Monthly Archives: June 2013

Response to Standard Life’s “Investigation”

To the Consumer Council and the Office of the Commissioner of Insurance:

I’ve received and read Standard Life’s letter (attached). The conclusion to their so-called investigation is that they are guilty of no wrongdoing, and Ms. Leung doesn’t deserve a refund. Their denial of the truth shouldn’t surprise anyone as the act of selling Harvest 101 to wide swaths of the Hong Kong public demonstrates their total lack of moral integrity. I am curious to know how many thousands of ILAS complaint response letters the Consumer Council and OCI have received over the past ten years. Do they all look just like this one? And does it ever get tiring reading all of them?

My argument has consistently been  that Harvest 101 is such a rotten deal for Hong Kong citizens that Standard Life has no defensible excuse for selling it to any of them. If I am wrong, then someone please describe a hypothetical Hong Kong citizen for which Harvest 101 is a good deal. I don’t think there is such a person, but supposing there is, then tell me what percent of the Hong Kong public fits this description. Is it consistent with the types and number of Hong Kong citizens to whom Harvest 101 has been sold?

If Harvest 101 is a bad deal for all Hong Kong citizens, then there is no avoiding the conclusion that Standard Life is guilty of designing a business model in which they profit at the expense of the public good, which means Harvest 101 doesn’t deserve to exist and should be banned immediately, and all previous Harvest 101 customers in Hong Kong ought to be reimbursed for damages they never should have suffered.

I want to illustrate with an analogy. Think of Harvest 101 as a medicine that makes you sicker as soon as you take it (exit fees) and permanently handicaps your immune system for the next 25 years (high management fees). Standard Life is the pharmaceutical company who manufactures this so-called medicine, and Convoy is the doctor who prescribes it. Standard Life knows it is manufacturing a drug that is destructive to your health, and Convoy knows it is selling you the worst drug on the market, but they conspire and continue to do it anyway because they are making so much money and don’t give a damn about your health. When hordes of sick patients start to complain to the government, Convoy and Standard Life shrug innocently and say the medicine bottle had a warning label on it. They argue that by swallowing the pills (signing) the patients agreed that they understood they were ingesting poison, which absolves Convoy and Standard Life of all responsibility.

What would the Hong Kong justice system do to this doctor and this pharmaceutical company? How would they be treated in the media?

I now want to examine some quotes from Standard Life’s defense. I will follow each quote with my criticisms.

“Like other investment linked assurance schemes in the market, our Harvest 101 product is generally more suitable for customers having a medium to long-term investment horizon.”

And like other investment-linked assurance schemes in the market,  Harvest 101 is a complete ripoff. Do you know why Harvest 101 is a medium to long-term product? It’s not for the benefit of consumers. It is medium to long-term by necessity. The product can’t exist as short-term because everything policyholders pay in the short-term is handed over as bribe money (commission) to the corrupt brokers who sold them this travesty. The brokers must be bribed because they’d otherwise have no good reason to recommend Harvest 101 because Standard Life’s management fees are too high. Let me repeat, Harvest 101 is a medium to long-term product because policyholders are screwed so badly in the short-term. Their only chance of getting back all the money they paid is if the stock market goes up consistently for a decade or more. This is a terrible deal for investors and a golden deal for the insurance companies and insurance brokers. The insurance industry is guaranteed to win, and the investor is guaranteed to lose. It doesn’t matter if investors eventually break even a decade later. One needs to consider the opportunity cost. How much did investors lose because their brokers steered them into ILAS instead of something like a no-load mutual fund or index fund?

“[The long term nature of the product] is a material fact disclosed in our principal brochure which we require all of our brokers to inform customers of when they bring new business to us.”

Mutual funds can be short-, medium-, or long-term, whichever you prefer. But not ILAS. Short-term is an excluded possibility due to the bribe money required to sell it. Why doesn’t Standard Life require brokers to disclose this “material fact”? I argue it is because Harvest 101 is a ripoff, and Standard Life has to disguise this fact in order to sell it.

“Moreover, the illustration document given to Ms. Leung at the sales quotation stage contained an upfront ‘warning’ stating that the product should only be selected if the customer intends to pay the premium for the whole term.”

The illustration document should contain a revised upfront ‘warning’ stating that the product should only be selected if the customer agrees to getting metaphorically and financially ass-raped with a log. According to the assumptions in the illustration document (an 11.5% average return on underlying funds), if the customer pays the premium for the whole term ($1,000 per month for 25 years), the opportunity costs of ILAS will be about $700,000. I’ve explained this before in previous emails. With Harvest 101, your account is eventually worth $875,868 (according to Standard Life’s own calculations). But if you avoid Harvest 101 fees by investing directly in mutual funds, you investment would be worth $1,572,613 (or about 80% more). In calculating this latter number, for simplification, I assumed the investments were in no-load funds and funds with minimum contributions of $1,000 or less (like the Tracker Fund of Hong Kong). You could still invest in funds with larger minimum contributions though. After you accumulate a large amount of money in one fund (with low minimum contributions), you simply sell your stake in that fund and reinvest the money in another fund (with larger minimum contributions).

One more point. Standard Life provides a single warning statement, but they deliberately withhold a thorough explanation for the necessity of the warning. The average  customer consequently has no clear understanding of the reason for the warning being there. Why doesn’t Standard Life provide a chart showing specific numbers reflecting the financial consequences of stopping payments of contributions early? I am certain that it’s because it would tip off investors that Harvest 101 is a rotten deal and scare most of them away. Standard Life depends on the fact that the public is desensitized to warning labels. Because so many products have some kind of warning, people tend to gloss over them without much thought. People who buy Harvest 101 from a friend, like Ms. Leung, are especially unlikely to regard the warning as more than a benign formality. Consumers can usually hold this assumption without much consequence, but Harvest 101 will be the one exception that comes back to haunt them. Standard Life rides this aspect of mass psychology all the way to the bank.

“Furthermore, after we approve an application, we will most certainly issue an information leaflet and a ‘right to cancel notice’ together with the policy pack which highlights to the customer a right to cancel the policy during the cooling off period to ensure the customer has not chosen the product on impulse.”

The customer doesn’t need a right to a cooling off period. The customer needs a right to objective advice and unbiased information. I argue that no informed rational person would invest in Harvest 101. Therefore, all people who bought it did not understand it, and they also did not realize that they had much better investment options, which means that their advisers were either swindlers or fools and that the Harvest 101 policy documentation is misleading (by neglecting to reveal important facts, such as opportunity cost, and specific numbers on projected account value if the policyholder stops making contributions early).

“We feel sorry to hear of your disappointment with the insurance product chosen…and we understand your frustrations. We hope to work together with you to ensure this matter can be resolved.”

Bullshit. Utter bullshit. If Standard Life understands my frustrations, then they certainly don’t intend to ensure the matter is resolved. They will do everything in their power to avoid resolution because the issues I raise applies to every single individual who has ever bought this product. A fair resolution would be so damaging to their bottom line that they would likely spend millions fighting to obstruct justice before admitting defeat.

“Let us now begin to address your points on our Harvest product…Compared to mutual funds, ILAS is a different type of savings vehicle which incorporates an insurance element which is characterized by the fact that a death benefit is payable when the death of the insured person occurs.”

If this is how Standard Life addresses points, then they’re doing themselves no favors. They’re only making my argument stronger. The death benefit is merely 1% of the account value. I don’t see how anyone can call this insurance and keep a straight face. If Ms. Leung died today, her family would receive 1% of a $13,000 investment, or about $130, enough to pay for a cheap dinner. Calling this a death benefit is little more than a cruel joke.

“Moreover, other generic features that a customer may find attractive of an ILAS product include: a disciplined approach towards regular long-term savings, free fund switching amongst a wide range of investment choices, and a flexibility to incorporate other kinds of insurance such as healthcare and medical benefit riders into the policy to render its features more comprehensive.”

Investors don’t need ILAS to have discipline or to buy health insurance. Investors also don’t need ILAS to switch funds for free. To achieve that, one only needs to invest in no-load funds, which is what Convoy should be recommending to clients, as opposed to ILAS. The only ILAS feature that arguably has some value is the ability to freely switch out of funds that would otherwise have sales or withdrawal fees. But this is a feature that most policyholders will rarely use, if at all, since they probably have almost zero knowledge about mutual funds. The only way a rational person could find these “generic features” to be attractive, is if the costs of ILAS (credit risk, exit fees, policy fees, two levels of management fees) weren’t so unreasonably high.

“In the end, it is up to the customer to weigh up one investment vehicle over the other. We will, however, of course state all material facts and risk factors in our sales materials with the aim of helping our customers to better make their decisions.”

More lies. Standard Life doesn’t state all material facts (as I’ve explained above), and if their true aim was to really HELP customers in making a decision, they’d advise them to not buy Harvest 101. I’ve now heard the stories of several victims of Convoy, and the common thread running through all these stories is that the victims didn’t understand the difference between a mutual fund or ILAS (particularly the costs and benefits of each), and Convoy made no attempt to explain these differences, nor did Convoy ever suggest that the victim invest directly in a mutual fund as opposed to ILAS. Every time, Convoy recommended that the client do what was in Convoy’s best financial interest at the expense of the client’s interest. The same can be said of Standard Life. In its Harvest 101 documentation, Standard Life makes no effort to help potential customers understand the different costs and benefits of ILAS and mutual funds, because if they did, then customers wouldn’t buy Harvest 101. In summary, Convoy helps Standard Life to locate investors who are uninformed, and then they both conspire to keep them uniformed, since it is far more profitable than educating them.

There’s not much more that I want to say because I believe my point is crystal clear. The only thing unclear is when the Hong Kong government will decide that protecting the public is more important than pissing off a subset of rich bastards who deserve to be stripped of their ill-gotten wealth and thrown in prison.

I’m cc’ing this message to the media and other regulators.

Lindell Lucy

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The Case for Selling and Short Selling Hong Kong’s ILAS Industry, Especially Convoy Financial Services Holdings (1019.HK)

Greetings Fund Managers:

I am writing to inform you of an opportunity, one that could perform a public service while at the same time earn you a hefty profit. I will argue my case from two perspectives, first the practical, and then the moral.

ILAS is an acronym for Investment-Linked Assurance Scheme, but I personally like to call it an Investment-Linked Assurance Scam. In other parts of the world, it is known as Investment-Linked Insurance. I’ve been told that it was designed as a tax-avoidance scheme for Westerners, but in Hong Kong, its main purpose is to rip off uninformed local investors. The evils of this product have been abundantly publicized, so I will not bother going into much detail. I’ll simply recommend that you Google it and also look at the following article which headlined the business section of The South China Morning Post’s website all of last week:

http://www.scmp.com/business/money/investment-products/article/1262327/hong-kong-consumers-angry-after-being-sold

I also recommend that you read my comments below the article. 

The Hong Kong government has been under public pressure to crack down on the sellers of this product, and the pressure has only intensified. Regulators have begun the process of implementing stricter regulations, but those regulations do not go far enough to effectively protect the public. I believe there will be no end to the abuses and complaints until this product is completely banned from the market, and the sooner this happens, the better. I’ve already come to know more than 20 people within my network of friends in Hong Kong who have fallen victim to this product, so I view this issue very personally. But you probably don’t care. You want to know how you can make money. So I’ll tell you. ILAS is a multi-billion dollar industry in Hong Kong, and if the government is pressured to get its act together, the whole industry could disappear overnight. You might argue that the probability of this happening is low, but it doesn’t matter. Even regulatory half-measures will put downward pressure on the industry’s revenue. It’s also clear that those revenues are already starting to dry up as the media continues to report on abuses and the public becomes increasingly educated about what is going on. Less and less people are buying ILAS, and more and more people who have bought it are getting angry. I urge you to read about the Hong Kong businessman Jeremy Hobbins who sued his financial adviser last year. I predict that this is the first of many high profile lawsuits concerning ILAS that we’ll be seeing in the not-distant future.

You can capitalize on these trends by short selling the stocks of publicly listed companies whose business is heavily reliant on ILAS sales. There are none more dependent on ILAS than the insurance broker, Convoy Financial Services Holdings (1019.HK). Convoy claims to be the market leader in their sector (although this shouldn’t be something to brag about). According to their 2012 Annual Report, 89.9% of their revenue came from ILAS commissions. This puts them in a precarious position. If ILAS sales plummet, their stock will plummet. It seems to me that there is little risk of Convoy’s stock going much higher, and a lot of risk that it will go much lower. In 2012, they increased their marketing expenses by 17.9%, and they increased consultants’ sales incentives (commissions) by $7 million HKD, but ILAS sales in Hong Kong still fell 0.4% from the previous year. I interpret this as a sign that ILAS sales have peaked.  If I owned Convoy’s stock, I’d be selling it, and if I had some money, I’d be short selling it. I think it’s a low risk way to potentially make a lot of money. 

At the beginning of my email, I mentioned that there is also a moral reason to be short selling Hong Kong’s ILAS industry. It’s probably already obvious to you. Once you have on your short position, you’ll have an incentive to “talk your book”, which will create a virtuous cycle. As you talk your book, especially to the financial media, you’ll be raising public awareness about the evil nature of ILAS, which will save people from being taken advantage of, which will choke off revenue to companies like Convoy, which will send their stock price down, which will earn you money. With ILAS receiving more and more negative publicity, legislators and regulators will feel increasing pressure to do what they should have done many, many years ago: ban the damn thing. This would drive the nail into the coffin of companies like Convoy, making your short position a perfect trade. You profit as thousands of innocent investors are saved. The ILAS industry would receive long overdue punishment that regulators and the courts haven’t had the courage to deliver on their own. Ideally, such a crushing blow would come as quickly as possible, so executives don’t have time to cash out and run before their stocks tank. It should also be done before companies like Convoy have a chance to implement their Plan B, which is to start pillaging the Chinese mainland.

So, fund managers, I urge you to put on your short positions and join the growing chorus of angry citizens who are advocating for the ban of ILAS. 

I spent a couple of hours searching on the internet for the email addresses of different funds. If I found your address, then you’re getting this message. Please help me by forwarding this email as widely as possible to other players in the fund industry. And please note that I currently have no position in any stocks. I am doing this because it’s the right thing to do. 

Convoy was down 3.74% last Friday with trading volume at less than 10% of its average. This is likely because few people are interested in buying the stock after last week’s negative publicity. If everything I’ve said in this message makes sense, it should be evident in Convoy’s stock price over the coming months.

I’m forwarding this email to a few journalists. I hope they’ll keep their eyes open for cowardly executives trying to cash out before the potential tsunami. 

Lindell Lucy

[Note: After I wrote this, I learned that Convoy’s stock (1019.HK) cannot be short sold because SFC regulations disallow the short selling of stock of companies that have a market cap less than $10 billion HKD. At the time of writing, Convoy had a market cap slightly less than $1 billion HKD.]

PIBA Refuses to Handle ILAS Complaint without Confidentiality Agreement while also Distorting the Nature of the Complaint

To the Office of the Commissioner of Insurance:

You earlier notified me that PIBA should be handling Ms Leung’s case (copied below). I am writing to notify you that PIBA cannot handle her case. I presume this means that only OCI can now do it. The reason PIBA can’t handle it is because one of their preconditions is that we stop talking to the media. We cannot agree to this because more than a decade of history has proven that ILAS regulators will do nothing to resolve our main complaint without external pressure, and we believe our only hope of seeing justice is if the media is involved. If the regulators aren’t in the public spotlight, there is little chance that all guilty parties will be held accountable for their wrongdoings.

I am also writing to complain about what seems like an attempt by PIBA to distort the nature of Ms Leung’s complaint. They sent a letter to my P.O. Box with the following subject heading: Re: Complaint against Technical Representative of Convoy Financial Services Ltd (“Convoy”) (Membership No.: M0066).

It should be clear to anyone who has read my emails that Ms Leung and I have not been focusing our complaint solely against the Technical Representative, Cat Lau. Actually, we think she holds little responsibility. We are far more angry at Convoy’s executives for training and incentivizing their employees to sell a rotten investment product for the purpose of profiting at the expense of their clients’ best interests. Convoy’s executives are the architects of this corrupt business model and should ultimately hold the bulk of the responsibility.

Further, none of my emails ever had a subject title saying “Complaint against Technical Representative of Convoy”. They all said “Complaint Against Convoy” or “Complaint Against Standard Life”. So why does it seem that PIBA is trying to frame our complaint as if Cat Lau is the only one who did anything wrong? It makes me wonder whether PIBA is trying to use Cat Lau as a scapegoat in order to protect the executives at Convoy. Since it is a self-regulatory body, I presume PIBA is being funded by Convoy and other broker members, and I also presume that executives at PIBA work for the same companies that they’re supposed to be regulating (perhaps including Convoy). It is unreasonable to expect that PIBA will be able to handle our case in an objective manner. I hope OCI, with the media holding a spotlight on it, can do a better job.

I only check my post office box once every week or two. A couple of days ago I checked it and found a letter from PIBA that was postmarked Tuesday of last week (June 11). I suspect PIBA sent this letter after they received knowledge that the South China Morning Post was going to publish a story on Chung Yan’s case the following Monday (June 17). In the letter, they asked Chung Yan to sign a Confidentiality Agreement form which was attached to the letter. In effect, they were asking her to stop talking to SCMP. I am attaching copies of that letter to this email.

This evening, I visited PIBA to confirm whether PIBA would handle Chung Yan’s case without her signing the confidentiality agreement. The man I talked to, who was a high-level executive, said PIBA would not take the case if she didn’t sign. I told him there was no point to sign it because all of the information was already public, since it had been the headline of the Business Section of the South China Morning Post website for 4 straight days. Unprompted, he began to tell me that the SCMP story was one-sided and unfair, which supported my suspicions that PIBA itself was not objective or fair.

I went on to ask him why PIBA reframed our complaint to single out Cat Lau when we were clearly complaining about Convoy as a whole, and its executives in particular. He beat around the bush until he threw me a sarcastic rhetorical question: “So there was no problem with her sales?” At this point I lost my temper and started shouting and cursing, saying something to the effect that ILAS was an f-ing piece of sh** that rips off everyone who buys it, that Convoy has no excuse for training employees to sell it, and that Convoy is a corporate criminal. He seemed to me to be defending Convoy, so I demanded an answer: Who do you work for? Who are you trying to protect? The guilty brokers or the innocent public? The criminals or the victims? By this point he threatened to call the cops, and I think he actually called security inside the building. I don’t blame him for doing it because I was furious and probably disturbing other people, but I won’t apologize for my opinion or my anger. It’s hard to keep calm when trying to reason with a so-called regulator who seems to be defending an entire corrupt industry guilty of fleecing thousands and thousands of people. He told me: “I can’t talk to you. Your manner is too bad. I’m sorry.” I said, “You shouldn’t be sorry to me. You should be sorry to the people of Hong Kong.”

I have an audio recording of this event if there is ever a dispute over what happened. And PIBA can rest assured that I will never set foot in their office again because there is nothing they can help me with and nothing I want them to help me with.

I am cc-ing this message to regulators and the media.

Lindell Lucy

 

On Tue, Jun 4, 2013 at 4:58 PM, <iamail@oci.gov.hk> wrote:

Dear Mr. Lucy,

We refer to your emails of 28 May and 3 June 2013 addressed to our office, the Hong Kong Federation of Insurers, the Securities and Futures Commission and Convoy Financial Services Ltd. (“Convoy”) regarding the complaint from Ms. Leung Chung Yan (“Ms. Leung”) against Standard Life (Asia) Limited (“Standard Life”) and Convoy. 
                                
The contents of your emails have been duly noted.  Under the self-regulatory system for insurance brokers, Ms. Leung’s complaint against Convoy should be handled by the Professional Insurance Brokers Association (“PIBA”), an approved body of insurance brokers with which Convoy is registered as a broker member.

We have contacted PIBA and are given to understand that they have already received the same complaint from you.  PIBA would be looking into the matter and taking follow-up actions as appropriate.  We would follow up with PIBA in this respect.

As Standard Life is the insurer which issued the policy concerned in this complaint, we have also contacted Standard Life and requested it to investigate the complaint with a view to responding to you on the issues raised therein.

Our office will continue to follow up your case.  If you have any doubt about the above or any queries regarding the case, please feel free to contact our staff.

Yours sincerely,

(Edmund Chow)
for Commissioner of Insurance
(Insurance Authority)

PIBA Letter 1 (Redacted and Resized)

PIBA Letter 2 (Redacted and Resized)

PIBA Letter 3 [Resized]

PIBA Letter 4 (Confidentiality Agreement) [Resized]

PIBA Letter 5 (Consent Agreement) [Resized]

SCMP Business Section

Follow the Leader: South China Morning Post Demonstrates Moral Leadership by Reporting on ILAS Abuses

To the media:

At least one newspaper is doing their job: The South China Morning Post. I hope the rest of you have been paying attention and will follow in their footsteps. See here:

http://www.scmp.com/business/money/investment-products/article/1262327/hong-kong-consumers-angry-after-being-sold#comment-24913

The article is the #1 most viewed in the Business Section and so far is the number #3 most shared on the entire website. I don’t think the article is perfect, but I am happy SCMP broke the ice. Now let’s have a public discussion. I have contributed my thoughts and criticisms in the comments section of the article. You are all welcome to contact me and Chung Yan for further comments.

Regards,

Lindell Lucy

To CONvoy and Standard LIfE: No More Dirty Tricks!

I will quote below directly from the Harvest 101 policy documents (and I am also attaching a photo copy to this email):

5.3 Stop Paying Contribution

(i) During the Initial Period, if you do not pay all the Regular Contributions in full that is due within 31 days of its due date for the relevant Initial Account, we will terminate your Policy and pay you the surrender value in the Policy Currency after deduction of the original amount of Extra Allocation made to your relevant Initial Account and any relevant charges in accordance with policy provision 7. Upon such payment all of our obligations under this Policy shall cease.

Ms Leung’s last payment was due on May 12th. I advised her to call her bank to stop the autopayment from going through. She did. It has almost been 31 days since then, and according to the Harvest 101 policy, if she does not pay within a few more days, Standard Life will close her account and send her a check for a tiny fraction of what she has paid to them so far. And then their “obligations under this Policy shall cease.” 

However, a customer service representative from Standard LIfe told her they would not terminate her account for 90 days (as opposed to the 31 days mentioned in policy document). I have a voice recording of this conversation, and I am attaching it to a subsequent email. 

Convoy and Standard LIfe have had more than one month to bring this to a resolution, but they have not. I suspect they have been delaying in hopes that Ms. Leung would not make her payment within 31 days so they could tell her to bugger off. They are not contractually obligated to keep her account open beyond 31 days, even though they say the will. We have no good reason to trust them, as they have demonstrated their untrustworthiness many times over.

I am writing to ensure that Ms. Leung is not screwed. I need an answer ASAP. Does she need to send $1000 to Standard Life within the next few days in order to prevent an exit fee from being applied to her account? If she does, then I will personally give her $1000 and tell her to send it to Standard Life. But at the same time, the amount of refund she will be demanding will increase from $13,000 to $14,000.

One last thing: Ms. Leung asked me to mention that when she bought the Harvest 101 Plan, she told Ms X that she DID NOT want a life insurance policy, and Ms. X replied that Harvest 101 was not life insurance. Nominally, Harvest 101 is life insurance, and therefore, Ms. X misrepresented the product, convincing Ms. Leung to buy what she specifically said she did not want. (Of course, you could argue that, in substance, Harvest 101 is not life insurance. It is a quasi-fund of funds masquerading as insurance in order to cheat foreign governments out of their tax revenues.) Ms. Leung has no recording of her and Ms. X’s conversation, as this happened in a coffee shop more than one year ago. So it’ll be Ms Leung’s word against Ms. X’s (supposing Ms. X were to deny this). But, I should mention, I have spoken with friends of Ms. Leung who have also bought ILAS products from Convoy (but not through Ms. X), and they have all reported the same misrepresentation. The person selling them ILAS said it was not insurance. 

This is a massive, systematic problem concerning the way Convoy trains its employees. Even the way the employees fill out the documentation is word-for-word exactly the same (including the same grammatical errors!). To prove my point, in a subsequent email, I will attach two different ILAS forms completed by two different Convoy employees who sold ILAS to two different customers (Ms. Leung and one of her friends) at two different times. 

Please reply as soon as possible. We will be calling you and/or visiting you if you don’t. I’m cc-ing this and the following emails to regulators and the media.

Standard Life Rep Recording 1 (Policy Won’t Terminate Before August 12th)

Standard Life Rep Recording 2

Standard Life Rep Recording 3

Pay within 31 Days of Due Date or Exit Fee is Applied [Resized]

Autopay Rejected (edited)

Identical Recommendations to Convoy Clients to Buy ILAS

Recommendation to Take Out ILAS [Resized]

Recommendation to Buy ILAS [Resized]

Reply to the Securities and Futures Commission

Dear Mr Lucy,

We note that you have copied the Securities and Futures Commission (SFC) in your email to the Hong Kong Federation of Insurers on 28 May 2013.

We understand that you have brought the matter to the attention of the Office of the Commissioner of Insurance, the frontline regulator of insurance companies. Therefore, we will leave the matter for OCI to handle. 

Regards,

Karen Ha
External Relations, Corporate Affairs
Securities and Futures Commission
35th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
Tel: (852) 2231 1222 | Fax: (852) 2524 3718

 

To Karen Ha (and everyone else at SFC):

When you say you will “leave the matter for OCI to handle,” I hope you mean the specific complaint concerning Ms. Leung. But if you are including my general complaint about SFC regulations on illustration document requirements, then shame on all of you at SFC. You CANNOT just leave that to OCI. It’s your responsibility. You are responsible for allowing the insurance companies to pack their documentation with half-truths and smoke and mirrors for years.

The vague statement, “You may suffer a significant loss,” is just a fig leaf. ILAS is such a horrible investment that it would be scandalous if you didn’t force the insurance companies to give some kind of warning. However, if you required them to be clear and specific about its true costs, ILAS sales would plummet. I suspect you know this, but you are somehow directly or indirectly in the pockets of the insurance companies, which is why you don’t force them to be honest. I would like to know: Who do you think you work for? And who are you trying to protect? The predators or the prey?

I suggest you talk to some people in the mutual fund industry. I did, and I was told that ILAS was a good investment only for foreign tax evaders. If that’s right, then ILAS exists only for unethical purposes: to scam uneducated investors and to cheat foreign governments. In a moral society, this product shouldn’t even exist. So why aren’t you forcing the insurance companies to make the nature of this product clear? It is within your power to do so, but you have not done it.

I’m sure you have dozens of bad excuses for your inaction, and, by your logic, ultimately nobody is responsible. You’ll say OCI needs to handle it. OCI will say PIBA needs to handle it. PIBA will say the broker needs to handle it. And the broker will handle it by referring to the policyholder’s signature, a signature supposedly confirming an understanding of something impossible for the policyholder to understand, a signature which really just meant that the policyholder trusted the broker and the insurance company not to screw him, which they did.

Who is to blame? Is it the thousands and thousands of policyholders who signed? I guess you can blame them for being gullible, trusting, and stupid. But you can’t blame them for being evil. The title of evil goes to the insurance companies and the insurance brokers who create, promote, and sell this toxic shit. It also goes to the regulators who make it possible.

Lindell Lucy

Reply to the Hong Kong Federation of Insurers

Letter from HKFI

My reply:

Oh, it has everything to do with all the members of HKFI who are selling ILAS. They’re the core of the problem. They’re the ones creating this poison and giving the brokers a large financial incentive to distribute it as far and wide as possible. What the insurance industry is doing is evil. And you are evil for defending them and for denying their culpability. As I said to Convoy, I don’t believe in God, but if I did, I’d pray that you all don’t burn in hell.

To Convoy Financial [Dis]Services: Ms Leung Wants Her Money Back

To Convoy Financial Services: 

My name is Lindell Lucy. Ms Leung Chung Yan has asked me to write on her behalf. A few weeks ago, she showed me the ILAS policy you sold her. Considering her medical and financial circumstances, I was stunned that you had sold her such garbage. I was even more stunned to learn that you aggressively push this crap on all of your clients. All of you people at Convoy should be ashamed of yourselves. You present yourself to the public as helpful advisers, but actually, you are greedy, selfish, swindlers. You eagerly sacrifice your clients’ interests for the sake of maximizing your commissions. I don’t believe in God, but if I did, I’d pray that you all don’t burn in hell.

Ms Leung and I have talked to half a dozen different employees at your company, so I know you are already quite familiar with her story. The only reason I am writing again is because a lady named Diana Chu said you won’t do anything else until Ms Leung gives you a signed written complaint. You have seen multiple written complaints and have heard multiple verbal complaints. I don’t know why those weren’t good enough. But if her signature is really so important, why didn’t you request it more than two weeks ago? Are you stalling, trying to frustrate her and wear her down in hopes that she’ll give up and let you keep her money without a fight? Mark my word, there’s not a chance.

Don’t bother calling Ms Leung again to make an attempt to manipulate her emotions. Her friendship with Ms X’s (the Technical Representative) is nobody’s business but Ms Leung’s and Ms X’s. Ms Leung’s complaint will not be dropped. I’m sure that Ms X is disposable to your company, just another one of your pawns. The focal point of Ms Leung’s resentment is the architects of your evil business model, the ones who are responsible for corrupting young, impressionable, new employees.

First of all, you shouldn’t be selling ILAS to anyone. I spoke with a Hong Kong-based mutual fund professional who told me that ILAS was created a long time ago to allow rich Westerners to avoid paying capital gains taxes in their home countries (by disguising their stock investments as an insurance policy). He said those tax benefits don’t exist for local Chinese, so there’s no good reason for locals to buy ILAS. The few small benefits of an ILAS don’t outweigh its high costs (exit fees, policy fees, management fees, credit risk, etc.). The only reason you people sell this poison is because you have a complete lack of moral integrity and an overdeveloped sense of greed. If the commission is higher, you’ll make every effort to sell it, the client be damned.

When you successfully sell ILAS products to clients, it undoubtedly means that they are financially uninformed and that you made no effort to enlighten them about better alternatives. No rational person who knew their options would choose to buy an ILAS (except if they are foreign tax evaders). You depend on clients’ lack of understanding to make your sales. Ms Leung knew nothing about investment, as she indicated on the Financial Needs Analysis Forms you gave her. It’s the very reason she came to your company for help. Instead of helping her, you took advantage of her naivete, viewing it as an opportunity to get an easy commission.

What makes your abuse of Ms Leung so much more egregious than other cases is your complete neglect to properly evaluate her financial circumstances and needs. You were so eager to sell her an ILAS that you failed to recognize that doing so meant putting her life in danger. As you should know, she came to your company for advice after experiencing serious medical problems. In February 2012, doctors surgically removed some potentially cancerous lumps from her breasts. It was especially frightening because Ms Leung has a family history of breast cancer. Her aunt had been battling breast cancer for about 10 years until she passed away a few months ago. Ms Leung had no health insurance at the time of her surgery, so she had to pay her medical bills with her family’s savings. She was worried about how she would pay her medical bills in the future if she ever got sick again. To deal with this worry, your company sold her two health insurance policies, neither of which covered any medical bills that resulted from the pre-existing conditions in her breasts, which meant that she’d have to pay those bills with her savings. Allegedly, to help her accumulate some savings in case of such an emergency, you sold her Standard Life’s Harvest 101 Investment Plan. Your uninhibited avarice had you so concerned about earning a commission from the ILAS sale that you didn’t consider what would happen to her if she developed medical problems related to her breasts again anytime soon. The answer is that she’d only be able to get a small fraction of her money back because of Harvest 101’s high exit fees. Instead of having more, she’d have less money available to pay for life-saving medical treatment. Harvest 101 compromised her health, but you sold it to her anyway.

You asked that she submit any documentary evidence relevant to the complaint I am writing, but you already have copies of her insurance policies because YOU SOLD THEM TO HER. However, I will attach extra copies to this letter anyway, to prevent you from using it as an excuse to further delay refunding her money.

The blinding effects of your greed don’t stop here through. I am dumbfounded that you people at Convoy, who call yourselves “financial navigators”, do not bother to inquire about a client’s debt before recommending investment products to them. Clearly, it’s a consequence of your overriding desire to sell, and your utter lack of interest in determining what’s good for your client. Not one form that Ms Leung filled out asked if she had any debt. One question asked for her salary and one asked for the value of all her liquid assets. She reported $5,000 HKD in liquid assets. Her salary was reported at $14,000 per month ($168,000 per year), but her salary is $14,000 only if she is not absent or late for work, which she commonly is (typically due to sickness). So her actual salary usually ranges from $12,000-$14,000 per month.

If she had zero debt and no medical problems, then she could have afforded Harvest 101, even though it’s a total ripoff. However, Ms Leung had nearly $40,000 in credit card debt and had serious uninsurable medical problems at the time you sold her Harvest 101. You neglected to uncover her debt problems and you already knew her medical problems, which means you are a terrible financial evaluator and an even worse financial navigator. You failed to give her the financial advice she needed: pay off her credit card debt immediately. What you did instead was sell her Harvest 101, which was like flushing $1,000 per month down the toilet for the next two years, making it even harder for her to dig herself out of her mountain of debt with her small teacher’s salary. I say it was like flushing the money down the toilet because she loses her first two years of investment no matter what happens. In the short-term, she loses it to exit fees. In the long-term, she loses it to management and policy fees. There’s no way she can ever get more than a small fraction of that money back, which is a point no one at Convoy ever explained to her, and a calculation that she was incapable of making by herself due to her lack of financial knowledge.

Ms Leung estimates that she had been carrying at least $30,000 in credit card debt for an entire year before you sold her Harvest 101. The effective interest rate, combined with all her cash advance fees and late fees, likely totaled more than 50% annually. In May 2013, more than one year after you sold her Harvest 101, Ms Leung was still carrying about $41,000 in credit card debt. Her finance charges and other fees for just this one month totaled approximately $2,000 HKD. Multiply this by 12 months, and you can get an estimate of how much she has paid to the credit card companies this past year just to service her debt ($24,000). Her inability to pay down even a small fraction of the principal on her debt was in part a consequence of your convincing her to throw away her money on Harvest 101.

Ms Leung has three credit cards which have been completely maxed out. I am attaching copies of her credit card statements from April 2013. You sold her Harvest 101 in April 2012, more than a year ago. She can’t find all her statements from that period because she thinks she might have thrown some of them in the rubbish. However, she was able to find a Citibank statement from April 2012, a PrimeCredit statement from March 2012, and a DBS statement from May 2012. This should be enough for you to see her approximate financial circumstances in April 2012. If you must have all 3 statements from April 2012, then tell us AS SOON AS POSSIBLE. She can order the April 2012 statements, but they cost $50 each and the credit card companies say they need two weeks to send them to her. I can’t think of any good reason for your demanding them unless you want to use it as an excuse to delay refunding her money for another two weeks. Her medical situation should be grounds enough for you to acknowledge wrongdoing.

One last point I want to make is that your representation of the Harvest 101 Plan to Ms Leung was completely misleading. You presented it as a good deal, which it wasn’t. You made no effort to introduce Ms Leung to alternative investment options, such as no-load mutual funds, or exchange-traded index funds, like the Tracker Fund of Hong Kong. You only showed her what her ILAS investment would be worth in 25 years assuming 11.5% average underlying mutual fund returns ($875,868), but you did not show her what her investment would be worth in 25 years if she had avoided ILAS fees and put her money directly into no-load mutual funds or index funds with 11.5% average returns ($1,572,613, which is 80% more). You were hiding the true cost of the ILAS fees under these assumptions: $696,745. You also didn’t explain to her that the first $24,000 she sent to Standard Life was almost entirely irrecoverable. You did not show her what her account value would be in 25 years if she stopped paying early. You only provided a statement that said: “you may experience a significant loss”. Considering her lack of financial knowledge, there’s no way she could have calculated by herself to determine what “significant loss” might mean. In summary, you recommended a terrible product to Ms Leung, made little effort to explain it, obfuscated the true cost of the fees, and made no effort to introduce her to some better alternatives. You took advantage of her. You were only concerned about maximizing your commissions and cared little for what was in the best interest of Ms Leung.

Don’t make the bullshit excuse that she signed saying she understood what she was buying. Of course she didn’t understand. Even Ms X didn’t understand. Anybody who understood ILAS would not buy it and would not sell it to a friend. In April 2012, Ms Leung did not know the difference between a stock and a bond, let alone an ILAS or a mutual fund. She also indicated on her Financial Needs Analysis form that she would probably invest in a financial product based solely on a brief conversation with a friend, such as Ms X. This is exactly what happened. You trained Ms X to sell this garbage, although you did not help her to fully understand it. Then, your company capitalized on the friendship and trust between Ms X and Ms Leung. I don’t doubt that you hire new salespeople largely to gain access to their friends and family. Those are the easiest people to sell to, and also the people least likely to complain after the fact. If anybody is responsible for the current deterioration of Ms X and Ms Leung’s friendship, it is the evil architects at your company.

To repeat once again: Ms Leung wants back all of her $13,000, and I am prepared to help her fight for it, especially through the media. I will be forwarding this message to all the relevant regulators and to journalists who have expressed interest in reporting on this case.

Please bring this to a conclusion as soon as possible. Ms Leung has signed a copy of this letter to affirm that she has given my permission to write to you on her behalf and to explain her demands and complaints. A copy of that signed letter is attached to this email. Numerous other relevant documents are also attached. I will personally bring physical copies of all these documents to you this afternoon. Ms Leung’s Standard Life Harvest 101 Investment Plan policy number is XXXXXXXX.

Lindell Lucy

Leung Chung Yan

Monday, June 3rd, 2013

Health Insurance Excludes Pre-Existing Conditions

Sun Life Health Insurance Excludes Pre-Existing Condition [Redacted and Resized]

BUPA Health Insurance Excludes Pre-Existing Condition [Redacted and Resized]

Excerpts from Harvest 101 Plan Application

Credit Card Statements