Regular Savings Plans for Expats
The infamous 'offshore regular savings plan' has been many advisor's default option for years. Being products from some of the world's largest insurance companies, it's easy to assume you're getting a quality product, but this is not the case. Insurance-wrapped offshore savings plans are costly, restrictive and generally produce poor results.
Are There Alternatives?
Absolutely. A good investment platform can receive regular contributions using either direct debits or ad-hoc cash transfers. Monthly or quarterly payments are possible that with planning can coincide with reviews, promoting regular contact with your advisor, improving service and overall outcomes.
With low custody and fund fees and clear charges, platforms offer a welcome change to offshore contractual savings. Securities can be sold easily without penalty and monies returned to you quickly, giving you a flexible savings vehicle to invest in when it suits you.
The motivation for advisors to sell these products is large upfront commission payments, leaving little incentive to manage policies going forward which often have terms up to 25 years. If you have a savings plan and you are unhappy with performance, more information is provided below.
I Have a Savings Plan - Should I Keep It?
The answer depends on both how long the policy term remains and your desire for something better. Either way, it usually involves a financial forfeit which is tough to accept. However, we can often demonstrate that taking a financial hit, there is a very realistic chance of recovering your losses over time, supported by a wider range of assets through open-architecture platforms. Many investors are often prepared incur financial penalties just to remove the psychological impact these policies have.
How Much Advisor Commission Was Paid?
We want to look forward not backwards, but if you are new investor in a savings plan it may help to understand why these plans underperform in case of raising it with your advisor. We've provided a breakdown of advisor commissions on offer which affect returns and is based on contributions due over the contracted term, not on the amount invested. Longer terms pay bigger commissions which get deducted from the first two years' 'initial' contributions, and this 'front-end load' makes it very restrictive and even worthless if cancelled in the early stages.
The 'initial period' ranges from between 6 and 24 months, during which terminating a policy means forfeiting payments until that point. Therefore, closure of a 25 year plan with a 24 month initial period after just 4 years (48 months) could result in a 50% loss of contributions.
To calculate the commission an advisor is paid the formula is as follows, using this example of paying $2,000 a month for a 25 year term:
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Term of contracted term: 25 years
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Contracted contributions: $2,000 per month ($24,000 a year)
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Total amount payable over contracted term: $24,000 X 25 years = $600,000
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Commission payable: $600,000 X 4.4% = $26,400
If this your dilemma and you'd like to recover lost performance from your offshore savings plan, get in touch today and we'll show you how it's done.