Canadian author and former expat teacher Andrew Hallam has given over 100 seminars warning expats not to pick fixed-term investment plans with locked-in fees and hefty commissions.
Hallam says there are at least seven firms operating in the Middle East that investors should steer clear of when it comes to long-term pension schemes, which he says all have fees of at least 4 per cent a year on average (when all platform costs and mutual fund expense ratio fees are considered).
The UAE Insurance Authority (IA) has received numerous complaints from residents locked into these fixed-term savings products, typically provided by some of the world’s largest insurance companies, that see gains eaten away by hefty upfront commissions paid out to local financial advisers by the insurers themselves and recouped from the saver – and which also charge savers the full fees of the plan, even if they exit early, to cover those initial commissions.
Matthew Miller, a teacher in Abu Dhabi, set up two long-term savings accounts in lieu of a pension. By the time he pulled out of the plans after six years, he had lost US$45,000 in locked-in fees and commissions.
When he exited his two savings plans, the process cost him dearly in surrender charges – some $21,000 of the $100,000-plus value of the first plan and a whopping $24,000 of the second plan that was worth $32,000. It was a “costly lesson”, he says.
“Doing the maths, if I was earning 8 per cent but paying four per cent in fees, I was only getting four per cent. Over 25 years, that was hundreds of thousands of dollars. It still seemed better to surrender than to lose $400,000 or $500,000 down the road.”
Matthew Miller, Abu Dhabi teacher
This is one of the biggest and most complex personal finance articles I have investigated and written. Originally published in The National in June 2017 – full story here.