It’s tough for expatriates to differentiate between high cost and low cost financial advisors.
Some low cost 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.
The reports of them using such platforms are unconfirmed. Friends Provident Pensions charge more than 4% per year, including platform charges and actively managed fund fees.
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
- Austen Morris
- 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
- Zurich International
- Friends Provident
- Royal Skandia
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?