An Initial Period (IP) is a period at the beginning of a regular savings contract. The fund units bought during the IP are charged throughout the term of the plan; and at a higher level than charges levied on fund units bought after the IP is complete. These higher-charged fund units are the major source of income on the plan for the product provider, and pay the commission to the Advisory company.

The length of the IP is shorter or longer depending on the product provider and the term chosen. The maximum IP you will see is two years, significantly less than local insurance products available in African markets.

These plans are very cost-effective if the regular payments are continued until maturity (which means the end of the chosen term). The Advisor must make you, the investor, aware of the following:

ONE:  If you take out an offshore regular savings plan which has an IP and stop saving during it (job loss, divorce, other crisis) you are in danger, if the plan lapses, of losing the entire amount that you've invested up to that date. Therefore, you must know what is the Initial Period in your case and about your responsibility to reach the end of it. Now, the provider does not want your plan to lapse or for you to lose that money. You will be given time and opportunity to at least pay until the end of the IP, but if you do not, then eventually the provider will have no choice but to determine that your plan has lapsed. At that point, the investment made to date is lost.

Once the IP is complete, then even if you stop saving, the plan remains alive. This does sometimes happen but try your hardest not to do this, because the money within the plan will continue to be charged each year until maturity. If you do stop contributions after the IP, without the intention to re-start, then the status of the plan will be changed from "Live" to "Paid Up".

TWO: As noted above, the fund units bought during the IP are charged throughout the term of the plan, and at a higher level than fund units bought after the IP. This will potentially impact you in another way even with the IP out of the way.

In the event that you need to take some money out of your plan, you can do, and without penalty - but usually only from monies that have been invested after the IP has been completed. This is called a "partial withdrawal".

The real potential impact is seen when you want to make a "Full Surrender", that is, close the account fully before the maturity date. At this point, the amount you will get back will NOT be the actual market value of the investment, but the "Redemption Value".

What is the difference? It is the remainder of the IP fund unit charges that were due from the plan up to maturity, which is fifteen years, i.e., in five years' time. The crucial thing to bear in mind is that the difference between Account Value and Redemption Value in percentage terms is, in the very early years of a plan, a punch in the face; towards the end of the plan it's more like a slap on the wrist.

Make sure your Advisor:

• takes you through the Account Value and Redemption Value columns on your plan illustration.
• confirms the IP for your plan and explains the options once the IP is completed (stopping temporarily; re-starting, increasing contributions, decreasing contributions (possible down to the minimum for the plan); making partial withdrawals.

A USD savings plan will help you achieve your family and personal financial goals by growing a capital sum for you. But use them wisely! Ensure you do not over-commit. Start low, build up as you grow in confidence and your income grows. Don't let a savings plan take too many beers out of a client's fridge too early. And a note to Advisors: ensure you have explained these crucial elements. Insist that you yourself are fully committed to full disclosure and transparency. Not only are you doing your regulatory duty, you will have happy clients.