My inbox has been flooded with stories of outrage and woe in response to my sharing the horror of dealing with so-called financial advisers who sell expatriate policies.
Now I am directing my attention at the financial services companies that actually create these products, such as the ones I have. This week I am sharing extracts from the letter I hand-delivered to the Dubai offices of one of the financial service companies involved. Good luck pinpointing fees and performance if you wish to do the same. Full disclosure: I am asking for compensation. Wish me luck.
Dear Financial Services Company,
I was fortunate enough to start my policy with your company at the very bottom of the market. The timing was perfect. It started at the Global Stock Markets’ low of March 2009.
Since then the markets have made stellar returns. Here are two examples:
• US: The SPDR S&P 500 ETF, which tracks the total return (price and yield) of the largest 500 US companies, has given a return from March 1, 2009, to July 1, 2016, of 183.9 per cent.
• Australia: The S&P/ASX 200 Net Total Return Index returned, for the same period as above, 113 per cent.
Had I put the allocated monthly contributions in an account that paid out 5 per cent interest a year instead and left it to compound, I’d have US$95,550.40.
Instead, I chose you. Why? Because, as your website currently states, you pledge to put people’s needs first, not your products. Because I am busy working and raising a family. Because stocks, shares and equity investments are not my area of expertise. Because I believed it best and safest to hand over money to the professionals.
I knew there were fees. But the extent of fees and the hidden nature of them was never revealed. Most crucially, there is no explanation regarding the fee-paying structure in place around the mirror funds that your platform uses. Mirror funds only serve to add another layer of fees and put us, your clients, out of pocket.
The management of this policy has eroded every gain.
Please allow me to share the numbers as of May 23, 2016:
• Start date: March 30, 2009.
• Contribution history: $935 per month from inception.
• Total contributions to the fund: $75,736.95.
• Current total value: $68,345.67.
• Performance: minus $7,391.28, or minus 9.7 per cent (holding period return).
I write to you to challenge your performance to date. Let me give you an example from Baring Australia:
• Your International mirror fund performance: minus 19.2 per cent.
• Original Fund Strategy minus 8.1 per cent.
The difference is a staggering 11.1 percentage points in favour of the original fund.
But this is insignificant if we are to look at this example from Invesco US Structured Equity:
• Your international mirror fund performance: 18.1 per cent.
• Original Fund Strategy: 48.9 per cent.
The difference here is 30.8 percentage points in favour of the original fund.
I put to you that your teams have seriously mismanaged funds invested with you.
I also put to you that clarity, transparency and ease of access to pertinent information does not exist.
I wanted to know the answer to a simple question: “What fees have been paid out to date”. After many many weeks of waiting and chasing, my broker informed me that I would have a better chance of getting the information if I were to contact you directly, explaining that they were simply ignored by you and had no clue when they could possibly get relevant replies. I took issue with this, and the broker kicked in once more with calls to you, only to be sent 87 pages of numbers. This is an extract from their email to me:
“Following your call yesterday, we followed up with XXX both locally here in Dubai and in the UK and we were informed by both that they were unable to provide us with a ‘simple’ breakdown of the charges you have paid.
However, they did send 87 pages of data to us, which contained deductions for charges.
In total, to date the charges amount to $7,217.09. As we discussed, it will be impossible for us to determine (future charges) as the unit prices will change daily. What we do know is the $6 per month policy charge will apply, as will the 1.5 per cent per quarter charge of the initial units.”
The broker missed a trick, as they did not refer to your mirror fund fees.
I then approached a different broker, Killik & Co, who chased and chased until they got the information needed. They then spent many man-hours sifting through the unfriendly and deliberately vague layout of information – that is still incomplete, as it did not give any indication of said mirror fund fees.
This is an extract from their overview:
“Based on your fund value of $68,345.67, we estimate the current total annual charges being levied against your plan to be $2,714, or 3.97 per cent of the current value. This includes external fund annual management charges but not XXX’s mirror fund charges.”
Please note the discrepancy between the findings of the two companies. The fact that neither I nor dedicated brokerages and financial experts have been able to get clear, transparent, complete information from you does nothing to instil any confidence in your corporate values or mode of operation.
Regarding the issue of external fund annual management charges, this is what was stated in the way of what they could be:
“Between 0.1 per cent and 3.35 per cent each year, depending on the mirror fund chosen. XXX also has other charges embedded in its mirror funds but does not make these explicit as they are built into the fund price.”
Killik’s guess is that it could be a charge of 0.75 per cent. No one knows but you.
I find it incredible, and disturbing that companies and professionals in your industry are not able to grasp the specifics of your fee structures or be given timely, transparent access to key information that allows your clients, people like me, to make informed choice.
Another question that needs to be asked: how, exactly, is the surrender value calculated?
The bottom line is that this type of policy would be illegal in developed markets.
Nima Abu Wardeh describes herself using three words: Person. Parent. Pupil. Each day she works out which one gets priority, sharing her journey on finding-nima.com.