One of the biggest mis-selling scandals in terms of expat financial advice surrounds long term saving plans, or so called ‘offshore pensions’ or ‘expat pensions’. With these savings plans, the financial adviser is paid a commission which is dependent solely on 2 factors – the amount of the monthly premium, and the length of the term of the plan. Thus it is in the adviser’s interest to ‘recommend’ a long term plan, even though a shorter term plan, such as 5 years, will provide exactly the same benefits, and more flexibility for the client. The only difference between a 5 year and 25 year plan is that the adviser will get paid a fraction of the commission by recommending a 5 year plan. Over the past few years, we have received countless emails from unsuspecting expats who signed up to 20 or 25 year plans, only to realise that they would incur substantial penalties and charges for reducing their premiums, or taking premium ‘holidays’. There is no genuine financial planning reason for advising a client to sign up to a savings plan of more than 5 years in length. After the 5 years period is up, nearly all of the main financial institutions offering these plans will allow a plan holder to continue to make payments into the plan, or just to leave the existing savings to continue to be invested. This then gives the saver total flexibility – as opposed to if they had signed up to a 20 or 25 year plan. The bottom line is that we don’t have a crystal ball, and cannot see into the future. An expat may have a well paid job in a tax free jurisdiction today, and can easily afford the monthly premium for his savings plan. But what if he lost his job tomorrow? In today’s uncertain economic environment, could he be certain to parachute into an equally well paid job? There are certainly no guarantees that this is the case, and his ‘adviser’ knows this all too well. Additionally, these long term savings plans need to be actively managed, and the underlying investment funds and performance regularly monitored. If the financial adviser felt it was best advice to tie up a client into a 25 year savings plan, do you think he is the best adviser to monitor your portfolio and advise on your investment strategy? More than likely, he is too busy selling 25 savings plans to other unsuspecting expats…..
If you have signed up to a long term savings plan, and would like advice on your options, please contact us.