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Global Eye / PIC / DeVere / Acuma et al - Zurich Vista UAE

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Global Eye / PIC / DeVere / Acuma et al - Zurich Vista UAE

Old 26th Mar 2017, 11:08
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transport jock

I promised you a post about the Zurich Vista product and here it is, with apologies for the length of the post. This product (and others like it) are extremely complex, and they use a jargon that is not familiar to a lot of people. I have done my best to use plain language, but I’m not sure how successfully!

So, some background. Most people living in the Middle East are making a little more money than they would if they were at home, and with our parents’ words about thrift and saving for a rainy day ringing in our ears, we intuitively understand that we should be saving for that rainy day, or retirement, or university fees etc.

The fact that a person may be a successful pilot, or engineer or teacher etc., earning agood income, does not necessarily mean that their level of financial capability is any higher that their peers back in their country of origin. Study after study in the UK, the USA, Australia and other developed countries have shown that consumers have a lot of difficulty in understanding savings/investment/pension products.

We can of course simply let our money accumulate month after month in a bank account, but the temptation to upgrade the car or go to Hong Kong for the weekend can be difficult to resist and can disrupt the establishment of a regular savings habit. In addition, we also know that banks pay very little interest at the moment.

The solution that financial advisers often suggest is a regular contribution to a collective investment scheme.

A collective investment scheme is a type of financial product where the investments of a large number of people are pooled together. The rationale is that economies of scale can be brought to bear (thus, in theory at least, reducing investment costs) and also so that smaller investors can participate in opportunities that might otherwise be limited to larger investors.

There are three common legal frameworks used to create a collective investment scheme:
  • A unit trust;
  • A variable capital company; and
  • A unit-linked insurance policy.
Perhaps the key difference between unit-linked insurance policies and the other collective investment schemes is that the underlying assets of the unit-linked insurance policy are owned by the insurance company rather than by the investor, and the investor has no legal claim to those underlying assets.

The onlything that the investor owns is an insurance policy issued by an insurance company in the Isle of Man or the Channel Islands. The value of that policy may be linked to the performance of other assets (such as funds managed by Morgan Stanley, JP Morgan etc.), but those assets are owned by the insurance company.

PThis is an important distinction. These policies are often sold on the basis of the portfolio diversification benefits that they offer, but the truth is the opposite - if you buy a Zurich Vista policy you have a 100% counterparty exposure to a single company – Zurich International Life Limited, and if Zurich International Life Limited goes under those assets are available to meet the claims of all creditors.

Holborn Assets is authorised as an insurance broker by the Insurance Authority in the UAE, and I can find no evidence that it is authorised in any other capacity. That means that Holborn Assets can only sell insurance policies, and that any investment products that it sells are unit-linked insurance policies.

The history of these products is complicated, but suffice it to say that if you die while you own one of these products the insurance company will pay to your estate the value of your contributions to that point, plus a small margin, say 1%. That extra 1% makes these product, legally, insurance policies.

Now let us turn to the charges/costs of these policies. As the poster referenced Zurich I will look only at the Zurich Vista product, but others in the marketplace are broadly similar. Charges/costs fall under two broad headings – initial charges and ongoing charges.

The key documents containing most of the information on charges can be found here:
http://media.zurich.com/international/pdfs/MSP10238.pdf

https://www.zurich.com.sg/_/media/db...37856270E082E4

https://www.zurich.com.sg/_/media/db...DC4348370C7D7B

Initial Charge. The first and most devastatingly expensive charge is made at the commencement of the savings plan. It is not called an initial charge, and you would really need to know your way around financial products to recognise if for what it is. It is called the “initial contribution period”, a period at the start of the savings plan (up to 18 months long) where your money is used to buy special units which have “no encashment value” (i.e. they are worthless).

Co-incidentally (not!) on the day you sign the application form Zurich will pay a commission to the selling broker of up to 18months’ worth of your savings!

Let us use the example (here and later) of a policy where you save $1,000 per month for 25 years – not an unusual scenario. That means that the day your broker lodges the application form with Zurich they get $18,000 in commission, cash, upfront!
It also means that after say 24 months, the value of your investment of $24,000 is just $6,000 (assuming no growth) because ofthe $18,000 in charges.

OngoingCharge. Sticking with the example of a $1,000 per month 25 year savings plan the ongoing charges (equally devastating for your financial health) are:
  • Policy Charge: $7.50 per month = 0.75%;
  • Policy management charge: 0.75 per annum;
  • Credit card payment charge: 1%;
  • Mirror fund charge: 0.75%
  • Average underlying fund charges: 1.5%
  • Underlying fund – other expenses: 0.5%
This gives us an ongoing charge rate of 5.25% per annum.

Now, the rate of return that can be expected from a balanced stock portfolio over the long term, adjusted for inflation, is generally accepted to be around 7%. If you are paying ongoing charges of 5.25% you haven’t a hope of achieving a 7% return.

Those ongoing charges are much more likely to result in poor investment performance than the “downturn in market forces” cited by your adviser.

Last edited by johnjonesnine; 26th Mar 2017 at 13:00. Reason: formatting
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Old 26th Mar 2017, 11:20
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Jet II

Clearly you do not think that it went wrong, but if after using the services of one of these advisers you are on a beach at 55 drinking Cerveza there is a good chance your adviser is in a 5-star hotel drinking champagne!
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Old 26th Mar 2017, 11:44
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If you believe that the scale of the charges was not explained to you then you may have been mis-sold the product and you should make a formal complaint to the Insurance Authority in the UAE. You can submit that complaint via their website:
http://www.ia.gov.ae/en/Pages/default.aspx

As the person dealing with your complaint may not speak fluent English I would strongly recommend that you get a professional translation of the complaint into Arabic, and say that you are happy for them to respond in Arabic (i.e. make it easy for them).

Meanwhile, write to Zurich and tell them that you believe that you have been mis-sold the policy. Tell them that pending consideration of your complaint you wish to pause contributions without penalty, then cancel the bank instruction.

Perhaps you would keep the forum posted on how your complaint progresses?

Last edited by johnjonesnine; 26th Mar 2017 at 11:49. Reason: additional wording
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Old 26th Mar 2017, 15:06
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He would have a job as I dont have a financial advisor, I think they are all a bunch of crooks on a par with Real Estate agents - I self invest..

Besides, if these Investment Advisors are so good why are they not sitting on the beach with a Cerveza?
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Old 26th Mar 2017, 18:13
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Perhaps I have you wrong, but back at post 42 you said "I have had a QROPS with Deveres for almost 10 years" so I think its fair to assume that you are a DeVere customer, albeit not a regular savings plan customer. I do also applaud your self-investment approach, it takes a bit of work, but it is so worthwhile.

I hope that QROPS advice was suitable. DeVere is currently the subject of an investigation by the Financial Conduct Authority in the UK in relation to its pension transfer business:
https://www.moneymarketing.co.uk/fca...gation-devere/

It might be worth putting down that beer for a little while and dig out those old QROPS files. See if you can figure out how much DeVere made out of that transaction.
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Old 27th Mar 2017, 01:43
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I had Deveres set up a QROPS platform for me because at the time it was impractical to do it myself, I now self manage those funds through the holding company. Deveres made a decent amount out of setting up the QROPS platform but I rather doubt that any other financial advisor would have been significantly cheaper at the time.
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Old 27th Mar 2017, 06:42
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Bear in mind the DeVere did not set up a QROPS platform for you - they wouldn't know where to begin. They sold you an off-the-shelf product manufactured by someone else. The only expense that DeVere incurred was in the time spent by the salesman talking you into the transaction. How many hours did that take, and how much commission did they earn? Do you know?
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Old 27th Mar 2017, 07:42
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JJ9

You make some good points but you're also spouting some real BS. My QROPS is with DeVere, my product is actively managed and I make the final decision based on information and advice from my advisor via quarterly meetings or more frequently if needed.

I have no doubt there are some real sharks out there but don't tar all with the same brush.
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Old 27th Mar 2017, 08:41
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Let me ask you the same question, do you know how much DeVere took out of your pension pot when it was transferred?
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Old 27th Mar 2017, 09:07
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Some interesting press about DeVere and QROPS:


Exposed: the rip-off investment 'advisers? who cost British expats billions - Telegraph


Expat gets pension restored by This is Money after it fell 80,000 | This is Money
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Old 27th Mar 2017, 15:56
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Originally Posted by johnjonesnine
Bear in mind the DeVere did not set up a QROPS platform for you - they wouldn't know where to begin. They sold you an off-the-shelf product manufactured by someone else. The only expense that DeVere incurred was in the time spent by the salesman talking you into the transaction. How many hours did that take, and how much commission did they earn? Do you know?
Do you know of any financial advisors that dont take commission for setting up QROPS platforms?. Given the amount of work that Deveres did in contacting my previous company and getting a transfer figure, organising all the contract paperwork etc - I would certainly be interested in the name of any company that does all this for nothing.

As for the cost well I just checked and it came in at just under 2%.
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Old 27th Mar 2017, 17:51
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Most of the more reputable advisers (and I appreciate that its not easy to tell the difference) will set up a QROPS on a fee basis rather than commission. They don't like to do it though, and they may not advertise it. They will probably frame the choice in terms of "either you can pay me X amount in cash now or else I can take a commission from the company and you don't pay anything". 99.9% opt for the latter, even though it is far more expensive.

You asked for an example, well just Googling "fee-based QROPS advice" throws up this FCA regulated firm on the first page:
Fee based advice on QROPS, UK Pension Transfers

(BTW, I have absolutely no connection to this firm, or any other financial adviser).

Regarding the amount of work involved, I would estimate the whole thing (excluding schmoozing with you) to come in at around two hours - max.

Now your average DeVere adviser has no (or at best very basic) financial qualifications. Compared to other occupations I would put them at or around the level of a regular mechanic or plumber. So I would value their time at no more than 75 pounds an hour. That means the value of the services provided to you by Devere is about 150 pounds.

You say that the transaction costs of your QROPS was 2%. I'm quite sure that 2% of your pension pot is a heck of a lot more than 150 pounds.

But the real kicker is that you didn't pay 2%. There is no commission-based QROPS in the market that only pays the broker 2%. 2% may be what they disclosed to you, They tend to start at 7% and go up from there:
Concerns raised over undisclosed QROPS transfer fees of up to 12%

Full commission disclosure is not required for QROPS anywhere in the GCC - so when I hear a pilot or a teacher or an engineer telling me that they know what they are paying I have to wonder how that could be.

Post a link to the specific product that you bought and let us all have a stab at estimating the true costs.
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Old 27th Mar 2017, 18:10
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Methinks he doth protest too much!
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Old 28th Mar 2017, 01:18
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Well I checked out AES International (and I notice there is no shortage of complaints about their advice from disgruntled customers) and they show no prices for their services - in fact they seem more interested in managing your QROPS account rather than just setting it up - but I cant for the life of me believe that they will go to all the effort of setting up a QROPS account for 150 (or anywhere near that figure). If they were that cheap that would raise warning flags by itself.

What did strike me from reading about AES was this comment from one of their employees:

"After an initial 3 month training period you are immediately given levels of autonomy and responsibility found no where else in the financial services industry as a graduate."

so bearing in mind that their staff are paid on commission like the rest of the industry I somehow doubt that their advice will be any better/worse than Deveres.

Post a link to the specific product that you bought and let us all have a stab at estimating the true costs.
Well my QROPS account is with Sovereign in Guernsey, they charge a quarterly management fee of 96 and 15 for each buy/sell transaction.

https://www.sovereigngroup.com/pensions/guernsey/

I tend to keep a lot of cash in my QROPS account so the buy/sell fees are insignificant. As far as products go my priority for this account is capital preservation so that rules out tracker funds (I dont like to use managed open funds), therefore I went with Structured Notes. This is one of the first that I invested in, there is a 4% buy in with no management fee and this one happened to close early after 2 years with a 32% return. I still have some Notes but the returns are not as good as they were, the glory days are gone, but they still return around 8% with a 60% barrier against market falls.

https://www.dropbox.com/s/jsx22qkz1i...0Note.pdf?dl=0

I get that you dont like Deveres but in my experience they are no better or worse than any other Financial Advisor in the business - after all if these guys were any good they would have made their millions and would be retired to the Bahamas.
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Old 28th Mar 2017, 06:34
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Hi Jet II

Thank you for your response.

I will do some research and revert. But one question, what did you transfer out of? A Defined Benefit or a Defined Contribution scheme?

You say "I get that you dont like Deveres but in my experience they are no better or worse than any other Financial Advisor in the business". I think were really in agreement here.

I don't dislike Deveres any more or less than any other financial advisory firm in the GCC. They are all poorly qualified salesmen/women, selling high-commission poor-value toxic financial products (products that would be illegal in the UK) in an unregulated market. If you deal with any of them you have little or no come-back as a consumer.

Devere are just bigger (and thus I assume better at it) than anyone else.


Regards
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Old 28th Mar 2017, 11:21
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jet II,

What you leave out of your criticism of Andrew Hallam, is compounding.

8% compounded over 25 years works out to a lot more than 8% profit. And it will be a lot more than any managed fund or average IFA can do.

That is Warren Buffetts advice too, if I believe AH.

My 300k invested in Generali over 8 years has made a whopping 1%. Don't go anywhere near the likes of Generali/FP/zurich even as recommended by nice trustable UK trained/qualified/experienced IFA. Nice blokes. Bad maths.
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Old 28th Mar 2017, 15:27
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goeasy

I was responding to Hallams suggestion on his website that you should walk away from a $39k investment as with an annual return of 8% the end result is a larger payout. I have already shown that Warren Buffet doesn't think that 8% return is achievable in the way that Hallam does.

I dont disagree that low cost trackers are a better investment strategy for most people - just in this case Hallams expectations are rather hopeful. He sounds like the guy who sold me my first endowment years ago that had all these wonderful examples of money to be made at rates of return that never materialised.

https://andrewhallam.com/2016/11/zur...d-sell-it-all/

Just noticed that Hallam also promotes AES International....
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Old 30th Mar 2017, 08:41
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Hi Jet II

I am referring back to your post #76. Apologies for the delay in getting back to you, I was laid low by man-flu!

I have tried to do some research into how much money Devere got paid out of your pension pot for selling you the QROPS but to little avail. The link you provided to Sovereign Group gives no information about that – do you have any documents from the time of the transfer that might shed light?

One of the things that I always look at when considering pensions or investments for myself is who is the person standing behind my pension/investment – how deep are their pockets, and what comeback do I have If they go bust (in passing, one of the minor consolations of buying the crap savings plans that these so-called financial advisers sell is that at least there is a large quoted and rated insurance company (e.g. Zurich, Generali etc.) standing over the obligation).

Your say that your QROPS is with Sovereign Group in Guernsey. I’m really struggling to find any meaningful information about who the SovereignGroup is. They appear to be supervised by the Guernsey Financial Regulator, but I can find no information about who owns them, nor how big they are. They are Gibraltar based, established in 1987, but don’t appear to have a credit rating from any of the credit agencies. I can’t see if there is an actual group (i.e. a pyramid of companied with a holding company at the top) or a collection of entities in different jurisdictions owned by the same person(s) (this is important from a corporate governance perspective).

As far as I can tell the operations of Sovereign Group in Guernsey are not covered by any investor/consumer compensation scheme, so if anything goes wrong you have no come-back.

The Chairman (and I think founder) of Sovereign is a guy called Howard Bilton, who appears to live in Hong Kong. So we have a Hong Kong based businessman, who owns (it seems) an unrated financial group based in Gibraltar, which has a subsidiary in Guernsey (with no compensation cover) that issues QROPS to GCC based expats now retired in X (wherever it is that you are enjoying that beer). I hope nothing goes wrong – if it does it will be a nightmare! Frankly, I would not be comfortable if my financial security in old age rested on that type ofstructure.

I have also looked at the document you posted about the Morgan Stanley Note, but again it gives no specific information about charges.

It is useful however as an example of the risks that these products present and why they are generally unsuitable for retail investors. The Morgan Stanley document says that these notes “are senior unsecured obligations of Morgan Stanley”.In other words you don’t own any underlying investment, you have a 100% counterparty exposure to Morgan Stanley, and the obligation is unsecured, therefore you will rank lowly among the creditors if Morgan Stanley hits financial troubles.

Morgan Stanley is a bank, and normally monies given to a bank are covered by government deposit protection, but Morgan Stanley make it clear that “the notes and deposits are not insured or guaranteed by the Federal Deposit Insurance Corporation”.

In Morgan Stanley’s own words “Structured products are predominantly high risk investments”. If you are happy that you understand the way in which the underlying deposits and derivatives (including leverage) are assembled, and are happy with the caps on returns that are typical, then go ahead.

Incidentally, you say that your note closed early after 2years with a return of 32%. I am happy for you, you deserve a good return because you took a lot of risk (and that risk/return relationship is immutable). You should however ask yourself why it was redeemed early. Was it because it was so deeply “in the money” that it made better sense for Morgan Stanley to take over your position?

I’m happy to engage further with you on financial issues generally, but what I’m really interested in is getting to the bottom of the charges of financial advisers, so if you have information on that please share.
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Old 29th May 2017, 07:48
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It is reported by Bloomberg that DeVere is under investigation by the SEC in the United States:
https://www.bloomberg.com/news/artic...face-sec-probe
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Old 2nd Jun 2017, 15:16
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Hi,

Thanks for your very informative advice on Zurich and Devere. I just bought in to it for life and education investment for my kids with 2718 dollars monthly. How can I withdraw from it and will I get anything back from the money I have contributed - just three installments.
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