Who are we dealing with?
For going on 40 years the offshore life company has been the main option for expats who want to save. These organisations are not life companies in the sense you can buy a protection policy from them. What they offer are investment products that have life insurance contracts written around them. Expat forums are awash with people complaining about their advisers and these offshore life companies. Surely they can’t be this bad, can they?
These companies don’t like to deal with you direct and would prefer to use a broker as a buffer. They like to dodge any emotional flack which may come their way from an unhappy customer. It’s much easier for them to label a broker as being unprofessional if they lose their cool. Unfortunately, whilst there’s been an increase in the amount of paperwork that protects their backsides, very little has been done to safeguard yours. It’s a model that in today’s world is outdated and broken. Though in reality, it was never a model that was set up to benefit you the investor. You are there to benefit them, kind of a financial Matrix. Though instead of you powering the system it is your money.
So, you may think that we are being harsh on the offshore life insurance companies and they can’t be all that bad. Well, we’re not and they are. We are going to show you just how much they don’t care about investors. We’re going to do this by sharing some real-life examples to illustrate that vey point.
We were dealing with a policy holder that had placed a withdrawal request with a life company. Now for starters this life company has a minimum 10 working day turn around for any withdrawal requests. This assumes that all paperwork is in order. I will mention in their defense that this incident took place over the Christmas holidays. On the 14th working day they came back with this question “This is the fifth withdrawal that the policyholder has made this year, could you please provide us with their rationale”.
All the paperwork submitted was in order. The policyholder knew exactly what to do from the obstacles thrown in his path on previous withdrawals. He took the the paperwork in person to their offices. There was sufficient cash available to meet the withdrawal request. There was no need to sell any assets and wait for them to settle. Following a very curt reply about them overstepping the mark and it being his money. Finally on the 16th working day after the initial request, they sent the money to his account. In total it would take 27 days for him to receive his money.
I was attending a course in Malaysia where I got chatting to a broker who worked in Thailand. We started to discuss the offshore life cpmpany that was going to present next. Actually it was the exact same company from example 1.
He began to mention that his company had come across a brokerage in Thailand that only used this particular offshore life company. He was suspicious about some of this brokerages business practices. Over a few months, he got evidence together to show that they were forging valuation statements. They had been misrepresenting the performance of the investment. They would make the statement look as though it had come from the life company. When he informed the representative from the life company of what he had found, he was told to “mind your own business and stop causing trouble” which wasn’t the response they expected.
I had a meeting with a guy who had been living and working overseas for the past 15 years. We got onto the subject of investment and what he had been doing. He began to explain that he had an investment strategy that gave him guaranteed returns. I couldn’t help but show interest Obviously, in what he had to say. It turned out that he would set up a regular savings plan with a life company for a 25-year term. They would give him an extra 60% on top of what he invested in the first year. When the Initial Contribution Period (ICP) which is 18 months was complete he would not make any further contributions. He would then set up another one with the same adviser and offshore life company, in total he had 10 policies.
I couldn’t help but feel sad for a number of reasons, one of which was I would have to be to be the bearer of bad news. I was also sad for the guy because someone’s advice and duplicity was going to cost him the bulk of his savings.
The reason for this is that the contributions you make in the ICP pay for the advisers upfront commission. Also, their purpose is to make sure that the offshore life company can recover the bulk of their fees even if you surrender the policy early. The offshore life company cancel the units that you buy in the first 18 months over the life of the policy until there are alomost none left. This includes the bonus units from the extra allocation offer. What he was doing was paying the life company their fees and paying the adviser his commission and little else.
I was sad that the life insurance company didn’t care enough to stop this from happening. You see on their system it would have been evident that this was going on. All of his policies would connect to the same person and the same broker. They could see that the broker was doing this and they could have made him aware of the situation. We would ask the offshore life company about this situation, the comment that came back from them was that they weren’t responsible.Instead, so they did nothing.
Another example was a someone that we came across who was putting £3,500 a month into two long-term savings plans. Both plans had terms of around 20 years and were with the same offshore life company. This guy’s gross income was £60,000 per annum so this investment was equivalent to 70% of his salary.
The guy was struggling to live and found himself in a sizeable amount of debt much of it on credit card. I hear you say well he should have known better and I can’t disagree he should have known better. The thing is that when you apply for these plans the offshore life company will ask you how much you earn. They would make a record of this when they set up first policy. It is reasonable to pressume the life company should know he was about to over commit with the second policy. They would have known that the broker was giving bad advice, sadly they just didn’t care.
We had a client ask us to try and sort out a mess with two lump-sum policies he set up with two different advisers. Both were with the same offshore life company. He had expressed that he was a low-risk investor as retirement wasn’t too far away. The policies would help to provide income for his retirement.
One brokers response was to put 70% of the portfolio into what they saw as a low risk fund. It turned out that their view of risk was extremely narrow. The fund ran into difficulties and collapsed taking 70% of the investors capital with it. The second broker put 20% of the client’s capital into the same fund. At the same time they began to implement a high turnover, speculative, gain chasing strategy with the rest of the portfolio.As a result this policy had lost 50% of its value from the original sum invested.
So, he approached us to ask if we could help in anyway. We conducted an analysis of the policies identifying that both had the same charging structure based on the sum invested. If the portfolio had been performing well it wouldn’t have been an issue though this wasn’t the case. Losing a sizable chunk of the portfolio imeant that fees had now effectively increased by 300%.
Our solution to this was to surrender one of the policies that had the lowest surrender charge. We could then take the capital from this and put it into the other policy and not generate any commission. This would mean that the life company would make their money on the surrender of the policy. If we could invest these proceeds into the other policy then the value would be closer to the original investment amount. This should mean that the fees would become less of a burden as the policy value increased. This wasn’t a perfect solution though it was the best one that we had.
Unfortunately, the life insurance company didn’t see things this way and said that commission had to be generated. If we wanted to pass this back to the client then this was down to us. We explained that this wouldn’t solve anything as they base fees on investment amount. The capital that we wanted to introduce from the other policy would be treated as new money. This would mean new charges on top of what he was already paying.
We asked if there was another option that was available to alleviate the situation for the client, they said no. This company prides itself on having customizable charging structures that yield the highest commissions whilst appearing reasonable to the investor.
We haven’t named anyone here for several reasons though except for Example 2 they were all direct encounters. The bottom line is that if you are dealing with one of the offshore life companies then be aware that they just don’t care. If you are thinking about setting up an investment with one of them then just don’t do it.
If you need help or want an idea of what you should be looking for see our Hallmark Account.