I have a social network group to thank for this question. A member wanted to know whether he should invest his money with a life assurance company regular savings plan or into an off-shore investment platform. This post should help him and others…
Regular savings plans are typically offered by life assurance companies [e.g. Friends Provident International, Generali International, Hansard International, RL360) . They are packaged products. This means their charges include: cost of investment (e.g. cost of collecting your contribution to the plan; underlying fund fees; stockbroker fees; any taxes due on the underlying trades; administrative costs) and the cost of advice. They provide investors with the ability to diversify their investment and so reduce risk as well as pay for any investment advice they need via the charges of the plan.
Investment platforms are offered by firms such as DBS Vickers Securities, Interactive Brokers, Saxo Capital Markets and Internaxx (formerly TD Direct). These platforms offer investors the ability to invest in shares listed on stock markets around the world and usually a range of funds or exchange traded funds (ETFs). They are not packaged products, which means the investor is responsible for sending money to the platform and for the costs associated with transfer; there is no investment adviser to refer to either with the initial selection or on-going management of the portfolio (unless the investor appoints one); stockbroker fees and taxes are explicitly stated on each trade. There may also be a minimum holding, although these are usually relatively low.
Both options help investors build capital from their income. The packaged life assurance style of regular investing has been around at least since the late-1980’s when I first started work in the financial services sector. There have been a few tweaks but not much has changed.UK investors may know life assurance regular savings plans by another name: endowment plans. Back in 1980’s, before the internet, I was responsible for maintaining ledgers of client portfolios as an investment officer for a UK bank. The internet helped this service evolve into the investment platform we know today.
I don’t know anything about cars but if I think back to those available in 1980’s, would I buy one of those classics today to ferry my daughter to and from school; family outings etc.? Probably not. The safety aspects and fuel efficiency alone would convince me to look at something more modern. Just like the automotive industry, financial services is a competitive and dynamic sector. New products and services are evolving all the time and these services will only be bought if people are aware of them and they are better than what was previously on offer.
There is a revolution going on in the financial services markets of Europe and USA for greater transparency of costs and unbundling of services. Some people need the discipline of the structured products provided by life assurance companies to save any money but they pay a high price for their lack of discipline. Platforms provide investors with control over the amount and frequency of their contributions. Charges are taken as the service is used not upfront for the entire duration of the plan. Investors can choose whether they need advice or not. They control how and how much they pay for the advice and to whom. Whilst there is no regulatory requirement to do so, good quality advisers here in the UAE are adopting these practices which enable investors to make a more informed decision. This enables investors to have the benefits of a platform either with or without advice.
I hope the above is of some assistance. Let me know if you have any questions or comments, feedback is always welcome.