Cheaper savings product takes on the 25-year investment plan

Dubai financial advisory firm Abacus has unveiled a concept with no lock-in period and transparent fees

Kausik Pindoria, left, Partner and Financial Analyst at Abacus Financial Consultants; Graham Thornton, Partner and Compliance Manager; Cornelius Lillis, Managing Director.

(Photo by Reem Mohammed/The National)

Reporter: Alice Haine
Section: BZ
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The days of UAE investors being frustrated by expensive contractual savings plans may soon be over.

A Dubai financial advisory firm has created a lower-cost savings product that acts as an alternative to the fixed-term investment plan.  Abacus Financial Consultants says its 321 Account allows residents to invest on a monthly basis without being locked in to a fixed period.

Since the product's soft launch in October last year, the company has signed up 150 new clients to the product, which charges a total annual fee of about 2.3 per cent and outsources the management of the funds to discretionary investment manager Brooks Macdonald International.

“The 321 effectively competes with the contractual savings plans already in this market,” says Cornelius Lillis, co-founder and managing director of Abacus.

“It’s for those clients that want advice, which is why there is this explicit charge because advisers still need to be paid. The difference is that there is nothing hidden – it’s all on the table and if you want our advice this is what you will pay and clients can buy it or not, there is no slight of hand.”

Expensive fixed-term investment plans have received a bad rap in the UAE in recent years, with many investors complaining to the authorities over mis-selling.

Provided by insurance companies and sold to clients by financial advisory firms that act as brokers, the products have become renowned for their high fees, poor performance and lengthy terms of up to 25 years. Customers who want to exit their term early must pay the full fees for the duration of the plan to be able to recoup their money.

While a raft of new regulations were proposed last year by the UAE Insurance Authority and the Central Bank of the UAE to clamp down on the mis-selling, the new regulations are yet to be imposed.

Abacus believes its bespoke 321 account, which it bills as "a new generation of investment planning", is the solution for UAE residents looking for a regular savings product.

The company which first launched in 2013, has also recently banned its advisers from selling fixed-term contractual plans produced by large insurance companies to its clients. Zurich, Friends Provident International and RL360 - some of the providers of fixed-terms investment plans - declined to comment on Abacus’s new product.

Sebastien Aguilar, founder of the UAE-based non-profit community, which encourages investors to follow the low-cost investment principles established by Jack Bogle, the founder of US investment adviser Vanguard, says it is positive to see “an advisory firm taking steps to offer an alternative to the often too expensive and inappropriate savings / investments plans”.

“It is great that their plan does not lock-in the investor ... and does not charge all sorts of hidden fees,” Mr  Aguilar says. “ It is only a matter of time until more firms follow as the individual investors are becoming more aware of the drawback of traditional plans.”

However, he says it is “a shame" the company "still charges such high fees”.

"In my opinion, financial advisers and platforms should not charge more than a fixed 1 per cent combined management fee on top of the underlying fund fees and charges. That would lead to an ongoing total 1.3 to 1.5 per cent fee only with no upfront fee [which hurts your capital right upfront] and no contribution charge."


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Investors wanting to sign up for the 321 Account can do so in US dollars, sterling or euros, with the product's name relating to the fees applied to the sums invested. The 3 relates to lump-sum investments, which are charged 3 per cent on the invested amount on lump sums. The minimum amount that qualifies for this is $10,000.

For those who want to save smaller monthly amounts (the minimum is $1,000, euros or sterling), the 2 is the charge to open the account – representing two monthly contributions on regular premiums. That pays for the administration, commission and is also applied to additional regular top-ups; the 1 is the 1 per cent ongoing advisory fee based on the total account value.

To reach the 2.3 total charge on the account, Kay Pindoria, partner and financial analyst at Abacus, says it comprises the 1 per cent ongoing fee for the adviser costs, plus the underlying Brooks Macdonald portfolio charge of 0.5 per cent.

“Outside of that it’s whatever assets Brooks Macdonald chooses and on average - the charges for a balanced or medium risk portfolio are about 0.75 or 0.8 at the moment," says Mr Pindoria. "That can move up or down but that’s the underlying assets taking the total for the entire account to 2.2 to 2.3 per cent.”

Steve Cronin, founder of, an independent community to help UAE residents invest on their own, said he applauded "any attempt by UAE financial advisers to offer products less expensive, complex and inflexible than the long-term savings plans still sold here".

However, he too criticised the fees levied on the account.  "An upfront fee plus annual total fee of 2-3 per cent is still very high, given highly diversified Exchange Traded Funds from Vanguard cost you 0.05 to 0.25 per cent. A 1 per cent difference in fees has an enormous impact over 30 years of hundreds of thousands of dollars. $1,000 invested for 30 years at 5 per cent gets you over $835,000 but at 6 per cent gets you over $1,000,000," says Mr Cronin.

And at a time when returns can be low, he questions whether discretionary funds bought via an adviser are the best route for investors

"It is an expensive way to invest, with absolutely no guarantee of out-performing a simple diversified portfolio of ETFs," Mr Cronin adds. "The additional fees for discretionary fund management mean they need to outperform the market significantly just to cover the cost of their fees, and there's no evidence any active fund manager can do that over the long term."

Mr Aguilar agrees, adding that those who do not want to go down the DIY investment route, could find better deals with robo-advisers.

Examples of lower cost robo-advisers include the recently launched low-cost investment firm Sarwa, which offers a number of portfolio models assigned to investors based on risk tolerance. Those portfolios use six ETFs, that include four stock ETFs and two bond ETFs, from Vanguard and Blackrock, the two biggest ETF providers in the world. The fee for investing with the company, which was part of Dubai International Financial Centre's FinTech Hive programme, is 0.85 per cent a year, deducted on a monthly basis. The larger the investment made with Sarwa, the lower the fee.

Abacus defends its fee structure by comparing it to the levels applied to existing contractual savings plans in the market.

“If you have a contractual savings plan and you are holding mirror retail class funds – an equity fund on average will have an ongoing charge of 1.9 to 2 per cent. That’s just the fund; around the fund you have the plan charge that might be anything between 1 to 1.5 per cent and then you might have an advisory charge and around that a plan fee,” says Mr Pinduria. “So, it can be 6 to 7 per cent per annum.”

Abacus says it was prompted to create a new product for customers because of changes to the UAE's advisory landscape.

"The way we go about giving advice has changed but, unfortunately, the products available in this marketplace have not," says Mr Pinduria, confirming that the advisers at the company also once sold the contractual savings plans they have now banned. "In the history of Abacus we’ve sold a handful of initial accumulation plans with small premiums for the right terms. But the company is moving towards being far more explicit about earnings and costs, so we’ve taken the decision to no longer offer contractual savings plans. We are only as the good as the products we practice with."


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While investors can walk away from the 321 product at any time without incurring any penalties, Abacus says it becomes more cost-effective the longer clients stay in with its standard advice for clients to save for at least five years.

It also argues that the fees are structured in a way to incentivise advisers to ensure returns are healthy.

"As the fund grows, the fee creeps up as well [as they earn 1 per cent on a higher investment amount] so if the adviser looks after that client then his fee increases as well, but only if he is doing well. At any point the client can drop the adviser and the product and move elsewhere without charge or penalty," says Mr Lillis

Abacus argues that the 321 product is a “shift away from the traditional form of financial planning in the Middle East where you got your commission up front”.

“How do you incentivise yourself to look after a client even though you are getting no revenue from them?” says Mr Pinduria. “That's why we have shifted our business model to the UK-centric format of being very explicit about what we charge for advice on set up and then having a financial interest on the assets being managed. That gives us a responsibility to make sure we continue to service the client.”

But Mr Aguilar says the DIY investment route, using the Bogleheads  - the investment philosophy of Mr Bogle of investing in low-cost index funds - will still achieve greater returns.

“A well-educated DIY index investor who invests through a discount broker using the Bogleheads approach would end up with a portfolio at least twice the size of someone who goes with Abacus, and 10 times bigger than someone who goes with a traditional long-term investment plan. As DYI investing is not for everyone, it would be great to see more financial advisers and robo-advisers offering transparent low-cost options for individual investors.”

Mr Pinduria says if a client chooses to self invest, it’s still positive.

"At least they are doing something about it but the majority we come across still require advice," he adds.