Monthly Archives: October 2013

The ILAS Mis-Selling Scandal and How to Deal With It

To Members of the Legislative Council: 

I’m writing to inform you about one of the largest financial scandals in the history of Hong Kong. It involves hundreds of thousands of victims, the vast majority of which are clueless about what happened to them. I suspect most of you have never heard of an investment-linked insurance scheme (ILAS), even though some of you probably own one. This product is typically promoted as the equivalent of a pure fund investment, when it is actually a fund investment wrapped within an insurance contract, which has several layers of additional high fees. The entire first year of premiums are often paid to the agent or broker as a sales commission.

Because it is extremely profitable, this product is aggressively promoted to Hong Kong citizens, despite the fact that it was designed for expats. The “insurance wrapper” (also called a “tax wrapper”) allows expats to evade capital gains and estate taxes in their home countries. The tax savings is supposed to offset the high fees, but in most cases, the fees completely eat up the tax savings and more. This has been widely reported on in other countries. See this Reuters article for an example. Such reports are basically saying that most ILAS products are ripoffs.

If an ILAS product is a bad deal for expats, then it’s a much worse deal for locals. Because Hong Kong citizens don’t pay capital gains and estate taxes, a tax wrapper is useless to them. It offers no tax savings. Its fees are unnecessary. Even if a particular ILAS product were ok for an expat, it would still be hard to make the case that it is right for a local. What this means is that every sale of an ILAS product to a Hong Kong citizen is arguably a mis-sale. Advisers have no good reason for recommending ILAS to them instead of a pure fund investment.

I’ve read a report in the South China Morning Post in which an industry professional is quoted as saying that 75% of all investment products sold to consumers in Hong Kong are ILAS products. If that is even roughly accurate, the number of ILAS mis-sales might reach into the millions. That same SCMP article also quotes another industry professional estimating that 93% of ILAS products are surrendered before maturity, which triggers a steep penalty. In other words, these products are essentially poison pills, or time bombs that blow up in the face of almost everyone who buys one, no matter whether the purchaser is an expat or local.

I believe Hong Kong would be better off if ILAS didn’t exist. Its primary value is to help expats cheat their governments out of tax revenue. But if that’s an essential service, I’m told that there are cheaper ways for expats to evade taxes, such as through offshore brokerage accounts. This means consumers in Hong Kong, including expats, have nothing to lose if ILAS were to be banned. Consequently, I think the Legislative Council should seriously consider banning it.

Of course, insurance and brokerage companies would oppose a ban on ILAS, as it would result in the extinction of a $17 billion HKD per year business and leave thousands of ILAS agents unemployed. However, that is no excuse for allowing the continuation of what is essentially theft. A small short-term shock to the economy is inevitable and necessary. Cleansing the system would make the economy healthier in the long-run. Investors would accumulate more savings by paying less fees, and unemployed ILAS agents would eventually find new jobs in more useful sectors of the economy. 

Banning ILAS is not a comprehensive solution though because the root of the problem lies deeper. There are other products which are being mis-sold. Whole life insurance is perhaps becoming a scandal of almost equal proportions. The source of all this evil is the commission-based sales model, which creates a conflict of interests for brokers and agents. They can earn more money by fleecing their clients, so inevitably, many choose to fleece their clients. They prefer to sell products which earn them the highest commission rather than products which are best suited for their clients’ needs (e.g., ILAS rather than pure funds, whole life rather than term life insurance). This problem is not unique to Hong Kong. In the UK, millions of consumers have been mis-sold investment and insurance products due to the misaligned incentives created by commissions. The costs have run into the tens of billions of pounds. Over the past few decades, scandal after scandal has ensued: the pension scandal, the endowment scandal, the PPI scandalthe CPP scandal, among others. Regulators and legislators in the UK got so sick of dealing with these scandals that they eventually decided to ban commissions altogether. Australia has done this too. The only way Hong Kong can effectively deal with its plague of mis-selling is by following the examples set by the UK and Australia, by banning commissions and other forms of corrupting sales incentives. I urge LegCo to begin working on this immediately. The longer nothing is done, the bigger the mess that will have to be cleaned up later.

The mess is already mind-boggling, and justice will not be served until all victims are compensated. In the above-mentioned scandals in the UK, millions of victims got their money back. Wrongdoing companies were forced to restore mis-sold consumers to the position they would be in if they had been given proper advice from the beginning. I believe Hong Kong’s ILAS victims should be restored to the financial position they would be in if they had originally been sold a pure fund investment, rather than ILAS. The calculations would be complicated, but it could perhaps be simplified by allowing victims to surrender their ILAS policies with no penalty, and then forcing mis-selling companies to refund all the fees that they collected. I urge LegCo to offer its support to regulators and the courts in making sure that justice is served. 

In a recent high profile lawsuitan influential businessman, Jeremy Hobbins, accused his broker of mis-selling him a series of ILAS products. He correctly pointed out that his broker’s advice was tainted by greed, that the advice was given solely so that the broker could profit at his expense. He claimed that the undisclosed high commission paid by the insurance company, Skandia, to the broker, Clearwater, amounted to bribery. The judge sided with the broker and the insurance company. He argued that because the industry is a cartel and the high commissions are standard, the dealings between the broker and the insurance company were acceptable. If Clearwater and Skandia were guilty, then the entire industry was guilty. In other words, if the judge had ruled in favor of Mr. Hobbins, then a tsunami of similar lawsuits would have ensued, which would have likely bankrupted many players in the industry. He did not want responsibility for unleashing all of that. He would have been a hated a man, and I would not be surprised if his ruling were influenced by concern about blowback to his career or his personal safety. He summarized as follows, “The practice of insurers paying commission to insurance brokers may or may not be unsound. It ought possibly to be strictly regulated or even prohibited altogether. I express no view on the matter. That is a question of policy best left to the legislature, not the Court, to tackle.”

I hope the Legislative Council will tackle this issue and ensure that the hundreds of thousands of other ILAS victims are treated more fairly than Mr. Hobbins was. I believe there needs to be another lawsuit, a collective lawsuit, on behalf of all these people. I’ve written letters to the Hong Kong Monetary Authority and the Securities and Futures Commission to seek their opinion on possible regulatory breaches by companies selling ILAS, breaches which might serve as grounds for a successful lawsuit on the scale I have suggested. I have forwarded those letters to all of you, and I welcome any of you to step forward and offer your own thoughts on the matter.

Before I conclude this letter, I want to offer one last legislative proposal: mandatory financial literacy. The financial industry is a jungle in which predators are lurking around every corner waiting to pounce on ignorant consumers. Part of what makes mis-selling scandals possible is a widespread lack of knowledge about different financial products and how to compare and evaluate them. This information deficit could be dealt with by the introduction of an investor’s license, analogous to a driver’s license. People wouldn’t be allowed to invest in anything other than the cheapest and safest financial products, like certain exchange-traded index funds, without having first proved they could do it knowledgeably, wisely, and safely. So, for example, if someone wanted to invest in a product as complex and expensive as ILAS, they would first have to pass an exam to obtain an investor’s license. Afterwards, they’d be free to invest, but I doubt anyone would invest in something like ILAS if they actually understood how it compared to alternative options. 

I will be forwarding this letter to regulators and dozens of news organizations. Feel free to respond to all recipients. I am also posting this letter at I hope some of you will decide to join me in raising public awareness about the ILAS scandal and build public support for what needs to be done. It shouldn’t be difficult. A little understanding will go a long way. 

Thanks for everyone’s time. I look forward to seeing justice.

Lindell Lucy

Proof of Thousands of ILAS Mis-Sales (Part II)

To the Hong Kong Monetary Authority and other ILAS regulators:

I have one more question to add to the others, but first I need to again quote the HKMA’s rule on gifts:

“3.1 Use of gifts

To avoid distracting customers’ attention from the nature and risks associated with ILAS products, AIs should not offer financial or other incentives (e.g. gifts) for promoting ILAS products. Discount of fees and charges, and the offering of any gifts for brand promotion, relationship building or other purposes not directly related to the promotion of ILAS products will not fall foul of this requirement.”

It appears to me that the way insurance intermediaries are using the so-called “bonus allocation” of ILAS products runs afoul of HKMA’s gift rule. I’ll illustrate with an example.

I know a victim who was mis-sold some ILAS products by an agent at AXA’s Swiss Privilege. The agent later quit his job at Swiss Privilege and began working at Bank of China. Once at Bank of China, he called the victim and asked her to surrender a single premium ILAS policy that he previously sold her, and then move the remaining money to a much worse regular premium ILAS policy at Bank of China. This policy (Zurich Vista) had much higher annual management fees, and it would take more than three times longer to mature. Over the life of the policy, the victim would be expected to contribute 4 times as much money as was being moved out of the first policy. She didn’t know this, but she trusted the agent when he said he would make the policy switch worthwhile by giving her a gift: a so-called bonus allocation of 35% for the first 12 months of the policy. He said this “free money” would more than compensate her for the surrender penalty losses, and she’d be even better off than before. Although this was not true, the victim, who someone with almost zero investment experience, was defenseless to know otherwise. Perhaps because the agent knew he was breaking rules, or because he was afraid of being sued by his former employer for poaching clients, he asked a colleague at Bank of China to handle the victim’s paperwork, to cover his tracks.

Some time later, the victim received an almost identical offer to surrender her ILAS policies at Swiss Privilege and move the remaining money to a Zurich Vista policy at Sun Hung Kai Financial. SHKF was offering “free money” (the so-called bonus allocation) to make up for surrender penalty losses.

It appears to me that the way Sung Hung Kai Financial and Bank of China were using bonus allocation to bait and trap clients was breaking HKMA’s gift rules. The purpose of the “free money” was to distract the customer’s attention away from the high fees and associated risks.

Of course SHKF and BOC will argue to authorities that the “bonus allocation” is a discount in fees, which does not break the gift rule, but if that is really true, then why weren’t they marketing the bonus to clients as a discount in fees? Why were they misleading clients into believing they were getting a gift of free money, when really the clients were just getting ripped off?

I would like to ask HKMA to issue a public statement on whether they regard the offering of “bonus allocation” with ILAS policies to be a breach in their gift rule, at least in some instances, if not all instances. If so, does HKMA think offending companies deserve to be punished and mis-sold consumers deserve to be compensated?

I would also like to ask for a public statement from other ILAS regulators on whether they agree with HKMA’s assessment of this issue. I am cc-ing this letter to the media and the Legislative Council. I am also posting it at

Thanks for everyone’s time,

Lindell Lucy

ILAS: Financial Weapon of Mass Desctruction

To Mr. Stephen Tisdall and the SFC:

Thanks for your lengthy reply, and I apologize for my delayed response. I got carried away with other ILAS-related business, which was referred to in the South China Morning Post on Monday:

Insurance Product Faces Gloomy Future

Investment-Linked Insurance Schemes a Trap for Unwary Investors

Insurance Activist Lai Yan-cheong: Sales Tactics Are Wrong

In case you didn’t already see it, SCMP also recently mentioned your prior response to me:

SFC Rejects Head Accusation

I followed your suggestion and read the SFC’s 13 August 2009 circular, and unfortunately, this document reaffirmed my conviction that the SFC’s head is placed firmly where I said it was.

In particular, I am referring to the following paragraph:

ILAS are first and foremost insurance policies providing the policyholder with life cover, but which have an additional investment element. Life cover, as distinct from investment, would appear to be the dominant factor motivating a policyholder to acquire an ILAS product because there are many pure investment products on the market which tend to have lower initial charges, are more negotiable than ILAS and do not give rise to the same penalties for early termination. These types of products would appear to be more suitable for, and attractive to, those who are principally concerned with investment and are unconcerned with the acquisition of life cover. Accordingly, although the value of an ILAS policy is usually determined by reference to fluctuations in the value of the underlying funds that are selected by the policyholder, it cannot be said that the purpose of acquiring an ILAS policy, or even the dominant purpose of doing so, is to secure a profit from fluctuations in the value of the underlying funds. The SFC therefore considers that promoting, offering or selling ILAS to the public does not constitute dealing in securities within the meaning of paragraph (b) of the SFO definition of that expression.”

The parts I’ve underlined are unquestionably false. The only possible reason for acquiring most ILAS policies is to “secure a profit from fluctuations in the value of the underlying funds”, not to get “life cover”. The so-called 1% insurance protection typical of most ILAS policies is only enough to qualify as an insignificant partial refund of the annual management fees. I’ll illustrate with an example: My girlfriend has contributed $13,000 to an ILAS policy. Nearly all of that money was indirectly paid as commission to the broker. That $13,000 can only be recovered by her family if she dies. Her fictional account value is subject to a $720 annual policy fee and a 6% annual administration charge. In total, the annual fees add up to 11.5%, which is 11.5 times higher than the 1% “protection” in the event of death. If one cuts through all the complexity and obfuscation, one will see that my girlfriend has already paid nearly $13,000 in fees, yet her family will only receive a so-called “death benefit” of $130 if she dies. In other words, she paid $13,000 for $130 of life coverage. If “ILAS are first and foremost insurance policies providing the policyholder with life cover”, then ILAS is a scam and the SFC shouldn’t have authorized any of them.

But of course, everyone knows that ILAS are not “first and foremost insurance policies”. One can simply browse through the websites of companies selling ILAS to read about the real purpose of ILAS. According to Sun Hung Kai Financial’s website, “Unit-linked products are a kind of insurance plans but they are different from traditional life policies. They emphasis on providing investment returns rather than protection.” But according to the SFC, “it cannot be said that the purpose of acquiring an ILAS policy, or even the dominant purpose of doing so, is to secure a profit from fluctuations in the value of the underlying funds”. Everyone in the industry is saying one thing, and only the SFC is saying the opposite. Why? Did no one at the SFC even bother to read the names of the ILAS products it authorized? Here’s a list of some of the juiciest one:

The Executive Wealthbuilder Account



Harvest Wealth Investment Plan

Wealth Regular Investment Savings Plan

International Investment Account

International Wealth Account

Manulife Wealth Creator

Premier Investment Plan

PRUlink smart wealth builder

PRUsaver Investment Plan

Rainbow Investor

Rainbow WealthMaster


SUPRA Savings and Investment Plan



Treasure Accumulator

Uniflex Investment

“Wealth Accumulator” Plus

Wealth Amplifier Investment Plan

Wealth Builder

Wealth Express Invest Plan

Wealth Plus Invest Plan

Wealthmaster Plan

The primary purpose of these products is clearly indicated in their names: to profit from an investment in the underlying funds. Yet the SFC pretends to be oblivious to the obvious. I think it’s completely fair to say that the SFC has its head up its ass.

Mr. Tisdall, you have suggested that the only way the SFC could regulate the sale of ILAS is if there were a change in the laws. It’s not so clear to me that this is the case. Perhaps the SFC just needs to correct a misinterpretation of the laws. Contrary to the comments in the 2009 circular, the sale of ILAS seems to fall within the legal definition of dealing in securities, which is as follows: “making or offering to make an agreement with another person…the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities”. The only point which isn’t clear is the exclusion in sub-paragraph (xi) of that definition, which says that a person is not dealing in securities if that person issues an advertisement, invitation, or document authorized under section 105. I’ve looked at section 105, which points to section 103, and my understanding of these sections is that the sales materials of all investment products, not just ILAS, are authorized under section 105. So if the sale of ILAS is not “dealing in securities”, then neither is the sale of mutual funds. But the sale of mutual funds is “dealing in securities”, so why wouldn’t the sale of ILAS also be considered “dealing in securities”? Can you please clarify? Have I overlooked something?

If it’s the case that the sale of ILAS is in fact “dealing in securities”, and the companies selling it are not complying with SFC regulation, could they be held legally accountable for their non-compliance? If so, I am interested in knowing whether their non-compliance could be grounds for recovering the money of thousands of ILAS victims. I would be grateful for any thoughts you have on this matter.

Myself and others have been in contact with the offices of several members of the Legislative Council. There’s a meeting scheduled next week with one LegCo member to discuss possible legislative changes concerning ILAS. I would like to get your opinion about which parts of the law need to be changed to bring ILAS exclusively under SFC regulation. As you hinted in your email, the Insurance Authority has done a terrible job regulating ILAS. I agree, and I think it deserves to be stripped of that responsibility. It would be much better if ILAS were regulated solely by the SFC and if it were regulated just as strictly, if not more strictly, than other investment products. If I could have my way, ILAS would be banned, as well as the entire commission-based sales model, but short of that, I think bringing ILAS under SFC regulation is the least bad alternative.

I am cc-ing this email to other regulators and multiple news organizations. I am also posting it at It would be great if you could give a public response addressing the issues I have raised.

Thanks for your time,

Lindell Lucy


Dear Mr. Lucy,
Your e-mail of 26 July 2013 addressed to the “SFC and OCI” (attached below) has been drawn to my attention.  I am not in a position to comment on all of the matters raised by you in your e-mail for reasons that will be clear to you after you have read this response.  However, there are two sentences in your e-mail which particularly caught my attention and in respect of which I am able to respond.  Indeed, I feel that I should do so in order to correct your apparent misunderstanding concerning the issue of the supervision of the conduct of insurance intermediaries who carry on ILAS business in Hong Kong.
The two sentences to which I refer are the following:
With all due respect, the SFC needs to pull its head out of its ass.  Does putting an insurance wrapper around securities magically transform them into something other than securities?
With respect to the first sentence, I am relieved to be able to advise you that the SFC’s head is not located in the particular part of its anatomy to which you referred.  With respect to the question posed in the second sentence, the answer is “yes”, although I should add that there is no need for any type of magical intervention because the legal position in respect of this matter is very clear.  I am sure that you will appreciate that a regulator, such as the SFC, may only act in accordance with the law governing it, and pursuant to the powers conferred on it, and that it simply cannot pretend that ILAS are securities when Hong Kong law expressly provides that they are not.
The SFC issued a circular [] on 13 August 2009, which principally dealt with the issue of whether intermediaries conducting ILAS business in Hong Kong are required or permitted to be licensed by the SFC under the Securities and Futures Ordinance (SFO).  I invite you to read the circular because it clarifies, in a reasonably straightforward manner, the issues that lie at the heart of the question that you posed in the second sentence to which I referred above.   As you will observe from the SFC’s circular, interests in ILAS were expressly excluded from the definition of “securities” when the SFO was enacted.  This means that under Hong Kong law, ILAS are not securities.  Instead, they fall within the meaning of class C linked long term insurance business under the Insurance Companies Ordinance (ICO).  Accordingly, intermediaries selling ILAS cannot be regarded as “dealing in securities” under the SFO.  Rather, they are selling contracts of insurance, which obviously requires that ultimately they be regulated by the Insurance Authority under the ICO.
As I presume you know, ILAS have “underlying investments”, the performance of which determines the value of an ILAS policy from time to time.  However, these “underlying investments” (which are usually funds and therefore are securities) exist in a notional sense only, with ILAS policyholders acquiring no interest in them whatsoever.  As you will observe from the SFC’s circular of 13 August 2009, insurance intermediaries who advise their clients concerning their choice of the “underlying” securities of ILAS are not advising on securities under Hong Kong law.  Stated simply, “advising on securites” under the SFO involves advising a person in relation to his/her acquisition or disposal of those particular securities.  Because ILAS policyholders never acquire any interest in the “underlying” securities of ILAS policies, they cannot be advised in relation to the acquisition or disposal by them of those “underlying” securities.  Under Hong Kong law, it is therefore clear that this type of business, and those conducting it, are not regulated by the SFC under the SFO because the intermediaries in question are not conducting the business of “advising on securities”, as defined under the SFO.  As I have already mentioned, they will also not be regarded as “dealing in securities” within the meaning of the SFO.
In your e-mail, you demanded to know whether the SFC and the OCI purposely designed a “regulatory loophole” with the intention that it be highly profitable to the insurance industry.  It is not clear what you meant when you referred to a “regulatory loophole”.  I assume, however, that you were referring to the situation which exists under Hong Kong law of the SFC not regulating insurance intermediaries conducting ILAS business.  In response to your demands, I advise, first, that there is in fact no regulatory loophole and, secondly, that neither the SFC nor the OCI created the separate regulatory regimes which they are respectively required by statute to administer.
With reference to the second of these matters, the SFC is a statutory corporation and is not a Bureau or Department of the Hong Kong Government.  The SFC largely operates independently of the Hong Kong Government.  The provisions of the SFO reflect the policy decisions of the Hong Kong Government, as enacted into law by the Legislative Council.  It is the responsibility of the SFC to apply the provisions of the SFO in accordance with the powers conferred on it under the SFO.  For the reasons stated in the SFC’s circular of 13 August 2009, the SFC does not have the power to license insurance intermediaries conducting ILAS business.  It necessarily follows from this that the SFC is not empowered to supervise or discipline these intermediaries in relation to the conduct by them of this type of business.
The statutory provisions governing these matters were deliberately designed to have the effects that are referred to in the SFC’s circular and elaborated in this e-mail.  The architecture of the regimes under which the SFC and the Insurance Authority perform their respective functions was deliberately conceived by the Hong Kong Government and made law under the ICO and the SFO.  The SFC and the Insurance Authority do not make the law.  However, they are obliged to comply with their separate statutory obligations and are restricted from performing regulatory functions unless they are legally empowered to do so.  The architecture to which I have referred was designed specifically to require insurance intermediaries conducting ILAS business to be regulated by the Insurance Authority under the ICO, and to exclude the SFC from having any powers to license, supervise or discipline these intermediaries in relation to the conduct by them of these activitities.  Your expression “regulatory loophole” suggests an unintended flaw in the regulatory architecture, which allows things to happen that should not be permitted.  There is no loophole of this type because a regulatory regime governing insurance intermediaries conducting ILAS business has specifically been put in place under the ICO.  Any questions you might have concerning the manner in which the resulting powers have been exercised under the ICO is a separate matter which the Insurance Authority would have to address and in respect of which it would not be appropriate for the SFC to comment.
I hope that this e-mail will be of assistance to you and trust that it will now be clear to you that the SFC does not have the power to regulate the conduct of insurance intermediaries carrying on ILAS business.  By design, the ICO and the SFO were formulated to define regulatory responsibility in this area, with such responsibility having been deliberately conferred on the Insurance Authority.     
Stephen Tisdall
Senior Director | Intermediaries Licensing and Conduct
Securities and Futures Commission

Proof of Thousands of ILAS Mis-Sales

To the Hong Kong Monetary Authority and other ILAS Regulators:

I am writing to you because I am looking for ways to help thousands of ILAS victims recover their money and also to ensure that other people don’t become ILAS victims in the future. I would like to get a public statement from all ILAS regulators regarding whether they agree with the Hong Kong Monetary Authority’s 22 April 2013 circular:

“AIs [Authorized Institutions] should not sell ILAS products to customers who do not need or want insurance or investment products…In general ILAS products are not suitable for customers who do not have a dual objective of investment and insurance (such as estate planning)…AIs should ensure that customers’ indication of any need or purpose relating to life insurance element of ILAS products is documented, and that compliance with this requirement is subject to proper monitoring.”

I would like to know if ILAS regulators, especially the HKMA, would regard an ILAS sale to be a mis-sale if the purchaser did not indicate an interest in “Life Protection” on their financial needs analysis forms but instead only indicated a desire for “Investment” or “Savings”. I personally know several ILAS victims who filled out their financial needs analysis forms as just described. Attached is an example. If HKMA would regard this to be evidence of a mis-sale, would HKMA view it as justification for enforcing refunds to victims and punishing mis-sellers? If the HKMA says yes, I want to know whether other ILAS regulators agree.

I would also like to get a public statement from all ILAS regulators on whether they agree with HKMA’s 14 March 2011 circular:

“When explaining or recommending ILAS products to customers, AIs [Authorized Institutions] should give balanced views. Where direct investment in the underlying investment assets (e.g. unit trusts and mutual funds) can be the alternative of indirect investment through ILAS products, AIs should explain to customers the pros and cons of ILAS products compared with direct investment in the underlying investment assets and taking out a life insurance policy separately.”

“AIs should make it clear to customer at the outset that the product is an investment-linked insurance product…Any description that disguises the insurance element, e.g. describing ILAS as “investment funds with complimentary insurance or life protection”, is inaccurate and unacceptable.”

“Where a customer indicates that he or she does not need/want insurance/investment products, AIs should not recommend ILAS products.”

If other ILAS regulators agree with HKMA, the only possible way to check and enforce compliance with these guidelines is by recording the sales process. Will other ILAS regulators admit that they should immediately start requiring the recording of the sales process?

Do other ILAS regulators agree with the following section of HKMA’s 14 March 2011 circular:

“3.1 Use of gifts

To avoid distracting customers’ attention from the nature and risks associated with ILAS products, AIs should not offer financial or other incentives (e.g. gifts) for promoting ILAS products.”

If other ILAS regulators agree, will they admit they should begin enforcing this rule immediately?

I personally know victims of AXA’s Swiss Privilege who were lured into unsuitable ILAS products by enticements of free super-luxurious exotic trips to places around the world (e.g., Africa, the Middle East, Eastern Europe). The only way to be invited to one of these trips was by buying an ILAS policy worth tens of thousands of US dollars.

I also know one Swiss Privilege victim who was originally introduced to Swiss Privilege by a referral from a friend, a friend who was possibly motivated to recruit due to the valuable referral rewards that s/he could receive. For example, by successfully convincing a single friend to buy a multi-thousand US dollar ILAS policy, a Swiss Privilege client is currently entitled to a free round-trip ticket to Bangkok or a choice among several luxury items. A full list of Swiss Privilege’s current referral rewards can be seen in their Referral Rewards Catalogue, which can be downloaded here.

I would like to know whether HKMA agrees that AXA Swiss Privilege’s sales tactics are likely conducive to mis-sales and should not be allowed. Does HKMA think that a thorough review by regulators of Swiss Privilege’s sales history is a reasonable proposition that is in the interest of potential victims? Do other ILAS regulators agree?

I am posting this letter at, and I am cc-ing it to several news organizations. I prefer that regulators address their responses to the media, not just to me.

Thanks for everyone’s time,

Lindell Lucy


A Financial Needs Analysis Form in Which No Interest in Life Protection Was Indicated

A Financial Needs Analysis Form in Which No Interest in Life Protection Was Indicated

Almost Half a Year and Still Waiting for an Apology

To Convoy and PIBA:

It has been nearly half a year since Leung Chung Yan first asked for her money back. Why has it taken so long to get an apology and a refund? What does this say about Convoy’s quality of service? Its moral standards? What does it say about the seriousness of PIBA’s self-regulatory mission? These are rhetorical questions, the answers of which are obvious.

I would appreciate an update about the current state of PIBA’s investigation of Convoy. I am also still waiting for Convoy to offer an admission of mis-selling, an apology, and a refund for Ms. Leung.

I hope Convoy and PIBA will please respond sometime before 2014, but preferably before Friday.

Still waiting,

Lindell Lucy

ILAS Is a Tax Avoidance Product for Expats, Unsuitable for Hong Kong Citizens

It seems that very few people are familiar with the fact that ILAS is a product designed to allow expats to avoid foreign taxes. Local Chinese don’t pay these taxes, so ILAS is useless to them and shouldn’t be sold to them. However, brokers and agents still aggressively promote it to locals because of the very lucrative commissions they earn from selling it. I’m writing this blog post hoping to inform the uninformed.

Expats often refer to ILAS as an “insurance wrapper” or “tax wrapper”. It is typically used to “wrap” mutual fund investments within an insurance contract in order to avoid capital gains and estate taxes in expats’ home countries. Financial advisers promote ILAS to expats for exactly this reason, and I suppose many of them claim that the tax savings offset the wrapper fees. However, the fees are so high on most wrapper products that it completely wipes out the tax savings. In other words, most of these products are ripoffs. Reuters has reported on this in an article entitled:Insurance Wrapper Costs Eat Tax Benefit”.

Hong Kong citizens don’t pay capital gains and estate taxes, which means they have no need to purchase a tax wrapper. One doesn’t have to be a genius to draw the following conclusion: If ILAS is a bad deal even for expats, then ILAS is an extremely raw deal for Hong Kong citizens, since they receive no tax savings to offset the high wrapper fees.

Selling a tax savings product to someone who receives no tax savings is like selling car insurance to someone who doesn’t own a car and doesn’t drive. It’s like selling snake oil.

That’s a summary. One can learn more by doing a Google search for “insurance wrapper”, which retrieves thousands of results. Below are several quotes that I pulled out of one such search: 

Insurance wrappers are life insurance policies into which the very wealthy place stocks, private equity holdings and other bankable assets, exploiting tax benefits on investment income held in such policies.”

“I will first look at the benefits of unit-linked life insurance, including the one most often cited—the tax-deferral benefit…It enjoys very favorable tax treatment in most if not all jurisdictions and can be used to preserve and increase wealth and pass it on to the next generation in a tax-efficient manner.”

“For expatriates who will return to the UK at some stage, they will shield the underlying investments from tax, just as described on the tin. It is possible to take out tailor-made life insurance contracts which can be used to own private investments such as the shares of an offshore company which is doing real business, properties as well as stocks, shares and funds. Such “insurance wrappers” can be a powerful planning tool and, again, shield the underlying assets from being taxed.”

“In most jurisdictions, this kind of structure is tax-deferred, meaning that for as long as your assets are invested within the structure, no income taxes, capital gains taxes or withholding taxes will apply. With proper planning, additional tax benefits can be achieved. Depending on your tax domicile, estate taxes, gift taxes or value added taxes can be avoided in compliance with the law. For example, in jurisdictions like Germany, Sweden, the United Kingdom, or South Africa, these products benefit from considerable tax advantages.”

The basic concept is that mutual funds and other tradable financial instruments can be ‘wrapped’ in an insurance policy to give it additional tax and estate planning benefits. These are insurance products in name only – the actual insurance coverage is only about 1% of the value of the portfolio, and investors don’t have to pay separate insurance premiums. 100% of capital passes right through to the investment funds. The result is a flexible, tax-efficient structure for investing in the same types of funds that most households are already using.”

Chameleon: ILAS and Its International Identities

ILAS products are called different names in different countries, but the high commissions lead to mis-selling everywhere the products are sold. I believe ILAS’s plethora of names has been an obstacle to the creation of an international movement against it. Here’s why: When Hong Kong victims do a Google search for ILAS, they won’t find any results about “variable annuities” in America, and even if they did come across the term “variable annuity” in a search result, most victims would not realize that it is referring to basically the same product as ILAS.

Below is a collection of other names for ILAS that I’ve come across. Local victims would benefit by becoming informed about these different names so that they can more effectively research online to learn how victims in other countries have successfully fought for justice. You can email me if I missed any names that need to be added to this list.

  • Investment-Linked Assurance Scheme (ILAS)
  • Unit-Linked Life Insurance
  • Variable Annuity
  • Unit Linked Insurance Plan (ULIP)
  • Private Placement Life Insurance (PPLI)
  • Endowment Policy
  • Insurance Wrapper
  • Tax Wrapper
  • Offshore Pension
  • Offshore Bond
  • Insurance Bond
  • Investment Bond
  • Unit-Linked Bond

More Great Work By SCMP

On Monday, SCMP published a series of articles on ILAS, once again demonstrating unrivaled leadership in the Hong Kong media. When Chinese language news organizations begin to follow, it will be a sign that real reform is coming.

Insurance Product Faces Gloomy Future

Investment-Linked Insurance Schemes a Trap for Unwary Investors

Insurance Activist Lai Yan-cheong: Sales Tactics Are Wrong