WARNING! Beware Of Expatriate Investment Salesmen

 

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Please read the update of this post and comments

(30/11/2011)

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

 


 

zurich warningBeware the traveling salespeople.

They’re looking to make money from naiveté.  And too many expatriate Brits in Singapore are getting crushed.

When paying too much money in commission to buy a car or a house, you can swallow your pride, accept it (if you know that it occurred) and move on with your life.  If it costs you a few thousand dollars,  that can be considered chump change.

Chump change? Absolutely.

Paying too much in fees for your investment products can slowly crush your nest egg’s potential.  In the world of investment products, low fees are the only reliable indicator of future return.  The lower the fees, the more you make.  It’s that simple.

Paul Farrell, author of The Lazy Person’s Guide To Investing, sums up what academic studies have revealed for a very long time:

Of all the predictors, the expense ratio is the only reliable one in predicting future performance. Funds with low expense ratios “deliver above-average future performance across nearly all time periods.” FRC calls a favorable expense ratio an “exceptional predictor” for bonds, and a “good predictor” for stock funds. Savvy investors have long known that operating expenses are probably the biggest drag on performance, along with front-end loads and brokerage commissions. Once again, in the FRC study the conclusions are obvious. Bottom line: If you want predictable performance, pick funds with low expenses

In the investment world, the more you pay, the less you make.  And many expatriate Brits in Singapore are paying through the nose to purchase whole life investment policies.  But do you want to know what’s really strange?  Most of those buying these financial services don’t even know that they’re buying whole life insurance policies.  Many of them think they’re just buying “investments”.

I met with three people this week who purchased “Investments” from representatives from Zurich International (two of them) and Friends Provident.  Based on The Isle of Man, these companies promise tax shelters for British investors (as well as others) and they often tag along a whole life insurance commitment.

First, a newsflash for Brits in Singapore.  This country has no capital gains tax for your equity  investments, so you can keep your money “offshore” right here.

As for whole life insurance policies, before moving to Singapore, I didn’t think anyone still bought those products.  Deemed a con by many, its hidden costs are great for the people selling the products, but they aren’t so great for the “investor”.  Whole life insurance masquerades as an investment policy as well as an insurance policy, and it’s much more expensive than it’s “term insurance” cousin. …more info

Friends Provident

Let’s have a look at the death benefit with Friends Provident.  Assume you invested $240,000. If you die, and the portfolio is worth less than what you invested, your heirs would get 101% of what you invested.  Your “cash in” amount would be $240,000 and your heirs would receive $242,400.  

Don’t let the “101%” fool you.  If I loaned you $5 and you paid me 100% of it back, I’d still just be getting $5 from you.  Marketing with numbers is an art.

Here’s the death benefit right from the company website:

Death benefit

In the event of the death of the Life Assured (or the last surviving Life Assured if the policy is written on more than one life) while the policy is in force, 101% of the cash-in value of your plan will be payable. … read the product summary

 

And as mentioned on the website, the company can change its fees at any time.  Don’t believe me?  Check this out.  It could be even worse in the future:

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


How about their “investment” charges?  These are sweet—if you own the company.

Again, right from the company website:

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

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

External fund charges Between 0.1% and 3.35% per year of the fund value, dependent upon the fund chosen

Regular withdrawals or partial cash-ins 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

 

To be really kind, I’ll add in fees relating to the external fund charges and the administrative charges.  I won’t even touch the others.

The account I saw recently had external fund charges averaging 1.8% annually.  Then adding in the annual admission charge of 1.2% provides an annual charge of 3% annually.  I’ll ignore withdrawal charges, establishment charges and cashing in charges, just to be sporting.

If the investments make 6% annually, before fees, then the investor makes 3% annually.  Want to see what that would cost over 30 years?

  • $200,000 invested at 3% for 30 years =  $485,452
  • $200,000 invested at 6% for 30 years = $1,148,698

That little 3% fee would add up to $663,246 that you’d be missing.

Coming up, I’ll share how expatriate Brits can invest in Singapore, while paying the lowest possible fees.

Beware the traveling salespeople in Singapore.  They’re looking for you.

 

 


 

This Post is Now Closed for Comments

Please read the update of this post and comments

(30/11/2011)

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

 


 

 

 


 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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32 Responses

  1. And with inflation, the real value of that "101%" gets eroded over time, so… you'd probably be no worse off by stuffing your mattress with bills. Heck, maybe you can even buy a few ingots of gold and bury them in the backyard, instead. 😛

  2. You're right Kevin,

    And with all those other fees wrapped up, it's an even crazier thing to fall for. What's really really odd is that many of these people who show me these accounts (and want out) can't get out without paying huge surrender charges. There's a group called Zurich International that two of my friends are with. Surrender charges on an account of about $30,000 amount to roughly $7000. So I suggested that the guy just leave the money in there for the 20 years he has to, and invest elsewhere. The other friend stubbornly sold and got fleeced.

  3. DIY Investor says:

    It's not just in Singapore. In the U.S. variable annuities with guarantees are selling like hotcakes given the 2008 market downturn. It gives you a headache trying to add up and figure all the fees. And, as you point out they can always change the fees. Don't like it? Fine. You can have your funds with a huge penalty charged. They have all the bases covered.

    I hope the people that need to read your post get to read it.

    I really liked the breakdown of the various charges.

  4. I've had some personal experience with these Channel Island sharpies when we lived in the Middle East. One of them came calling on a co-worker. Very friendly, polished (or slick), and seemingly knowledgeable, but in end, just a salesman on commission. Even then, as a relatively ignorant fledgling investor, I thought that that level of personal attention didn't come cheap. My friend eventually ended up setting up an $100K account (or whole life policy) with the guy's company. I've since lost touch, so no word on how that panned out.

  5. @DIY Investor

    Thanks Robert,

    I can definitely understand how successful the fear buttons can be when salespeople press them. But what fascinates me is that these people I've met don't even know they have an insurance policy. They just think they've bought "investments" only. I know that sounds weird, but I've seen quite a few cases like this. And the people are smart and educated. Unfortunately, they just get "sold"

    As for variable annuities, you're so right. My mother-in-law owns two of them. We've had some interesting conversations about them, but now, there's really not a lot she can do. The surrender penalties are so high. You must see your share of accounts with annuities that people wish they never bought in the first place.

  6. @Andrew @ 101 Centavos

    Hey Andrew,

    You've coined a great one there: "channel island sharpies"

    If you don't mind, I'd like to use that as the title of one of my posts about these sorts one day.

    Cheers,

    Andrew

  7. No problem…. look forward to the post.

  8. Jonathan says:

    I almost fall into getting Zurich and Friends Provident Fund Investment of 25 years Policy. When I finaly saw how big the charges is, I immediately recant back and ask them that i want it. Im also a foreigner living in Singapore.

    But is there any good investment plans we can get here in Singapore as alternative for Zurich and FPI?

  9. Hey Jonathan,

    It's great that you managed to side-step both of those companies.

    The best option you have, I believe, is to open a brokerage account with DBS Vickers and build an account of exchange traded index funds, much like I suggest in my posts under "Expat Investing". Let me know if you have any questions about that.

  10. Z says:

    Hi Andrew,

    With all respect, just want to highlight some blips in your post. THe product summary that you have pointed us to is for the Zenith product that's not available in Singapore.

    Next, 101% of cash-in value will be paid out upon death. You mistakenly regard cash-in value as the total amount of premium cash that you have put into the plan, which is not accurate. According to the wrong product summary that you have provided in the link, the cash-in value is defined as:

    Cash-in value

    Your plan may be cashed-in at any time for its current bid value less an early cash-in charge and outstanding establishment charges in the first five years.

    • I received this information (the explanation) from a Zurich rep in Singapore over the telephone

      And I'm not sure I even understand your last sentence. Would you be able to explain it, as if you were telling a fifth grader?

      • Z,

        The product mentioned above in my post (with respect to the cash in value) is a Friend's Provident account, not a Zurich account.

        • Z says:

          Yes, I was referring to the same product as you mentioned in your post. Do note that Zenith is a product from Friends provident, but it is not available in Singapore. The equivalent product is Global Wealth Manager.

          Pertaining to the last sentence in my post, it was lifted off the product summary, which I have accessed through the link that you have provided. Essentially, what it means is that the cash-in value (or surrender value) will be equal to the current bid value (i.e. Net Asset Value) of the Investment unit holdings, minus away the early surrender charge + outstanding establishment charge (which is charged during the 1st 5 years of the plan). Based on your definition, you have suggested that the surrender value is equal to the total premium that you have put into the plan at the point of surrender, which is not the case.

          • Z,

            Thank you for contacting me. And I do see a mistake that I made. Your heirs, of course, get the market value. And if the market value is less than what you put in, they get the amount deposited.

            Having said that, I would like to put the whole deal (on this blog) in the simplest language possible. I think it's a terrible deal for investors. If nothing more, I want people to understand the language you are using. The average person would not understand the explanations you have given, and it would be great to rectify that.

            If you would be willing to check this post after it's revised, I would appreciate that.

            I will make the necessary changes to the post. And if you have anything to add to the revised post, I'd appreciate it greatly,

            Thank you,

            Andrew

  11. Dan says:

    Great Blog Andrew enjoy reading it immensely, I joined one of these "regular" savings plans around a year ago. What do you recommend I should do? If I cash out I believe there is a charge (It was bought through IFS, but a Zurich Vista Policy.

    • Debrilepe says:

      Hi Dan, I was really surprised to see your post, as I thought we were the only ones. We have decided to stay in it and make monthly contributions, as it seems like in our case the math works out better that way as we only have 3 more years. I keep thinking of the salesman who I honesty though he was working for us, now I know, he was working for himself. I wonder if we had the same rep “advising” us.

  12. Rory Smith says:

    Was just on my way out of the door to go and chat to Zurich about a provident fund…then read this advice! Cancel that plan for the time being! Unlucky Zurich! Is your book available online at all? With Zinio books so will have a browse but failing that, let me know where I can find it!

    • Hi Rory,

      I'm so glad you found this blog. This article gives you much more detail, and well over one hundred commenters talking about their heartache with this firm: https://andrewhallam.com/2011/11/zurich-internatio

      My book is available at most Singapore bookstores, and you can also buy it on Amazon.

      Again, I'm absolutely thrilled that decided to look into the Friends Provident/Zurich International investment scheme before jumping in with both feet. Thanks for the comment.

      Andrew

  13. Rebecca says:

    Hi Andrew,

    What do you think of Pimco GIS Total Return Bond(hedged) & UBS Australian dollar bond funds?

  14. jay says:

    i have the zurich policy. problem is i invested while living in India. I got suckered by some ABN Amro sales guy. Long story short, I am moving back to the US, can I claim the full amount of the policy since I am no longer resident in India.

    They do not allow US nationals to invest and at the time I was an Indian national. any ideas?

    • nevin gokgoz says:

      Dear Andrew
      When I was in Singapore I had Zurich policy
      now I am moving back to Turkey and I want to cash out they ask huge penalty which was not told to me during the selling process
      DO U KNOW anything I can do legally

      • Nevin,

        Unfortunately, these are nasty products and there’s little legal recourse. You can avoid making new contributions and tell everyone you can about your experience, so others don’t fall for the same trap.

        Sorry to hear about this.

        Andrew

  15. Samer says:

    Hi,
    I have zurich investment plan, the so called vista and after paying for 8 years I moved to the US and when talked to the company, I found that I can no longer contribute to their plan and when tried to liquidate it, I was surprised with almost 25% surrender fees of my invested amount and not the revenues as the policy hardly made 5% over 8 years… Those guys selling dreams and getting all money to cover their fees… Can you advise if a solution please?
    Regards,
    Samer

    • Samer,

      As an American, they should not have been able to sell to you. Approach Zurich itself (go around the rep) to explain what you were sold. If you squeak, they may be able to have the money redeemed without penalty because the broker you dealt with did something he or she should not have done. Please keep me posted.

      Andrew

  16. Samer says:

    Hi Andrew,
    I have gone directly to Zurich earlier but in vain as I hold Canadian citizenship and not American. I even wrote couple of complaints to them but they gave a deaf ear… Despite that I told them that their rep never mentioned to me the huge penalty when he asked me to increase my contribution from $ 500 to $ 2500 and this is mis selling but they actually do not care.
    Regards,
    Samer

    • That’s frustrating Samer. These guys operate most effectively in climates where regulations are loose, or where regulatory authorities don’t necessary realize the lack of disclosure that occurs during the sales process of these products. I’m really sorry to hear about your personal situation. The good news? You are moving to a country where you can dust yourself off and invest in a low cost platform, such as Vanguard or Assetbuilder.

      Andrew

  17. Grant says:

    Hi Andy,

    I have just read your post and feel physically ill! I just recently moved to Dubai 18 months ago and got sold a 25 Year Saving’s plan with Zurich! I met with this guy who looked and talked the part. He made me think that I couldn’t save for my retirement based on what I earned without his help! Fortunately for me, I had to put it on a premium holiday for 12 months as my position didn’t go to plan and I departed ways. I am still looking for a job and hence can’t pay the monthly premiums on this plan. I was told one of the features of the plan was I could take a premium holiday for 12 months after this 18 months Initial Contribution Period.

    What would you advise please as I’ve read some of your posts and you advise to ‘Cut your loses as it will save you money in the long run’. As I can’t contribute anymore premiums, I assume from reading your posts that I will be charged for the term of the policy?

    Your help is very much appreciated.

    Regards,
    Grant

  18. aaa says:

    Hi i’m reading your post and i m confused – what do you mean when u say that this plan is a whole life insurance plan? i was informed and told that the purpose of this plan was to drive investment returns and that insurance is minimal and that i shd already have a sound protection portfolio before i jump into this.

    i was also informed that the cost structure of the plan pans out if i religiously make the contributions throughout my chosen investment period and the sums worked out as shown by my FA. so why r u encouraging the ppl here to cancel or default on their savings contribution?

  19. Peter says:

    Hi Andrew,

    Your blog above is factually incorrect. In the example that you give, you claim that if the market value was $861,667.20 then the life company walks away with a cool $600k profit. Nothing of the sort would happen, in the event that the sole policy holder died with the market value above, the heirs would instead receive $870,283.87 and the life company would lose out quite considerably (especially when Zurich offer a fee $50,000 life cover on top of that payment for all accidental death cases).

    The fact the policy is written as a non-qualifying whole of life policy is neither here nor there. It is written in that manner (along with all Capital Investment Bonds in the UK and elsewhere) as a simple tax wrapper and to allow for top slicing and tax efficiency (hugely important if and when it is remitted back into the UK if the policy holder returns to work there before maturity), but the policy holder doesn’t have to be the life assured anyway and a younger life can be chosen to enable the policy to continue after the death of the policy holder if needed and/or wanted.

    It reads to me as if you don’t fully understand the above and are scaremongering when not in full possession of the facts and certainly the charging structures you refer to are hopelessly out of date.

    Feel free to drop me a line now you have my email address if you need clarification of any of the points I raise but I do think a financial writer should at least try and be accurate on a financial blog.

    • Thanks Peter,

      You found a very early draft of this post that I didn’t think still existed online. I have since corrected it.

      Cheers,
      Andrew

      • Peter says:

        No problem Andrew but you still have left this part in:

        “And how much would your heirs get back if your account was worth $485,452 after 30 years? You guessed it. Just over $200,000, before paying any death taxes. Remember, your heirs only get back what you put in. What makes it a lot worse is that $200,000 in the year 2040 won’t be worth squat, after inflation takes it bite.”

        Which is incorrect, the heirs receive 101% of the market value at the time of death, not 101% of the premiums paid in PLUS you still haven’t factored in the fact that there doesn’t have to just be one life assured on these policies. They are written, as I have stated, as single premium, non-qualifying, whole of life policies as that is the most effective tax wrapper when remitting them in to the UK.

        Also the example you give, of a TER of 3% could be construed as being misleading for two reasons, firstly, if premiums are maintained for the term, then bonuses are applied which reduce the TER and secondly a TER of 3% is still more cost effective than the majority of packaged retirement products at companies such as St. James’s Place in the UK which is regarded as the best wealth manager around on shore.