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Apr 07 2014

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Does International Financial Services (Singapore) Flog Friends Provident Products?


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It’s getting tougher for expatriates to trust financial advisors—and that’s a shame. 

zurich warningSome good ones exist, including Noto Financial Services and Thailand-based Creveling & Creveling

But they’re not as common as they should be.  Reports from investors in South East Asia are implying that International Financial Services (Singapore) is selling Friends Provident Offshore Pensions. 

While the reports are unconfirmed, it would be a shame if true. 

Laced with poisonous fees, Friends Provident offshore pensions can remove 80%, or more, of an investor’s profits each year.

If global markets average 7% per year and Friends Provident charges 4% per year (which they do, when coupling platform costs and mutual fund fees) investors would be giving away 57% of their profits.

In a year where markets earn 4%, Friends Provident investors may be shooting blanks.

Such products are popularly sold because they create commission windfalls.

Here’s how the commission train gains traction. A representative from a brokerage firm slithers into an expatriate filled workplace.

Some of the more common brokerages include:

  • the de Vere Group
  • Montpellier
  • Austen Morris
  • Globaleye
  • Henley
  • Gilt Edge International (Group) Ltd
  • Sovereign Offshore Ltd

The broker convinces management to tolerate their firm, resulting in a ready-made customer base.

The brokerage rarely creates such products directly; it usually acts as an intermediary for a pension provider, many of which are based in the British Channel Islands, Luxembourg or the Isle of Man. 

Some common pension providers include

When an advisor for the de Vere Group, for example, sells a Friends Provident pension, the rep receives an upfront commission from Friends Provident. 

How Big Is The Commission?

Benjamin Robertson revealed the commissions paid to brokers in his South China Morning Post’s September, 2013 article, Investment-linked insurance schemes a trap for unwary investors

On a 20-year policy, a broker convincing a client to add $1000 per month ($12,000 per year) would receive an upfront commission of $10,800, split between the broker and his employer.

 On a 25-year policy, the commission would be higher.  It’s based on a formula multiplying the number of years of the policy x 12 (months in the year)x monthly dollar contribution x 4.2 percent.  As such, a 25-year policy where the investor adds $1000 per month would earn a brokerage commission of $12,600.

Recognizing a winning lottery ticket when they see it, many expatriate advisors flog these products exclusively. 

To a hammer, everything looks like a nail. 

Consequently these expensive, inflexible platforms have spread like pandemics among global expats. 

To recoup that commission, firms like Friends Provident are motivated to keep the investor’s money as long as possible.

Doing so allows the company to reap more client fees over time. As an investor adds more money, fees earned by the financial company mount. 

But investors who awaken to the tyranny of costs find their private parts stuck in a zipper. 

Those closing their accounts to invest elsewhere get ripped with early redemption penalties, sometimes up to 80 percent of the client’s account proceeds. 

International Financial Services—Are You Really Playing This Game?

International Financial Service’s Steve Young claims to have bagged 198 clients in a single month.

I hope the reports of his firm selling Friends Provident Investment Linked Assurance Schemes are false.

But I bring this question to the public.  Is it true, or not? 

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/2014/04/does-international-financial-services-singapore-flog-friends-provident-products-2/

12 comments

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  1. avatar
    No Surprise

    Andrew, you are correct, IFS sells Friends Provident. They are a commission-driven company and also sell similar products from Zurich, Royal Skandia, Generali and, increasingly, Standard Life. They are also now offering an investment management service for which they are charging an additional 1% on top of the fees built into these products.

    One of the reasons for this – aside from the commissions – which you have estimated on the VERY conservative side – the MAS effectively licenses companies like IFS as Insurance Brokers;
    They do not have a Capital Markets License:

    INTERNATIONAL FINANCIAL SERVICES (S) PTE LTD
    Company category
    :
    Financial Adviser’s Licence Holder
    Regulated Activities
    :
    Advising others, either directly or through publications or writings, and whether in electronic, print or other form, concerning the following investment products, other than –
    (i) in the manner specified in paragraph 2 of the Second Schedule to the Financial Advisers Act (Cap. 110); or
    (ii) advising on corporate finance within the meaning of the Securities and Futures Act (Cap. 289)
    – Life policies

    Arranging of any contract of insurance in respect of life policies

  2. avatar
    Ben

    Andrew,

    Thanks for your stirling work in pointing out the poor value for money that the FPI offshore pension gives. The deVere group are busy peddling it in the UAE at the moment, and having received my ‘personal recommendation’ from them, the costs are exactly as you describe. It’s a shame this is still going on, but in a relatively unregulated environment, it’s hard to see it stopping soon.

    Do you have any recommendations for us non-Singapore based people, in terms of offshore brokers? So far about the only one I can find is TD international, who seem good, but their dealing costs are pretty hefty for, say, monthly purchases. Any other ones that you know of that operate over the internet?

    Thanks in advance.

    1. avatar
      Andrew Hallam

      Hi Ben,

      As of this writing, Saxo Capital Markets has a cheaper platform than TD International. Minimum purchase commissions are about $25 per purchase, and there are no additional account fees (currently). Through Saxo, you could buy ETFs (indexes) costing as little as 0.1% per year. You would not need to visit Singapore to open such an account. Contact the Singapore branch to find out how you can open the account online. They will likely need you to verify your identity with a notary in a foreign country first. I’m putting the finishing touches on a book for expat investors. But it isn’t ready in time for you. Give Saxo a ring.

      Cheers,
      Andrew

  3. avatar
    Ben

    Thanks for the super fast response Andrew. I’ll look into that. ETF’s/passive trackers were exactly what I was hoping to purchase. And all the best with the book! There’s a dearth of knowledge out there for our increasingly globalised world. With people moving around so much, it’s tricky to know how and where to save. I look forward to reading it when it’s done. If you’re planning country specific sections then even better. (I.e. If you plan on returning to UK/US/Canada at any point, these are some things you might want to look into…)

    We could certainly do your book here in the sandpit!

    All the best.

    1. avatar
      Sean

      Hi Ben,

      I’m also in the UAE. I’m planning to call Saxo in Singapore on Monday. But I’ve just seen that you can also open an account with them in the UAE. Have you investigated that option? I’m not sure what the pros and cons would be in terms of opening a Saxo account in UAE vs Singapore.

      1. avatar
        Andrew Hallam

        Sean, give them a phone call and let me know. If you can open this account in the UAE, it should be exactly the same platform.

        Cheers,
        Andrew

        1. avatar
          Sean

          Hi Andrew,

          I just called. I specifically asked them whether they offer the same suite of ETFs that are offered by Saxo Singapore, and they said yes. They also said that the commissions are the same.

          When I called, I told them that I wanted to trade “ETFs and bonds”. RE the ETFs, the minimum opening balance would be 10k, as I mentioned on another comment here. But for the bonds, they said the minimum balance would be 50k dollars. Now, I presume that being a novice, I didn’t express myself properly to them. Per your book, I’m guessing I should have said that I want to trade “bond and stock ETFs” rather than simply “bonds”.

          In addition, I see that Citibank in the UAE also offer an e-brokerage. To get this, you need to open a savings account with them and the minimum balance is only 820 dollars — much, much lower than Saxo. However, I don’t know whether the range of ETFs available is favorable when compared to Saxo. Citibank’s fee for ETFs, according to some of their online documentation, is 30bps.

          I have one other concern about using an e-brokerage in the UAE. I don’t know whether the concern is valid or not, but here it is: In the UAE, the expat mantra is to always, always, always keep your money offshore. This reason for this is that if you die, your bank account gets frozen and Sharia law may be applied, meaning that your money might not go to the person you want it to go to. At least, that’s the oft-touted concern for regular bank accounts such as savings accounts and checking accounts.

          I wonder whether it’s the same with e-brokerage accounts with banks like Saxo. When I have a balance in a saxo e-brokerage account, where exactly is my money gone? And how do I get it out? For example, if I want to sell some stock, where does the money earned from the sale go? Does it go to the Saxo account, from where I can then withdraw it if I wish?
          And what if I used the Saxo e-brokerage account to buy a load of ETFs and then I want to leave the UAE and move to my home country (Ireland), or somewhere else? In this case, is my invested money forever tied to Saxo, meaning that I can only ever trade my ETFs through Saxo, or is my money, once invested in an ETF, now independent of Saxo?

          Sorry for all the questions – but I know that you’re currently writing a book for expats, and this is the exactly the sort of basic information required.

          Best,

        2. avatar
          Ben

          Dear Andrew,

          It’s been around 3 months since I first read your warnings on this site, and it’s been quite a journey ever since. I’ve just finished reading your book, and have to say it was very well written, simple to understand and informative. Definitely one I’ll recommend to others.

          I’ve successfully managed to avoid all the overprices schemes that the financial services companies are peddling out here, and now I actually almost look forward to them calling. I usually get a free coffee out of them, and rather enjoy grilling them on why they offer such bad value for money on their products. One of the salespeople happily told me he was living in one of the most expensive areas of Dubai in a massive villa. I know how much rent costs there, and I didn’t much like the thought of my savings paying for his lifestyle.

          Anyway, I’ve successfully opened an account with Saxo. They were helpful and quick, and yes, $10k or other currency equivalent is the minimum, but once you’re past that, commissions are relatively low and we’ve got a plan to invest every few months through them to keep the costs down. Your selection of ETF’s looks like a good one. I have to admit that I can’t resist trying a few different investment ideas, so I will keep my (tax-free) accounts open that I already have. One running a FTSE 100 value stocks portfolio, and the others with a selection of diversified, relatively low cost investment trusts. But we’ll not be adding new money to them. That’s half the joy of being offshore already!

          I have just one more question for you. I’m planning on using 4 ETFs. Global, FTSE 100, European and UK short term gilts. But I’m reluctant to commit money to where it seems to provide poor value at the moment. Namely the bonds. I know we’re in extraordinary times, with interest rates being so low and money being printed like crazy, but how do you feel about committing to bonds at the moment? (And if it affects anything, I’ve probably got another 30-35 years to go before retirement, so wanted a stock heavy portfolio anyway).

          Thanks Andrew. Keep up the good work.

  4. avatar
    Sean

    I’m also based in the UAE and a product called RL360 Quantum has been proposed to me. It sounds really, really similar to the Friends Provident product mentioned. Luckily I’ve only paid one month into the 24-month initial allocation period. Thankfully I found this blog, and I’ve been detecting bad vibes about it from other sources, too, so I’m going to pull the plug on it immediately
    Andrew – thank you very much indeed. I’m subscribing to your blog and I’ve just purchased your book.

  5. avatar
    No Surprise

    IFS are licensed by the MAS in Singapore. Their operation in Qatar has been publicly censured by the licensing authority.

    Doha, Qatar, Sunday 27 April 2014: The QFC Regulatory Authority has decided to publically censure International Financial Services (Qatar) LLC (IFSQ) after reaching a settlement agreement that addresses the QFC Regulatory Authority’s serious concerns regarding the actions of a former approved individual of IFSQ and IFSQ’s systems and controls in relation to that conduct.
    The QFC Regulatory Authority censures IFSQ under Article 58 of the Financial Services Regulations for the following:

    IFSQ managed clients’ investments causing it to breach the scope of its authorisation, in contravention of Article 11(2) of the Qatar Financial Centre Law;
    IFSQ’s record-keeping systems were not adequate in ensuring that client files contained appropriate historical records of client communications and IFSQ failed to keep appropriate records of client communications, as required under rule 6.2.6 of the General Rulebook;
    IFSQ’s corporate governance processes and senior management personnel failed to ensure that its affairs were managed effectively, in contravention of Rule 2.1.3 of the Principles Rulebook (PRIN); and
    IFSQ failed to ensure that it had effective systems and controls in place, including risk management systems and adequate human and technological resources, in contravention of rule 2.1.4 of PRIN.
    The QFC Regulatory Authority considered IFSQ’s contraventions to be serious, with the potential to undermine the confidence of current and prospective users of the QFC .

    IFSQ demonstrated a commitment to settle the matter and reported the conduct to the QFC Regulatory Authority. IFSQ cooperated with the Regulatory Authority during the course of the investigation of the matter. IFSQ undertook significant remedial steps to address the QFC Regulatory Authority’s concerns and has agreed to compensate clients who were impacted by the actions of its former approved individual.

    Media contact:
    Felicity Glennie-Holmes
    T: +974 4495 6721
    M : +974 7702 4599
    E: f.glennie-holmes@qfcra.com

  6. avatar
    Ben

    Dear Andrew,

    It’s been around 3 months since I first read your warnings on this site, and it’s been quite a journey ever since. I’ve just finished reading your book, and have to say it was very well written, simple to understand and informative. Definitely one I’ll recommend to others.

    I’ve successfully managed to avoid all the overprices schemes that the financial services companies are peddling out here, and now I actually almost look forward to them calling. I usually get a free coffee out of them, and rather enjoy grilling them on why they offer such bad value for money on their products. One of the salespeople happily told me he was living in one of the most expensive areas of Dubai in a massive villa. I know how much rent costs there, and I didn’t much like the thought of my savings paying for his lifestyle.

    Anyway, I’ve successfully opened an account with Saxo. They were helpful and quick, and yes, $10k or other currency equivalent is the minimum, but once you’re past that, commissions are relatively low and we’ve got a plan to invest every few months through them to keep the costs down. Your selection of ETF’s looks like a good one. I have to admit that I can’t resist trying a few different investment ideas, so I will keep my (tax-free) accounts open that I already have. One running a FTSE 100 value stocks portfolio, and the others with a selection of diversified, relatively low cost investment trusts. But we’ll not be adding new money to them. That’s half the joy of being offshore already!

    I have just one more question for you. I’m planning on using 4 ETFs. Global, FTSE 100, European and UK short term gilts. But I’m reluctant to commit money to where it seems to provide poor value at the moment. Namely the bonds. I know we’re in extraordinary times, with interest rates being so low and money being printed like crazy, but how do you feel about committing to bonds at the moment? (And if it affects anything, I’ve probably got another 30-35 years to go before retirement, so wanted a stock heavy portfolio anyway).

    Thanks Andrew. Keep up the good work.

    1. avatar
      Andrew Hallam

      Hi Ben,

      You are attempting to do something very common among smart people: speculate. But most people attempting to do so don’t do well. Ah, they may get lucky once, maybe even twice, but then they establish a habit of thinking they know when it’s a good time to buy a specific asset class. Don’t think of what your bonds will earn you this month or this year. Think long term. Be disciplined and diversified, and rebalance when your portfolio allocation tips too far in one direction (like when you’re out by 10% or more). That’s what I do. Incidentally, when stock markets crash, those paltry bond returns look pretty darn good—and they provide the required dry powder to rebalance with more money going into stocks on the cheap.

      Cheers,
      Andrew

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