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“Hands Up” – Should You Surrender Your Offshore Investment Plan?

Summary

What is a surrender value?

Why is it lower than what I paid in?

Which providers charge surrender penalties?

It's not often in life that the professional advice you receive is to surrender.

So often we find ourselves fawning to the bitter 'never give up' archetype of successful people. To the lifetime of doggedness and grit we must display if we aren't going to die alone in poverty.

That's the corporate world anyway.

This blog covers the question of surrendering offshore financial products.

And all credit to those with the nerve to 'stick 'em up'.

40,000 offshore investment plans are sold to expats each year.

We have found that UAE expats are falling into this investment trap with particular regularity.

If you own one of these plans, you might have received a valuation.

You might also have noticed a 'surrender value' quoted.

"What is a surrender value?"

This is the actual value of your plan if you cashed it in.

It's generally much lower than the value of the underlying investments within the plan.

"Why is it lower than what I paid in?"

The company from whom you bought the plan paid a LOT of money to obtain you as a customer.

They are simply passing on the costs to you - including commissions to international financial sales people, the scourge of offshore investing for expats.

For regular savings plans, for instance, this often constitutes all of your premiums for the first 2 years and a significant portion from thereon in.

Because the company (often an international life insurer) paid the sales costs up front, they are in a bit of a rush to make back the money before you realise the plan is not quite working out how you thought it would… and quit paying the premiums.

If they already have a large single premium 'in the bag' such as in a QROPS or single premium offshore bond, they will charge you severe penalties to leave.

"Which providers charge surrender penalties?

RL360

Canada Life International

Prudential International

Standard Life International

Custodian Life

Friends Provident International

Generali Worldwide

SEB Life

Hansard

Zurich International (including HSBC International Wealth Builder Accounts)

Investors Trust

Old Mutual International (formerly Royal Skandia)

Premier Trust

AXA International

Surrender charges are not the only charges that investors will be hit with.

The funds or securities are perched, at best, on shaky foundations.

Whether you believe in actively managed funds or not (we do not), normally you have little option but to engage with the expensive fund range you are offered.

Management fees and commissions are not only levied on the product, but very often on the underlying funds AS WELL.

If you were quoted 9% returns, you were mis-sold.

It is much more likely that funds will underperform in the long run - often losing a huge amount of value.

"Should I Surrender?"

At the beginning, we implied that you should consider surrendering such policies.

And consider it you must.

It may be painful in the short term (perhaps losing a significant part of what you paid in) but there are two potential upsides.

· If you don't move it, you are suffering opportunity loss. If you invest in low cost funds (ETFs for example) on a reasonably priced platform with full flexibility to withdraw your money if you need it… then you have a much better chance of seeing growth.

· Even if you held the surrendered balance in cash, you would still be avoiding ongoing fees!

In nearly all cases - the cost/benefit calculation is complicated and it is worth enlisting the help of a truly independent and well qualified financial planner.

This could be well worth the fee.

On a parting note, if you already have such plans then don't be a hero!

Dig deeper into them and ask some questions.

Surrender may be the bravest option.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.