WARNING: Expat Pension Schemes & Life Insurances – Beware of the hidden costs!

In the past I wrote about our experience with financial advisers, and the pension schemes and life insurances of large insurance companies that they sell to expats (Standard Life, Zurich, Generali, etc). If you live in the UAE, ask around – most expats fall into the trap of investing into at least one of these products. So did we. (Un)fortunately, after 3.5 years, we have finally come across a book that answered all the questions our financial adviser didn’t answer, confirmed all our concerns about the pension/insurance schemes we were buying into, and finally led us to a more enlightened path for investment. This book is a must read: The Global Expatriate’s Guid to Investing by Andrew Hallam.

If you already have an investment portfolio, are thinking of investing your money, or even if you are not interested in investing at all – it doesn’t matter. Just spend an afternoon reading this book, as a guide on how you can invest money for long-term saving goals without being taken to the cleaners by ridiculous hidden fees. All written in language that a lay person can understand. It also provides examples for people of different nationalities / countries of residence, which I found very helpful.

Some key insights we gained from the book:

  • Always be cautious of people who contact you. Reputable financial advisers will not be the ones cold calling you.
  • Stay away from complex pension schemes and life insurances, even from large and well known insurance providers, which are full of hidden charges that will eat away at your investments like a caterpillar. No matter how high the market growth may be, this will seriously reduce your profit. And if the markets don’t do so well, the fees will end up eating up all your hard earned savings. Don’t feed the caterpillars!
  • Alternative investment strategies exist. Without hassle, hidden cost, or experience in the stock market, you can make up a simple portfolio of index funds and bonds, that offers you a safer and cheaper way of accumulating long-term savings. The book provides a step-by-step guide, based on your nationality. Investing is still gambling, but if the fees are low and understandable, the stakes are different.
  • Buy from USA exchanges with limitations. If you buy anything through a USA-based exchange, even if it is stocks from e.g. New Zealand, you will be charged tax on these investments by the USA after you die. Even if you have no other connection with the USA – no passport, no residency, no green card. They will still ping the person who inherits your investment.
  • The book provides a list of international, expat-friendly banks, with exceptionally low fees. You can pick one that suits your nationality/location.
  • A clear translation of financial terms is provided that a layperson can understand. I had no idea what an index or hedged fund is before I picked up this book…

Read the book, do the math, and research your alternative options, such as those suggested in this book. If you are already invested in one of the greedy caterpillar-like pension / life insurance schemes, it may still be better to pull out of the contract now and cut your losses, than to keep it going for another 10++ years.

Other countries, such as the UK, have already started cracking down on cold calling and the sale of these high-fee pension and life insurance schemes. Hopefully the UAE will follow suit soon. Upon meeting with our ‘financial adviser’ to cancel our pension scheme contract due to the ridiculous fees, he did sheepishly admit that the law was cracking down on them, and that this will affect the products being sold in the UAE as early as next year.

So, read the book. Or go straight to the author’s webpage at www.andrewhallam.com to find out what his approach and his warnings are all about. Even if you don’t follow his advice on index fund investments, it may still save you money simply because you’ll be wise enough not to invest in the dodgy schemes that are being sold to expats like candy.

[As the original post about financial advisers was graced by one of Ryan McGuire‘s awesome photos, I had to go with another one of his that sums up the story perfectly. Thanks Ryan. I owe you coffee!]



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