Monthly Archives: May 2013

To OCI on Behalf of Leung Chung Yan

To the Office of the Commissioner of Insurance in Hong Kong:

I am writing to file a complaint about the insurance company Standard Life for creating the abhorrent ILAS product named the Harvest 101 Investment Plan. I am also writing to file a complaint about Convoy Financial Services for unscrupulously selling it. The only justification for its existence is to allow Standard Life to profit from inflicting enormous damage on people’s future retirement funds while Convoy earns unseemly commissions by helping them do it. The fees and conditions of Harvest 101 are so awful that no financial adviser could in good faith recommend it to ANY client. Every time Harvest 101 is sold, it means the salesperson failed to explain it properly, failed to introduce alternative investment options, and the client failed to understand that he or she was about to get financially raped.

I don’t know how many people have fallen victim to this ripoff, but I do know that it’s a lot, and I know that my girlfriend was one of those people. I also know that Standard Life isn’t the only insurance company creating products like Harvest 101, and I know that Convoy isn’t the only company selling them. I wouldn’t be surprised if hundreds of thousands of Hong Kong citizens are on a path to lose half their potential retirement funds due to Investment-Linked Assurance Scams. This is surely one of the biggest scandals of the past decade, and I am stunned that the media has failed to report on it.

I’m not quite sure what the OCI can do about this industry-wide problem, or whether the OCI cares to do anything about it, since the OCI has neglected to implement a real solution for at least 10 years (to my knowledge), but please let me know the answer. Personally, I think the executives responsible for creating and distributing abusive ILAS products should be fined and thrown in prison, and the responsible regulators who allowed authorization of these products need to be fired. Many ILAS products, maybe most, maybe even all, should be immediately outlawed since they serve no purpose except to allow insurance companies and their agents to take advantage of financially unsophisticated investors. Most importantly, ILAS victims need to be compensated for the financial damage they have suffered.

Regardless of OCI’s response about the larger social issue, I am specifically asking for help with regards to my girlfriend’s situation. I will explain what happened, and then I hope someone will let me know in what way the OCI is prepared to help.

In February 2012, Ms Leung Chung Yan learned that she had developed some growths in her breasts that were potentially cancerous, and she had to have them surgically removed. This was especially worrisome because her aunt had been battling breast cancer for about 10 years at that time. Sadly, her aunt passed away a few months ago.

Understandably, Ms Leung was terrified, concerned about her health, and concerned about how she was going to pay her potential future medical bills. She was (and is) a kindergarten teacher with a monthly salary of about $12,000 to $14,000 per month, and she had no health insurance at the time of her surgery.

Not knowing much about personal finance, Ms Leung talked to a friend who worked at Convoy. She was seeking advice on how to get her financial situation in order, how to prepare for a worst-case scenario. This resulted in the friend selling her two health insurance policies, neither of which covered medical costs resulting from the pre-existing conditions in her breasts. To prepare for breast cancer, Ms Leung’s only option was to start saving for her potential future medical expenses. To help her achieve this goal, the friend at Convoy also sold her Standard Life’s Harvest 101 Investment Plan, which obligated Ms Leung to send $1,000 per month for 25 years to Standard Life. The irony of this situation is that the Harvest 101 Plan does the opposite of what Ms Leung wanted. Instead of helping her have more money available to pay for a medical emergency, Harvest 101 makes her have less money available. This is due to the extortionate exit fees. All the money she sends during the first two years is stuck in something called an ‘initial account’ and is subject to the following exit fees. Year one: 100%. Year two: 86%. Year three: 83%. Year four: 80%. And so on. It means she can only get back a tiny fraction of her money if she becomes sick anytime soon. But it’s even worse than this. By the end of 25 years, when the exit fees no longer apply, she still can’t get the initial $24,000 back, because, for all 25 years, the total annual fees on this initial investment are, in effect, higher than 9% (and rising), all but guaranteeing a complete loss. She can NEVER get more than a small fraction of her first two year’s investment back. In the short-term, she loses it to exit fees. In the long-term, she loses it to management fees. Since April 2012, Ms Leung has sent $13,000 to Standard Life (and thankfully no more than that). She’d be just as well-off right now if she had stacked her $13,000 into a big pile of bills and set them on fire. Convoy should have clearly explained this to her, but of course they didn’t.

I looked at the forms that Ms Leung signed, and the illustration document had a chart showing what her account value would be in 25 years, assuming that the average annual underlying mutual fund returns were 11.5% and 7.5%. If the average was 11.5%, then her account would be worth $875,868. But what this chart didn’t show was how much her account value would be worth in 25 years if she had invested directly in the same underlying mutual funds without going through Standard Life and paying all their middleman fees. The answer: $1,572,613, which is 80% more. Convoy and Standard Life neglected to show her the true cost of all of Harvest 101’s fees: $696,745. Convoy only showed her half the story, which was a misleading representation of the product she was buying. I suppose you could call it fraud.

They also failed to show her what her account value would be in 25 years if she stopped paying contributions before the 25th year. The illustration document contained only a single sentence that said: you may suffer a significant loss. The actual numbers are so bad that apparently Standard Life and Convoy are embarrassed to disclose them.

I visited Standard Life’s office with Ms Leung two weeks ago and asked a representative to tell us what her account value would be in 25 years if she finished paying the remaining $11,000 of the mandatory initial contribution period and then stopped. He refused to answer, saying, “Sorry, we can’t do that.” So I did a rough calculation of the numbers in front of him, to show him that her account value would descend towards the minimum account value, triggering an exit fee. I said, “Will you confirm that these calculations are roughly accurate?” He said the same thing: “Sorry, we can’t do that.” So, essentially, in my opinion, he was demonstrating and admitting to Standard Life’s deceptive sales strategy, their policy of obfuscation. I have a recording of this conversation if anyone wishes to hear it.

I also have a recording with representatives from Convoy, telling Ms Leung and I that Ms Leung was not at risk of losing her investment in the event that Standard Life ever went bankrupt. This is blatantly untrue, in complete opposition to what is written in the policy. Convoy never explained to her that she could have eliminated this unnecessary credit risk by investing directly in the same underlying mutual funds of her Harvest 101 policy. Instead, they lied to her by saying that no credit risk existed.

There was a further problem with the way Ms Leung was sold the Harvest 101 Plan. NONE of the forms she filled out, including the financial needs analysis forms, asked her how much debt she had and at what rate she was paying interest. Nor did any of the Convoy employees ask her this. The fact that NONE of the forms asked her this question indicates that the question’s omission was purposeful and systematic. Convoy has a financial interest in not asking this question, because once they know a client has a lot of debt, in particular credit card debt, they cannot in good faith advise them to buy an investment product before paying down that debt. Asking about a client’s debt would reduce their sales, so it seems like they systematically avoid the question.

If they had asked about Ms Leung’s debt, they would have learned that, as of April 2012, when they sold her the policy, she had been carrying $30,000-$40,000 in credit card debt for more than a year. The effective APR was around 45%, and after you add in all her late fees and cash advance fees, her total annual rate was at least 50%, if not 60%. As of May 24th, 14 months later, she was still carrying approximately $41,000 in credit card debt. Her finance charges and late fees for just last month (April 2013) were approximately $2,000. Multiply that by 12 months, and you get a rough idea of what she has been paying per year to the credit card companies just to service her debt ($24,000). Convoy did not properly evaluate her financial condition and consequently failed to give her the advice she needed: pay down her credit card debt immediately. Instead, what Convoy did was sell her Harvest 101, which was like flushing an additional $12,000 per year down the toilet, making it even harder to pay off her huge debt with her small teacher’s salary.

So far, Ms Leung has paid $13,000 to Standard Life, and she wants all of it back. Nothing more, nothing less. She’s not asking for any interest she should have earned on it, or compensation for losses she suffered by not being able to pay off her credit cards. She doesn’t care whether Convoy or Standard Life refunds the money, even though both companies are guilty of taking advantage of her. I hope the OCI can intervene in this situation to expedite the refund of her money. Ms Leung and I have already complained to Standard Life and Convoy and filed complaints with the Consumer Council and PIBA, but there has been little progress yet. I have repeatedly threatened Convoy and Standard Life that I was going to turn to the media in an effort to expose their wrongdoings if they did not refund Ms Leung’s money ASAP. I am making good on that promise right now, with Ms Leung’s permission. I am cc-ing this message not only to Convoy, Standard Life, HKFI, SFC, PIBA, and the Consumer Council, but also to multiple news organizations, with an invitation for them to contact Ms Leung for further questions. They can call her at XXX XXXX XXXX or email her at She can also be messaged on Facebook at I am setting up a blog for interested parties to monitor progress in this situation. The blog is at

Thank you for reading through this long email and for any help you can provide.

Lindell Lucy

To HKFI on Behalf of Leung Chung Yan

To the Hong Kong Federation of Insurers:

I just cc-ed to you a complaint I sent to the Office of the Commissioner of Insurance regarding the ILAS sales practices of Standard Life and Convoy Financial Services. This complaint specifically addressed the sale of Standard Life’s Harvest 101 Investment Plan to my girlfriend, Leung Chung Yan. It also addressed the method by which this product is sold to all other clients. I hope you will read it and take action. But there is more I want to say to you.

I read your Code of Conduct and found that Standard Life has not been complying with all it. I am imploring you to enforce it, otherwise this Code has no meaning and your role as a regulator is a farce.

Your Code has 50 rules. I am going to restate each rule that has been broken, followed by an explanation of how Standard Life broke it.

[#34] Insurers should not seek to exclude or limit their liability for the actions of their appointed insurance agents acting in the course of their agency.

I went with Ms Leung to Standard Life’s office to complain and demand that her contract be nullified, that she be refunded her money without an exit fee. I accused Standard Life of creating Harvest 101 for no reason other than to take advantage of financially unsophisticated people like Ms Leung. The fees and conditions are so awful that it’s a ripoff no matter who buys it, a product so bad it shouldn’t even be allowed on the market. No financial adviser could in good faith recommend it to any of their clients. A customer service representative at Standard Life told me it was not their problem, that Convoy was responsible for not explaining the product to Ms Leung when they sold it to her. They said if Ms Leung wanted all her money back, she should talk to Convoy because Standard Life would give nothing back without taking an exit fee. According to the above rule, [#34], Standard Life is not supposed to limit their liability for the sales that Convoy makes on their behalf. Even though Convoy sold it, Standard Life needs to take responsibility for creating this financial poison.

[#11] Matters which insurers generally consider to be material to the particular type of insurance being considered should be the subject of clear and specific questions in the proposal forms produced for that type of insurance.

The forms Ms Leung filled out asked about her salary, but they did not ask about her debt. In evaluating whether she could afford Harvest 101, her level of debt was just as material as her salary. By failing to ask this question, Standard Life and Convoy failed to learn that she had a massive amount of credit card debt and that she could not afford to buy Harvest 101. By selling her Harvest 101, they made her financial situation even worse. Because the Harvest 101 forms are standardized, it means all other clients are getting an inadequate financial evaluation as well.

[#12] Insurers should avoid asking questions which would require a knowledge of certain facts which the average applicant would be unlikely to possess. [#14] Insurers should draft policy documentation, so far as possible, simply and in plain language. The documentation should be designed and presented with the aim of aiding comprehension by consumers.

Ms Leung is an average applicant, and there was not the slightest possibility of her fully understanding the Harvest 101 policy documents. She does not know the difference between a stock and a bond. She has no idea what a mutual fund is, and certainly not what an ILAS is. She does not know how to calculate compound interest or effective APRs. In order for her (and most other average people) to be able to understand the Harvest 101 documents, they’d probably need the equivalent of a year of university study. Of course Standard Life knows this, which is why they are able to sell their product. They depend on a lack of comprehension by their clients. What is even more damning about Standard Life’s documentation is that Ms Leung’s Technical Representative did not understand it either, particularly the impact of the fees.

[#8] Insurers shall endeavour to ensure that all information contained in their sales materials and illustrations is current, correct, expressed in plain language and not misleading to the public. [#36] Insurers should provide their insurance agents with sufficient support facilities and materials as will enable the insurance agents to properly advise and inform members of the public concerning the insurer’s products and services.

The Technical Representative (Lau Wai Tak) who sold Ms Leung the Harvest 101 Plan was herself completely uninformed about the impact of all the fees and conditions in the policy. I know because I had to explain them to her myself. She appeared to be stricken with remorse after realizing what she had done to her friend, Ms Leung. Instead of providing a simple, specific number to express the total cost of all the fees, what Standard Life provided was a jigsaw puzzle of numbers and percents and conditional fees that only a person with a degree in finance could understand and calculate with precision. The main purpose of this complexity seems to be to obfuscate and prevent understanding of how much policy holders are actually paying. It also seems that Standard Life failed to provide all the information that the Technical Representative needed to clearly understand and explain the total costs and consequences of all the fees to Ms Leung. This could have been prevented by adding a few more columns in the illustration document’s chart. Those columns could have shown a comparison of potential returns of the underlying mutual funds before and after Standard Life took their fees, a comparison over the course of 1, 2, 3, 4, 5, 10, 15, 20, and 25 years. Had they done this, a quick glance would have been enough to see the total effective cost of all Standard Life’s fees. They also should have provided another chart showing the value of her account in 25 years if she stopped paying contributions after 2, 3, 4, 5, 10, 15, and 20 years. Instead, all that Standard Life provided was a vague sentence that said, “You may suffer a significant loss.” This did little to aid understanding, and the vagueness was not an act of carelessness. Standard Life actually refuses to provide concrete numbers. Ms Leung and I visited Standard Life’s office to ask for the specific numbers, and a representative told us, “Sorry, we can’t do that.” Even after I did a rough calculation of the numbers in front of him, he refused to acknowledge the accuracy of the calculation. (I have an audio recording of this event if you’d like to hear it.)

[#40] (To Avoid Conflicts of Interest) A conflict of interests is said to occur where an employee or insurance agent has a personal interest that conflicts or might possibly conflict with his duty to provide the best possible advice or service to a customer…

The Technical Representative had a personal interest of a large commission from Standard Life if she sold Harvest 101 to Ms Leung. The commissions she could have earned from selling better products were much smaller. This conflicted with her duty to provide the best possible advice and service to Ms Leung.

[#44] Insurers in the course of carrying on insurance business in or from Hong Kong and in their dealings with the community at large, should seek to conduct their affairs honestly and fairly and in a manner consistent with the public’s interests.

The only way Standard Life can sell Harvest 101 is by being dishonest and unfair, by conducting their affairs in a manner inconsistent with the public’s interest. Harvest 101’s fees and conditions are so detrimental to the purchaser, that no rational person would buy it if they understood its true cost and compared it with alternative investment options. Standard Life obfuscates the true costs and makes no effort to inform clients of better alternatives. They profit from preying on the least financially sophisticated individuals.

[#45] Insurers in the course of their public relations activities should seek to promote and enhance (and should not damage) the insurance industry’s reputation and standing as a responsible service provider and good corporate citizen.

The creation and sale of Harvest 101 should qualify Standard Life as a corporate criminal, not a good corporate citizen. If the media were to start reporting on this, the insurance industry’s reputation would be irreparably damaged.

Perhaps there are other rules that Standard Life has broken, but these are the ones I know about with certainty. Please act swiftly to enforce your Code of Conduct so that no more Hong Kong citizens get taken advantage of. If allowed to continue, this ILAS scam will likely obliterate half the potential retirement funds of many, many unsuspecting Hong Kong people.

I am cc-ing this letter to Standard Life, Convoy, OCI, PIBA, SFC, the Consumer Council, and multiple news organizations.

Thanks for your attention.

Lindell Lucy

Complaint Regarding SFC Requirements for ILAS Illustration Documents

To the Securities and Futures Commission of Hong Kong:

I just sent a couple of letters to OCI and HKFI complaining about the sales practices of Standard Life and Convoy Financial Services which I cc-ed to you. This complaint specifically addressed the sale of Standard Life’s ILAS Harvest 101 Investment Plan to my girlfriend, Leung Chung Yan. But it also addressed the method by which this product is sold to all other clients as well. I hope you will read it and take whatever actions you can to help prevent these abuses from happening again. But I am writing specifically to criticize your shockingly weak regulations applying to ILAS illustration documents. I would not be surprised if the regulations were written by players in the insurance industry themselves. The rules certainly aren’t designed to protect the public. Rather, they seem designed to protect the ability of the insurance companies to obfuscate the true cost of ILAS fees, which makes it easier to dupe financially unsophisticated investors.

I recommend that the SFC immediately fire and replace whoever approved these regulations.

As soon as possible, all ILAS illustration documents need to contain a chart comparing underlying mutual fund returns (over the course of 25 years) vs. underlying mutual fund returns after ILAS fees have been deducted (over the course of 25 years). This will help facilitate understanding of the true impact and cost of ILAS fees. A sample chart is attached to this email.

Also, there is a vague sentence currently required in the illustration document that says if you stop paying premiums early, “you may suffer a significant loss”. This uninformative sentence needs to be immediately removed and replaced with a chart showing the actual figures of the loss. It should show the projected account value in 25 years if the policy holder stops paying contributions after 2 years, 3 years, 4 years, 5 years, 10 years, 15 years, and 20 years. A sample chart is attached to this email.

If you cannot incorporate these simple suggestions, then you need to issue a public statement acknowledging that you are protecting the interests of the insurance companies instead of the public, preferably with an explanation of why. I’m cc-ing this message to OCI, HKFI, PIBA, the Consumer Council, and several news organizations.

Thanks for your attention.

Lindell Lucy

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