Offshore saving plans are some of the worst financial products in the expat market. They are laced with high commissions, are unflexible, high costs, and advisers that have had little interest in your financial plan or goals. As I have seen many people write to me about having these plans and their adviser has left them or it’s not getting managed for them or it’s significantly down and doesn’t know what to do, I want to offer my options instead of having offshore savings plans.
What Has Been Used Before
The likes, of RL360, FPI, ITA, and Generali et al. (some have now changed their names or merged), have sold these products to expats for a number of years.
Luckily as of 2022, these are becoming rare. As most expats are catching on to them or reading online about previous people that have been missold these options. I was initially looking to do a review on these saving plans in the offshore market but then thought they are mainly as bad as each other and for the majority of expats you have better options available to you.
Normally, the cost of these saving plans are around 2-4% a year and you need to lock in your capital for at least 12-18 months and have been sold of duration up to 25 years with an aspect such as a bonus, or reduced fee the longer you hold the products.
I usually get an email a month, if not slightly more regarding expats that have 25-year plans in which they are putting a large part of their salary into these products looking and they are looking to get out. However, they usually have to take a huge financial sacrifice if they are looking to surrender the policy. Meanwhile, the adviser had left a long time ago.
In rare cases these products work and mostly when expats can afford to lock up the money for a long period of time and go into a stable low-cost ETF have I seen these products come out positive (and only then, slightly).
So, if you are having the misfortune of being sold one of the products firstly hope you get to read this before and you have the ability to do something about the situation.
What Other Options Do Expats Have?
DIY Option
Go into a low-cost platform such as IBKR, Swiss Quote, or Saxo bank. Invest in Vanguard or another ETF MSCI developed world markets fund and then put 20% in an alternative (if you have a longer-term and higher risk profile) something like MSCI Asia Pacific ETF. These funds are normally below 0.2% for fees and the reality is that many active funds fail to outperform passive ones.
If you do regular top-ups in these you will most likely in the long term beat 80% of the market by using dollar cost averaging and compound interest.
Adviser led option
For adviser led platforms use options such as Novia, and Morningstar due to being lower cost (0.4%-0.15% deepening on your amount) and flexible with FCA regulation meaning they are fee-only platforms and use a similar approach to the one above and do not try to time the market, go broad and use dollar cost averaging. I normally suggest to clients make sure you are putting in at least $1000 or more due to the dealing fees so for you that might mean doing it quarterly.
Make sure the adviser is charging a flat rate on AUM or an hourly fee as if anything is completed for free, it means that commission is usually being made.
Conclusion
Many expats previously have entered into long-term savings plans which they might be in for 25 years and as they look to come out, they have to face some hefty fees or implications.
As the market and times have changed, fortunately, fewer and fewer people are going into these which means fewer and fewer come through asking me how they can get out, expats can look at DIY platforms and advisor-led platforms as an alternative way of saving.
Using these methods expats can keep low costs, they are broad which reduces exposure to one asset class or type and you can average out the payments.
It also means you can control any extra fees such as dealing fees by only contributing quarterly, or when you reach a certain amount and again this will help to reduce any costs.
With these you can also choose your platform, you can choose your advisor, and the ability to choose your investments. Personally, I am much more of a fan of these for expats over the hefty lock-in periods. There is some research out there to say that the most completed payment term is a maximum of 10 years, however, that is still a long time as a lot can change in 10 years and during that time, you might need access to cash.
As always if you have any questions, please email me info@investmentsforexpats.com
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