I have news. I’ve been had by Dubai’s financial advisers. So what? After all, I am but one of many. Well, let me not mince my words: never take out these policies. You know the type, the ones where you commit to a monthly payment that goes into funds.
They are a rip-off. No other way of putting it. To date, I have only ever come across one person who made good and that is because he is a banker who, having become wise to what was going on, took over the management of the policy, got out of everything his broker bought into and made the right calls vis-à-vis sectors, areas of the globe and funds. But who has the time or knowledge for that? That is why we seek out “professional help”.
The only thing is, they’re not helping us. They’re helping themselves to our hard-earned cash and putting up smoke and mirrors when asked pointed questions about charges.
In October, I started really looking into two policies. I had taken them out at times of emotional turmoil, as is so often the case. Many of us do this – it could be the wonderful news of birth and a new life you’re responsible for, divorce and its fallout, or some other upheaval.
This means we are probably dealing with extra stresses and, in wanting to do right by our dependants or our future selves, become prey. In my case the magic word “mirror” was never used. Nor was the option of taking out a policy for five years presented – longer commitment means more commission for the broker and disabling penalties for us. This is serious mis-selling and misconduct.
In my mission to determine whether the policies are worth keeping, I did two things. One is reach out to the brokers who sold them to me and the companies that issued them. The other is meet numerous financial advisers to garner their take on my situation, my options and corresponding pros and cons.
It has been an eye opener. Nay, a shock to the system. I had one confide that he and his wife have similar plans and that he just views it as a savings tool – not a good investment. I will repeat this: a qualified personal adviser, who sells these products and who set up his own advisory business in the UAE, has similar policies that he took out when younger, and sees them purely as a piggy bank. The money that he gets out of them when they mature is a bonus that he “saved” and didn’t fritter away.
But this isn’t OK. We’re sold these with the view that they are expertly managed and will gain wealth over their lifetime. Problem is, it is always just out of reach.
I had one question: how much have I paid out in fees to date. I wanted to make decisions and needed facts.
Reasonable enough you would think. Because I’m asking for past facts, not future predictions. Nope. It took months, many emails and then reams of paper – 84 and 87 pages from the respective issuers. Every page consisted of line after line of numbers, some in brackets. I was then told to add up the ones in brackets to get the figure. But even that – had I done it – does not give me the real total that has been paid out in fees.
The long and short of it is that the financial advisory company Killik & Co was the only outfit that said it would look over the policies, get information that I had been asking for and give me a solid, fact-based overview. And it did so. Eventually. Not for the lack of trying, but because the companies it reached out to took their sweet time responding. But even Killik couldn’t access the real total annual charges being levied. Instead it came up with an educated guess. This is what mirror funds mean. They mean you cannot see or know real charges incurred for the mirrors and smoke.
The bottom line is, we would never be sold these types of policies in developed markets. Be warned. They only work in favour of their stakeholders – and you and I aren’t one of them.
It is at best opaque, at worst deliberately deceptive. Once you have signed, you’ll be hit with a financial penalty whatever you do. If you choose to get out before its lifetime you pay a penalty, if you stick with it, you’re losing out on fees that include initial unit charges, plan fee, fund administration charges and external fund annual management charges.
These “known” charges (excluding mirror fund charges) mean that you’re about 4 per cent out of pocket straight off the bat every year. No, your broker didn’t tell you this, and no, the companies that create the products don’t provide information easily, willingly or within a reasonable time frame.
Then you’ve got the mirror fund charges. Julian Vydelingum from Killik was the only person to put it in context regarding my plan: between 0.1 per cent and 3.35 per cent each year, depending on the mirror fund chosen. They also have other charges embedded in their mirror funds but do not make these explicit as they are built into the fund price. As a guide, other life companies levy an additional mirror fund charge of 0.75 per cent on top of the fund annual management charges, so it is probable that your issuer charged a similar amount on their mirror fund range.
So I was dealing with probably a 4.75 per cent annual charge. That is huge. According to Nobel Prize winner William Sharpe, fund investments (on aggregate) earn the market’s return, before fees. Then fees are taken out. Ergo over time, they will underperform the market in direct proportion to the fees charged. Please reread and let it sink in.
We all make decisions we regret, but what we do about them is key. More of the same is madness.
Nima Abu Wardeh describes herself using three words: Person. Parent. Pupil. Each day she works out which one gets priority, sharing her journey on finding-nima.com. You can reach her at firstname.lastname@example.org