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


Zurich International and Friends Provident are two large investment firms selling Offshore Pensions, otherwise known as Investment Linked Assurance Schemes.  

zurich warning

I’ll explain how the products work, using the Friends Provident Zenith account:

 “A single premium life assurance policy specially designed to allow access to international investment opportunities.”



First of all, they offer a death benefit.  

This comes into effect if you die, and your money is worth less than what you initially invested. It’s equal to “101% of the cash-in value”.

This means if you had invested $100 and got hit by a bus, your heirs would receive the $100 back, plus a $1 bonus. There’s no upward adjustment to cover inflation.


Investment Charges:

Friends Provident offshore pensions cost as much as 9% per year for the first 18 months, dropping to roughly 4% per year thereafter.

But there’s always the possibility they could lower them significantly.  

As mentioned on the company website:

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


A slew of economic Nobel Prize winners suggest investors shouldn’t pay high fees, recommending low cost index funds that charge 0.15% per year or less;

Warren Buffett also suggests investors should keep investment costs low.  “Buy index funds,” he says, when lambasting high cost financial “helpers” that (in his view) take more than their fair share of investment spoils.

Yale University’s endowment fund manager, David Swensen, echoes the same premise, also suggesting that “government intervention is required” to lower retail investment costs. 

Harvard University’s endowment fund leader agrees, with a particularly harsh sentiment:  

“The investment business is a giant scam.  It deletes billions of dollars every year in transaction costs and fees… You should simply hold index funds”


But there are no certainties in life.


It’s entirely possible that an advisor selling a Friends Provident Pension might know more about investing than these guys.

While Buffett and a slew of Ivy League economists recommend using investments costing 0.15% per year or less, perhaps the higher costs of a Friends Provident plan are still worth the money.



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Here are the costs from the company website:


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

Each year, your investments would incur a charge of 1.2 percent.  In a year where your investments made 4.4 percent, you would be giving slightly more than 30 percent of your profits to Friends Provident.  


There’s also an establishment charge, as pasted from their website below.

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


When adding the administration charge to the establishment charge, your investments could make 5.6 percent a year for the first five years, and you would be giving away 50 percent of your profits to the firm.

Salespeople for Zurich International and Friends Provident also choose actively managed mutual funds (unit trusts) for their clients.

These are the very products that Princeton Economics professor, Burton Malkiel, suggests you avoid.


Taken from their website again, these products have internal fees costing up to:

3.35% per year of the fund value, dependent upon the fund chosen


It’s also important to understand what happens if you sell a Friends Provident Pension early.  

From their website again:

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.


The Friends Provident account I recently saw had external fund charges (expense ratios) averaging 1.8 percent annually. 

Adding the annual admission charge of 1.2% provides an annual expense of 3 percent annually.  

After adding establishment charges, investors would likely pay 4% or more each year in fees.  


In 1999, Fortune magazine named John Bogle as one of the four investment giants of the 20th century.  He earned his fame by championing low cost index investing, costing 0.15% per year or less.  

In his book, Common Sense on Mutual Fundshe explains that investors should keep costs low.  Total investment expenses of 1.5% per year are simply too high, according to Bogle.  And he strongly criticizes high cost equity linked schemes, calling for regulatory authorities to protect investors from such products.

“Equity-linked annuities, where downside protection is provided—at a grossly excessive cost—are but one more way to escape NASD regulations on the technicality that they are actually (exempt) insured products, not securities subject to federal oversight.  A BusinessWeek article describes them as a ‘suckers game dressed up to look like a free lunch.’  I hope the SEC [Securities Exchange Commission] will demand investor protection.”

While Friends Provident Pensions are popularly sold, Bogle disagrees with high cost structures. A 4% fee difference could do tremendous damage over time.  It can mean the difference between earning 3% per year, and 7% per year.



In the compounding interest example below, it could cost more than a million dollars.

  • $200,000 invested at 3% for 30 years =  $485,452
  • $200,000 invested at 7% for 30 years = $1,522,451


This doesn’t mean you shouldn’t buy a Friends Provident pension.

The world’s financial academics could be wrong.  

You need to make the decision yourself.  




Further Reading:

Royal Skandia’s high commissioned Investment Linked Assurance Schemes are similar to those sold by Friends Provident and Zurich International