Nearly 10 years ago, ILAS savings scams had already caused so much devastation that one conscientious financial adviser decided to take the time to write an entire book on the subject. The book is titled “The Great Expat Financial Planning Rip-Off“. The adviser’s true identity is a mystery, but he calls himself “Hugh Stevenson”.
In the preface of his book, Mr. Stevenson calls ILAS savings plan “a worldwide scam of breathtaking proportions”, so large that it would make the “infamous Nigerian scammers green with jealousy.”
On his website, he says that one aim of his book is to establish “an information base that could be used in future by expatriates and their legal representatives in seeking compensation for bad advice and/or unsuitable product sales.”
Lack of Regulation
In a chapter on regulation, Mr. Stevenson claims, “experience in countries such as U.K., U.S.A., Australia, Hong Kong, has shown that this is an industry incapable of self-regulation and governmental authority in some form or other is needed.”
He suggests that the root of evil is “indemnity commissions”, i.e., “the system by which the insurance company calculates the total commission that will become due over the life of the policy whether that be 5 years, 10 years, 25 years or any other number of years…then pays that full amount to the salesperson at the outset of the policy.”
Mr. Stevenson believes that if indemnity commissions were banned, “the offshore financial services industry would change overnight.”
“It is the lure of these quick, big payments that brings the ‘cowboy’ salespeople into the industry. They would not hang around long if indemnity disappeared and they had to settle down to create a practice based on the principals of providing good service and efficient administration in return for a reasonable reward.”
“Such a measure would effectively do away with Contractual Savings Plans. Good riddance to them but no doubt the Offshore Insurance Companies would disagree with that.”
Contractual vs. Non-Contractual Plans
Mr. Stevenson divides ILAS savings plan into two categories: “contractual” and “non-contractual”. The contractual ones pay indemnity commissions and slam investors with extortionate penalties for terminating the policy early. Non-contractual plans pay commissions to advisers on a month-by-month basis and have no exit penalty. The two products are essentially the same, except in the way they remunerate advisers and penalize investors.
Mr. Stevenson says, “it is difficult to see how any expatriate saver, having heard the enormous differences explained, would opt for a contractual plan.”
They almost always end in disaster.
“Reliable sources within several [offshore insurance] companies say that the average time for which contributions are maintained is 7.2 years. That means that every time a client is persuaded to sign up for 10, 15, 20, 25 years or whatever, the strong probability is that the payments will be maintained for little longer than 7 years. They, the companies, know it and your financial advisor knows it but both go to great lengths to persuade you to take the long-term route.”
When Mr. Stevenson first wrote his book, most insurance companies offered both contractual and non-contractual savings plans. By the time he updated his book in 2011, every insurance company had eliminated its non-contractual plans, except for Royal Skandia.
“Why have the Non-contractual Plans been removed? It’s a pretty safe bet that is because advisors seldom or never advised clients to take advantage of them.”
“The only remaining offshore insurance company plan that should be considered for either retirement planning or medium/long term savings is; ROYAL SKANDIA MANAGED CAPITAL ACCOUNT via monthly or quarterly contributions. All other Contractual Savings Plans are not simply ‘worst buys’ they are disastrous.”
“To their everlasting credit there are large and influential insurance companies who refuse to be tempted into the ‘offshore savings/ retirement plan’ scam despite the fact that it could be very profitable for them…One such British insurance company, on being asked by its salespeople why they did not have a contractual savings plan to offer overseas clients, gave a reply that sums up this book in a nutshell. The reply was simply ‘because we do not believe in swindling people’.”
The Great Expat Ripoff Is Now the Great Chinese Rip-Off
Mr. Stevenson titled his book The Great Expat Financial Planning Rip-Off because 10 years ago, ILAS was primarily an expat problem. No more. In Hong Kong, because regulators and legislators have persistently ignored the exhortations of people such as Mr. Stevenson, ILAS has now become a Chinese problem. Consider the following:
Decades of data shows that more than 2 million ILAS saving plans have been sold in Hong Kong over the past 14 years.
According to SCMP, in 2012 an industry insider estimated that 75% of investment products sold to Hong Kong retail investors were ILAS products.
The largest so-called IFA company in Hong Kong—Convoy Financial Services—is a Chinese company. It’s so big it is listed on the Hong Kong stock exchange.
Nearly 80,000 people (about 1% of Hong Kong’s population) are currently licensed to sell insurance. A very large portion of them presumably sell ILAS.
ILAS Savings Plans Should Have Been Pulled Off the Market in 1984 — Three Decades Ago!!!
Mr. Stevenson devotes a chapter to explaining why the ILAS industry has historically been so British based:
“The primary reason is quite interesting. Until 1984 the British government, sensibly, encouraged people to insure their lives by giving tax relief (15%) on their life insurance premiums. Smart life insurance companies exploited this by cobbling together savings plans that only just managed to meet the criteria for classification as life policies.
Investing through such plans was a good deal for the investor. Where else could he get a 15% discount on investments into Unit Trusts, Savings Plans, Property Funds and the like? Even the extortionate charges built into these savings plans were masked and often outweighed by the 15% discount.
At midnight on 13 March 1984 all that ended. The privilege of tax relief on life insurance premiums was withdrawn. From that moment ‘Insurance Linked Savings Plans’ became a poor investment medium because of the huge built-in, largely hidden, charges. Probably these products should have disappeared from the scene.”
However, they did not disappear. Instead, they flourished. There was too much money to be made at the expense of uninformed, gullible investors.
“Eventually the abuses became so great that the [British] government stepped in; the Financial Services Authority was established, given teeth to catch the onshore ‘cowboys’ and has largely done so via effective legislation. That legislation does not apply to offshore activities.”
Thus, the cowboys moved to places like Hong Kong.
How to Get a Copy of the Book
Hong Kong regulators, legislators, ILAS policyholders, and anyone else who cares about justice ought to read Mr. Stevenson’s book.
It is available at: http://www.the-great-expat-financial-planning-ripoff.com/
Towards the bottom of the webpage, you’ll see a “Buy Now” button. If you click on it, you’ll be taken to PayPal. The book costs about $15 USD. After paying, you’ll see a link that allows you to download a pdf copy of the book.
The book is 66 pages long, and it only takes a few hours to read. Here is its table of contents:
I bought the book last Thursday (June 19). I emailed the author after I finished reading it, but he hasn’t replied yet. I sincerely hope he will consider updating/translating his book for consumption by a Chinese audience.
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