Complex Made Simple

ADCB’s first MENA Target Date Funds puts retirees on safe autopilot

The UAE globally ranks in the top 10 countries that will witness the largest increase in the number of people aged 60 and over from the year 2000 and 2050, according to the World Bank.  Most of these will likely retire in the country that supported their livelihood, preserved their memories, and educated their children.

Quoting a 2016 survey conducted by Guardian Wealth Management, an organization providing lifestyle financial planning to clients around the globe, Thomson Reuters reported this year that three out of five expats in the UAE would not have enough funds to maintain their desired lifestyle in retirement.

“In consideration of those expats who may have 5 to 15 years of employment service remaining, the government could reform employment policy. For example, it could impose a requirement on employers to provide a compulsory, funded pension scheme for expats, or offer incentives for companies to provide voluntary employer-sponsored funding solutions/investment products to make it affordable for expats to retire in the UAE,” the media and intelligence firm said.

The ADCB retirement solution

Leading regional bank, Abu Dhabi Commercial Bank (ADCB) has announced a new range of investment options, Target 2025 and Target 2035.

These target-date funds (TDFs) are investment vehicles aimed at providing comfortable retirement security for expatriates in the UAE, in particular, and all UAE residents, in general.

“The general apathy towards retirement savings amongst expatriates in the UAE is highly concerning” said Mark Friedenthal, Chief Investment Officer, ADCB. “The introduction of our Target Date Funds, will offer clients a risk appropriate retirement saving solution that they can buy and hold with the knowledge and comfort that their savings are in safe hands. In fact, we hope that the low-cost simplicity and efficiency of the new Target Fund series will encourage individuals in the UAE to allocate more of their income towards retirement savings.”

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A pioneering instrument

A first-of-its-kind in the MENA region, the new Target Fund series have an in-built flexibility, giving them the ability to adapt to the changing needs of the investors as they progress through life towards retirement.

“They automatically reset the asset mix of stocks, bonds and cash equivalents in its portfolio, according to a selected time frame that suits an investor. In effect, they offer a lifelong investment strategy that remains appropriate to an investor’s risk profile even if left un-reviewed,” said ADCB.

The target-date funds will seek returns-rich but riskier assets, such as equities in the investment’s early years, and over time, investments typically become more conservative switching to returns-safe capital-preservation assets, such as bonds.

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Global to local

While being marketed predominantly in the UAE, the Target 2025 and Target 2035 funds are truly international, underpinned by the fact that they are being launched through ADCB’s offshore UCITS fund platform in Luxembourg.

ADCB is partnering with U.S. based Principal Global Investors, a world leader in managing target-date and multi-asset funds, managing well over $300 billion in more than 70 countries.

“Principal Global Investors will work to maximise returns for customers in the UAE by anchoring investments on depth of research, a wide breadth of industry knowledge and reach of business,” said ADCB.

ADCB’s new maturing Target 2025 and Target 2035 will accommodate all choices for retirement dates and be available from 16 October, 2017.

Does it work?

According to a CNBC report this year, advisors offered their endorsement for such target-date funds.

“Target-date funds are very easy to deal with for automatic enrollment for the employer, helping them serve their fiduciary role,” James Gambaccini, certified financial planner and managing partner of Acorn Financial Services, told CNBC.

“In addition, they “can offer a very diverse portfolio in as few trades as possible for the employee,” he said.

For his part, Sterling D. Neblett, CFP, Founding Partner of Centurion Wealth Management told CNBC: “Target-date funds are an excellent option for amateur investors to set their portfolios on autopilot, because they are typically automatically rebalanced and reallocated as target retirement ages are reached.”

“I would strongly argue that the target-date fund would do a much better job aligning with the investor’s goals than the investor would do on their own,” he said.

Read: Large UAE banks post solid Q2 profitability as interest income rises

The ADCB promise

ADCB paints the TDFs as innovative zero-maintenance retirement plans as viable alternatives to employer-based retirement plans, which supply lump sum payments known as the ‘end-of-service gratuity’.

“While it can feel great to have a lump sum in-hand, it is usually not enough to pay for the cost of retirement,” ADCB said.

The bank’s promise is a retirement plan with low costs, no hidden charges, no penalties and complete freedom, with a solution that evolves with the investors, because it incorporates their needs, which change over time as future retirees approach the golden years.

Along with reliable oversight, investors will have full access to funds including details on the investment portfolio, and can review the performance and holdings from anywhere in the world.