I'm starting to read a couple of the other books you've recommended. Your book was an eye-opener. Thanks!

    I'd like to start investing with the index stock & index bond mix you've recommended but it seems a bit trickier in the UK – particularly when trying to deal with Vanguard as you have to use a "platform". Could you provide some advice on a "coach potatoe" type solution for the UK.

    Any help would be greatly appreciated… I'm 25 & fast running out of investment time! ;-)

    To make matters more complicated, I'll be seconded to France over the next couple of years so I'd also be interested to know if you'd have similar advice for investing in France.

    Thanks,

    James

    1. avatar
      Andrew Hallam

      Hi James,

      Many thanks for the kind words about the book. I'm glad it was helpful. Please let me know if this link helps! http://andrewhallam.com/2012/04/great-option-for-

      And if you have a couple of minutes to write a short review on Amazon (even just a couple of sentences) I'd be thrilled.

      Here's the link to Amazon UK: http://www.amazon.co.uk/Millionaire-Teacher-Wealt

      And the link to Amazon USA: http://www.amazon.com/Millionaire-Teacher-Wealth-

      Thanks James, and please let me know if the linked article is helpful.

      Cheers,

      Andrew

  14. avatar
    YK Sharma

    Hi Andrew,

    I am working in Singapore. Wanted to present my son with a good book on Money/Finance on his 13th birthday. Stumbled upon yours, liked what I read about it and ordered it online on fishpond.com.sg. It arrived on time. Finished reading it two days back. Truly an eye-opener. But you know what ? I have committed every single mistake that you have warned against in your book.

    1) From Apr 2011 onwards I am investing S$ 2000 per month in Zurich Vista. 10 year 'policy'. Premium for the first 18 months will remain 'blocked; Getting 5% more units on my first year premiums (12 months)

    2) Investing S$ 750 per month in Friends since Dec 2009. 7 year policy.

    What do you think is the best thing to do ? Get out of both ? Complete the 18 month period in Zurich, stay put with this and not pay anything more ? Or to pay maybe one or two premiums every year just to keep it going to minimize losses (though do not know if this is possible).

    3) Even bigger mistake is the Universal life policy I took last June – AIA Platinum Legacy, US$ 500k sum assured. Since I have a 'risky' job, decided to pay all the premiums in 5 years (my definition of forseeable future) and be 'tension-free' thereafter. You know it was the 'emotional' thing – what happens if your wife survives you ? She will not be dependent on anyone else….and all that stuff. Pemium is close to US$ 33,000 per year and have paid 2 premiums so far. Three more to go. What to do ? Do you know if anyone would 'trade' this policy …if thats the best way to minimize losses ?

    Best Regards,

    YK

    1. avatar
      Andrew Hallam

      YK Sharma,

      I'm sorry to hear about the products you were sold. I don't know what you could do about your life policy. Wow…I've never dreamed that anything could be so expensive. As for the "investments", you may want to look at the withdraw penalties before making a decision. Fees will amount to roughly 3% per year, including expense ratios for the funds. This is going to be a killer long term drag on your money, so keep that in mind when figuring out whether it's worth taking it on the chin with these redemptions. If you run comparative returns: 5% per year vs. 8% per year in a compound interest calculator over many years, you'll see what I mean. Keep this difference in mind when determining whether to pull the plug or not. I wish there was more I could do to help. What you could do, of coure, is tell as many people as possible about these products. One of the reasons so many people get caught in these webs is because people don't talk about money and share what they've learned/mistakes they've made, etc. Thank you for being so honest on this site. There will be others who read this. And ironically, you will be saving someone else from going down the same path.

  15. avatar
    David John

    Dear Andrew,

    I am working in a private company in Abu dhabi,my friend recommeded me for a whole of life protection plan fron zurich international life" Futura" on the aspect for protection;life cover and"Critical Illness". i had paid the premium for last 2 years.what is your suggestion on the product from your experience,i am an Indian Citizen…please advice……….

    1. avatar
      Andrew Hallam

      Whole life insurance, unfortunately, is a rip off. If you want insurance, you should buy insurance. If you want to invest, you should buy investments. The two should never be coupled. Unfortunately, they often are. Whole life insurance policies aren't as common as they used to be because many people have caught on. Google whole life insurance and read everything you can (that isn't put out by insurance companies). You'll see what I mean.

  16. avatar
    Rese

    Hi! Andrew,

    i have FPI Premium account which i paid 18months way back 2years. I transferred my account to the different broker which i saw that there is no development on the cash value of my policy. and now i am thinking to continue my payment. Which do you think is the best i can do?

    Thank you!

    Rese

  17. avatar
    Fahed

    Hi Andrew,

    Many thanks for your active contributions and the visitors’ feedback this will for sure someone from diving in a long term plan with tiny return investment at the end.

    I am based in Dubai and would like to join Vista for investment on a monthly regular premium of 1,000 USD for a period of 10 years. From what I understood that Zurich hidden fees and surrender fees are both extremely high this will impact the return of investment investment therefore. Example 8% vs. 5% actual.

    I am not a financial expert here, but my financial advisor stated the below regarding the charges, May you please recommend if this true?

    1. 4% setting up the policy of net 18 months amount of initial units (1000 per month*18*0.04= 720 USD Is this will be paid once at set up the policy? Or I will pay the same amount of 720 USD per year for 10 years ?

    2. Policy management charge 0.75 % A YEAR , again 0.75% of the 18 month amount? Will this be paid on yearly basis for 10 years?

    3. Monthly fee to administer your policy 7.5 USD Fixed MONTHLY

    4. Management charges of each fund purchased (Gray Area)

    5. fund investment advice fee, this will be required to have a financial advisor to recommend what to invest and when to sell and buy (1.5 % per year) again 0.75% of the 18 month amount? Will this be paid on yearly basis for 10 years?

    The Vista designed for a long term investment so if you are thinking to withdrawal before 5 years just forget and don’t enrol from day 1 due to high surrender charges

    There is a bonus of 1.5*10 years=15% will be added to the first year, is this true ? how I can predict the growth per year ?

    Last question please, Zurich having 3 types of investment fund including Low Risk, Managed and Mirror funds, which one you recommend in terms of moderate to higher risk. I guess the best will be managed funds as there is a tolerance and trade off in selecting between equities and bonds. In my case I will go for the one with more bonds rather more equities

    Appreciate your kind assistance on the above.

  18. avatar
    Steve

    Hi, well I stumbled across this site whilst trying to search how to sell my underperforming Zurich fund I committed to when living in Singapore! I now know I am unlikely to find an active market of investors keen to take on board my fund. I was enticed by the silver tongue, the upfront bonuses, the wonderful projections and am now completely gutted that the 60% upfront bonus has been eroded and my redemption value is less than a quarter of my principal.. I will (have to) take it on the chin and I suppose I will take solace in the fact I have not contributed to it in 2-3 years and this will be the last time I will be fleeced so badly.

    1. avatar
      Andrew Hallam

      Hey Steve,

      I'm sorry you had such a terrible experience. Spread the word if you can, to ensure that none of your friends and family fall for such a venture. You could end up saving other people hundreds of thousands of dollars. It's some consolation, perhaps, for the money that the company took from you; it's a silver lining of sorts. Post your experience on Facebook. It's a small gesture that could save plenty of others, plenty of money.

      Cheers, and good luck.

  19. avatar
    Farah

    Hi Andrew,

    This isn't abt Zurich per se, but I was wondering what kind of insurance planning you've done for yourself?

    I'm almost one year into an ILP and starting to get cold feet, especially after reading your book. I'm convinced that channeling the $ otherwise spent on premiums into index funds would give me better returns. But there are all these barriers to exit, incl my boyfriend-agent having to return back the approx 50% commission of my first year premium, so I'm confused between getting out of the product completely or compromising by taking a premium holiday.

    1. avatar
      Andrew Hallam

      Hi Farah,

      While I can’t advise you, I can say that most fee-based advisors suggest that if you want to buy insurance, buy term insurance, not whole insurance. I don't have children, so I don't require life insurance. My wife is able to work, so she wouldn't need money from a policy if I die. Plus, the best insurance is money in the bank (or investments, in our case) and no debts.

  20. avatar
    Noor

    Hi,

    I am 42 years old, enrolled in the Zurch Vista plan since 2008. I have made regular contributions of USD 750 per month and in between even higher. I contributed cover USD 60,000 so far and have withdrawn about USD 24,000. In case I surrender I stand to lose up to USD 21,000/ of my contributions today and in case I continue I still have over 15 years to go. Besides the forced savings, I do not see much benefit so far and I bought the policy on trust without really investigating the penalties. I do feel I can do the saving in a better way without relying on such a mechanism which is long drawn and has so much penalty involved. My basic query now is should I just stop and pull out now and cut further losses? Thank you

    1. avatar
      Andrew Hallam

      Hi Noor,

      It literally breaks my heart every time I hear such a story. I'm so sorry this has happened to you.

      If you started investing in 2008, you should have made money by now. The stock and bond markets are higher today than they were in mid 2008, and if you were dollar cost averaging, you would certainly have made money, if you weren't paying high fees. You can see the results of a blended Vanguard index fund here: http://quote.morningstar.com/fund/chart.aspx?t=VT… Check its level since mid 2008. You would be up roughly 11%.

      1. avatar
        Noor

        Hi Andrew,

        Thank you for your concern and valuable comments. I am looking at this now as a lesson (albeit costly) in investments. If I could save a few people from the same mistake, by this lesson, I would consider the loss worth it..

        The simple thing I have learnt now is never enter into any financial agreement or contract that is not equal to both parties.

        For me now it is not about how much money I make with a different route. I may make much less. At least I do not want to be one who continues to fund corporate greed.

        Thanks again.

        1. avatar
          Andrew Hallam

          I'm very inspired and impressed by your attitude Noor! You're amazing! Keep spreading what you know and it will benefit many others. Thank you for posting your story on this blog. It will help people; I guarantee that.

  21. avatar
    Steve

    Andrew,

    can anything be done to bring Zurich et al to task and accountability for unethical sales other than making the individual sales person accountable? Is anything being done to get fleeced investors redress? My sentiment on this is if I knew everything that was needed to know about the twists and turns blah blah, I would be a financial guru and not need a trusted advisor

    1. avatar
      Andrew Hallam

      Hey Steve,

      It's interesting you ask, and I certainly don't have an answer. Recently, Scott Burns (the American syndicated finance columnist) sent me an email lamenting about unscrupulous practices in the banking system. He has been writing for 40 years and seemed to suggest that we have hit all-time lows. Then earlier today, a colleague from work (a widow) was convinced by DBS bank to allow the bank to trade currencies with her husband's life insurance money. As of now, that's what the bank is doing. What can we do? Again, I don't know. I will be calling this particular rep myself on Monday and I'm going to calmly ask enough questions to make him feel very shameful (I hope) but greed appears to have no boundaries.

      As for groups like Zurich and Friends Provident, the best we can do is talk about it and share what we learn. I've been thrilled (and saddened) to see how many Singaporean based expats have searched (googled) these companies and found this article. People like you are doing a service when sharing your stories on this blog thread. Together, we can prevent this from happening to others. True, only a small percentage will be benefit, but for those people, this will be worth it.

  22. avatar
    Andrew Hallam

    Hi MG,

    I'm terribly sorry for missing your question. What nationality are you? And where do you live? Your investment options are dependent on these factors.

    Unfortunately, the fees you mentioned did not include the expense ratios of your funds. Coupled together, you are paying more than 3% annually in fees.

    1. avatar
      M.G.

      An update:

      Hi Andrew . . .

      Just scanning through your site and saw that you replied to my comment. Yes, a year ago I was in a dark place, financially speaking. Like others, I felt so naive for signing my name on the dotted line with one of “those guys” who are supposed to be so much smarter about managing money than the rest of us financial idiots.

      Fast forward almost a year . . . the clouds have parted and the financial sun is shining quite brightly. I cashed out both of my funds and put them into Vanguard indexed funds as you suggested in the book. This took some convincing when I talked to the Vanguard rep. on the phone until I said that I had 70K for my initial investment. I was told by my initial contact that because I was an expat I couldn’t invest with them but her supervisor was receptive to me putting this account under my mpther’s address in the U.S. and having all correspondence mailed there. My advice to any U.S. expat is not to even mention how many years you have been abroad. Just use your U.S. address.

      Anyhow, after seeing how much better my returns are after a little less than a year, I can’t express enough gratitude to you for saving me before I was too far gone down the road with “my guy” who used to manage my money for me. Having the ability to visit the Vanguard website and see everything in simple, transparent language gives me a sense of calm and so much piece of mind. I no longer worry about having enough money for retirement.

      I have preached far and wide about your book and the investment strategies you recommend but most people view it as too much of a hassle to cash out their current funds and move their money. This makes me want to pull my hair out since people are so satisfied with the status quo and aren’t willing to make a small time investment that will pay big dividends in the future. Do you have any advice on how to lead these stubborn horses to water and make them drink?

      Once again . . . a HUGE THANK YOU!

  23. avatar
    Andrew Hallam
  24. avatar
    Andrew Hallam
    1. avatar
      Fahed

      Hi Andrew,

      Thank you for your reply and sorry for my late response. i understood that up front fees of 2.5 % per year taken from something called ICP (1000*18=18,000 USD) and this is fixed all over the period. Is this right?

      May you please tell me what you mean by My ETF investments?

      Again many thanks for your support.

      Looking forward to hear from you .

  25. avatar
    Neil

    Hi Andrew. I mentioned before that I dropped my account with Generali, since it is so similar to Zurich. I am feeling somewhat guilty because I thought it was a good system, especially living in China. We do not have easy access to investment opportunities and Generali lets you pay monthly with a Chinese credit card. I still am going through the process of setting up an investment plan in Hong Kong but that means me flying down with the paperwork and then figuring out an easy way to send money down there. Anyone who has had to deal with a Chinese bank knows how frustrating it is to deal with the Chinese banking system. Over an hour at the bank just for a wire transfer, which does not include the 34 minutes waiting for the one teller to finally get to you. I am now dealing with black-market money exchangers privately, which give almost equivalent exchange rates as the banks, and will be flying down to HK periodically with cash stuffed in my underwear.

    This is why I am torn over my assistance with other teachers, especially new ones. What surprised me is that so many set up 20 years plans for thousands each month, while I started out with a 10 year plan at the minimum amount. Should I continue to advise them, given the difficulty of investing here in China? I have told people that I dropped mine due to the fees but it did not faze them. They like the convenience, especially when they hear what I have to go through to invest overseas. It is much easier in a modern country like Singapore but China is still sufficiently backwards enough to make things difficult.

    I know new teachers will ask me what to do in September and I don't want to piss off the other older teachers, who I introduced to the Generali salesman. Then again, they are adults who should also do some investigations on their own. I'm torn.

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