If You Invested With Friends Provident, Make The Best Of A Bad Situation

 

If you invested with Friends Provident, one thing is almost certain.

You didn’t go looking for your broker. He or she found you. Such platforms pay massive commissions to brokers.

As such, brokers are hunters. You are prey.

Whether you realize it or not, you are paying roughly 4% in annual investment fees. No, your advisor didn’t tell you this. But add your establishment fees, annual account fees and mutual fund (unit trust) costs together. Combined, they will equal about 4%.

The mutual fund costs are actually hidden. I’ll bet you a burger your broker didn’t show them to you.

Here’s an example. Friends Provident offers the Templeton BRIC Fund. It invests in emerging market economies. Check out the screenshot below. Annually, this fund costs investors 2.46% per year. That’s the annual management fee that Templeton charges. It doesn’t include Friends Provident’s establishment charges or their annual fees.

Add those to your fund costs, and you’ll see what you’re really paying: about 4% or more each year.

 

Templeton BRIC Fund Cost Snapshot

 

A 4% annual cost might not sound like much. But it’s massive. If the stock and bond markets earn 8% per year, you will be giving away 50% of your annual profits to Friends Provident and the unit trust (mutual fund) providers with which your money is invested. If the stock and bond markets average 4% per year, you give away 100% of your annual profits.

Either way you slice it, this is pretty nasty math.

What’s worse, many of the brokers selling these products were so desperate for the sale (remember that commission) they likely sold you on a non-diversified portfolio. In other words, they showed you charts of the funds that had done well in the recent past, saying, “Look at these great past returns. This is what I can do for you.”

Unfortunately, this is the worst way to invest. Yesterday’s winning funds or hot geographic sectors often become tomorrow’s losers. Smart financial advisors don’t chase past returns. They build responsible, diversified portfolios.

As I write this (May 2015) you should be sitting on some pretty amazing stock market profits. Global stock markets have soared. If your money with Friends Provident has not, you have two things to blame: high fees, and a knucklehead behind the portfolio who insisted on buying you yesterday’s winners.

 

Let me show you examples of what you should have enjoyed during the past few years.

 

3-Year Returns Of Global Stocks And U.S. Stocks (To May, 2015)

Global stocks: +39.62%

U.S. stocks:       +57.14%

 

 

5-Year Returns Of Global Stocks And U.S. Stocks (To May, 2015)

Global stocks: +56.62%

U.S. stocks:       +92.33%

 

If you measured the above returns in Euros, UK pounds, Australian or Canadian dollars, the returns would be even higher. That’s because the U.S. dollar strengthened over each of those currencies during the past five years.

You may want to ditch your Friends Provident investments. There is, however, a catch. When your advisor sold you this product, he or she made a massive commission. To recoup that commission, Friends Provident needs to keep your money with the firm as long as possible. The longer your money is invested with them, the more fees they can take.

If you try to remove your money before the policy date is up (these can be up to 25 years long) you will have to pay a massive redemption penalty. In some cases, it’s up to 80% of what you invested.

 

But don’t cry over spilled milk. Let’s look at solutions.

In many cases, you can withdraw some of your money without a penalty.

  1. Find out how much you can take out now.
  2. Invest that money in low cost index funds. I explain how in my book, The Global Expatriate’s Guide To Investing.
  3. With the money that remains with Friends Provident, build the lowest cost, most responsible (diversified) portfolio possible.

Safety comes from putting your eggs in multiple baskets. You’ll require exposure to global stock markets (not just the sectors someone predicts will be hot) and exposure to bond markets.

Equally important, ensure that the funds you select charge low fees.   The less you pay in fees, the more money you will make over time.

Friends Provident provides the following link to their fund options. I’ve provided portfolio samples below, with links to specific funds. In each case, I scrolled through the Friends Provident offerings to show you the lowest cost funds available.

 

British Investors

Sample Portfolio

% Of Total Portfolio

Fund Symbol

Fund Name

Total Expenses Per Fund

What Is It Invested In?

35%

J11

FPIL UK Index Tracker

0.36%

UK Stocks

15%

P02

Vanguard S&P 500 Index

0.25%

U.S. Stocks

15%

J72

Templeton Global

1.83%

Global Stocks

35%

R02

FPIL Gilt

NA

British Government Bonds

Investors wishing to take greater risks could opt for a lower allocation towards British bonds. Stocks usually beat bonds over periods lasting 10 years or longer. But stocks are more volatile. Bonds add stability.

 

 European Investors

Sample Portfolio

% Of Total Portfolio

Fund Symbol

Fund Name

Total Expenses Per Fund

What Is It Invested In?

35%

P51

Franklin Mutual European Fund

1.82%

European Stocks

15%

P02

Vanguard S&P 500 Index

0.25%

U.S. Stocks

15%

J72

Templeton Global

1.83%

Global Stocks

35%

J87

Fidelity Euro Bond

1.05%

European government and corporate bonds

Investors wishing to take greater risks could opt for a lower allocation towards European bonds. Stocks usually beat bonds over periods lasting 10 years or longer. But stocks are more volatile. Bonds add stability.

 

Australian Investors

Sample Portfolio

% Of Total Portfolio

Fund Symbol

Fund Name

Total Expenses Per Fund

What Is It Invested In?

35%

M56

Baring Australia

1.83%

Australian Stocks

15%

P02

Vanguard S&P 500 Index

0.25%

U.S. Stocks

15%

J72

Templeton Global

1.83%

Global Stocks

35%

R70

Melon Global Bond

1.14%

Global Bonds

Investors wishing to take greater risks could opt for a lower allocation towards global bonds. Stocks usually beat bonds over periods lasting 10 years or longer. But stocks are more volatile. Bonds add stability.

 

Canadian Investors

Sample Portfolio

None of Friend’s Provident fund options allow for exposure to the Canadian stock or bond market. As such, a global portfolio, with extremely limited Canadian exposure, is the only option available.

% Of Total Portfolio

Fund Symbol

Fund Name

Total Expenses Per Fund

What Is It Invested In?

35%

P02

Vanguard S&P 500 Index

0.25%

U.S. Stocks

30%

J72

Templeton Global

1.83%

Global Stocks

35%

R70

Melon Global Bond

1.14%

Global Bonds

 

Other Nationalities

 Consider the models above. If Friends Provident offers a fund representing your home country stock exposure, then allocate a percentage of your portfolio to that fund, as per the examples above with Australian and British investors. If there is more than one, find the cheapest, based on the fund’s posted expense ratio. Forget about looking at past results. Studies show the best predictor of future results is a fund’s expense ratio. The lower the better.

 

 

 

Andrew Hallam is the author of The Global Expatriate’s Guide To Investing.

You can order the book from Amazon, here.