One of my readers recently put a comment on my blog.
He’s kicking himself.
He bought a Zurich Vista investment policy. He signed up for a 24-year duration.
Based on information provided in Zurich Vista’s policy, it isn’t a cheap investment scheme. Total annual costs might run as high as 4.5 percent per year when averaged over a duration of a 25-year term.
The online prospectus states that there’s a 4 percent annual charge on the amount deposited during the first 18 months. The firm calls this their “Expense recoupment charge.” As the prospectus reads, it costs “4 percent per year of the value of the initial units.” When we add this fee to the fees that follow, the first 18 months of deposits (the initial units) are charged 7.75 percent per year (depending on the funds selected). This fee doesn’t include the “Monthly policy charges” of $8.25 USD that the prospectus says is “a fixed charge deducted each month.”
If the investment charges (management fees and Zurich Vista charges) average 7.75 percent per year over a 25-year period, and if inflation averages 3 percent per year, the investors’ initial units will lose 3.75 percent per year after inflation.
(7 percent gross return minus 3 percent inflation, minus 7.75 percent in fees equals – 3.75 percent per year).
The online prospectus says that money added after the initial units period will attract the following fees:
A yearly management charge of 1 percent per year:
“This charge is based on the policy value and will be deducted on a monthly basis at a rate of 1 percent per year.”
The actively managed funds selected can cost more than 2 percent per year. The prospectus explains this charge under their section, “Underlying fund charges” on page 14 of their online brochure.
The online Zurich Vista prospectus also states that it adds a mirror charge fee of 0.75 percent per year. This is also listed on page 14. “This charge covers our fund accounting procedures, administering and reporting and is 0.75 percent a year of the net asset value of the underlying fund.”
The prospectus states that it offers a loyalty bonus in the form of fee reductions. On page 8 of the prospectus it reads, “At year five, the loyalty bonus will be a refund of 10 percent of the total yearly management charge deducted in the first five years.” The “yearly management charge” is listed as “1 percent” so it would be dropped to 0.9 percent from 1 percent. But such a deduction might not include mirror charges. It doesn’t include fund management costs.
Page 8 lists other fee reduction bonuses at years 10 and 15.
But if an investor misses a monthly investment payment and doesn’t make it up, the Zurich Vista Policy punishes them by not providing any loyalty bonuses (as seen on page 8 of the prospectus).
If investors want to sell their policy before a pre-determined date, the online report says the Zurich Vista policy might take all of the investors’ money. According to the prospectus, if it’s a 25-year policy, and the investor wants to sell everything they have invested after one year, Zurich keeps it all.
If investors want to sell everything after 4 years, Zurich keeps 89.36 percent of the investment total. It’s hard to believe. But the table that outlines such penalties is found on page 13 of the Zurich Vista policy statement.
If you think you’ll get comprehensive financial planning for these high fees, you might have to pay even more. The prospectus says such a service could cost an additional 1.5 percent per year. That puts total fees in the nosebleed zone, even after any possible loyalty fee reductions and bonuses.
This is a costly plan with more drawbacks than benefits.