British Expats in the Gulf
Mirror Funds
All the financial institutions that offer offshore savings and pension plans are competing for the same business. Virtually all these financial institutions are based in the UK offshore islands, operate under the same regulation, employ the same demographic of staff, have offices of roughly the same sizes and pay advisers the same introduces fees; i.e. their overheads are roughly the same.
So when you are shopping around for the best offshore savings plan, pension or investment, why are there such huge discrepancies in the published charges and the illustrations of potential returns? Why would institutions such as Aviva, Generali and Royal London 360 charge you substantially more than, let’s say, Friends Provident or Royal Skandia and consequently make themselves completely uncompetitive?
The answer is they do not. The total cost of all these policies are similar to one another; the difference is how transparent the companies are with their costs and charges.
Whereas companies such as Aviva, Generali International and Royal London 360 provide direct access to the funds you choose and place all the charges in the wrapper; virtually all their competitors use ‘Mirror Funds’ which more often than not contain additional expenses.
A mirror fund invests exclusively in the underlying fund (i.e. the Invesco UK Equity Fund) but, rather than investing your capital directly into the fund as Aviva, Generali and Royal London 360 do, the financial institution creates a fully licensed and regulated mirror version of the fund. As well as the additional administration costs of running a mirror version of a fund, the fund has to meet financial regulation in its own right and therefore also incurs compliance expenses. Where the mirror fund is managed by an external fund manager, there may also be an additional annual management charge levied by the fund managers to cover their fees similar to the charges in a ‘fund of funds’ product.
The mirror fund may also hold a proportion of its value in cash to aid liquidity; which is an important function of fund administration. This often results in the performance of the mirror fund differing from the performance of the underlying fund as the cash element in the mirror fund places a drag on the growth of the fund.
The effect of the additional administrative charge on the fund and the cash element is that, whilst the performance of the mirror fund price will rise and fall broadly in line with the performance of the underlying fund, the returns will be lower than those obtained via direct investment.
Consequently, look towards financial institutions that place all their charges in the wrapper; making the whole product more transparent. These products may not look as attractive upfront but it will probably be in your interest long-term.
So when you are shopping around for the best offshore savings plan, pension or investment, why are there such huge discrepancies in the published charges and the illustrations of potential returns? Why would institutions such as Aviva, Generali and Royal London 360 charge you substantially more than, let’s say, Friends Provident or Royal Skandia and consequently make themselves completely uncompetitive?
The answer is they do not. The total cost of all these policies are similar to one another; the difference is how transparent the companies are with their costs and charges.
Whereas companies such as Aviva, Generali International and Royal London 360 provide direct access to the funds you choose and place all the charges in the wrapper; virtually all their competitors use ‘Mirror Funds’ which more often than not contain additional expenses.
A mirror fund invests exclusively in the underlying fund (i.e. the Invesco UK Equity Fund) but, rather than investing your capital directly into the fund as Aviva, Generali and Royal London 360 do, the financial institution creates a fully licensed and regulated mirror version of the fund. As well as the additional administration costs of running a mirror version of a fund, the fund has to meet financial regulation in its own right and therefore also incurs compliance expenses. Where the mirror fund is managed by an external fund manager, there may also be an additional annual management charge levied by the fund managers to cover their fees similar to the charges in a ‘fund of funds’ product.
The mirror fund may also hold a proportion of its value in cash to aid liquidity; which is an important function of fund administration. This often results in the performance of the mirror fund differing from the performance of the underlying fund as the cash element in the mirror fund places a drag on the growth of the fund.
The effect of the additional administrative charge on the fund and the cash element is that, whilst the performance of the mirror fund price will rise and fall broadly in line with the performance of the underlying fund, the returns will be lower than those obtained via direct investment.
Consequently, look towards financial institutions that place all their charges in the wrapper; making the whole product more transparent. These products may not look as attractive upfront but it will probably be in your interest long-term.
