The excessive compounding annual fees (MERs) are the primary source of problems in UL programs,
and are not disclosed diligently in most projections, and are misrepresented in those that
disclose them at all! Typically from 2.5%/year (Zurich Life) to 6%/year (Standard Life Perspecta)
gross (before bonuses give a portion back), these extra fees on the compounding investment
account essential destroy any UL program's ability to preserve a client's estate, over any long
period of time.
Since UL programs only work if maintained until death (the only point where the savings are paid
out as a tax-free death benefit), the time periods are typically quite long (~35 years life
expectancy for a 50 year old client).
The impact of an excess annual compounding fee can be estimated by using the rule of 72; if the
net after-bonus extra fee is 2%/year, then the client will have half the assets after 36 years, as
compared to the identical investment in an open investment account! If the net after-bonus extra
fee is 3%/year, then the client will have about half the money in 24 years! These excess MER fees
vastly outweigh any other fee the UL policy could charge (except in extreme circumstances). Here
is an example of the difference in impact between a 2% up-front extra fee, and a 2% compounding
annual fee, over 36 years:
Now, of these two classes of fees, which do you think is the most important for the client to be
well informed of? So, why are the up-front fees disclosed diligently, but the disclosure of excess
net annual compounding fees (MER) is incorrect, or completely absent, and no one in the industry or
regulatory body seems interested in challenging this? Perhaps the "goals and objectives" of the
average UL client would suddenly change, when it is disclosed that they would lose half their assets
over 36 years?
Since the exact same amount and type of life insurance is being purchased outside the UL policy,
using the same amount of money, and the maximum tax rate on capital gains is 19.5% in Alberta, it
follows that the client will A) have roughly double the money in the non-UL plan after 36 years,
compounding at 2% greater annual ROR (Rate of Return) to draw income from during retirement, and B)
the net after-tax combined death benefit of the non-UL plan will be greater at death, whether death
occurs the day following the first premium payment, or at age 100.
In fact, the greater the amount of money invested in the UL program, and the longer the program
exists, the more it reduces the total after-tax net benefit to the client! The idea of "ideal high
net worth UL clients" is a sham! The only one who benefits more from an "ideal" client, is the