Hidden Commissions Erode Expat Wealth

Many investors who move overseas are being sold unsuitable products, potentially risking their financial future, say international pensions and investment firm AES International.

Specifically, they warn that many offshore investment bonds will struggle to make money because they are weighed down by heavy and undisclosed underlying fees paid to advisers, product providers and investment managers.

Sam Instone, chief executive of AES International, said: “Unfortunately there is a lack of transparency within the offshore investment bond market, and many clients are therefore unaware that these plans can be opaquely loaded with high charges. This makes it very unlikely they will see any real returns.”

Fees of more than £200,000

The underlying commission and fee payments which can be so damaging are very often left undisclosed by advisers operating outside the UK. As well as paying the adviser these underlying costs are also paid to the provider of the bond.

On an offshore bond, an investor can expect to pay between 0.5% and 1.5% of the investment value annually to the bond provider as well as a fixed £400 annual charge and a 0.5% to 1.5% ‘establishment charge’ for the first five to ten years which is paid to the adviser.

Expats will also usually pay to hold investment funds within the offshore bond. Typically these funds will include a 4% to 8% initial commission and a 1% to 3% annual charge.

To illustrate the point: a portfolio of £100,000 growing at a rate of 5% per year for 20 years would only actually achieve a return of 0.08% per year, due to the typical underlying charges. This would leave the portfolio at a value of £107,768 after the 20-year term and mean charges of £88,698 were paid.

Even if the growth was 15% each year for 20 years, this would still only leave an investor with an effective growth rate of 5.95% a year. While this could potentially mean that although the same investor’s £100,000 portfolio would be £695,318 after the term, they would have paid a staggering £226,259 in charges.

Instone said: “Trying to make money with charges set this high can be likened to swimming with weights on – possible, but substantially harder.

“At AES International we are so concerned about the effect this is happening on people’s wealth in the international market that we are giving people the chance to find out how these plans really work with our new free guide.

“In addition, clients can fill in a simple authority form and we will conduct a ‘portfolio X-ray’, also for free, which will tell investors whether they are paying too much in charges.”