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 ahyan_119@yahoo.com.hk. She can also be messaged on Facebook at http://www.facebook.com/valarieleung. I am setting up a blog for interested parties to monitor progress in this situation. The blog is at TheRapeOfHongKong.com.

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

Lindell Lucy

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