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