10 things your financial adviser didn't tell you about your regular savings plan

If you're an expat considering regular premium savings plans, it's crucial to understand the fine print and avoid common pitfalls that could cost you significantly. Here’s what you need to know to make informed decisions and maximise your savings.

1. Hidden charges on reducing premiums

Advisers often promote the flexibility of these products, but what they don't tell you is that reducing your premiums might not reduce your charges proportionally. In some cases, the charges remain at the original level or even increase. This means a significant portion of your premiums could be eaten up by fees, leaving you with much less than you invested.

Solution: Stick to premiums you can consistently afford. Avoid over-committing based on future flexibility.

2. Initial high premiums and their impact

Advisers may suggest starting with higher premiums and then reducing them. This strategy is designed to increase their commission but often results in higher charges and penalties for you.

Solution: If you have a lump sum, consider separate single premium plans rather than combining them with regular premiums.

3. Longer term policies and penalties

Long-term policies often come with high bonuses but also high penalties if you need to access your money early. Advisers earn more commission from longer-term policies, which is why they push them.

Solution: Opt for shorter-term policies which offer more flexibility and lower penalties. Ignore the allure of bonuses that come with long-term commitments.

4. Initial periods and surrender values

Many policies have an initial period during which surrendering the policy will yield little to no return. This period is linked to the commission the adviser earns, which can extend if you reduce your premiums.

Solution: Choose plans with shorter initial periods or those that allow for partial surrenders without heavy penalties.

5. Access to funds

Advisers may claim you can access a significant portion of your investment after a few years. However, the reality is that surrender values are often much lower than the amount invested, especially in the early years.

Solution: Take out policies with terms that match your expected investment horizon and needs for liquidity.

6. Qualifications and regulations

Not all advisers have the necessary financial qualifications, and the products they sell might not be regulated in your country of residence. This lack of regulation means you might have no recourse if things go wrong.

Solution: Verify the qualifications of your adviser and ensure the products are regulated in your country. Use online resources to check their credentials.

7. Long-term investment illusions

Advisers may suggest that you can cease your policy after a certain period and get your money back. However, long-term policies are designed to benefit from consistent payments over time, and early cessation usually results in financial loss.

Solution: Stick to shorter-term policies with lower charges that provide real value early on.

8. Tax efficiency misunderstandings

Promised tax efficiencies might not materialise, especially if you move to a different country with different tax laws. High fund charges can also erode your returns significantly.

Solution: Seek tax advice tailored to your specific situation and ensure the tax benefits are real and applicable.

9. Inflation and real returns

Projections provided by advisers often do not account for inflation, which means the real value of your investment could be much lower than expected.

Solution: Use inflation-adjusted projections to set realistic expectations for your investment’s future value.

10. Payment methods and their costs

Using credit cards for payments might seem convenient, but it can lead to additional costs and administrative hassles, especially if payments are missed or if the card expires.

Solution: Set up direct debits from your bank account to avoid extra charges and administrative issues.

How we can help

At Money Saving Expat, we aim to help you make the right decisions from the start. By cutting out the expensive salesman and avoiding initial charges, we can save you around 75% of the costs in the first two years. Our panel of approved financial advisers focus on transparency, lower fees, and realistic investment plans tailored to your needs.

For independent, trustworthy advice and to find a plan that works best for you, visit Profezo.