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HOW EXPATRIATES' ARE EXPLOITED BY THE OFFSHORE FINANCIAL SERVICES INDUSTRY

Copyright 2006 Hugh Stevenson

Every year around the world, greedy financial advisors and
international insurance companies persuade expatriates to
invest an estimated $5,000,000.

By Hugh Stevenson Category: 0

Submit your Articles Here!

Copyright 2006 Hugh Stevenson

Every year around the world, greedy financial advisors and
international insurance companies persuade expatriates to
invest an estimated $5,000,000.00 or more in offshore
savings/retirement schemes that are little better than a
swindle

Imagine an advertisement couched in the following terms:

==========================================================

Advertisement

COLOSSAL INTERNATIONAL INSURANCE LTD

Expatriates ? How to Save For Retirement

For regular savings toward retirement our Offshore
Pension Plan is the perfect vehicle. Here
are the great features:

1. You contribute, say, $1,000 per month over the next 25
years.

2. If we achieve, say 10% p.a. growth your fund at
maturity should, in theory, be worth about $1,065,308

3. But our charges will have swallowed up around 47% of
the $300,000 you contributed. That means about $140,000 of
the growth is lost to you.

4. If you stop payments, for any reason whatsoever and
at any time during the first 23 months you get not a
penny back; we shall keep all the $23,000 you had paid in.*

5. If you stop payments at any time for any reason
whatsoever we shall hit you with a substantial penalty. For
instance, had you paid for, say, 7 years and then cashed
in, the amount you would get back is uncertain but is
unlikely to exceed the $84,000 you had paid in over the
seven years.

6. You can reduce your monthly contribution at any time.
However, If you do so we s hall continue taking our
charges as if you were still Paying at the original level.
That means if you reduce the $1,000 per month to $200
per month we will keep levying the charges that would
apply to a contribution of $1,000 per month.

7. You can increase your contribution at any time but
if you do we shall apply to the increase a fresh
?initial period? ? i.e. the period during which you
would get little or nothing back if you stopped payments.

8. You could stop payments at any time and leave the
fund invested with us but we will still, month by
month, take out the charges to a total of around $140,000
(see 3 above).

9. There are offshore savings vehicles that give access to
all the same investment areas but with much lower charges
and no hidden penalties but we prefer not to tell you about
these.

(Throughout this article the $ sign stands for any major
currency. e.g. EUR, GBP, YEN, AUD, CAD)
==========================================================

The above "advertising" copy is very different from the
hype in the real advertisements but it accurately sums up
the typical features of International "Contractual Regular
Savings and Retirement Plans" offered by some offshore
insurance companies.

If they were advertised as above, would anyone ever buy
them? Surely not. Consider some of the details:

1. Forty Seven percent of payments gone in charges!

2. All of your money confiscated if you stop contributing
before you have made 2 years payments!

3. Crippling ongoing charges applied even of you reduce or
stop payments.

4. If you increase payments a new set of charges and a new
zero return period is applied.

And yet every year, thousands of expatriates are talked
into joining such schemes.

Accurate figures are not available but reasonable estimates
suggest that over $500 million is directed to such plans
annually.

Who has the effrontery to market such nonsensical
investments?

1. International Life Insurance Companies

These companies are mostly the offshoots of British
?household name? insurance Companies, and

2. Offshore Independent Financial Advisors

An Offshore Independent Financial Advisor is anyone who
chooses to call himself an Offshore Independent Financial
Advisor (IFA). Anyone? What about training? What about
experience? What about background?

In most countries there is no legislation to prevent anyone
setting up as an Independent Financial Advisor (IFA).
Offshore insurance companies make cursory, far from
thorough, checks on background before giving agencies but
they cannot check qualifications because none are specified.

For an experienced, sometimes unscrupulous, salesperson it
is easy to "spin" the negative features into looking like
advantages. He/she is usually a skilled communicator,
subtle in gaining the trust of his ?prospects?.

Why do so many IFAs take advantage of the expatriate?s
vulnerability in a new and unfamiliar personal financial
situation?

The answer, of course, is money. The salesperson is paid a
percentage of the client?s first year premiums equal to 3
times the years of the contract. On top of that there is
normally a 40% over-ride.

Actual figures depend on the amount being invested and the
contract term but where an expatriate is saving $1,000 per
month:

If the plan is for 10 years the salesperson's commission
with over-ride = $12,600

If the plan is for 25 years the salesperson's commission
with over-ride = $ 5,040

For no extra work, simply by extending the savings term
from 10 years to 25 years the Salesperson/IFA/Consutant
receives an immediate extra payment of $7,500. No wonder
the consultant often pushes hard for the longer term often
using falsehoods to achieve it.

With very few exceptions the financial consultant is
self-employed. He/she receives no salary. In practice, the
IFA works not for the insurance company, not for his
brokerage but as a self-employed consultant retained to
look after the client's best interests.

Unbelievable as it may seem, the IFA does not have to wait
for premiums to be paid in order to receive his commission.
The insurance company calculates the commission that would
arise gradually month by month from regular premiums over
the term of the plan, then pays it all, the entire amount
in USD, GBP, EUR, or YEN to the IFA just as soon as the
client's very first monthly payment is made.

The average period for which payments are actually
continued on these plans is a little over 7 years. When the
expatriate stops payments the penalties will probably come
as shock. Almost certainly he/she will be sorry he ever
heard of the deal.

A complaint to the insurance company will get nowhere.
'"Sorry"', they will say "you bought the plan through your
Financial Advisor who works for you not for us. Take it up
with that Advisor".

Complaining to the IFA will also be futile. Even if he/she
can be found, no laws have been broken and civil action in
a foreign country is likely to be hugely expensive and
pointless.

It is easy to say the victim should have read all the small
print in the policy rules but deciphering all the meaning
of that small print is often difficult. Easy too to say
that he was foolish to contract for 10, 20, 25 years or
other long term only to find he had to stop payments within
24 months and lost all or almost all of his contributions.

But the expatriate life is full of uncertainty. Right now
thousands of expatriates are fleeing Lebanon. How many will
also face job changes? How many will unexpectedly have to
stop contributions to contractual savings plans?

There are, of course, offshore insurance companies that, to
their credit, refuse to market these types of high
products. Likewise, there are Offshore Financial Advisers
who possess the skill, knowledge and integrity to offer
service of great benefit to their clients.

One might suppose that expatriates would be better advised
to deal with advisers based where there is regulation of
the financial services industry. But home based advisers
are not subject to regulation on business conducted
overseas. In addition, many home based advisers will lack
sufficient breadth of experience and skill to deal with the
requirements of an international clientele.

To sum up, expatriates are financially exploited by being
enticed into saving thru offshore contractual policies that
are little better than a swindle, presented to them by ill
trained but persuasive and unprincipled sales ?consultants?
masquerading as professional practitioners.

How many expatriates might be at risk is uncertain but with
an estimated 6 million Americans living and working
overseas and other countries? nationals probably amounting
to a similar number, the total must be substantial.

Could anything be done about this abuse? Almost certainly
it could. If the insurance companies simply abandoned
contractual savings plans or at least did away with
?indemnity commission? the shady offshore advisors would
almost certainly disappear because they would be deprived
of the mechanism that gives instant high income for little
effort.


----------------------------------------------------
Hugh Stevenson has had over 25 years providing financial
planning advice to expatriates around the world. As well as
speaking to expatriate groups he has published article and
books about the expatriate's special financial situation.
His website:
http://www.the-great-expat-financial-planning-ripoff.com
provides access to comprehensive information on the above
subject.

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