UAE resident faces losing Dh80,000 on investment plan - should he cut his losses?

Investor locked into a failing long-term offshore investment plan should consider the "Uber" of the financial world - low-cost, quality funds with no commission and no long contracts.

I signed up for an offshore investment plan with a UAE financial adviser eight years ago. The value of the 15-year plan – taken out for my retirement – has never been worth more than the amount I have invested into it. The penalty fees for an early exit are high, and coupled with the weak performance of the funds I will potentially lose about Dh80,000. Do I cut my losses and exit the plan now, or keep putting money in? IM, Abu Dhabi

Expert one: Sam Instone, chief executive of AES International

Markets have been great over this period of time, so you should expect better. Your performance may not be good for a couple of reasons. The fund selection could be poor or the salesperson could have taken a high initial commission. Because these commissions are paid in full to the vendor on the first day you incept your investment they have to be recouped by the plan provider over many years, which erodes your performance. I don’t like contractual plans because they are inflexible, have a limited range of available funds, are opaque/difficult to understand and often eye-wateringly expensive. A little bit like old taxis and Uber – times have changed and there are now much better investment options out there. You need to analyse the exact charges, access and terms of your specific product. I imagine your best source of action will be to withdraw as much as you can from the plan now. Then invest the money you get in low-cost index funds such as Vanguard or iShares on an open architecture investment platform. Don’t forget to switch the funds that are locked into the account into a lower cost, diversified portfolio. If you need help doing this either buy a book that tells you how, such as Andrew Hallam’s Global Expatriate’s Guide to Investing, or seek advice from a fee (not commission) based financial adviser. Good quality funds with low overall costs, no commissions and no long contracts are the Uber you should be looking for.

Expert two Andrew Scanlan, senior sales manager at Nexus Insurance Brokers

In general terms, a policy term is often linked to a future requirement. For example, a parent with a three-year-old child may have a desire to accumulate the cost of their child’s university fees and it therefore makes sense to invest into a programme that matures on the child’s 18th birthday. However, while the investment term encourages disciplined savings it also requires commitment as the costs are spread over the term. If a plan is cashed early, the unpaid charges will be deducted from your account. If an investor has doubts about their long-term ability to fund a programme, they should select a shorter term as they can always extend.

Investment return on any policy will be in line with the performance of the funds selected. It is important that advisers help clients select a portfolio of funds that is in line with their attitude to investment risk. Cautious investors should select cautious funds. More importantly your funds need to be monitored and adjusted constantly.

Ideally you should fund your policy to its maturity date as this will avoid any penalty and you will receive the full value of your account. If you have lost faith in the policy then it is better to cease your contributions rather than cash it in. The current investment can then be managed to the natural maturity date.

If your current adviser is not delivering on your policy then you are free to take your business elsewhere.

Next Money Clinic:

I currently owe Dh630,000 on a personal loan and have six credit cards with a total outstanding balance of Dh420,000. My monthly salary is about Dh33,000 and so far I have never defaulted on a payment. I have contacted a few debt management companies but I can't find a reliable one. I know debt management companies are not popular in this region, so what solution do you suggest? SL, Dubai

Every three weeks The National features a reader’s personal finance problem. If you have an issue or would like to suggest a solution for another reader’s concern, write to [e-mail]

The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek appropriate independent legal advice