Monthly Archives: May 2014

Industry Leader ‘Shouts From the Rooftops’: Ban 25-Year ILAS Savings Plans!!!

In a new interview with International Adviser, Ashok Sardana “fervently” reiterated his call to ban 25-year ILAS savings plans. He said:

“these are not products which are suitable for most clients – in 99% of cases the clients will not see completion of the plan. These policies are only good for the adviser and the life company.”

And then he added:

“These products should have health warnings like cigarette packets which say – ‘this product is not good for your financial wellbeing.”

Amen! I applaud his truthfulness.

Although he didn’t say it explicitly, he implied that brokers who sell 25-year ILAS savings plans are blatantly violating their legal duty to prioritize clients’ interests above their own, which means brokers could be sued for selling these products. Moreover, the brazenly exploitative nature of the products also raises a question about whether an act of bribery has taken place when an insurer (a creator of these products) pays an exorbitant commission to induce brokers to sell them. If so, it could potentially land both brokers and insurers in prison. This is probably why Mr. Sardana doesn’t allow his employees to sell these products.

If 25-year ILAS savings plans are so bad that brokers can potentially be sued and imprisoned for selling them, then obviously the products have no justification for existing. 

The SFC thus has a responsibility to immediately ban these and all other exploitative ILAS products, as it promised to do last week. 

Currently, the minimum lock-in for most ILAS products is 5 years. Due to their fiduciary responsibilities, brokers almost never have a justification for selling a product with a lock-in longer than this minimum. Consequently, all ILAS products with a lock-in longer than 5 years must be banned ASAP.

[NOTE: In Hong Kong, “a person convicted of an offence under Section 9 of the Prevention of Bribery Ordinance is subject to a maximum penalty of seven years’ imprisonment and a fine of HK$500,000.”] (Source)

Legal Armageddon On the Horizon: Two ILAS Policies That Could Decimate the Insurance Brokerage Industry

EWA & MCA

Insurance brokers have a legal and moral duty to provide unbiased advice and to prioritize their clients’ interests above their own. If ILAS is not suitable for a client, then a broker should not recommend it. In the rare event that ILAS is suitable, brokers have a duty to recommend the “best” ILAS product (i.e., the least bad one). The amount of commission that an ILAS product generates should play no factor in a broker’s decision to recommend it.

The Worst ILAS Products

The most dangerous, exploitative ILAS products are those with the longest lock-in periods. Longer lock-ins result in higher exit penalties and much higher risk of suffering those penalties. Well over 90% of people don’t survive a lock-in of any length, and virtually no one survives a 25 year lock-in.

The main reason lock-ins exist is to force investors to pay for commissions either through annual fees or else through an exit penalty. If an ILAS product has an excessive lock-in, that’s only because the salesperson was paid an excessive commission. A lock-in is basically just a means of transferring wealth from investors to salespeople. Longer lock-ins therefore add no value for investors—they drain value. Brokers, who have a duty to act in the best interests of clients, should never recommend a lock-in that is longer than necessary. To do so is arguably an act of theft.

The “Best” ILAS Products

The least dangerous, most flexible ILAS products are those with no lock-in. They necessarily pay lower upfront commissions. These are exactly the products which brokers should be recommending. If brokers aren’t mentioning these types of products to their clients, and they are instead exclusively recommending products with excessive lock-ins (i.e., with higher upfront commissions), then they are clearly not performing their duty of care and are setting themselves up for future lawsuits.

The Executive Wealthbuilder Account

The “best” ILAS savings plan I have ever seen is Skandia’s Executive Wealthbuilder Account (EWA). Compared to other ILAS products, it is, as its brochure cover claims, “a highly flexible investment choice”. It has relatively low minimum contributions ($2,400 HKD), no minimum contribution period, no lock-in, and the fees are totally transparent (7% upfront charge, 1% annual management charge). It was one of the first ILAS products to ever be authorized in Hong Kong (1991). A source tells me that the EWA was pulled off the market a few years ago because brokers wouldn’t sell it. However, it now seems to be back on the market. Its brochure was updated 9 months ago (Sept 2013).

During the time that the EWA was on the market, any insurance broker who failed to suggest it to clients was failing to do his job.

The Managed Capital Account

The second “best” ILAS savings plan I’ve seen is Skandia’s Managed Capital Account (MCA). The MCA has been available to investors since its authorization in 1992. It is practically identical to the EWA except that it has a slightly higher minimum contribution ($3,600 HKD) and a less transparent fee structure (in place of a 7% upfront charge, it has a 1.6% annual charge applied over a 5 year lock-in). The EWA and MCA ultimately cost the same amount of money, as their fee illustrations show:

EWA Fee Illustration
Skandia EWA Fees

MCA Fee Illustration
Skandia MCA Fees

Like the EWA, the main attraction of the MCA is that it has no minimum contribution period. This means investors can stop payments at anytime without penalty. This is why the MCA’s brochure cover claims that it is “a more flexible investment solution”.

The MCA & EWA Keep Brokers’ and Investors’ Interests More Aligned

Most ILAS products pay up to 30 years of commissions in advance. This leaves brokers with no incentive to care about the satisfaction of their clients. Once they’ve gotten paid for the work which they haven’t yet and likely never will perform, their primary concern is not about the fate of their client, but about the location of their next victim.

Commissions for selling the MCA and EWA are fundamentally different. They are paid to brokers on an “as premiums are paid” basis. This means a broker must ensure that his clients are satisfied with his quality of service. If his clients become unhappy, they can stop making contributions, and the broker will lose his commission stream. This incentive structure necessarily results in clients getting higher quality service from their broker.

Ironically, The “Best” Products Are Not Best-Sellers

As the “best” ILAS savings plans in Hong Kong, the MCA & EWA should be the most widely recommended, best-selling products.

Scandalously, public data shows precisely the opposite.

Royal Skandia Ranks Almost Dead Last

Data obtained from here, on the Insurance Authority’s website.

Notice how the worst finish first. Zurich International and Standard Life issue some of the most notoriously rotten ILAS products (Vista and Harvest 101), yet they are the most popular insurance companies among brokers. Sales of Skandia products are negligible.

The Entire Industry Has Failed to Perform Its Duty of Care

The above data indicates that the entire insurance brokerage industry has been systematically recommending ILAS products with excessive lock-ins in order to maximize commissions at the expense of clients. This means that nearly every broker in the city is guilty of professional misconduct, and hundreds of thousands of Hong Kongers have become unnecessarily trapped inside exploitative ILAS savings plans.

Because brokers have a legal duty to act in the best interests of clients, every one of these hundreds of thousands of victims would be justified in filing a complaint with regulators.

However, at the moment, complaints against insurance brokers are handled by PIBA and CIB, the industry’s self-regulatory bodies. Because the whole industry is guilty of misconduct, PIBA and CIB could not punish one broker without punishing nearly all brokers, probably including themselves. This is never going to happen, so filing a complaint with PIBA or CIB is utterly pointless.

Outside Intervention Is Necessary

Intervention by the Legislative Council, or perhaps a class action type of lawsuit, is the only hope that exploited investors have. Anyone interested in initiating such a lawsuit, please contact me.

Also, since brokers are clearly incapable of reining in their greed and selfishness, they are unlikely to stop their wickedness until the SFC bans abusive ILAS products, as it threatened to do last week. If the SFC doesn’t make good on its promise, then thousands more Hong Kongers will undoubtedly continue to fall victim to these heinous traps.

While urgently necessary, banning bad products is only a temporary and partial solution. The root of evil lies deeper than ILAS. Anytime one investment product pays a higher commission than another, brokers will have an incentive to sell that product. And as long as any investment product generates a commission, brokers will have an incentive to sell as much of it as they can, even if clients don’t need it. Thus, the only way to effectively deal with the problem of mis-selling is by banning commissions, as a growing number of countries are now doing. 

The SFC Must Draw a Line in the Sand on ILAS: Front-Loading Years of Commissions Is Unacceptable; Lock-In Periods and Exit Penalties Must Be Capped, Eventually Banned

South China Morning Post has continued its excellent coverage of the ILAS scandal. In the past two days, the paper has published two new articles about the latest regulatory developments:

SFC to step up oversight of investment-linked insurance

Insurers back rules on investment linked policies

According to the articles, the SFC issued a new circular telling insurers that fees should be “be set at a fair and appropriate level. Failure to comply would lead to a ban in offering such products.”

This sounds great, except for the fact that: “It would be subjective on how to determine [which] products…are unfair to investors.”

Unless the SFC issues concrete rules, and then punishes those insurers which don’t comply, the new guidelines are practically meaningless.

Insurers have already indicated that they have no plan to pull their most exploitative products off the market. They’ve implied this in one of their new guidelines soon to be issued by OCI:

“Sales people would be banned from selling 20-year or 30-year-long savings policies to retirees or older people.”

Insurers are merely agreeing to stop selling exploitative, dangerous products to old people (something they’re already not supposed to be doing), but they aim to continue selling these products to young people.

There’s no excuse for it. 20-year and 30-year savings policies should not exist. They are suitable for no one.

A 30-year policy just means 30 years of front-loaded commissions. It offers no value to investors, only to salespeople.

Here are my recommendations to the SFC:

1) Since most ILAS savings plans can be sold on a contract ranging from 5 to 30 years, immediately cap the lock-in period at the bottom of the range. In most cases, this would be 5 years.

2) Eventually, put a ban on all lock-in periods and exit penalties, but give insurers a reasonable amount of time to adjust. Let’s say 6 months.

3) Eventually, ban commissions as the UK has done. Give the industry 18 months to prepare (i.e., till Jan. 1, 2016).

4) In the meantime, ban IFA companies from accepting commissions. If they want to keep accepting commissions, then they must call themselves something else which clearly indicates they have a conflict of interests.

Whistleblower, Shawn Wong, Answers Questions about His Experience at Convoy Financial Services

The following questions and answers are based on 6 weeks of email exchanges, a lengthy phone call, and a couple of in-person meetings. Shawn asked me to correct his spelling and grammar mistakes, so I’ve done that. If you would like to ask Shawn more questions, you may submit questions via the comments section below. All questions/comments will be moderated.

Shawn, obviously you are pissed about the personal financial problems that Convoy has caused you, but your decision to speak publicly about it is motivated by more than just self-interest. Explain.

I hate personal inconveniences, but I hate injustice more. I want investors, fresh graduates and even the ones who want to work as financial planners, to be safe from the harm of this company and this product [ILAS].

How does one become licensed to sell ILAS?

A Convoy consultant is supposed to be a PIBA technical representative to sell ILAS, which requires 3 exams – Paper I, III, V. I only took 2 because my major in university was economics, and I got an exemption in Paper V. For me, the exams were really easy. I used a thin book of past questions (all multiple choice) provided by Convoy, and my preparation for each exam was no more than 3 days. The exams were taken online in a computer room, and one can choose questions to be in English or Chinese.

What educational qualifications does one need to get a license to sell ILAS?

The education requirement for the licence is: “has the minimum education standard of Form 5 or equivalent”. HK secondary school is 7 years. Form 5 means you’ve finished the 5th year. [10th grade.] You can check it out here : http://www.oci.gov.hk/download/minrev_20081001.pdf (page 19)

How often must employees go to the office at Convoy?

For the ones who have a base salary/allowance in probation, they have to go to the office and report to duty by 9:00/9:30 (can’t remember) during the first six months’ probation or their salaries will be deducted. For the ones like me who have no base in the probation, there is no need. Beyond that, there is no compulsory working hours in the office. So employees basically can go to the office only for training or signing of sold products and can choose to not go whenever they want.

How often did you go to Convoy’s offices? 

I just went there occasionally whenever I felt like going. I can’t recall what I did in the office…mostly just chill, I guess? Or tried to boost my sales skills by practicing or asking for seniors’ experience.

You said a lot of people selling ILAS are “aunties” and “grandmas” with a lot of spare time on their hands. Can you give me an idea of how many aunties and grandmas are at Convoy?

As I mentioned before, the entry barrier for this job is very low, and there’s no working hour requirements – easy for aunties and housewives to get on with. And you know it’s a sales job – aunties are quite good at doing “persuasive talk” to their knowledgeless peers. So I have no idea how many aunties there are, as they didn’t need to show in the office.

Did you meet any people at Convoy who were non-degree holders? How about fresh grads with no background in math, finance, or economics? 

Of course! I bet you still think this is a job with at least some technical skills required, as I once did. But it is not. It is a pure sales job. If you can sell products to ordinary people, then you are good.

How often does Convoy fire people?

Besides probation, Convoy basically does not fire people. Why should they? Their expense is basically zero, and they get pure profit from consultants’ sales. But I do remember there was a clause about the consultant needs at least one sale deal (don’t know if there’s any size requirement) within one period (about 15 or 18 months or something), or the employment will be terminated.

Why didn’t Convoy pay you a salary during your 6 month probation? Is this a regulatory violation?

The biggest loop hole is, all 2000+ (or at least most) Convoy consultants, who are actually frontline sales, are under self-employment contracts with Convoy. This type of employment is a long existing and highly debatable contract wildly used in the insurance industry in HK. So, I think not paying me a salary doesn’t violate current regulations. I believe this is the root of the reason why Convoy can stay safe from all kinds of obligations [when its employees engage in misconduct].

You took out a bunch of loans to support yourself during your “employment” at Convoy, and you are still paying them off. Did Convoy help in securing those loans? Or was that something you decided to do independently?

That was purely my decision, as my parents didn’t know I had no base salary, and I didn’t want to ask them for support even though I knew they would not hesitate to do so. My credit record is pretty good, so it’s quite easy to get installments from HK banks.

Can you clarify about when you started working at Convoy and for how long? When did start having problems with the commission clawback?

I lost my contract copy, so I can’t recall my exact start date. I started to work and train in Convoy around June 2010, but I didn’t sign the contract immediately. I think I signed it around August 2010. Later, my dad came for my graduation ceremony in Nov 2010 and signed the ILAS, and all docs were sent to Zurich by Dec 2010. The first payment was settled in Jan 2011.

I started looking for other job/money making opportunities around May/June 2011. I sent the official resignation by the beginning of Nov 2011 when I had gotten some freelances. After 8 months of payments, I was unable to make further payments (since they were partially made by my father and the rest by myself), and I was also determined that I would leave Convoy. So I asked my father to stop payments. But we didn’t plan to cancel the policy until Zurich sent me a letter after ~6 months or so and said the policy had lapsed. Then we started to realize the problem.

I received a call from Convoy in late May 2013. They told me they had sent a letter for commission clawback a few months before. I hadn’t received it, so I asked them to send it again. Then I sent them the first letter reply in early June 2013. There was not any response. Then I unexpectedly got a phone call from Milliken and Craig in March 2014. This is what pissed me off, and then I decided to break the silence and fight against every injustice Convoy forced on me.

Why did you leave Convoy?

I didn’t believe I had the “thick face” to sell ILAS to my relatives/friends and my parents’ friends while knowing that they didn’t actually need it. I also knew there was no way they would buy it if they had understood the clauses or knew that I didn’t understand them.

You said the brokerage licensing exam was easy. You also claimed that Convoy gave no training sessions explaining how the policies worked or how they were better/worse than other products or how to determine if ILAS, or a specific ILAS, was truly the best option for a client. Did you feel like anyone there actually comprehended how truly rotten these products are? Can you tell me a little more about the minimal training you got that was not related to sales? Was there zero quality control? No attempt to verify that employees had actually read and understood the policies? No one explained that the exit penalty is usually 100% during the ICP [initial contribution period]? This was not even a question on the PIBA exam? How are Convoy “consultants” able to answer questions posed by clients? Do they just make shit up?

Yes, Convoy only has sales-oriented trainings – How to talk to, warm call/cold call clients, how to find their potential needs and how to fire on it, and there are drills within teams to practice meeting clients. There are credit bearing trainings held by PIBA for some required minimum learning hours you have to attend for the license. These are quite general lessons about the industry and ethics, which did not talk about specific conditions or clauses of ILAS contracts. Knowledge about product details are from your own readings or what your supervisor teaches you. I don’t know of any attempt of Convoy’s for verification of knowledge. But I believe my whole small team at that time all had no clear understanding of the ICP, even my supervisor. (Yes, even now I still believe she did not trick me on purpose about this. She just did not have a clear clue either.)

You said Convoy didn’t make any attempt to educate you about the most important clauses and provisions of the ILAS policies you were supposed to be selling. Did they make any attempt to ensure you understood your employment contract?

When I signed the employment contract, no one ever pointed out that there might be any liability or obligation after resignation. And I don’t know why in “commission clawback”, the commission suddenly became “Loan due to Convoy” in their statement. There is a line about clawback in the contract and Convoy pointed it out the other day. It says:

“In the case that commission and/or remuneration received by the Company is subject to any kind of clawback or reimbursement clause(s), the Agent who received such commission and/or remuneration in whatever means and with whatever reasons shall be liable to the same clawback and reimbursement clause(s).”

I have nothing to argue about this statement, but to my understanding, since “commission clawback” is only “in the case that” and is not universally applied, when I was given the particular commission amount which is subject to a clawback clause, Convoy should be obligated to inform me by some means that this particular amount is under a clawback clause. But they didn’t, so didn’t know it was. So now I have this doubt about whether this “commission clawback” against employees has legal admissibility. I asked them a question about this in the email I sent just before they called me…

Can you explain some more about how Convoy is able to exploit mainland students, using their need for a work visa?

Mainland students are subject to “Immigration Arrangements for Non-local Graduates”, or IANG. The first year after graduation, we can stay in HK with no condition attached (no need to find a job), but we need a working visa afterwards until we stay here for 7 years. Convoy approaches fresh mainland grads, using their mainland employees to act as “mentor” and “friend”, plot the career in Convoy as warm, supportive, quick money, fast career path, self-fulfilling with extremely flexible working hours, and with working visa provided. And this worked for a young fool like me, and lots of other fresh grads. Even when I had not sold any products, their persuasions could still get me hypnotized to believe that probation was just a small barrier, a little more time is all I needed, a brighter future was right after it, and asking my parents to help at this point was totally worth it.

As I told you before, I was so stubborn and blindly believed I could have a very good income soon after I got on the right track (like my supervisor who supposedly got 600-700k in her first year). The original plan was, I’d have the Vista plan for mid-to-long term savings, and my father would help me with most of the first year payments, after which I should be able to make the payments by myself. But apparently things did not go my way. So I decided I had to cancel the policy when I realized there was no future in Convoy and I couldn’t afford it on my own.

You said fresh mainland graduates can work at Convoy for 1 year without Convoy sponsoring a work visa. But in order to stay at Convoy beyond the 6 month probation period, they need to sell $5 million in “business value”. Is this Convoy’s requirement or the government’s requirement? 

This is Convoy’s requirement.

Was the $5 million you sold to your father during probation needed to apply for a new work visa? 

For the 1st year IANG, there is no requirement. After that, we need a proper job for a “working visa”, which is still called IANG. A “proper job” means a proper company and a proper income. So Convoy needs me to get a sizable deal to show the Immigration Department that I can have proper income in the next 3 months (something like 10K+ per month, I suppose).

Do local HK employees also face a probation period? Do they have a minimum amount they need to sell to stay employed?

Yes, their probation is the same – total 5m – normally $2m for 1st half of probation, $3m for second half. But there are some probation extensions in case the tasks aren’t done in time. And they also have two contracts – with or without base salary in first 6 months.

How many non-Chinese employees (Western, Japanese, etc.) did you see at Convoy? Does Convoy make an effort to recruit them?

I didn’t see any. But Convoy’s 2013 annual report mentioned its expansion in Japan and South East Asia, so I bet they now may have some.

On the phone, you said Convoy will hire any mainlander that just graduated from university in HK, because Convoy knows their family must have financial resources, otherwise they couldn’t afford to study in HK. You also said Convoy exploits their need for a work visa. Does Convoy put special emphasis on hiring mainlanders because it earns more money from them? Does this lead Convoy to hire mainlanders indiscriminately, and as much as possible?

A bright outlook of money, ability to apply for visa, with extremely flexible working life as a bonus – this package could sound intriguing enough to lots of fresh grads from the mainland. When a senior starts to form his/her team, there is a quota of how many new hirings can have a contract with a base salary, and others can’t. When I started in Convoy, my supervisor was left with only one quota, and she spent tons of time persuading me to give the quota to another girl and sign the contract without base, given that I was unwilling to. Basically, she described the future, told me how much she believed in me, and urged me to take the faster path. (Commission rate and title ascend with the total business value one’s sold. And if under no base salary contract, then one can skip a 1.7% or 1.9% commission phase, I think, and move faster). So this means, Convoy’s yearly salary expense is pre-settled. It won’t cost them anything to hire more people, so why not? And mainland fresh grads – if they do it badly, Convoy doesn’t have much to lose; if they do it well, Convoy can get a lot of money from the big ILAS policies they’ve sold. As I said, ILAS sold to locals are usually only a few thousand a month, but the ones sold to mainland investors are mostly above 10k. Mainland employees can’t survive on small deals as they can’t get the same quantity that the local employees do. They have fewer contacts here.

Your supervisor encouraged you and your father to buy a $5 million “business value” ILAS to help you get past your probation. Which parts of the needs analysis forms and risk profile questionnaire did your supervisor falsify? For what reasons did she do this? Were any other parts of the documents falsified?

She taught me to designate myself as the life insured. My father was 60+, so it was unreasonable for him to sign a 25 yrs policy with himself as the life assured.

The income was exaggerated to meet the requirement for the large contribution.

The suitability declaration was taught by her.

In the Needs Analysis form:

  • Questionnaires were done by her to make it look like medium and higher risk tolerance.
  • Accumulative amount of liquid assets was filled in by her, which is I think just a random reasonable-looking number.
  • Financial Planning Analysis was done based on examples she provided.

All these were to make my father look like he had 1) sufficient income and assets, which are reasonable and not too much so that there’s no need for proof, 2) medium to high risk tolerance, and 3) determination to sign this policy.

Convoy uses multi-level marketing, a widely criticized and controversial business strategy. Did your supervisor get a cut of your commission? How much? Do you know the commission rate for all the higher levels of management? Is management ever responsible for the misconduct of employees under their supervision? It seems they could benefit financially from teaching their “team” to engage in misconduct, as a means of boosting sales. If so, are the “team leaders” shielded from any responsibility when one of their “team members” is caught?

She had a cut. But I don’t know the number, and I doubt Convoy can retrieve it from her since she might not live in HK now. I can’t really remember others’ rates, but it seems around 2.x%? or 3%? for associate director. You can check out the career path here: http://www.convoyfinancial.com/en_US/careers/careerspath. Consultancy Management Path is the more common one which means you will build your own team. Financial consultant path is where you don’t build a team and your commission only comes from your own sales. But I think the rate is higher than Consultancy Management Path for higher levels. As I mentioned, Convoy’s consultants are under “self-employment”. Convoy and the management is easily off the hook for any liability. Since Convoy’s compliance is very weak and there’s basically no internal control (at least I think so), there could be lots of stuff going on between consultants or external parties for more financial benefits.

Were you asked to recruit other mainlanders? 

Of course I was asked to promote Convoy and pay attention to whether anyone’s interested. And there were company tours for fresh grads, and we were asked to share our “success story” and experience to them. But I was at the lowest level, so I was not included in actual recruitments.

After looking at the ILAS applications of multiple Convoy victims, it seems to me that consultants just copy their Financial Planning Analysis out of a guidebook, because all the hand-written statements I’ve seen are identical. Can you tell me a little more about this guidebook? You said you copied the statement on your father’s application. It’s in Chinese, so I can’t read it. What does it say? 

I don’t know if there is a guide book, but the statement is definitely mostly copied from previous ILAS plans as examples. Translation of the “analysis” part in my father’s policy:

Financial Planning Analysis

IV: Financial Planning Analysis

Financial planning goal: Client is now 60 years old, hoping to have this as additional saving in addition to current retirement savings. Thus suggest him to invest in 25 years ILAS.

Affordability: Client’s annual salary is about HKD800,000, and can afford HKD17,000 monthly contribution.

Age consideration: Client chooses the 25 years product, and will be 85 years old by the end of the contribution period.

V: REMARKS Consultant reminded the client that the contribution period may not be finished when he’s retired. But the client pointed out he has the ability to finish the contributions and insist to apply.

(My father’s signature)

How do Convoy advisers decide which funds to recommend to their clients?

As far as I know, it is very common that “advisors” don’t have enough knowledge about the ILAS and related funds they sell. They usually keep several names of funds in mind which have different average returns but all have good track records, and recommend them to all potential clients – if the client is risk adverse, then they give him/her the one with a lower return. They don’t have sufficient knowledge about the market, the fund’s structure, the fund’s investment portfolio and risk level. Most of them just roughly check out the fund’s periodic factsheets (some responsible ones may check out ratings and basic analysis on sites like Morningstar), and as long as the track record is good, it will be listed in their recommendations. And as long as ILAS is one of the products they sell, no matter whether it is suitable or not, ILAS will always be the first thing they recommend to potential clients. How can it not be? – “Advisors/consultants” can get much more commission from this type of product.

Under the old regulations, ILAS illustration documents had to show average returns assuming 5% and 9% (it’s now 3%, 6%, and 9%), yet you said you and your friends at Convoy were given illustration documents which assumed average returns between 9% and 18% [created by Convoy, not by insurers]. You were trained to use these when pitching ILAS to new clients. Can you tell me a little more about this?

I, and all the friends I know who previously worked in Convoy, were taught to use 9% as some sort of “benchmark” safe rate for risk adverse investment illustrations. Usually the return in the illustrations and examples provided to prospective clients ranged from 9% to 18%. I don’t know about the “advisors/consultants” who target local investors, but I suspect this should be quite common. When I was in Convoy in 2010-2011, I didn’t know and wasn’t told by anyone whether there were any regulations on the return assumptions. My friends also didn’t know. The illustration I was taught was normally using 12% as an ordinary case, and also showed the prospective client illustrations from 9% to 18% as well. And the fund examples I was given to show client were also the ones with best returns. The “illustration” is basically an Excel worksheet for a particular ILAS with no fee details (at least not that I know of). The consultant only needed to fill in some conditions such as expected annual returns and years to maturity, then it will run itself.

Did you make any cold calls? Did you have a script to follow? Did you ever call people you know and introduce them to ILAS? What was that like? Do people at Convoy use social media, like Facebook, to advertise their “services”? What’s their other sales strategies?

Yes, I made cold calls (2 or 3 times) based on a list I was provided (it was surprisingly detailed) but mostly for practice since mainland employees are not usually doing business based on cold calls. And of course there were scripts, but now I can’t find any copies. I did introduce ILAS to people I know – not over the phone, but face-to-face when I went back to China – again, extreme flexible working life. I am not sure about the other strategies “consultants” use, but I believe they will use every tool available to do it. Calls, booths, social media, ads…

Did you ever hear anything about Convoy poaching staff members or clients from competing companies?

Yes, I think so. I, for example, did not make any application for Convoy’s job, but I got phone calls and was approached by them and they knew my background and current status. So I don’t know where they got my details. You mentioned that your friends have gotten these kinds of phone calls as well.

Also, when I was new in Convoy, newbies were provided contact lists to make cold calls (I got both locals and mainlanders) including contact names, phone numbers, address, occupations, some even had assets details (like how much their savings are, what kind of properties they owned, what kind of car they drive) and recent personal wealth management activities, if there is any. I know companies like Convoy can always get contact lists from suspicious sources, but I didn’t know the lists could be so detailed.

SwissPrivilege (a company similar to Convoy) has offered clients “free” exotic trips to places like Dubai, Africa, and Eastern Europe. To be eligible for these trips, clients first had to invest ungodly amounts of money in an ILAS policy. Did you ever hear of any “promotions” like that at Convoy?

There are cases I found from news that when meeting or cold calling clients, some Convoy consultants promised gifts upon meetings (like a free trip) but it was just a scam, and they did not give clients anything. And some claimed to be an “MPF agent” when making cold calls. But Convoy’s PR claimed these were all personal misdeeds, and Convoy strictly forbids this kind of misconduct, as always.

How was your commission calculated at Convoy?

Normally, a monthly contributed ILAS will have an 18 month ICP, and the consultant’s commission will be calculated by: his rate*monthly contribution*12*year to maturity. If the ICP is longer or shorter, then the commission will be adjusted with another coefficient (<1 or >1). Following are examples.

Assume: Commission rate is 1.9%. Policy is 10,000/month, 20 years. Coefficients are 0.8 and 1.2 for products of ICP of 12 months and 24 months respectively.

If ICP=18 months, commission=1.9%*10,000*12*20

If ICP=12 months, commission=1.9%*10,000*12*20*0.8

If ICP=24 months, commission=1.9%*10,000*12*20*1.2

You can see, the commission is totally based on how long investors’ money can be locked in.

Does Convoy disclose to its employees how much commission Convoy receives from the insurer? The new regulations require intermediaries to disclose ILAS commissions. Obviously, the client would want to know how much the insurer is paying in total to Convoy, not just how much Convoy passes along to the employee. Convoy itself has loads of interest conflicts which, as you mentioned, corrupts the way Convoy hires and trains employees. If intermediaries aren’t disclosing Convoy’s cut of the commission, then they’re arguably violating the regulations. But if Convoy is withholding this information from employees, it’s not the employees’ fault. Convoy is forcing them to violate the regulations, which means Convoy should be held accountable.

When I worked in Convoy, I was shown the commission rate for different positions along the career path to associate director. But I have no idea how much commission the company gets.

I agree it could be a violation now if the client doesn’t know the whole commission package for Convoy and all the related senior employees. But if it is not treated as a violation, then the regulators have created a big loop hole in the new regulations for Convoy to take advantage of.

How do Convoy advisers decide which ILAS policy to recommend to clients? Why did you buy a Zurich Vista instead of something else? I’ve met a large number of Vista victims, so it seems to me that this policy has been flogged harder than others. Do you know why?

Zurich Vista is a pretty standard ILAS in HK, given its standard 18 months ICP. For my case, all I wanted was an ILAS of $5 million “business value” for passing my probation, and Zurich has several selling points compared to others including a better company branding, “reasonable” annual management fee (maybe), a larger diversified fund pool, and good bonus. My bonus was 100% of ICP contributions. Sometimes the bonus can be approximately 120%, but this is changing periodically.

So, for a consultant, as long as the ICP and policy life span (or lock-in period) is confirmed, his/her commission is basically also confirmed. Then they can start to consider the client – amongst the several similar products, which one has slightly better or more attractive clauses for the client. Zurich Vista could be a “better” one for normal cases.

However, I do remember (but not clearly) that there are some clauses of Standard Life’s or Friends Provident’s that seem to be better for a policy with shorter life span, say less than 10 years. But obviously, the longer the policy is, the happier the consultant will be. So Zurich seems to be a more “attractive” one for a policy with longer life.

Some regular premium ILAS products are MUCH more flexible than others. In particular, I am thinking of Skandia’s Executive Wealthbuilder Account (EWA) and Managed Capital Account (MCA). Both of these products don’t have a minimum contribution period, which means clients lose nothing by suspending payments. The MCA only has a 5 year lock-in, and the EWA has no lock-in. It seems to me that brokers are violating their fiduciary duty when they don’t recommend these more flexible products, but instead recommend policies with massive exit penalties and 25 year lock-ins. 99% of people allegedly exit these policies early, and face a penalty. I was wondering, does Convoy have an agreement with Skandia? If so, why isn’t Convoy recommending Skandia’s regular premium products?

I know there were Skandia products in Convoy. I remember that they had some better clauses for investors, but it was never on the top list for consultants to sell, so I can’t recall the details.

Based on the features of the Skandia MCA, I do remember Convoy had this product, or at least something similar. But when calculating the commission, it will be much smaller. This is obviously something that a consultant only presents to a client when another ILAS hasn’t worked out.

Of course there are some regular premium ILAS products that offer more elasticity for investors like the Skandia ones you mentioned. However, more elasticity for investors means less financial benefits for insurers, so they give less commission to consultants. For products like the Skandia Executive Wealthbuilder Account, the consultant will not be interested.

In your letter to OCI, you mentioned that ILAS may be recommended to mainlanders as a way to launder money, protect assets, and avoid taxes. Can you explain some more about this. Why would someone in the mainland want to use it for these purposes? What is the tax rate on the mainland? Does there really end up being any tax savings after factoring in ILAS fees and the damage caused by reduced earnings from compound interest? I am curious to know if there is a rational reason for a mainlander to want to own one of these. If there is, I am certain it would only make sense to own a single premium, or something like Skandia’s Executive Wealthbuilder Account, which has no minimum contribution period and no lock-in.

ILAS basically allows people to put lots of money in it and packages it as an insurance product registered in some tax haven, such as Isle of Man. For mainland investors, Convoy makes them think this is a safe product and hard to trace. China’s tax system is still underdeveloped, so tax is actually not a major concern for them, but Convoy still likes to emphasize future possible needs for tax avoidance. Other reasons, which may not be “rational” (i.e., may not be valid, but Convoy makes investors think they are valid) include:

  • Eligible for Investment Immigration scheme
  • China may apply heavy inheritance tax in future
  • Saving for their children
  • Income/assets proof is not needed if contribution is not too large
  • Or simply: offshore, insurance appearance, hard to trace

Lots of mainlanders have this strong but blind belief in the Hong Kong financial industry, and think it is well-developed and well-regulated, and the products are way better than the ones in China. Of course there are investors who invest in ILAS with legit reasons and considerations. But the fact that lots of mainlanders want to put their money outside the country is not something new, and mainly because the source of their assets may be unlawful, especially for those who work for the government, it could be a major concern. So for them, safety is prioritized above liquidity and fees/costs. Convoy makes them believe ILAS is safe.

Why do they invest in regular savings ILAS products with long lock-ins? One reason is, they don’t know about the others. They only know what the consultant presents to them, since they live in China and don’t have a clear idea about the industry in Hong Kong. Regular payment is also something that has a lower entrance fee, looks easier for investors to accept and can generate the most commission. For instance, if an investor makes a 5m one time lump-sum in a plan with no lock-in period, then the business value for the consultant is 5m. If he makes a 1m one time lump-sum with 5 yrs lock-in period, the business value is 5m too. If it is ILAS, 17k/month, 18 months ICP, 25yrs, it only requires investors to put 17k*18=306k or 0.306m in the plan, and the consultant can have a 5m business value too. So, for the consultant, the most important thing is to let investors know that regular is better than lump sum (using something called Dollar-Cost-Averaging theory), and using legit or illegit wordings and techniques or diverting investors’ attention to ease their concern about the lock-in period and simply skipping it in their presentation.

How do you feel about Convoy calling itself the largest IFA company in Hong Kong?

I think one main argument about whether Convoy is a legit existence is the use of the name “Independent Financial Advisor”. Usually for a type of product like ILAS, most companies give the same commission to consultants, because of the products’ similar structures, which are 18 months ICP, and ICP contributions are completely locked in during the whole life span of the policy. Thus, Convoy always claims that it is indifferent when choosing which insurance company for clients, so that it can act completely for investors’ benefit, which is complete bullshit. For a real IFA, the bottom line is, there is not any sort of interest conflict between the advisor and the client. Thus, for most cases, the advisors are only compensated by the client for the service. However, for companies like Convoy, the interest conflicts are hidden. They play the wording game and fool people that they are an IFA and act only for investors’ good. Convoy likes to say something like “indifferent in choosing insurers”, but what Convoy does not tell clients is, it is only “indifferent” when choosing insurers if the commission is the same. So, what this means is, amongst all products, ILAS offers the highest commission, and as long as they can persuade clients to buy ILAS, it is “indifferent” when recommending different insurers’ similar ILASs.

What I don’t understand is, why have the government and regulators allowed them to use the term “IFA” to fool the public for so many years?

How should a Convoy victim structure a complaint or take legal action against Convoy?

They may fire against Convoy’s violation of code of ethics when dealing with interest conflicts and prioritizing its own interests over clients’ while claiming to be an IFA without further disclosure. I know for SFC regulated activities, these are all 100% misconducts. But for the insurance industry, which is mostly self-regulated by entities like PIBA, even though it may be morally wrong and violates the code of conduct, I doubt there is enforcement power over that. People in PIBA’s committee are industry players too. They won’t punish misconduct if it raises questions about their own behavior.

Convoy Financial Services, the Largest So-Called IFA Company in Hong Kong, Is a Colossal Fraud

IFA stands for “independent financial adviser”. The first thing you should know about Hong Kong’s largest IFA company is that it is not a legitimate IFA company.

The Definition of “Independent”

In order to be truly “independent”, an adviser must have no conflicts of interest when offering advice. This means one cannot accept commissions, because it creates an incentive to recommend products that pay higher commissions. One must also be licensed to offer advice on all products available on the market, so that one doesn’t have a bias towards recommending the only product that one sells.

In the UK, these preconditions for advertising oneself as “independent” have even been written into law. If one is not truly independent, then one must call one’s self “restricted”. And no one, not even restricted advisers, are allowed to accept commissions.

The Fiduciary Responsibilities of an IFA

As an IFA, one has a legal and moral responsibility to prioritize clients’ interests above one’s own interests. This means recommending products which accomplish clients’ investment objectives at lowest cost and lowest risk. It means giving unbiased advice and eliminating conflicts of interest. Convoy acknowledges this fact in its product application forms:

Unbiased Advice

Convoy Has Abused the Term “IFA”

Despite calling itself an “independent financial advisory” company, Convoy is not “independent”, and it doesn’t sell “financial advice”. It sells investment-linked assurance schemes (ILAS), a pseudo-insurance product which has become synonymous with the word “scam”.  For performing this disservice, insurance companies pay Convoy lavishly, via obscene commissions that have historically not been disclosed to clients (aka victims).

Convoy has been doing this for 20 years, and in most years, ILAS commissions accounted for nearly 100% of the company’s revenue:

Convoy's ILAS Commissions

Data obtained from Convoy’s IPO prospectus and annual reports.

The History and Usage of ILAS

ILAS originated in the UK. Most ILAS products are basically just fund platforms wrapped in a fake life insurance policy.

According to a British IFA (who wishes to remain anonymous), “the insurance wrapper was a very tax efficient way to buy investments when income and capital gains taxes were high. However, UK tax benefits were gradually removed, making ILAS less and less attractive for most UK residents.”

In other words, ILAS is and was primarily a tax savings product. Owning it is sensible only when the tax savings offset the extra fees. Over time, those tax savings have eroded to the point that ILAS is no longer sensible for most people.

The Majority of Hong Kongers Have No Good Reason to Own ILAS

The main reason for owning an ILAS product is to reduce or defer capital gains and investment income taxes. Because Hong Kongers aren’t required to pay these taxes, they have no good reason to wrap their funds in an insurance policy. It just adds an unnecessary layer of high fees.

Investing in funds directly, such as through ETFs or Fundsupermart, is far cheaper and simpler. A real IFA company would inform clients of this fact.

Convoy Has Historically Sold ILAS Almost Exclusively to Hong Kongers

Even though almost no one in Hong Kong should own an ILAS, Convoy shamelessly pitches it to everyone here. According to its IPO Prospectus, 98.2% of its customers were based in Hong Kong, as of Dec 31, 2009.

This statistic is damning, as it suggests that Convoy has offered bad, self-serving advice to the vast majority of its clients.

ILAS In the UK Today

Unlike in Hong Kong, where it’s rumored that self-regulated insurers and brokers collude to keep fees and commissions artificially inflated, the pricing of ILAS products in the UK is much more reasonable.

My British IFA source says that all investment products in the UK, including ILAS, are now sold at “wholesale” prices.

The high, opaque fees that were once used to secretly recoup commission costs have been eliminated, due to commissions being outlawed.

ILAS in Hong Kong: The Notorious “Savings Scam”

The most exploitative ILAS products in Hong Kong are often referred to as “savings plans”. (I call them “savings scams”.) They lock investors into payments for up to 30 years. The first two years of savings are not saved, but instead used to pay for decades of fees and commissions in advance. This is not disclosed to investors. Instead, it’s purposefully concealed using a deceptive fee structure and a phony account balance. If an investor terminates one of these plans early—as 99% of them do—none of the fees and commissions are refunded. Investors will lose up to 100% of their investment. The products are extremely dangerous, and a group of advisers recently called for them to be banned.

Because these products pay the highest commissions, they are flogged harder than any other ILAS product in Hong Kong.

“Savings Scams” Were Eradicated from the UK Market Decades Ago

My British IFA contact says that the most exploitative ILAS savings plans were eradicated from the UK market around two decades ago. He says the products “withered on the vine” due to tax changes and due to mandatory commission disclosure legislation introduced in 1995. In his opinion, it’s a scandal that these products continue to exist in Hong Kong.

Lucrative for Advisers, Toxic for Investors

Due to excessive fees and commissions, all ILAS products in Hong Kong are bad, but some are a lot worse than others.

The most toxic ILAS products are those with the longest lock-in periods. That’s because a longer lock-in period entails both a higher exit penalty and a much higher risk of suffering that penalty.

Perversely, a longer lock-in period also generates a proportionately higher upfront commission for advisers. If an adviser sells an ILAS with a 5 year lock-in, he will be paid 5 years of commissions in advance. If he sells one with a 25 year lock-in, he will be paid 25 years of advanced commissions.

It is therefore in investors’ best interest to buy ILAS products with the shortest possible lock-in period (and preferably no lock-in). At the same time, it is in advisers’ best interest to sell ILAS products with a maximum lock-in.

This misalignment of incentives is a massive conflict of interests, and, arguably, anytime an adviser recommends a plan with a lock-in that is longer than necessary, it is an act of theft.

Convoy Has Systematically Recommended the Worst ILAS Products

Since Convoy’s executives claim to be running an IFA company, which means they have a legal duty to prioritize clients’ interests above their own, they have no excuse for allowing employees to sell ILAS products with excessive lock-in periods. But they’ve allowed it anyway.

I have met and heard the stories of numerous Convoy victims, and without exception, all of them were sold a savings plan with at least a 20 year lock-in.

An ex-Convoy employee, Shawn Wong, confirms that it is standard practice for Convoy advisers to recommend maximum lock-in periods.

Public data also suggests that this is true.

According to Convoy’s 2010 IPO prospectus, nearly all of the products the company had been selling were issued by Zurich International, Standard Life, Friends Provident, and Generali International—four insurance companies which issue four of the most notorious savings scams: Zurich Vista, Harvest 101, FP Premier, and Generali Vision.

Conspicuously absent from Convoy’s list of top insurers is Royal Skandia, which offers the least dangerous ILAS savings plans on the market. The Executive Wealthbuilder Account, for example, has relatively low minimum contributions ($2,400 HKD), no lock-in period, and the fees are totally transparent. In those rare instances that ILAS is actually suitable for a client, any IFA who doesn’t recommend a product like this one, or at least mention it, is not doing his job.

Convoy Could and Should Be Sued Out of Existence

All evidence suggests that Convoy has screwed nearly every investor it has come in contact with and that it has shamelessly violated all the principles of its alleged profession.

I strongly believe that almost anyone—literally almost anyone—who has ever bought an ILAS product from Convoy could successfully sue them for breach of fiduciary duty. I aim to test this theory very soon.

Convoy’s Executives Must Be Held Accountable

Convoy Executives

From left to right: Mark Mak (CFO), Quincy Wong (Chairman), Rosetta Fong (CEO)

Quincy Wong, Rosetta Fong, and Mark Mak were three of Convoy’s largest shareholders until they dumped more than half of their stock 5 months ago. Why did they do it?

It’s hard not to suspect that they were motivated by a desire to lock in their ill-gotten gains—by transferring losses to public shareholders—before their company’s stock collapses under a pile of lawsuits.

As the architects and main beneficiaries of the evils perpetrated by their company, Convoy’s top executives should not be allowed to escape with millions of dollars as their company goes up in flames. Regulators, law enforcers, and the media should make sure that it doesn’t happen.

[Click here to view Convoy’s current stock price.]

The ILAS Scandal Intensifies: Ex-Employee Tells Regulators that Professional Misconduct and Incompetence Are Rampant at Hong Kong’s Largest IFA Company

Convoy Financial Services is facing another public relations nightmare.

This time, it’s not an outraged client. It’s an indignant ex-employee.

After being lied to, manipulated, and used as a tool for swindling his own father, Shawn Wong is fighting for justice by taking his story to regulators and the media.

Convoy Exploits Youth and Inexperience

According to Shawn, Convoy systematically recruits and exploits inexperienced fresh graduates, with special emphasis on those from the mainland, by taking advantage of their visa status, isolation from friends and family back home, desperateness to find a job, their naiveté, and their parents’ social networks (“guanxi”).

New Convoy recruits are brought through a training program that is focused 100% on sales and 0% on fiduciary duty, even though brokers are morally and legally obligated to be focused on just the opposite. In Shawn’s words:

“Convoy hasn’t initiated any training seminars regarding an insurance intermediary’s moral & ethical responsibilities, investor’s rights and interests, or important provisions and clauses of [ILAS] products. There are only sales skills oriented trainings, which cause their consultants to intentionally or unintentionally be driven by personal interests, violate professional ethics, and mislead investors [by misrepresenting products].”

In other words, Convoy cherry-picks people who have no investment knowledge. They’re too young to have had a job, so they’ve never had a chance to earn money and learn how to manage it. Convoy then rushes them through a short sales training program, which teaches them how to sell ILAS, an absurdly complex, dangerous, unnecessary, and often fraudulent investment product. Armed with no knowledge about the broader market of investment products, and little understanding of the products they are supposed to sell, these new employees are disingenuously designated as “independent financial advisers”. They are then pushed out the door with one instruction: SELL. They are given no salary. Any money they earn comes solely from commissions. This means, if they don’t sell, they will have to beg for support from their parents, or borrow money from a bank as Shawn did.

Cold Calling

Shawn says Convoy’s training sessions teach employees how to “talk to, warm call/cold call clients, how to find their potential needs and how to fire on it, and there are drills within teams to practice meeting clients.”

After this training, employees are provided with the highly personal and private data of potential victims, data which could easily be used to manipulate and abuse the poor schmuck on the other end of the line, who doesn’t know his data has been collected and auctioned off to scam artists. According to Shawn:

“When I was new in Convoy, newbies were provided contact lists to make cold calls (I got both locals and mainlanders) including contact names, phone numbers, address, occupations, some even had assets details (like how much their savings are, what kind of properties they owned, what kind of car they drive) and recent personal wealth management activities, if there is any.”

He was shocked by how detailed the information was, as was I, when he told me.

Pitching to Mainlanders

Being from the mainland, Shawn was trained to pitch to mainlanders, particularly those who might have obtained their wealth by illicit means.

“Convoy’s mainland employees are repeatedly taught to emphasize on ‘bonus’ [i.e., a promotion scam]…tax avoidance and ‘asset safety’. And interpretations regarding “asset safety” may involve illegal/improper income, or even money laundry.”

When asked to elaborate, he said: “ILAS basically allows people to put lots of money in it and packages it as an insurance product registered in some tax haven, such as Isle of Man. For mainland investors, Convoy makes them think this is a safe product and hard to trace.”

Conflicts of Interest

Shawn says the commission rates at Convoy are directly proportional to ILAS lock-in periods. This means the most dangerous ILAS products generate the highest commissions. Products which are less toxic and more transparent, i.e., those with no lock-in periods, are “never on the top list for consultants to sell.”

This means Convoy not only doesn’t educate its clueless young “advisers” about which products are better for clients, it also gives them an incentive to flog the worst of the worst products.

Shawn explains:

“more elasticity for investors means less financial benefits for insurers, so they give less commission to consultants. For products like the Skandia Executive Wealthbuilder Account, the consultant will not be interested.”

False Advertising

For this reason, Shawn thinks Convoy is being dishonest with the public by calling itself an “independent financial adviser”, or IFA, company:

“Convoy always claims that it is indifferent when choosing which insurance company for clients, so that it can act completely for investors’ benefit, which is complete bullshit.”

“what Convoy does not tell clients is, it is only “indifferent” when choosing insurers if the commission is the same.” 

“as long as ILAS is one of the products [advisors] sell, no matter whether it is suitable or not, ILAS will always be the first thing they recommend to potential clients [because advisors] can get much more commission from this type of product.”

“For a real IFA, the bottom line is, there is not any sort of interest conflict between the advisor and the client. Thus, for most cases, the advisors are only compensated by the client for the service.”

“What I don’t understand is, why have the government and regulators allowed them to use the term ‘IFA’ to fool the public for so many years?”

It’s a good question and especially salient given that this deceptive practice has been outlawed in the UK.

Shawn’s Story

Shawn says he never applied for a job at Convoy. The company somehow obtained his contact information, called him, promised a great future, and invited him to an interview.

Their pitch sounded convincing. His soon-to-be supervisor supposedly earned $600-700K in her first year alone. If she could do it, he thought he could too.

One of the hurdles every “Convoyee” must pass is a 6 month probation period, in which one must sell $5 million in “business value”. If the freshly minted “IFAs” aren’t able to do it, then they are sometimes encouraged to ask their parents to buy a $5 million ILAS policy, so that they may remain “employed”.

This happened to Shawn and a number of his friends and acquaintances. He says:

“Even when I had not sold any products, their persuasions could still get me hypnotized to believe that probation was just a small barrier, a little more time is all I needed, a brighter future was right after it, and asking my parents to help at this point was totally worth it.”

Shawn’s father came to Hong Kong in November of 2010 for his graduation ceremony. During this trip, his father had a long, private discussion with Shawn’s supervisor at Convoy. After the meeting, his 60-year-old father signed the paperwork for a Zurich Vista plan, which obligated him to pay $17,000 HKD per month for the next 25 years ($5.1 million total). The plan was obviously unsuitable for someone of his father’s age, so Shawn’s supervisor coached Shawn to fill out the paperwork in a way that wouldn’t send up any red flags when it was being processed. This included lying about his father’s income to make it seem as if he could afford the policy, even though he couldn’t.

Perhaps Shawn’s supervisor was genuinely interested in seeing him succeed, but there was more at stake than just Shawn’s future. Because Convoy is set up like a giant pyramid scheme, his supervisor would receive a cut of the commission generated by the $5.1 million policy sold to his father. Presumably his supervisor’s supervisor’s supervisor’s supervisor would also get a cut.

SCMP recently reported that insurance companies pay brokerage companies a commission equal to 4.2% of the business value of regular premium ILAS products. This means Convoy likely received a total commission of $214,200. Shawn said 1.5% was passed along to him ($76,500). The remaining 2.7% ($137,700) would have been split up between the company and its senior management—an excellent return on investment, considering that Convoy paid Shawn no salary.

Because Convoy did not disclose it, Shawn was not aware that Convoy’s cut of the commission would be so large—nearly twice as much as the amount he was given. This massive commission would ultimately come out of the first 18 months of payments into the Vista policy (meaning these payments were flushed down the toilet, irrecoverable), but neither Shawn nor anyone who buys the policy knows this, as it’s not disclosed in the policy documents, and it’s well-hidden by obfuscatory fees and deceptive accounting.

Shawn remained “employed” at Convoy for more than a year, until he finally realized it was impossible to earn a living there without violating his own sense of right and wrong. He says:

“I didn’t believe I had the “thick face” to sell ILAS to my relatives/friends and my parents’ friends while knowing that they didn’t actually need it. I also knew there was no way they would buy it if they had understood the clauses or knew that I didn’t understand them.”

Moreover, he was trained to present ILAS as a means of “some sort of tax avoidance/evasion or capital flight from mainland China. Refusing to apply these potentially misleading sales methods is one of the reasons for my unpleasant performance in Convoy.”

Shawn finally quit.

“After 8 months of payments, I was unable to make further payments (since they were partially made by my father and the rest by myself)…So I asked my father to stop…But we didn’t plan to cancel the policy until Zurich sent me a letter after ~6 months or so and said the policy had lapsed. Then we started to realize the problem.”

The problem was that none of the $136,000 they paid into the so-called savings plan was really saved. It was pocketed by Zurich and Convoy.

Because Shawn and his father had not made at least 18 months of payments (known as “initial contributions”), Zurich would claw back a percent of the commission paid to Convoy, which means Convoy would claw back a percent of the commission paid to Shawn. Shawn’s clawback amounted to $42,900.

“I received a call from Convoy in late May 2013. They told me they had sent a letter for commission clawback a few months before. I hadn’t received it, so I asked them to send it again.”

Shawn received it and replied, explaining how he was manipulated, poorly trained, and encouraged to use unethical sales methods.

“Based on, but not limited to, mentioned facts, I hereby demand to be free of any obligations to Convoy…In exchange, my father and I will surrender our rights to claim the corresponding premiums paid in the ILAS plan mentioned above. Otherwise, as a financial media professional, I have no choice but to use my resource righteously to protect my interests, and reserve my rights to take further legal actions for my loss.

Please inform me of your decisions by mail, or email”.

Convoy never replied to Shawn. Instead, nearly one year later, he was contacted by a debt collection firm.

“I unexpectedly got a phone call from Milliken and Craig in March 2014. This is what pissed me off, and then I decided to break the silence and fight against every injustice Convoy forced on me.”

The Necessity of Speaking to the Media

Shawn’s father wrote a complaint letter to Zurich. Zurich responded that it had done nothing wrong and referred the case to Convoy.

Certain that Convoy would also claim no wrongdoing, Shawn wrote a letter to the Insurance Authority:

“Convoy’s representative told me clearly, that in past cases dealing with similar complaints, Convoy has NEVER made the compensations…this statement made me very worried that, in Convoy’s ‘internal investigation’, no matter right or wrong, as the power of Convoy and individual investors are unequally matched, investors’ rights and interests were always trashed.”

Shawn was given the impression that Convoy would treat his case as a personal act of misconduct on the part of his supervisor. His supervisor would be contacted, and if she didn’t want to pay back Shawn and his father, then Convoy would do nothing. Case closed.

Shawn doesn’t believe that pinning all the blame on his supervisor is right. He thinks the root of the problems lies much deeper. It stems from the way Convoy recruits people with no experience, neglects to give them the proper training required to perform the duties of the profession, and instead drills and incentives them to sell at all costs, utilizing morally dubious tactics.

Shawn says:

“I believe my whole small team at that time all had no clear understanding of the [initial contribution period], even my supervisor. (Yes, even now I still believe she did not trick me on purpose about this. She just did not have a clear clue either.)”

Shawn is not hopeful that Convoy will admit any responsibility. He also thinks filing complaints with regulators will lead nowhere.

“I know for SFC regulated activities, these are all 100% misconducts. But for the insurance industry, which is mostly self-regulated by entities like PIBA, even though it may be morally wrong and violates the code of conduct, I doubt there is enforcement power over that. People in PIBA’s committee are industry players too. They won’t punish misconduct if it raises questions about their own behavior.”

Shawn believes he has been left with no choice but to turn to the media. This is the reason he contacted me and welcomed me to publish his story and his documents. It is also the reason he recently sat down for an interview with a journalist from South China Morning Post.

11 days ago, Shawn invited that journalist to accompany him to a meeting at Convoy, in which Shawn was supposed to negotiate a possible settlement. Shawn did not warn Convoy beforehand that the journalist was coming, as he suspected Convoy would refuse to accept his presence.

Shawn’s premonition was correct.

“They refused to talk, as anticipated. I think that legal compliance dude was shocked. And a little pissed.”

So, instead of meeting as planned, Shawn handed the legal compliance worker a letter which he had written beforehand. Shawn told him:

“I can’t attend without a witness and don’t believe my best interests can be protected if I talk to you legal guys by myself.”

Shawn’s letter outlined the possible ways that he would be willing to settle. Shawn requested that Convoy answer within seven days, by May 15.

On May 16, Shawn had not yet received a response, so he called Convoy and asked why. They said they had mailed a response letter the day before, so it probably hadn’t arrived. But then, a few hours later, Convoy called Shawn again and said no, actually, they hadn’t mailed the letter yet. They’d mail it later that day.

Now, it is May 19, and Shawn still hasn’t received a response.  I asked Shawn if he wanted me to wait to publish his story.

He said, “Go ahead. They’ve brought this upon themselves.”

Shawn Wong’s Complaint Letters, Plus Supporting Documentation

Shawn’s Complaint Letter to the Office of the Commissioner of Insurance (13th April 2014)
English Translation in Red, Translated by Shawn

Complaint to OIC-page-001

Complaint to OIC-page-002

Complaint to OIC-page-003

Complaint to OIC-page-004

Complaint to OIC-page-005

Complaint to OIC-page-006

Shawn’s Father’s Complaint Letter to Zurich International (20th March 2014)
English Translation in Red, Translated by Shawn

My father s 1st complaint email to Zurich-001

My father s 1st complaint email to Zurich-002

Shawn’s Complaint Letter to PCPD (30th April 2014)

Conplaint email to PCPD

Complaint Form to PCPD

Shawn’s First Letter to Convoy (June 2013)

1st Letter to Convoy

Shawn’s Second Letter to Convoy (11th March 2014)

Second Letter to Convoy redacted and resized

Shawn’s Email Response to Convoy (April 30th, 2014)

Commission Clawback Statement

Convoy Clawback Statement redacted

Zurich Vista Policy Application

 

Email Exchanges Between Shawn and Milliken & Craig (10th March – 1st April 2014)

Part 1

Part 2

The Most Evil Insurance Companies in Hong Kong

In a famous Rolling Stones article, Matt Taibbi called Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

That perfectly describes most, if not all, of the big multinational insurance companies operating in Hong Kong.

It is probably not possible to precisely determine which of them is the most evil (past or present), but I have ranked them in a few ways that can give us a rough approximation.

The Most Evil Insurance Companies in Hong Kong (2013)

I created the above chart using 2013 provisional data recently released by the Insurance Authority. 

The reason I chose to rank insurers by regular premiums, as opposed to single premiums, or total premiums, is because regular premium products are typically far more fraudulent, exploitative, and profitable to insurance companies. They are often marketed as “savings plans” and are mainly sold to people who have little or no savings, i.e., the people who can least afford to be scammed.

Some insurance companies openly admit that they focus most of their energy on selling regular premium ILAS products because these products have the highest profit margins. For example, in a recent article in International Adviser, Royal London 360° says it abandoned the low-margin UK market—where abusive regular premium ILAS products have been outlawed—and has shifted its focus to selling these ripoff products in poorly regulated regions where they are still legal, i.e., Asia and the Middle East.

(Outlawed ILAS products include, but are not limited to, those with a 25 or 30 year lock-in and an initial contribution period of 18 to 34 months. The lock-in exists primarily to recoup massive upfront commissions. Commissions are illegal in the UK.)

The following chart was created using 2012 annual data and ranks insurers by the number of regular premium products they sold in 2012 (i.e, by the number of victims they generated). At the right side of the chart, insurers are ranked by the amount of premiums they collected from selling these products.

The Most Evil Insurance Companies in Hong Kong (2012)

The last chart was created using another set of 2012 data. It ranks insurers according to how many ILAS policies they have sold throughout history (both regular premium and single premium). This chart only captures polices that are still in-force, i.e., ones that haven’t matured or been terminated

The Most Evil Insurance Companies in Hong Kong (Historically)

NOTE: I haven’t evaluated all 265 ILAS products that have been authorized in Hong Kong, but I have evaluated enough of them to know that some policies are much worse than others. Therefore, the charts above are imperfect, as they only indicate which companies sell the most policies, not which companies sell the most exploitative policies. What this means is that, just because Company A sells more policies than Company B, it doesn’t necessarily mean that Company A is more evil than Company B. However, in most case it probably does mean that.

Insurance Jargon Explained

I asked the Insurance Authority to clarify on few unfamiliar terms. I was told that:

“Net liabilities” means the policy reserve set aside by the insurer before reinsurance as at the end of the financial year.  The policy reserve will include the amount provided for the value of the units held for policy holders and the amount required to be provided for claims and expenses, etc. 

“Office premiums” means (a) for policies with the single payment of premium, the premiums paid by the policy holders during the financial year; or (b) for policies with regular mode of payment, the annualized premiums of the policies.  

“Revenue premiums” means the premiums paid and payable to the insurer during the financial year. 

According to Dictionary.com, annualize means “to calculate for or as for an entire year”.

So, in the Insurance Authority’s annual data, a regular premium policy sold in December shows up as 1 month of “revenue premiums” and 1 year of “office premiums”.