Momentum Pensions Review

(Quick note – this is just a brief review.  For a more in-depth review of Momentum Pensions and some of the bonds they are sold with, together with customer comments, please visit here – https://adamfayed.com/zurich-vista-review-rl360-quantum-friends-provident-hansard/).

Who are Momentum Pensions?

Momentum Pensions offer a variety of solutions to UK residents and expats.  They are perhaps most famous, however, for their UK pension offerings through SIPPS and QROPS.

Most commonly, this is where a bond is offered (from the likes of RL360, Old Mutual and others) and Momentum is the Trustees.

Where is Momentum Pensions sold?

They are sold worldwide. However, as a lot of clients are British expats, they are especially widely sold in Australia, New Zealand, Canada, Hong Kong, Singapore, Dubai, Qatar,  Malaysia, China, France, Italy, Spain and other expat destinations in Europe.

What are the fees and general terms and conditions?

The charges are taken out for as long as 10 years and aren’t very transparent. The reason is that the charging structure that is chosen (commission-free or with commission) can mean that client X is paying more than client Y for the same product.

The fees also compound because now you have the trustee fees (Momentum), the bond fees (Old Mutual, RL360 and the like), the fund fees and the broker fees.

In general, the charges are:

  • SIPPS fee of at least £250 a year.
  • In terms of the bond, establishment charge of 8%-8.5% upfront charge, taken out over many years, on a gradual basis. This charge lasts for 5-10 years, often working out at 1%+ per year. This charge goes down to 0% after this time.
  • Fund charges, which can be anything from 0.1% to 2%, but typically 1.5% on most actively managed funds
  • $137.50 every 3 months for admin charges.
  • Broker management fee charge – typically 1%.

What’re the positives about the plan?

  1. You do avoid the risks of UK inheritance tax in certain situations with SIPPS and QROPS, so that is the main benefit of the plan, rather than investment returns.
  2. You can earn more than in the bank even with high costs
  3. Low-cost options, such as index funds, are available, but seldom used, within this product.

What are the negatives about the plan?

1. It can be expensive if the wrong options are chosen.

2. Used alongside expensive funds, and trustee fees in QROPS/SIPPS for British expats, the fees compound.

3.  Many high-risk products like structured notes are used in tandem with this product. This often leads to losses.

Are there charges for getting out of this product?

Yes, a termination fee of £1,500 from year 1 until year 5, and then £1,000 for transferring to a non-Momentum product.

As QROPS and SIPPS are UK pensions, it isn’t as easy to withdraw money before retirement, although 25%-30% can often be taken out as a lump sum at any point.

What can I do if my investment is underperforming?

Get advice. Often funds and fee structures can be amended. In such cases, simply reducing the other fees, regularly increase performance.

This will make a big difference over time. If you have $100,000 in your account and markets go up 8% per year, for the next 5 years, you are only likely to get 4% per year returns in this product, due to the numerous charges.

Mistakes to avoid in investing

Various bias cloud investors minds, such as recency bias (preferring assets that have gone up most in recent years) and familiarity bias (preferring assets and people we are more familiar with).

Moreover, one of the biggest mistakes investors makes is called loss aversion in cognitive psychology. This means that if investors are down, or not doing well, they wait until the accounts are breaking even before selling.

A simple example would be if you have $100,000 in your account. The value is $95,000. After more reading, you know that deep down the fees are eating into returns. However, as the account briefly hit $101,000 before, you wait until the account recovers to $100,000+ before selling as you don’t want a loss.

I have even seen investors wait 2-10 years to avoid this loss. The rational thing to do is accept the $5000 loss in this situation, as that money can be made up quickly in a cheaper structure.

In addition to that, many investors think size is always good. Having 24/7 account access and log in, flash IT systems and an office in Mayfair doesn’t help client returns; lower fees and better funds would help that.

What can you do if you have a Momentum policy and you aren’t happy?

If you have a policy and would like a conversation please contact me via adamfayed@hotmail.co.uk, I can’t promise anything – only to try my best.

Daman Insurance UAE Review

This article will review Daman Insurance, which was created in 2006, in Dubai.  It is a joint initiative between the government and a private insurer.

Who does Daman Cover?

They cover individuals and families within the UAE.  Who they cover depends on the visa status and a few other things, including salary.

For example, for lower-income workers, who hold Dubai resident visa, and who are earning less than AED4,000, they offer very limited coverage.  Typically the coverage is only for $40,000 (or AED 150,000) of coverage.

What about the chrome and premium plans?

Daman insurance has different plans including; Care Essential Plan, Care Chrome Plan,Care Bronze Plan, Care Silver Plan, Care Gold Plan, Care Platinum Plan and the most extensive coverage (Premier Plan).

How much coverage you will get will depend on each plan. For example, on the Care Essential Plan, you only get local coverage, AED 160,000 total coverage expenses, 80% coverage for inpatient services and subsidized medicines.

In comparison, the premium plan (Premier Plan) offers worldwide coverage, has an AED 20,000,000 limit, pays medicines that are prescribed in full and covers inpatient, outpatient, infertility, dental and many other procedures.

How about corporate medical insurance plans?

Daman insurance does offer corporate plans, and again, that depends on many factors.

What are the positives and negatives with the plan?

The plan is well-regulated by the government and covers both high and low-income households.

However, the plan is mainly focusing on companies, so doesn’t focus on individuals so much and is expensive relative to the benefits.

As insurance is a dead-money product, meaning you get nothing back if you don’t get sick, it is best to pay the least possible, for the most benefit.

What if I am looking for new insurance and want to contact you?

My contact details are adamfayed@hotmail.co.uk

Further reading 

If you are living in the UAE, or beyond, and have an insurance-investment scheme offered by the likes of Zurich, RL360, OMI and so on, you may find this article useful.

 

 

RL360 Oracle Bond Review

(Quick note; this is a short and basic review.  For a more in-depth review of RL360 Oracle Bond plan, alongside customer reviews and questions at the bottom of the page, please visit here – https://adamfayed.com/zurich-vista-review-rl360-quantum-friends-provident-hansard/). 

Who are RL360?

RL360 is a life insurance company, with product offerings in areas such as life cover, savings plans and lump sum. The Oracle Bond is a lump sum account, with minimum investments of $32,000.

Even though RL360 Oracle is a lump sum product, it isn’t open architecture, which means that only about 160-170 fund choices are available.

Where is RL360 sold?

They are sold worldwide in Dubai, Qatar, Hong Kong, Singapore, Malaysia, China and other expat destinations.  RL360 has become more widely sold in recent years, after many bigger life insurance companies which were more widely sold 5-10 years ago have restricted sales.

What are the fees and general terms and conditions?

There are numerous charges associated with this product:

  • Establishment charge of up to 7.5%. This is charged gradually. For example, 1%-2% per year for 5-10 years. This charge goes down to 0% after this time.
  • 1.2% for investing in mirror funds, even though non-mirror funds exist in the plan.
  • Admin charges of 1.2% per year, or 0.3% per quarter
  • Fund charges, which can be anything from 0.1% to 3%, but typically 1.5% on most actively managed funds
  • Broker management fee charge – typically 1%.

What’re the positives about the plan?

  1. You can earn more than in the bank even with high costs
  2. If a cheaper charging structure is chosen within this plan, the plan isn’t as super expensive as it might seem.  For example, the establishment, broker management fee and mirror fund charges can be reduced, unlike the admin charge.
  3. In general, as the number of funds within this plan are limited, some of the truly toxic funds that have gone down to 0 in some cases, are not allowed within the platform.

What are the negatives about the plan?

1. It is an expensive product, especially if all the fees are applied as above.

2. There are few index trackers available and investment options are limited. Whilst this may limit the possibility of clients being in dangerous funds, it also limits the cheaper fund options, which tend to perform better over time.

Are there charges for getting out of this product?

Yes, there are, but it depends on how much you want to withdraw.  On day 1, most clients can withdraw 70%+ or more of their money, without penalty, assuming the funds are liquid funds, which can be sold relatively quickly and without penalty.

If there are charges for getting out of the product, what can I do?

It depends on each case. In some cases, reducing the management fee and fund charges can make a difference.

For instance, if somebody has already been invested for 10 years, the establishment charge doesn’t apply any longer.

In such cases, simply reducing the other fees, could increase performance.  For many other clients, however, it is possible to get the same funds, for a cheaper price, with cheaper platforms and providers.

This will make a big difference over time. If you have $100,000 in your account and markets go up 8% per year, for the next 5 years, you are only likely to get 4% per year returns in this product, due to the numerous charges.

Mistakes to avoid 

In investing one of the biggest mistakes investors makes is called loss aversion in cognitive psychology. This means that if investors are down, or not doing well, they wait until the accounts are breaking even before selling.

A simple example would be if you have $100,000 in your account. The value is $95,000. After more reading, you know that deep down the fees are eating into returns. However, as the account briefly hit $101,000 before, you wait until the account recovers to $100,000+ before selling as you don’t want a loss.

I have even seen investors wait 2-10 years to avoid this loss. The rational thing to do is accept the $5000 loss in this situation, as that money can be made up quickly in a cheaper structure.

In addition to that, many investors think size is always good. Having 24/7 account access and log in, flash IT systems and an office in Mayfair doesn’t help client returns; lower fees and better funds would help that.

What can you do if you have a RL360 Oracle policy offshore?

If you have a policy and would like a conversation please contact me via adamfayed@hotmail.co.uk, I can’t promise anything – only to try my best.

Buying index funds in Singapore, Hong Kong or anywhere outside America; index accounts

Want to gain access to low-cost and diversified funds from some of the world’s leading financial institutions, but still want the personal touch of speaking to your advisor regularly by phone or WhatsApp?

Or perhaps you are just fed up with some of the expensive products offered by your bank, or other traditional companies?

In any case, I have helped countless investors gain access to such portfolios, and achieve better returns, all around the world.

If you want more information about the accounts please contact me in the comments section below or here. The FAQs below will cover many of the questions I get asked;

FAQs

What kind of returns can I expect?

Historically markets like the US S&P give 10% per year, but that is merely an average. Some years, and decades, are much better than others, and nobody can predict or time marekts

As you need some bonds in your portfolio, 7%-8% long-term returns are realistic. Overall returns will also depend on how much you invest, and for how long.

If you invest $50,000 for 5 years and get 8% per year, you will only have $73,466 after the 5 years are up. If, on the other hand, you invest for 30 years, and add a $1,000 per month contribution, you will have $1.5M, even if you only get the 7% per annum returns.

How do the accounts work?

You are set up with investments that are in line with your age. As a simple example, a 25 or 30 year old, should be invested less in bonds and more in markets. A 55 year old, or anybody 5 years away from retirement, should have more bonds in their portfolio, compared to the younger person.

What currency can I invest in?

USD, British Pounds, Euros, Australian Dollars, Norwegian Krone, Swedish Krona and various other options. Money can be taken from almost any bank account in the world, and deposited into a USD account.

What are the account minimums?

Analysis paralysis, and not taking action, are the biggest mistakes I see. Ultimately, if you spend 100% of what you make, you will make $0 in investment returns. If you inv$500 for monthly accounts and $40,000 for lump sums, or currency equivalent. My lump sum minimums will be increasing to $50,000 from next month (May 2019).

What are the biggest mistakes I see investors make?

Analysis paralysis, and not taking action, are the biggest mistakes I see. Ultimately, if you spend 100% of what you make, you will make $0 in investment returns.

If you invest $2,000 a month and get 5%, you will be richer than if you invest $500 a month and make 8%.

Various studies have shown that how much you contribute, is the biggest indicator of how much your wealth will be in retirement, alongside spending habits. Your income and investment returns are secondary factors.

Despite this, most people are overly cautious and want to start small. The opposite end of the spectrum – taking too many risks and speculation – is another key mistake I see. Market timing and speculating are huge risks, that seldom pay off, compared to buying and holding for 40 years.

So a realistic understanding of risk and return is one of the keys to investment success, alongside a disciplned approach.

Can’t I just invest myself?

Yes you can, but how many people, including doctors, do you know who have six packs and are ultra-healthy? The point being, often people need some structured help, for example a personal trainer, to see sustainable goals, and to stop them doing silly things.

Likewise, in finance, somebody who invested $10,000 in the S&P in 1941, would have $52 million today.  How many of our parents and grandparents did that? Most people panic when markets are going down, and get too excited when markets are going up – buy high and sell low.

What are the minimum investment terms?

I would highly recommend that anybody who invests should consider a medium-lump term investment. Markets perform well, but in the short-term, nobody can predict what will happen.

Therfore, anybody investing should consider this a 5 year + commitment, and understand that the longer you invest, the more you will gain.

What do you charge?

1% on smaller portfolios, reducing to 0.5% for portfolios above $500,000.

How do I pay?

Bank transfer or credit/debit card. For lump sums, usually bank transfer are used. Card payments are used by most monthly investors.

Do I gain online access?

Yes you gain 24/7 online access.

Do you have any client recommendations?

Yes countless. Below are a small selection taken from my LinkedIn :

Many more can be found on my profile.  One of my clients, Nikolaos, has also produced a recommendation on Youtube.

How do you stay in touch with clients?

By email, WhatsApp and various apps. I communicate with some clients weekly, others monthly and some quarterly, depending on a range of factors, such as how busy we both are.

However, I do respond to emails and WhatsApp messages within 24 hours.

What kind of fund managers do you use within the platform?

Various fund companies. Again, many people over analyze this question. The difference between an index fund used by Vanguard, and one used by BlackRock or iShares, is tiny. The costs are the same.

How do you keep costs low?

By focusing on technology. The traditional financial services industry has $30,000 a month offices and does everything face-to-face. This increases the cost for clients, and lowers returns.

It is also a very poor use of my time, and yours, and doesn’t help increase returns.

What is my money invested into?

Low-cost ETF and index funds, focusing on markets in the US, Europe and emerging markets, with some in bonds.

How much should I be saving and investing?

That depends on your age. If you are very young, 5%-10% of your salary may be fine. Most people leave it too late, however, and need to be very aggressive with their saving targets.

In general, it is better to save and invest aggressively when you are young, and when you have the chance to invest.

You never know when you will need the money.

What is the process like for opening up accounts?

The first stage is an initial talk to understand your objectives better. If we are on the same page, the next step is documentation; proof of identity (passport) and address for anti-money laundering requirements.

Finally, once that is done, the accounts will be reviewed for 24-72 hours. Assuming they are approved by admin/legal, the premium needs to be paid.

What investment options do you have for American expats?

The regular contributions aren’t available for Americans, but the lump sums are.

Can you accept anybody who meets the account minimums?

Everybody apart from people living in America. American expats are fine. Most locals are fine as well. In fact, I do have a significant number of local ‘returnees’ as clients, who have returned home after living in the UK, US, Canada or Australia.

Where are the assets held?

It depends on the platform, but typically in well-regulated UK, US and offshore territory, with various guarantees if there is a financial crisis.

Will I need to pay tax?

Tax is usually on capital gains tax, and that is paid once you sell and make a gain. That is another reason to be long-term; it is more tax advantageous. Generally speaking, the offshore destinations are best for tax, especially for expats, but all the solutions are tax advantageous.

I may be moving, does that affect things?

This is a question that many expats ask me, as they regularly move every 3-4 years. The simple answer is no, it doesn’t affect things.

Provided you update your payments information like credit or debit card, your investments won’t be affected if you move.

Can expats invest in Vanguard and other index funds? 

Often not directly, but the platforms I have access to, allow for such options to be held.

Where do your clients live?

All around the world, from the UK, Shanghai, Brussels, Qatar, Holland, Japan, South Africa, Singapore, Hong Kong, Australia, Canada, to Dubai.  More than 100 countries in total.

Is this the right time to buy index funds?  I am worried about a recession and/or a financial crisis.

Nobody can predict when a financial crisis will strike.  Barely nobody thought 2008-2009 would happen, and those few that did predict it, were surprised at how quickly GDP and sock markets recovered.  There is a lot of academic evidence that market timing doesn’t work, so we do know that it is counterproductive to worry about these things.

As for recessions, there is little or no correlation between GDP growth and stock market performance.  Just look at the last 10-20 years.  Chinese Markets have performed awfully since 2006, despite very strong GDP growth.

US Stock Markets have performed excellently since 2009 lows, with the exception of last year, when markets fell despite strong GDP growth!  This year markets have performed strongly again, despite weaker GDP numbers.

Beyond that, there is little or no correlation between GDP growth and geopolitical risks in general. Markets have risen during nuclear stand offs (North Korea, Cuba), trade dispute and hot wars. They have fallen during periods of geopolitical calm.

Even in recent times in the last 12 months, the best months for the markets have been during periods of uncertainty, such as the recent big rises during the US Government Shutdown a few months ago and the North Korea situation last year.

That doesn’t mean that markets always rise during such periods, only that no correlation exists between investment returns and political problems.  The only `strongish` correlation is between various price-to-earnings (PE) ratios and market falls.

For example, in 1999, the US Dow Jones looked overvalued, relative to bonds and international markets, on a PE basis.  The investor who has a well diversified portfolio doesn’t need to worry abut such considerations.  Rebalancing away from the winners to the losers, has always worked historically.

Why is it so hard to beat the market? 

The costs of trying to beat the market is one of the biggest reasons.  If you are buying and selling frequently,  you are increasing costs.  This means your net returns need to be huge, even to break even with the market.

For example, if the markets produce 6% for the next 2 years, and your costs for buying and selling and market timing are 3%, you will need to beat the market by 50%, an extremely tall order

Beyond that nobody can know, for sure, when markets will fall and rise.  People who beat the market over 5-10 years often get cocky and complacent.

People also allow their emotions to guide their investing decisions.  Various studies have shown that doctors may be more likely to buy healthcares stocks, and teachers education companies and ‘everybody’ has a bias towards their home country.

This is called ‘familiarity bias’ in investing.  Investors are less likely to be objective, and more likely to be emotional, about things close to their heart.

Besides, all of the information about listed firms is publicly available. I don’t need to be a doctor to check the balance sheets of pharmaceutical stocks!

There are thousands of investors, and indeed robots, in the market these days.  If there is such a great undervalued opportunity in the market then why isn’t everybody buying that stock?  You don’t have special information…..if you do, that is insider trading and illegal.

They are just some of the reasons why only 20% of people beat the market over 5 years, and 2% over 50 years.

Is it true that even Warren Buffett isn’t beating the S&P500 anymore?

Yes it is true. In the 1960s and 1970s, he beat the market handsomely. In the 1980s, he did it comfortably. The gap closed in the 1990s, and 2000s.  The last 10 years, he hasn’t beaten the market.

The biggest reason for this, is the rise of institutional investors like banks and hedge funds. In the 1960s and 1970s, most of the market was dominated by small investors. Regular people.

These days, most of the money is controlled by banks, financial advisors and hedge funds……..PHDs, robots and other people who have done their research.

So it is becoming harder and harder to use research to beat the market, because these institutions are also researching undervalued companies.

Is it easier to beat the market in emerging markets and small caps? 

Slightly easier, because there are less institutional investors in such markets, but it is still hard to beat the US S&P.  A good example would be the Chinese Stock Market.  I have seen more investors beat the index with stock picking, than any other market.

And yet the market has been one of the worst performing in the world,  falling from 6,000 in 2008 to 3,000+ now.  In comparison, the US Market has doubled.  So even if you beat the benchmark (in this case the Chinese Stock Market), that doesn’t mean that you have succeeded as an investor.

If somebody really can’t help themselves, stock picking with just 5%-10% of your portfolio makes sense.  After 20 years, you may just realize it was too much hassle, compared to indexing and using an advisor!

Is there no place for active management? 

Bonds are one of the few areas where active can beat passive.  Bonds don’t pay 6% anymore – often they only pay 1%-2%.  Besides, a good bond fund should include some high quality corporate bonds, as they pay more.

However, most of the index bond funds used are purely government bonds, which barely pay anything.  So some good quality actively managed bond funds can easily pay 3%-4% per year net, by including some corporate bonds.

Why even have bonds in your portfolio, if they pay so little?

Bonds usually rise when markets fall. This buffer allows you to rebalance in the bad times.  Let’s take a simple example of somebody who had $200,000 before the financial crisis.

$40,000 is invested in bonds and $160,000 in index equity funds. The bonds rise to $44,000 during the panic and the stock index fall to $100,000.

You now have a $144,000 portfolio, and 30% in bonds, as opposed to 20%.  Now you can sell 10% of your bonds, and buy the equities at a cheaper price, to maintain the 80%-20% balance.  After markets recovered, the rebalancing would have helped returns.

Having said that, a 10%-20% allocation to bonds is fine for most younger people, and even those who are 40, 45 or 50.  Above 50, and in retirement, it makes sense to rise the bond component of your portfolio.
Are FANG stocks overvalued?

Quite possibly.  They certainly look so on a P/E basis.  Today’s winners are usually today’s losers, and technology is one area of the market that looks overvalued now.

Who could have predicted the rise and falls of previous tech giants, such as Yahoo? I am not saying Amazon and Google will go bankrupt, or even fall by 50%, but it is a fact that it would be unprecedented if they continued to beat the market, year in, year out.

None of the original 30 firms on the Dow Jones, are still on it.  This survival of the fittest is one of the reasons why markets beat other investments – they are the cream of the crop.

FANG stocks may be the cream today, but don’t count on it continuing!

How about real estate investment trusts (REITS)?

REITS can be a great additional to a portfolio.  Various academic studies have shown that REITS lower volatility, and (slightly) increase returns over the long-term.

The reason is that REITS perform well, during periods when stocks markets perform badly, and vice versa.  REITS also have several advantages over direct real estate, including;

  • They can be sold more easily. With direct real estate, it isn’t always easy to sell, especially in markets where people don’t like ‘second handhomes’ like in China and many Asian markets.
  • Long-term performance is better.
  • It can be held in the same portfolio as bonds and stock indexes. This means you can buy and rebalance.
  • They are globally diversified so not focused on just one real estate market.
  • Geopolitical risk is less when you can buy and sell online, quickly.  If you buy a physical plot of land, or property, in an emerging markets, there is significant political risk.  Indeed most countries in the last 50-100 years have had extreme governments that have confiscated  land and private property.
  • They can be bought in seconds whereas direct real estate is time consuming.

Just like stock market indexes, however, some of the lower-cost REITSfunds are better.

Do index fund products exist which lower the downside?

Yes they do. Many companies offer limited guarantees, linked too structured notes. A typical example would be a 3%-4% per year ‘guarantee’ provided markets don’t fall by 40% or more over the duration of the product – say 15 years as an example.

However, these guarantees add costs and complexity to the products. The chances of you being down over a 15-20 year period are very low, in any case.

It has never happened that somebody invested for 20-25 years or longer, in a diversified stock and bond index portfolio, has been down.

What’s the bottom line?

I can’t control markets or always pick winners, but I can control risk through the asset mix and help with the behavioural/emotional aspects of investing – stopping my clients from doing silly things that affect most investment portfolios.

Investments for American Expats

Since the Foreign Account Tax Compliance Act (FATCA) was approved in 2010, and enacted in 2013, investing for American expats has become more difficult. This article will explain more.

What is FATCA?

The FATCA law requires all non-US financial institutions, to search their databases for US clients, and to self-report. This includes insurance companies if there is a savings and investment element to the policy.

FATCA imposes a 30% withholding tax on any financial institution, that doesn’t reveal the identities of US account holders, within a specific period of time.

The costs of complying with FATCA are estimated to be about $200M for each foreign institution.

The cost of the regulation means that many non-US financial institutions no longer accept Americans as clients, including insurance companies if those insurance companies offer insurance with a saving and investing component.

In addition to that, many US individuals have had their American brokerage accounts closed, since they moved overseas.

For American expats, therefore, investment options have become more limited. Countless Americans living overseas, who aren’t lucky enough to have an HR department help them with the tax implications of investing overseas, end up confused by the paperwork and other requirements that go along with investing.

Who does this effect?

This affects Americans living and working overseas, in any country, and US-specified persons. The majority of American expats live in Mexico, Canada, New Zealand, The UK, Germany, Sweden, Australia, UAE, Singapore, Israel, Costa Rica, France, Brazil, Colombia, Philippines, Mainland China, India, Hong Kong, Japan and South Korea.

There are, of course, American expats all around the world, including numerous places in Central and South America.

American Expat Investment Options – what are the realistic choices?

US expats have many options, including;

1. Putting the money in your partner’s name – although it may not be the most sophisticated option, having the money in your spouse’s name (assuming they are non-Americans) is one simple option to overcome FATCA. This comes with various risks, of course, if you break up. This is especially risky in countries without a developed legal system, if divorce ensues.

2. Another option is to continue contributing to your existing accounts in America, assuming they are open to American expats, which often isn’t the case. This does come with risks though, such as currency exchange fluctuations, and various banking fees.

This also isn’t an option for Americans who have lived overseas for 25-30 years, who no longer have US bank and brokerage accounts in many cases. Another risk is that your US brokerage will eventually follow in the footsteps of many others, and close your account.

3. Tax-compliant investment services overseas. There are a limited number of platforms that can accept American expats overseas, which are FATCA-compliant, which I, and some other firms, can utilize.

The benefits of this approach are the capital gains tax are slim (0%-20% depending on many short and long-term factors), whereas non-compliant US investments can be taxed up to 37%. This approach also makes tax filing and compliance as easy and as convenient as possible.

4. Giving up your American Green Card or Citizenship. This might seem like a big step, but more and more are doing it, with over 5,000 yearly cases reported, including Facebook founder Eduardo Saverin.

FATCA and double taxation on higher incomes have contributed to this situation. However, there is an exit tax for giving up your Green Card. Whether you pay the taxes depends on your immigration status and financial assets.

As a generalization, if you have lived lawfully in the US as a permanent resident, regardless of whether on a green card or as a US citizen, for eight out of the fifteen years ending with the expatriation year, could mean that you are subject to exit taxes.

If your income is above $160,000 per year, and/or your net wealth is above $2M, you are also more likely to be charged an exit-tax. If you don’t meet these two criteria, and you have correctly filed for the last 5 years, then you are less likely to be hit by the exit tax.

If you haven’t filled out your tax forms correctly, the penalties can be severe. For instance, the penalty for not having filed the FBAR (Report of Foreign Bank and Financial Accounts) or the form 8938 (the statement of Specified Foreign Financial Assets) can be up to $10,000 per-form per year.

In such situations, a taxpayer should consider entering into an IRS tax amnesty program to clean up the past and minimise penalties.

Giving up US Citizenship is a big step, with tax and personal implications, so shouldn’t be taken without huge amounts of research and professional advice sought.

In general, option 3 is the best option for most Americans living overseas.

Frequently Asked Questions

This sections will cover some FAQs.

Can a US citizen living overseas invest in Vanguard or other mutual funds?

Vanguard used to be able to accept American expats, but this is no longer the case. However, some of the US tax-compliant platforms can accept various low-cost funds and other investment options.

Most passive funds work in a similar way these days in any case, so many ‘Vanguard-like’ funds exist in the market.

What does a client need to do?

FATCA requires all US taxpayers with financial assets exceeding $50,000 to report these on IRS form 8938, attached to the taxpayer’s annual tax reports. Many institutions will help US expats with tax filing, or make it as easy as possible to do it themselves.

Who is considered US Status or US specified persons?

The following people are considered US specified persons;

  • Green Card holders
  • US birthplace
  • Has US residential address
  • Sending instructions to transfer funds from the US
  • A power of attorney granted to a person with a US address

What about joint accounts – if one person is American and one is non-American?

In this case, FATCA still applies, unlike if you put 100% of the money in your partner’s name. It is subject to the same reporting as a US person.

What about people who took out accounts before FATCA was enacted?

Americans who took out insurance or financial accounts overseas before 2013, should still receive tax advice, as they will still need to report any financial activity.

What if my family or friends in the US send me money?

Money sent out of the US will not trigger FACTA withholding. In comparison, money sent into the US, and income earned in a US account, may be subject to FATCA.

Could FATCA be rolled back?

There has been speculation that The Trump Administration may roll-back or repeal FATCA reporting. This is just speculation at this stage, and cannot be relied upon. Laws can always become less, or more, strict with time. A rational investor can only make decisions based on the information he or she has available to them.

Does FATCA affect health, life and other insurance products?

Many health and life insurance providers, such as AXA, also provide investment products. Many of these providers can no longer accept Americans.

Providers that only provide non-investment-linked insurance products, in comparison, can usually still accept American expatriate clients.

Are foreign mutual funds more heavily taxed?

Yes. The IRS considers foreign mutual funds as Passive Foreign Investment Companies (PFIC), and these are subject to high taxes.

Should I contribute to my employer’s scheme?

Many employers offer excellent schemes, where they contribute $1 for every $1 you contribute. However, this is only a good idea if the scheme is US tax efficient, otherwise, you will still have tax issues.

Do American expats pay taxes on income?

All Americans living overseas need to file a tax return. However, most Americans do not pay income tax in the US, unless they are earning over $101,000 per year.

How about US legacy estate planning?

Your US estate plan, including wills and trusts, may not be viewed the same way in your country of residence, as in the US. If you have these plans in place, therefore, it makes sense to contact an expert in this space.

What’s the best brokerage accounts for American expats?

There is no best option per see, just that some are tax-compliant and reasonably priced, and some aren’t. Brokerage accounts for US citizens living abroad, that are tax and price efficient, are few and far between, but exist.

Should Americans expats have a specific US financial advisor, who specializes in US non-resident matters?

This isn’t always needed, as most expat financial advisors are aware of the issues many US expats face. Financial advice for US expats is specific, however, so the financial advisor should know about the specific issues non-residents face.

What are some of the key mistakes I have seen when it comes to expat retirement planning?

An even more common mistake than making bad investments is deciding to not save and invest at all because the process seems too complicated. Most expats and non-Americans alike don’t have access to local social security and pension programs, which means that poverty can await in retirement.

This is especially the case if expats move from country-to-country. Expats who stay in numerous European countries for 30 years plus, are often entitled to reasonable local pensions.

Over-reliance on your country of residence is another key mistake for American, and non-American expats, alike.

It can be difficult to say no to local stocks and real estate when you regularly go to dinner parties or bars, where everybody is talking about it.

However, most emerging markets are very high-risk. I have seen many expats get caught up in the mania.

Furthermore, tax laws are always changing, so it is important to ask your accountant and investment advisor to be up-to-speed.

As a final note, it is always prudent to get independent tax advice.

Are non-US investment accounts always expensive?

Not always. Some options in the overseas market are cost-efficient and are available with low account minimums.

In the US, it is normal for financial advisors to only accept larger accounts. Many advisors have account minimus of $250,000 a year, or even higher.

In the overseas market, getting advice through an advisor, at a reasonable cost, is often more accessible.

What should I do if I want to contact you?

I have set up many tax-efficient accounts for Americans living overseas. My email is adamfayed@hotmail.co.uk and various other contact options, including WhatsApp and Line, are available here.

Please note, however, that I am not a tax advisor. I can just help with tax-efficient investment structures that make filing more convenient.

What are your account minimums?

$50,000 as of May 2019. I started with $30,000, but have gradually been pushing up my minimums.

What documents are needed to open up an expat investment account?

Typically proof of identity (passport or ID card), and address dated in the last 3 months (utility bill or bank statement), plus an online or paper application form.

I have seen applications approved in hours, and some take months. A week is normal.

What are the minimum contribution periods overseas?

Just like back home, that depends on the product provider. In general, lump sum accounts are quite liquid, if you need the money.

However, with market-investments, it is always best to be long-term. Time in the market reduces risks of losses dramatically.

Can you invest in US Markets like the S&P500 from outside the US?

Absolutely. You can invest in the US Markets, without the money being held in the US.

What average returns could I expect?

Just like back home, nobody can predict what will happen to markets short-term. I have seen clients and associates make 30% 1 year, and 0% the next year.

In general, however, the long-term market average return is 8%-10% per year. That average merely gets distorted by the good and bad times.

1985-1999 and 2009-2017, for example, regularly gave 15%+ yearly returns, whereas the US markets produced 0% from 2000-2009.

 

Friends Provident Reserve (FPI) Bond Review

(Quick note; for a more in-depth review of Friends Provident and similar savings plans, alongside customer reviews and questions at the bottom of the page, please visit here – https://adamfayed.com/zurich-vista-review-rl360-quantum-friends-provident-hansard/). 

Who are Friends Provident?

Friends Provident are a life insurance company, with product offerings in areas such as life cover, savings plans and lump sum. The Reserve is a lump sum account. Friends Provident have been bought by Aviva recently, so have rebranded.

Where is Friends Provident sold?

They are sold worldwide in Dubai, Qatar, Hong Kong, Singapore, Malaysia, China and other expat destinations.  Friends Provident was more widely sold 5-10 years ago, compared to today.  So most people in the plan, have already contributed for a number of years.

What are the fees and general terms and conditions?

The charges are taken out for as long as 10 years and aren’t very transparent. The reason is that the charging structure that is chosen (commission-free or with commission) can mean that client X is paying more than client Y for the same product.

In general, the charges are:

  • Establishment charge of 8%-8.5% upfront charge, taken out over many years, on a gradual basis. This charge lasts for 5-10 years, often working out at 1%+ per year. This charge goes down to 0% after this time.
  • Fund charges, which can be anything from 0.1% to 3%, but typically 1.5% on most actively managed funds
  • $137.50 every 3 months for admin charges.
  • Broker management fee charge – typically 1%.

What’re the positives about the plan?

  1. You can earn more than in the bank even with high costs
  2. Low-cost options, such as index funds, are available, but seldom used, within this product.

What are the negatives about the plan?

1. It is expensive

2. Used alongside expensive funds, and trustee fees in QROPS/SIPPS for British expats, the fees compound.

3.  Many high-risk products like structured notes are used in tandem with this product. This often leads to losses.

Are there charges for getting out of this product?

Yes, there are, but it depends on how much you want to withdraw.  On day 1, most clients can withdraw 70%+ or more of their money, without penalty, assuming the funds are liquid funds, which can be sold relatively quickly and without penalty.

Just because the provider allows penalty-free withdrawals, doesn’t mean there aren’t charges for getting out of the investments chosen within the platform.

If there are charges for getting out of the product, what can I do?

It depends on each case. In some cases, reducing the management fee and fund charges can make a difference.

For instance, if somebody has already been invested for 10 years, the establishment charge doesn’t apply any longer.

In such cases, simply reducing the other fees, could increase performance.  For many other clients, however, it is possible to get the same funds, for a cheaper price, with cheaper platforms and providers.

This will make a big difference over time. If you have $100,000 in your account and markets go up 8% per year, for the next 5 years, you are only likely to get 4% per year returns in this product, due to the numerous charges.

Mistakes to avoid 

In investing one of the biggest mistakes investors makes is called loss aversion in cognitive psychology. This means that if investors are down, or not doing well, they wait until the accounts are breaking even before selling.

A simple example would be if you have $100,000 in your account. The value is $95,000. After more reading, you know that deep down the fees are eating into returns. However, as the account briefly hit $101,000 before, you wait until the account recovers to $100,000+ before selling as you don’t want a loss.

I have even seen investors wait 2-10 years to avoid this loss. The rational thing to do is accept the $5000 loss in this situation, as that money can be made up quickly in a cheaper structure.

In addition to that, many investors think size is always good. Having 24/7 account access and log in, flash IT systems and an office in Mayfair doesn’t help client returns; lower fees and better funds would help that.

What can you do if you have a Friends Provident policy offshore?

If you have a policy and would like a conversation please contact me via adamfayed@hotmail.co.uk, I can’t promise anything – only to try my best.

Friends Provident International Premier Advance Savings Plan Review

(Quick note; for a more in-depth review of Friends Provident and similar savings plans, alongside customer reviews and questions at the bottom of the page, please visit here – https://adamfayed.com/zurich-vista-review-rl360-quantum-friends-provident-hansard/). 

Who are Friends Provident?

Friends Provident are a life insurance company, with product offerings in areas such as life cover, savings plans and lump sum. The Premier Advance Savings Plan is a regular contribution. Friends Provident have been bought by Aviva recently, so have rebranded.

Where is Friends Provident sold?

 They are sold worldwide in Dubai, Qatar, Hong Kong, Singapore, Malaysia, China and other expat destinations.  Friends Provident was more widely sold 5-10 years ago, compared to today.  So most people in the plan, have already contributed for a number of years.

What are the fees and general terms and conditions?

There are flat fees of $6 per month, fund fees (this depends on which funds are picked) and 1.5% per quarter charges on your initial units. There are also numerous hidden fees.

Most customers sign up for 5-25 years and typically the initial period is 18 months, meaning that you need to contribute to 18 months to avoid losing 100% of your money.  After the 18 months has ended, you can withdraw some money without penalty, decrease or increase your payment.

However, doing so has a number of complications, including;

  1.  Failure to get bonuses.  Many of the bonuses aren’t available unless you contribute every time. In other words, if you have a 10-year plan, and you contribute for 120 months, you will get a reasonably sized bonus at the end.  If you contribute for 119 months or less, you will forfeit some of those bonuses.
  2. The original charging structure is based on the premium you picked on day 1. So if you start with a $2,000 premium and reduce to $500, your charging structure will still be based on $2,000, meaning that the plan would become much more expensive on $500

As a result of these two factors, the only people who can make reasonable gains from the plan are those that contribute every time, but few people keep up with payments (statistically speaking about 3% of people who contribute to a 25-year plan).

The plans get more expensive in years 5, 6, 7, 8 and 9.  Many customers see good returns in years 1 and 2, due to the welcome bonuses, but see weaker returns after year 5.

What’re the positives about the plan?

  1. You can earn more than in the bank if you contribute every single month until the end
  2. It is an established brand, so you won’t lose your money.  It is safe from that point of view.
  3. Just like all offshore investing, there are significant tax advantages, but these advantages can be gained in cheaper structures.

What are the negatives about the plan?

1. The fees are very high.  Up to 4%-5% if you include direct and indirect fees. These fees are only mitigated by the bonuses if you contribute each time

2. The plan isn’t as flexible as it seems on paper. You can reduce your premium, and take premium holidays, but this comes with ramifications.

Are there charges for getting out of this product?

Yes, there are.  The longer you sign up for, the higher the charges for getting out will be.

If there are charges for getting out of the product, what can you do?

It depends on each case. In some cases, fund changes within the existing product make sense, if you have contributed every month.

In many cases, you can do a maximum penalty free surrender. For example, if you have $100,000 in your account, you can withdraw $50,000 or $70,000 without penalty, and invest in a cheaper alternative.  

How high this maximum penalty free surrender usually depends on how long you have been invested in the account.

On day 1, you often have $0 penalty free surrenders available, especially on the savings plans.  Most savings plans have a 1-2 year initial period. If you fail to pay in for this period, you lose all your money. 

After that initial period, your surrender value gradually increases.  So on a 25-year plan, for example, after 5 years, your surrender value may be 20%-30% of the account value.  After 22 years, your surrender value may be 95% or more, but the specifics depend on the offshore life insurance provider.  

However, over time, the amount you can withdraw penalty free increases.

Mistakes to avoid 

In investing one of the biggest mistakes investors makes is called loss aversion in cognitive psychology. This means that if investors are down, or not doing well, they wait until the accounts are breaking even before selling.

A simple example would be if you have $100,000 in your account. The value is $95,000. After more reading, you know that deep down the fees are eating into returns. However, as the account briefly hit $101,000 before, you wait until the account recovers to $100,000+ before selling as you don’t want a loss.

I have even seen investors wait 2-10 years to avoid this loss. The rational thing to do is accept the $5000 loss in this situation, as that money can be made up quickly in a cheaper structure.

In addition to that, many investors think size is always good. Having 24/7 account access and log in, flash IT systems and an office in Mayfair doesn’t help client returns; lower fees and better funds would help that.

What can you do if you have a Friends Provident policy offshore?

If you have a policy and would like a conversation please contact me via adamfayed@hotmail.co.uk, I can’t promise anything – only to try my best.

Offshore Bank Account benefits

For expats, and non-expats alike, there are numerous benefits related to banking offshore. Despite this, there are also a number of myths associated with offshore banking. This article will cover some of the main benefits, cover those misconceptions and answer some frequently asked questions (FAQs).

This article is long. So if you don’t have time to read it in full, then please email me at adamfayed@hotmail.co.uk or contact me on any number of apps.

What is offshore banking?

There are 1,001 myths about offshore banking. Offshore banking just means you have a bank account in a country outside your country of residence.

If you are from France and live in the UK, and yet you still have a bank account in France, you are banking offshore.

If you live in Dubai or Singapore, but are banking in the UK, you are also banking offshore.

Offshore doesn’t automatically mean low-tax.

Is it related to tax avoidance?

In the vast majority of cases, the answer is no. These days, no matter where you bank, you have to submit your tax identification number (TIN). TIN details are shared between countries around the world, due to various laws such as Common Reporting Standard (CRS).

In the 1990s, 1980s and beforehand, secrecy was a part of the offshore world, and stereotypes haven’t updated.

What are the main advantages of banking offshore ?

There are at least 6 benefits of investing offshore, especially if you are an expat or from a developing country with poor banking security and general bad governance ;

1.Security/risk

Unless you are sent to Singapore, Hong Kong or a few other typical expat locations, the chances are that the country you have been sent to has unstable currencies and sometimes terrible banking systems.

Even if you have been sent to a safe country, it makes sense to bank offshore if you are going to be moving from country to country every 2-5 years.

It also reduces geopolitical risk. In 2013, expats were hit by the banking crisis in Cyprus, which meant that depositors lost money directly.

Indirectly and directly, people have also been hit by geopoltical evnts recently in Qatar, Egypt, Tunisia and several other countries.

As of 2019, we are in unstable times for emerging markets and frontier market currencies, which could lead to significant currenncy losses.

2. Enhanced investment choice with lower tax implications

Some expats send money home to their country of origin, but this can have significant tax implications.

In the UK, banks are obligated to inform the taxman (HMRC), of ‘large lump sums being deposited. Large often only means only 5,000GBP.

That doesn’t mean you will get into trouble with the law, but it does mean that you could be involved in headaches – especially if you didn’t fill out the needed paperwork before becoming an expat to inform the taxman that you are moving overseas.

In addition to that, even if we ignore this risk, most countries do not allow expats to put money into tax-efficient structures. For instance, ISAs are not available to UK expats.

Living overseas gives you options to invest in a wide range of options, cheaply and conveniently.

3. Convenience

The last thing you want is to have to open and close a bank account every time you have a new expat job.

We have all be frustrated by the long waits at banks, and even online banks can take weeks/months to approve new accounts.

Having one bank account, which will follow you for 20-30 years, outside your home country, makes a lot of sense.

4. FX and currency

With multi-currency accounts, you can transfer for free. Or alternatively, you can have your account in one currency – USD being partcularly popular amongst expats.

The last thing you want is for a bonus or lump sum to get eroded, sitting in the bank, earning low rates of interest, with high-risk, in emerging markets.

5. Lending

Some offshore banks allow lending services, at better rates than local banks, including loans and credit cards.

This isn’t guaranteed and provided by all banks, however.

6. Card services

It sounds so basic, but in some countries, getting a local Visa or MasterCard, isn’t easy. When I lived in Shanghai previously, getting such a local card was tough.

The only expats I knew who had local Visa or MasterCards had lived in China for 20-30 years, or had a joint account with a local wife or husband, who helped with jumping over all the hassles (from a paperwork standpoint) of getting the accounts.

Many expats either had to use their home-country card, and regularly incur banking fees and potential tax issues sending money home, or use a UnionPay cash card which can’t be used online.

Having a Visa or MasterCard that can be used online, at ATMs and is linked to your company account or salary, is ideal.

This situation is most convenient when HR will pay 50% of your salary into your local bank account, and 50% into an international bank account offshore.

Do some offshore banks close your accounts?

Occasionally, offshore banks have been known to close down client bank accounts if they move to countries with significant political risks, such as North Korea, Iran or even Myanmar/Burma – in fact the only case I have come across of a client having their account closed was relating to when he moved to Myanmar from Thailand.

Ultimately, however, your home countries bank can do the same thing. In fact, they are often even more likely to do it, than an offshore bank, as they are less used to such cases.

The easiest way of dealing with this situation is to ask the bank if they would close down your account if you are at offer-stage for such a high-risk country, or neglect to mention it if the assignment is short-term.

Should some expats not bank offshore?

As a generalization, Americans are one expat group that should think twice before banking offshore, due to tax and reporting rules, unless the bank has a very specific American service.

Do you offer offshore banking?

I don’t offer offshore banking as a standalone service, but I do offer existing clients the service.

Offshore banking locations – which jurisdictions are popular for offshore banking?

The Isle of Man, Jersey, Gurney, The Cayman Islands, Puerto Rico and a number of other UK and US overseas territories.

Some up-and-coming locations exist in the Caribbean and Malaysia.

What protections exit?

The UK government guarantees 90% of deposits in Isle of Man. Bermuda and some other locations have a segregated account system, which negates the need for a guarantee in any case.

What are the typical minimum account thresholds?

It varies bank to bank, but many offshore banks do have minimum deposits of $2,000-$6,000 to get the account up and running.

Failing to keep that minimum balance often means you are charged more for the account, rather than the account will be closed.

Standard Bank, for example, charges $75 per quarter if your balance falls below $6,000 or 4,000GBP.

How about offshore banking for small businesses?

This can be a bit more difficult than for individuals, depending on where you are located and what activities your business engages in, but you can often set up an offshore company with banking facilities from $1,000.

Often the offshore company bank account requires a minimum deposit of $1,000 and the documentation process is more arduous than for individuals.

What documents are usually required?

For individual accounts, proof of address and identity and a filled out application form, are required.

For corporate accounts, various certified documents are needed.

How long does it usually take to open up accounts?

It depends on the bank, but it can take 1-2 months, or even longer sometimes. This is one of the few negatives about banking offshore – it can be a hassle on day 1.

Where is demand for banking highest?

UK expats, and others living overseas, are big users of offshore banks. South African residents and expats also heavily use such facilities, but there is demand all around the world.

In emerging markets, where incomes are rising, there has been a sharp increase in demand in the last 10 years.

What things aren’t important?

Something like the sophistication of the IT system. I use Standard Bank. As per the image below, it is a very average online system, but it does the job for my requirements;

What are some of the biggest mistakes I have seen?

Lack of planning and taking no action, often leads to delays and problems. Banking and investments are usually linked to some degree.

Many expats are uncomfortable getting close to 0% in the bank, in an emerging market, and want to invest the money.

The perceived hassle at setting up an efficient banking service, however, means many leave large amounts of money in the bank, earning little and missing out on investment gains.

This is especially the case for time-poor expats, such as businesspeople, consultants and those in oil & gas.