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.