I left a comment at the bottom of the article. Do not overlook the other comments, especially Martyn Terpilowski’s.
I will say more later, but I am on holiday right now and have limited internet access and limited time to write.
I left a comment at the bottom of the article. Do not overlook the other comments, especially Martyn Terpilowski’s.
I will say more later, but I am on holiday right now and have limited internet access and limited time to write.
On Sunday, the South China Morning Post published a letter written by former Singaporean Presidential candidate, Tan Kin Lian. If you don’t know who Tan Kin Lian is, read this blog post.
In his letter, Tan Kin Lian says:
“I support the view that the legislation in Hong Kong should require the insurers and intermediaries to act in the client’s best interest.”
And most notably:
“If this approach is too problematic, the legislators should consider taking the approach of the United Kingdom and Australia, which ban the payment of commission for life insurance policies that are taken primarily as an investment vehicle.”
You can read the full letter HERE.
After working in the insurance industry for 30 years and witnessing rampant exploitation of consumers, Lee Faulkner’s conscience couldn’t take it anymore. He finally quit.
He explains why in a letter published in the South China Morning Post yesterday. You can read the full letter here:
These are a few of Lee Faulkner’s best quotes:
“The insurance industry worldwide limps from one mis-selling scandal to another because it looks after its own interests first and consumers’ second. It preys on customer ignorance and designs policies that are incredibly difficult for most people to understand.”
“Most Hong Kong-based regional players are now focusing on plying their trade in markets with poor consumer knowledge, weak regulatory structures and inadequate enforcement agencies, all similar to the ways the tobacco industry operates.
First-year policyholder lapse rates (proportion of policyholders who cancel policies in the first year) are a good indication of how well insurers really look after their clients’ best interest – lapse rates in these new markets are nothing short of horrifying.”
Section 34 of Singapore’s Competition Act “prohibits…concerted practices, which have as their object or effect the appreciable prevention, restriction or distortion of competition within Singapore”.
This didn’t stop Singapore financial advisers from banding together last year to crush a competitor that dared to give consumers cheaper, more transparent insurance.
Fundsupermart Shakes Up the Life Insurance Industry
Singapore’s leading do-it-yourself fund platform, Fundsupermart, is well-known for modernizing the unit trust distribution system and driving down costs for consumers. The company enables anyone to buy and sell hundreds of different funds without being forced to pay upfront commissions to unneeded financial advisers.
On April 30 last year, Fundsupermart attempted to do for life insurance what it had done for unit trusts.
Initially, Fundsupermart would offer consumers a selection of products from three different insurers, and it would rebate 50% of all commissions. The savings passed on to consumers was enormous.
“On a posting on its website, the company said consumers could save $2,000 on a $1 million term plan. The savings for a $1 million whole life plan could be more than $20,000.” [Source]
More impressive than the savings was the transparency. For the first time, many consumers could easily compare the features and prices of competing insurers’ products, and they could also plainly see that the commission for selling whole life insurance was literally ten times higher than the commission for selling term life—even though selling either product requires the same amount of time and work.
Normally, the size of insurance commissions are deliberately hidden from consumers, embedded within complex fee structures that are difficult for most people to understand. This allows insurers to use massive commissions to incentive advisers to flog the most lucrative, low-value products (such as whole life and investment-linked policies) while hindering consumers from realizing that they are being misadvised, manipulated, and milked.
Fundsupermart’s unprecedented transparency and super-competitive pricing threatened to undermine the insurance industry’s way of doing business.
The Industry Strikes Back
Fundsupermart’s game-changing insurance platform did not last long. According to a series of articles in the Straits Times:
“four days after launching it on April 30, Fundsupermart took down the offer, and has stopped selling insurance products since. The original posting on the website was also removed.
The reason? The move had sparked off unhappiness among industry players who saw it as a price war tactic.”
“The chief executive of iFast Financial, which owns Fundsupermart, Mr Lim Chung Chun, cut straight to the bone when asked why he took the offer down.
He told The Straits Times that a sizeable number of players wanted to keep ‘the status quo’.” [Source]
Opponents included the IFA industry’s largest representative body:
“The Association of Financial Advisers (Singapore) said in an e-mail statement that when the advertisement was published on Fundsupermart’s website, the association expressed its members’ concern to Fundsupermart, “noting that the tone and language used in its postings could be detrimental to the reputation and professionalism of other financial advisers”.
The industry body, representing nearly half of the financial advisory firms here, added: “We are glad that it has taken our views into consideration and has decided to withdraw the advertisement.” [Source]
This large alliance of financial advisers was able to strong-arm Fundsupermart out of the insurance business by threatening to choke off its unit trust business:
“Fundsupermart…derives a large part of its business from financial advisers who help their clients to buy unit trusts from Fundsupermart’s site.
Should the disgruntled financial advisers choose to go to competing portals, a huge chunk of Fundsupermart’s business would be lost.
That’s one reason why Fundsupermart gave in to the demands of independent financial advisers who believed that Fundsupermart was trying to eat into their lunch – selling insurance products at a cheaper rate and halving commissions too.” [Source]
Mr. Lim vaguely confirmed this in a statement to customers published on the Fundsupermart website:
A sizeable number of players essentially want to protect the status quo, especially if they have a limited number of products, or just insurance products, to sell.
When Fundsupermart put up its online insurance offering, iFAST started to get very adverse reactions from certain segments of the insurance industry. While we had expected some negative reactions, the actual reactions were far stronger and far more emotional than anticipated. The emotional reaction from just a segment of the industry snowballed into a major issue in the wealth management industry. As the leading platform, iFAST is acutely aware that the emotional reactions may translate into some substantial business disruptions for many companies, including ours.
We decided that given the emotional response from certain parts of the insurance industry, and given the non-readiness of a number of industry players, it is best that we stop our online insurance offering. I apologise to Fundsupermart customers for disappointing some of them.
The scandal was disappointing not just to Fundsupermart customers, but to all Singaporeans, who were robbed of the benefits of transparency and healthy free market competition, which should have forced the industry to become more efficient, and thus made insurance prices lower for everyone.
One Year Later
Insurance fees and commissions remain artificially inflated, and the industry is still unfairly profiting at the expense of Singaporeans.
Regulators don’t seem to be doing anything, and the media has apparently forgotten.
Concerned citizens should be asking, “What, if anything, has the Competition Commission of Singapore (CCS) done to stop unethical anti-competitive practices in the insurance industry?”
The CCS can be contacted at (firstname.lastname@example.org).
Response from iFAST CEO on recent Forum Letters published in The Straits Times (Fundsupermart – May 21, 2013)
The ‘price war’ that never took off (Straits Times – June 18, 2013)
Online insurance offer axed after gripes (Straits Times – March 15, 2013)
Fundsupermart’s insurance rebates: All policy inquiries will be seen to (Straits Times – May 24, 2013)
Fundsupermart sells insurance now! Rebates 50% of commission back to you (Investment Moats – May 1, 2013)
Explain why online insurance offer was axed (Straits Times – May 15, 2013)
LIFE INSURANCE BUYERS DEPRIVED OF HUGE SAVINGS! (The Real Singapore – May 17, 2013)
FAQs About Fundsupermart’s Insurance Commission Rebate (Fundsupermart – April 16, 2013)
Convoy—Hong Kong’s largest pseudo-independent financial advisory firm—hit a record intraday low of $0.93 on Friday. The only other time the stock has been near these levels was two years ago, shortly after the Jeremy Hobbins lawsuit threatened to wipe out the entire “I”FA industry.
The Hobbins Lawsuit Revisited
Part 1: Bribery
Hobbins pointed out that massive, undisclosed ILAS commissions violate Hong Kong’s anti-bribery laws. The judge, Anselmo Reyes, disagreed.
He said as long as the commissions weren’t significantly larger than what was normally paid in the “insurance market”, then the commissions did not amount to bribery. Reyes’ logic was flawed because none of the ILAS products sold to Mr. Hobbins were genuine insurance products—they were all investment products. Consequently, Reyes should have asked whether the commissions were larger than what was normally paid in the broader “investment product market”. If he had done this, then he would have been forced to conclude that the entire “I”FA industry was guilty of bribery, because ILAS commissions are multiple times higher, sometimes hundreds of times higher, than commissions paid for selling competing and far superior investment products.
Part 2: Breach of Fiduciary Duty
Hobbins also argued that by not disclosing how stunningly massive the commissions were (nearly $1 million USD for a single transaction!), Clearwater, his “I”FA, had breached its fiduciary duty. Once again, the judge disagreed.
Although Clearwater did not disclose the amount of commissions it would receive for selling ILAS products to Mr. Hobbins, it did disclose that it would receive commissions. This disclosure was buried somewhere in the mountains of papers that Mr. Hobbins signed.
The judge claimed that this partial commission disclosure by Clearwater was just barely enough to “discharge its obligation as fiduciary”.
In response to this jaw-dropping judgement, a fee-based financial adviser remarked, “What the hell is Hong Kong’s idea of ‘fiduciary’ duty?? Fiduciary duty means a legal obligation for the IFA to put the client’s best interest ahead of their own. On what planet could an ILAS ever be construed as in the client’s best interest?!”
Clearwater emerged unscathed, but there was no guarantee that the next target of an ILAS lawsuit would be as lucky. Insurance regulators scrambled to cope with a rising tide of negative publicity.
For months, they deliberated over whether or not to start mandating full commission disclosure. Some feared that the industry might face another legal crisis involving not just lawsuits but investigations by the Independent Commission Against Corruption (ICAC).
During this period of regulatory uncertainty, Convoy’s stock spiraled downwards, going as low as $0.95. Insiders voiced fears that full commission disclosure would destroy sales of ILAS—the primary source of Convoy’s revenue. They correctly reasoned that no informed consumer would be willing to pay well over a year of savings for biased, unprofessional advice and access to a costly, inflexible “monthly savings plan”.
Out of self-interest, the “I”FA industry vehemently opposed full disclosure. Regulators, as usual, gave them exactly what they wanted.
They decided to mandate partial disclosure, the bare minimum that had saved Clearwater from legal repercussions but had failed to protect Mr. Hobbins from falling into a trap. In other words, the new rule was just enough for “I”FAs to cover their asses legally while still preserving their ability to easily exploit the trust of clients.
The industry breathed a sigh of relief. Convoy’s stock eventually recovered, suspiciously rocketing after a placement of questionably-priced warrants.
Independent Insurance Authority Reignites Fears of Doom
For the past couple of months, Hong Kong’s legislature has been debating a new law that will set up an independent regulator to replace the current self-regulatory system.
Players in the industry have been shitting themselves. Last month, South China Morning Post published an article entitled, “Forced disclosure clause in draft insurance bill could kill industry, insiders complain“.
These fears have caused Convoy’s stock to plummet back to post-Hobbins levels. It remains to be seen whether or not the fears are justified.
Falling Knife or Coiled Spring?
Convoy’s stock could sink like a stone towards zero, or it could snap back to $2.00 or more in a short period of time.
No one can know for sure. The answer depends on a few variables.
In other words, will justice prevail?
If not, then it’s business as usual, and Convoy’s shareholders will profit at the expense of ripped off consumers.
If justice does prevail, then Convoy will be fined and/or sued into oblivion, and shareholders will lose everything.
Personally, I am rooting for justice.
Peter Tam is Chief Executive of the Hong Kong Federation of Insurers, the industry’s self-regulatory body. On Monday, SCMP published his response to Enoch Yiu’s article, “Insurers should always act in clients’ best interests“. This morning, SCMP published my response to Mr. Tam.
You can click HERE to see the letter in the Post or simply read the copy below. I wanted to write more, but there was a 400 word limit.
I refer to the letter by Peter C. H. Tam, of the Hong Kong Federation of Insurers (“Give insurers clear ‘best interests’ rule“, July 14).
I agree that the legislature should elaborate on the meaning of “acting in clients’ best interests”.
However, instead of just grumbling about the vagueness of the phrase, Mr Tam and other industry leaders could help by sharing their views about what it means.
For example, does he think it’s good practice for agents to recommend investment-linked assurance schemes (ILAS), when buying term life insurance and directly investing in index funds or unit trusts can guarantee higher returns and lower risk, at a fraction of the cost?
Two million ILAS products have been sold in Hong Kong over the past decade. A significant percentage of the policyholders will probably be forced to delay retirement due to paying decades of unnecessary fees and receiving poor investment returns. Those who must retire due to health problems and still haven’t accumulated enough savings to support themselves may have to seek public welfare. This could drive up taxes for the younger generation. Insurers will have profited handsomely, but at the expense of policyholders and taxpayers.
Mr Tam claims that insurers “have served millions of customers by providing them with the necessary insurance coverage”. In fact, insurers have exploited millions of consumers by hard-selling them costly and unnecessary savings and investment products that have little or nothing to do with insurance.
There are many wealth management products on the market, but the products offered by the insurance industry are not competitive. It’s almost never in anyone’s interest to purchase an ILAS product (or whole life insurance, for that matter).
The only reason these products have been distributed so widely is because insurers have incentivised their salespeople with shockingly large commissions. When agents recommend such products, they are generally motivated by self-interest, not a sense of fiduciary duty.
I suspect most agents probably don’t even know how badly they’ve harmed their clients. I recently met one who didn’t even know what an index fund was.
Most agents are simply not qualified to know whether or not they are acting in clients’ best interests. If the law is going to require them to do so, then the bar for obtaining a licence must be set much higher.
Lindell Lucy, Tai Wai
Convoy is the largest pseudo-independent financial advisory firm in Hong Kong.
10 months ago, its stock was at $2.31. Three months later, the company’s executives dumped more than half their shares at $1.50. Yesterday, the stock hit a 52-week low of $0.98 before closing at $1.00. The trading volume was nearly 4 times its average.
What does this sell-off mean?
Clearly, it means that the company’s shareholders (and executives) are worried. I think they should be worried. Here are four reasons why:
Wilfred Ling is one of the few truly “independent” financial advisers in Singapore. He doesn’t accept kickbacks from insurers, fund companies, or anyone else. Unsurprisingly, he doesn’t sell investment-linked insurance products. Instead, he warns people to avoid them “at all costs”.
To distinguish himself from the other 99% of “advisers” who are actually product salesmen, Wilfred refers to himself as a “financial doctor”. He is highly qualified, experienced, and offers comprehensive financial advice on just about every topic imaginable. Unlike most advisers, he charges clients by the hour. He doesn’t cheat and con by pretending to offer “free advice” while secretly pocketing large commissions for pushing crappy products.
In addition to being an IFA, Wilfred is also a prolific writer. Over the past decade, he has written hundreds of articles for his blog, financial magazines, newspapers, and various online portals. He is possibly the most famous IFA in Singapore. His flair for speaking the unvarnished truth about the financial industry has generated loads of controversy within the industry and widespread admiration outside of it.
Wilfred’s path to becoming an IFA was rather unconventional. He studied electrical engineering at the National University of Singapore and then spent ten years working as an R&D engineer. At some point, after visiting a bank and being mis-sold a structured product which performed very poorly, Wilfred became inspired to start doing his own research about investing. He began sharing his findings and his ideas on an online investment forum, SGFunds.com, where he unintentionally became the top contributor. His posts generated so much attention that he and his fellow forum contributors were featured on the front page of the Straits Times in November 2005, in an article entitled “Amateur investors find a voice on the Net”.
Because so many people were keen to hear his thoughts, Wilfred decided that he might as well become a professional adviser. In 2006, he acquired his license and set up a blog, WilfredLing.com.
Earlier this year, Wilfred upgraded his website. His latest posts are now at IFA.sg.
ILAS Savings Plans: The Impending ‘MegaBomb’
In a recent blog post, Wilfred says, “I saw a presentation which showed that nearly 50% of the fund investments in Singapore is through Investment-Linked policies. Therefore, the ILPs market is very huge. We can say it is selling like hot cakes. But I say that people who buy these ILPs are holding a hot-potato.”
Wilfred knows firsthand just how widespread ILPs are (the products are known as ILAS in Hong Kong). A large portion of his work involves cleaning up the messes that other advisers have made. According to Wilfred:
“I’ve yet to come across anyone who did not buy ILP.” 
“Quite often, the amount of ILPs my clients hold represent nearly 99% of their liquid assets. Thus, I find it quite an irony that although I have never sold a single regular premium investment linked policies, I do find myself providing on-going advice for them on it.” 
Wilfred strongly dislikes regular premium ILPs (often marketed as “savings plans”). In a blog post titled “Inferior Products“, he explains that:
“The product is an essentially a combination of 1 year renewable term PLUS investment. Since the life insurer does not provide value add service by managing the risk of the underlying investment, I do not see why would anyone wants to buy such a product. It will be more straightforward just to buy a separate term insurance and invest the difference (which is what an ILP does).”
In another post, referring to the notorious ‘101’ plans, he says:
The charges are so high that you just cannot believe it. There are also marketing gimmicks which are often used. I cannot list the gimmick used in this blog because I do not have money to hire lawyers if I get lawyers letters from all these insurance companies.
The gimmick Wilfred is referring to is obviously “bonus units”. He says:
“I have attempted to post the details of such 101s on my blog before but I instead got a legal threat from an insurance company and had to apology to them in person for posting the truth.”
Wilfred likens the mis-selling of ILAS savings plans to the mis-selling of Lehman Minibonds, which caused tens of thousands of Singaporeans and Hong Kongers to lose all their savings.
Minibonds were misleadingly labeled, and their prospectuses were convoluted, complex, and impossible to comprehend. They were marketed as low-risk, even though they weren’t. Salespeople were paid unusually large commissions to distribute them.
ILAS savings plans (referred to as savings scams by critics) exhibit all the same problems, but they have been distributed far more widely than Minibonds ever were.
For these reasons (and others), Wilfred believes that ILAS savings plans will be the next “MiniBomb”. In a blog post in 2008, he predicted that:
“This next time bomb will not explode within the next few years but perhaps 10 or 20 or 30 years later. This bomb will not be labeled ‘Mini’ but it will be a MegaBomb.”
In another blog post, he elaborated further:
“If a document cannot be understood, there is no disclosure. That is what is happening to [regular premium investment-linked products]…If the insurer has been mis-selling its ILPs, then effectively the insurer exposes itself to legal risk through class action suit and regulatory penalties. They may also be pressured by the regulator and public to absorb the investment risks in the ILP.”
Wilfred’s assessment was incredibly accurate, but he was wrong on one point:
The MegaBomb looks ready to explode much earlier than he predicted.
Banning Commissions Is Necessary to Save the People of Singapore—and Hong Kong
Since at least 2008, Wilfred has been vociferously calling for a ban on commissions.
In 2012, he wrote a letter to the Monetary Authority of Singapore (MAS) in which he presented an extraordinarily comprehensive and well-argued case for banning commissions. In the letter, he claims that commissions are unfair not only to consumers, but also to advisers.
Here are a few of his points:
The insurance industry often argues that commissions should not be banned because the poor would no longer be able to access “free advice”.
Wilfred demolishes this argument by pointing out that the industry’s so-called “advice” is usually nothing more than a sales pitch. It is also not “free”. It often costs well more than an entire year’s worth of savings. He says:
“I agree that the poor cannot afford to pay fee. But can the poor afford to buy the products which the salesperson sells? There is no evidence to say that the poor has been benefiting from the ‘free advice’ offered by the financial industry. In fact, perhaps it is good for the poor to avoid buying products from salespersons!”
Wilfred also points out that when the majority of people are sold unsuitable products that are guaranteed to provide inferior long-term returns, it could indefinitely delay many people’s retirement, which might one day cause a significant “social and political problem.”
Wilfred sums up the situation best when he says, “[the] fee-based advisory model is not optional; it is a necessity to save the Singapore people!”
It is also necessary to save the people of Hong Kong.
My Feedback for Financial Advisory Industry Review (FAIR)
(Wilfred’s letter to MAS, in which he makes the case for banning commissions. The comments below it are also worth reading.)
A Decade of Quotes: Wilfred Ling Speaks the Unvarnishe
(A collection of quotes excerpted from Wilfred’s articles.)
I’ve read through many of them and excerpted a large number of quotes which I found to be particularly insightful, informative, and provocative. Those quotes are listed below. Because there’s so many, I’ve broken them into two groups: “Must-Read” and “More Reading”.
All boldface is mine, added for emphasis. All words in [brackets] I added for clarification.
The necessity to sell 101s (Aug. 8, 2013)
“There is a big who-ha in Hong Kong in which an individual [Leung Chung Yan] claimed to have been mis-sold an ILP. Her boyfriend [Lindell Lucy] made the case into quite sensational news recently. This may have prompted the Hong Kong authority to publish a consumer guide to ILP. In Hong Kong, the ILP is called ILAS. There are many types of ILPs. Some are ok while others are really bad.
In the past, an ILP was said to be not suitable for insuring a person when he is old due to the escalating insurance charges. However, there are now many ILPs which have little or no insurance component. Within the advisers in Singapore, we refer these ILPs as ‘101s’ so as to differentiate them from ‘traditional’ ILPs. I have attempted to post the details of such 101s on my blog before but I instead got a legal threat from an insurance company and had to apology to them in person for posting the truth. Right now, many insurance companies are offering such 101s. The charges are so high that you just cannot believe it. There are also marketing gimmicks [bonus units] which are often used. I cannot list the gimmick used in this blog because I do not have money to hire lawyers if I get lawyers letters from all these insurance companies.
There is one large IFA firm in Hong Kong [Convoy] which derives more than 90% of its revenue for selling 101s. I do not have the figure for Singapore’s equivalent but I believe the revenue generated from ILPs is quite significant too.”
An ILP fund is worse than if the fund is bought directly (Sept. 3, 2013)
“Recently I saw a presentation which showed that nearly 50% of the fund investments in Singapore is through Investment-Linked policies. Therefore, the ILPs market is very huge. We can say it is selling like hot cakes. But I say that people who buy these ILPs are holding a hot-potato.
As a fee-based financial planner, I have to do the asset allocation for my clients. Quite often, the amount of ILPs my clients hold represent nearly 99% of their liquid assets. Thus, I find it quite an irony that although I have never sold a single regular premium investment linked policies, I do find myself providing on-going advice for them on it. Typically the ILPs must be held for 25 years otherwise the surrender charges will be very high.”
Inferior Products (May 6, 2008)
“Take for instance, the regular premium ILP. The product is an essentially a combination of 1 year renewable term PLUS investment. Since the life insurer does not provide value add service by managing the risk of the underlying investment, I do not see why would anyone wants to buy such a product. It will be more straightforward just to buy a separate term insurance and invest the difference (which is what an ILP does).”
“Therefore, I would say that a regular premium ILP is considered an ‘inferior product’ because it can be implemented using plain vanilla term and separate unit trusts.”
Aviva SAF Group Insurance can be terminated without prior notice (June 17, 2014)
“You see, the life insurance industry in Singapore has ceased selling insurance products. The bulk of the premium collected by the insurance companies has nothing to do with insurance…This means you will find your typical insurance agents and ‘independent financial advisers’ wouldn’t want to transact insurance for you. There may be 15,000 financial advisers in Singapore but 14,999 are unwilling to help you get a proper insurance cover. However, they will be more than happy to help you transact investment linked policies. This is the reason why most of my new clients’ insurance portfolios end up having 90% of the premium to pay for only 20% of the protection value.”
Buying too many insurance policies (Jan. 20, 2010)
“Some insurance advisers would actually prescribe insurance products as a solution for all financial problems.”
“AVOID ILP at all cost. It is better to just invest in an index fund and earn 8.25% (for a 9% market return) and be assured of liquidity and no commitment of cash flow.”
“Imagine you seeing a doctor and there is up to 70% chance he will prescribe poison to you. Or imagine going for a surgery with a 70% chance he will take out the wrong organ.
That is what is happening to the financial industry.”
86% intend to use whole life insurance for retirement? (Feb. 8, 2011)
“I got a shock when I read that 86% of those surveyed by Citi Financial Quotient Survey 2010 that they intend to use whole life insurance for retirement funding!”
“Someone informed me of a research done by three researchers from Wharton, Harvard Business School and Harvard University relating to commission-based agents in the India life insurance market. The following were some observations:”
“We find that less sophisticated individuals are more likely to receive a recommendation for the wrong product, suggesting that agents discriminate in the types of advice they provide. This result suggests that the selling of unsuitable products is likely to have the largest welfare impacts on those who are least knowledgeable about financial products in the first place.“
Sell what is appropriate, SM Goh tells insurance advisers (Oct. 23, 2010)
“SM Goh made a speech at the NTUC Income 40th anniversary gala dinner at Marina Bay Sands on 22 October 2010. The full speech can be viewed HERE. The following are points that I noted:
Studies commissioned by the insurance industry have suggested that Singaporeans are under-insured…Part of the problem lies in the conventional practice of insurers in bundling the savings and protection elements into what is known as Whole Life Plans…The insurance industry should not always push for a Whole Life Plan as it may result in under insurance. It needs to place more emphasis on a pure protection plan like a simple Term Assurance which is a more cost-effective way of addressing the protection needs of Singaporeans. The insurance adviser plays a critical role here. He or she is the first line of contact with the consumers and wields the greatest influence over what they purchase. He should sell what is appropriate to the protection needs of the customer and not maximise his or his company’s returns. He should always place the interests of his clients above his own.“
“The fact that 89% of the claims payouts were NOT related to insurance implies that the industry is doing very little insurance and a lot of other things like investments and savings.”
Life Insurance companies no longer doing insurance (May 6, 2011)
“This is the strongest evidence to show that the insurance companies’ core-business is no longer in risk management but in wealth accumulation. If that is the case, insurance companies should rename themselves as asset managers or fund managers instead of insurance companies.”
The 99% statistic (March 15, 2007)
“Many of my clients who came to me for protection planning consultation have one thing in common – that I was not the first adviser whom they have seen. Very often they already committed to a product recommended by their adviser recently or sometime ago.”
“For those who already committed to a protection plan recommended by another adviser, 99% of all cases they either bought: (1) an investment-linked policy or (2) whole life policy or (3) anticipated endowment policy. 99% of all cases will (1) have an inferior hospital & surgical plan (or none) and (2) does not have disability income insurance. Therefore, 99% of these clients got their protection planning priority in wrong order. For those who had bought a whole life policy, 99% purchased extremely inferior and expensive ones.”
How some FAs do it when recommending ETFs (March 22, 2009)
“There is hardly any FAs in Singapore that uses ETFs as part of their clients’ portfolio. FAs usually like to use ILPs (the number one choice) and unit trusts. Obviously this is due to super high commissions from ILP and moderately so-so commissions from unit trusts. For high networth clients, FAs like to recommend structured notes, hedge funds, dual currency and all these hot ‘toxic waste’. The reason is also due to high commissions. In all of these recommendations, clients’ interest is irrelevant. The persons who can achieve their financial goals are financial advisers. ETFs pay no commission and hence nobody recommends it.”
The next MiniBomb will be the RP ILP [Regular Premium ILP] (Oct. 22, 2008)
“As the title above says, I feel that the next MiniBomb that will explode and perhaps even at a greater scale than the Lehman Brothers MiniBomb, HighNotes etc. This next time bomb will not explode within the next few years but perhaps 10 or 20 or 30 years later. This bomb will not be labeled “Mini” but it will be a MegaBomb. Don’t get me wrong, an ILP itself is merely a product and its suitability has to be match appropriately to the clients’ needs. However, similar to the MiniBomb fiasco, the ILP is significantly been mis-sold and its risks usually not disclosed.”
Shareholders of Insurers that aggressively market ILP (Oct. 22, 2008)
“I mentioned in the previous blog about ILPs and how insurers have been frequently mis-sold these products to policyholders normally through non-disclosure. The irony is that the current benefit illustration (BI) disclose all risks in an RP-ILP [regular premium ILP] but nobody can understand what these BIs are saying. Just as the prospectus of Lehman Brothers’ MiniBomb fully discloses all risks, nobody can understand what it said. If a document cannot be understood, there is no disclosure. That is what is happening to RP-ILP as well.”
“If the insurer has been mis-selling its ILPs, then effectively the insurer exposes itself to legal risk through class action suit and regulatory penalties. They may also be pressured by the regulator and public to absorb the investment risks in the ILP.”
“The reason why many clients do not take legal action against their financial advisers for selling an unsuitable product is because the client will look like a fool in public. I know of clients who were taken for a ride for buying unsuitable products amounting to hundred of thousands of dollars in opportunity cost and yet they did not want to take legal action because of ‘face’ problem. You see, when lawsuit is made in the open court, nothing is confidential. Thus, clients will have to admit that they were foolish to believe in the financial advisers’ sweet talk. Thus, clients may feel that they will be laughed at by their peers. The situation gets worst if these clients are professionals, businessman and even lawyers! Everybody takes pity on an old lady being ripped off of her life saving. But I am afraid to say that the public is unlikely to take pity on say medical specialist from being ripped off.”
“In the market place now, it is easy to generate an upfront commission of nearly $12,000 just for a “$1000” monthly RSP. I’ll not elaborate further otherwise I will get lawyers’ letters.”
Silent Pain From an Insurance Agent (April 24, 2010)
“Most of our sales come from tricking students or NSFs [Full-Time National Servicemen] into signing up for $30 whole life plans with a cash value under the guise of a ‘savings plan’.”
“I feel very unethical about this, but at the same time, i do need money to make ends meet. Unfortunately with the commission structure i am being encouraged to simply sell the highest commission products possible. While a term plan might be more appropriate in some cases, i cannot sell it as i will not receive sufficient commission to cover the cost of prospecting for the client and meeting the client, and worse a term plan is not considered a “life case” so i will be screamed at by my boss (i have seen some bosses throw heavy objects at their agents and i feel concerned for my safety). I was not even given product training on anything except the highest commission products. My daily activities leave me even more confused with what i am doing. Most of my time is spent doing public surveys and attempting to trick people into meeting with me under the guise of following up on the survey.“
Comment on “Conflict of interest between bank and customer” (Oct. 31, 2008)
“The only way to remove the conflict of interest without forcing the firm to become a charity is to ban commissions altogether. This can only happens if the regulator does so. Singapore is well-known to be the first. Banning chewing gum is I believe the first in the world. Why can’t MAS just ban commissions? So easy, just pass legislation only. In Singapore passing law in Parliament is 100% guaranteed possible.”
“Mr Lee, the President of AFAS, said that if the industry banned commissions completely now, only ‘half the firms will survive and the other half will probably merge or go out of business’.”
My Feedback for Financial Advisory Industry Review (FAIR) (April 18, 2012)
“Reason 2 why consumer should pay fee: Commission is an unfair method of remuneration
This is because:
“Reason 3 why consumer should pay fee: Fee-based financial planning is the fairest way of remuneration
This is because:
Reason 4 why consumer should pay fee: Commission-based adviser may not put clients’ interest first
This is because:
“Reason 5 why consumer should pay fee: Moral hazard
Imagine a doctor who cannot charge a consultation fee but could only earn through commissions selling medicine. Can you imagine the health hazard of being prescribed unnecessary drugs just because the doctor could only earn through commissions selling drugs? Similarly, the financial hazard of engaging a commission-based adviser often put the consumer’s family and their retirement in jeopardy.”
“Consumer will never pay an advisory fee to a salesperson after all the goal of a salesperson is to sell a product. The salesperson’s target is to bring in the revenue for his Principle and he is rewarded based on the amount of sales brought in…The issue is that many consumers actually need the advice more than the product. Unfortunately, there are just disproportional too many financial salespersons in the industry right now”
“Currently, almost all representatives are actually salespersons in terms of job function. That is why consumers are not willing to pay for advice and in fact they should not be doing so.”
“fee-based advisory model is not optional; it is a necessity to save the Singapore people!”
“The poor cannot afford to pay fee…I agree that the poor cannot afford to pay fee. But can the poor afford to buy the products which the salesperson sells? There is no evidence to say that the poor has been benefiting from the ‘free advice’ offered by the financial industry. In fact, perhaps it is good for the poor to avoid buying products from salespersons!“
“Oversupply of financial adviser representatives…It is correct to say that the financial industry will consolidate. However, the cause of such consolidation is not because of the fee-based model but simply because there is an oversupply of financial advisers. In 2011, there were 18 doctors per 10,000 population. Assuming there are 15,000 advisers in Singapore, it means there are 15000*10000/(5183700) = 29 advisers per 10,000 population! Would an individual seek advice from an adviser as often as he sees his doctor for flu?…Thus, there are simply too many financial advisers in Singapore…The industry has managed to maintain this number of advisers because of advanced selling techniques taught. As a result, Singapore residents continue to buy unnecessary products. Considering there are so many financial advisers, why are Singaporeans still underinsured? The reality is that most of these 15,000 advisers are salespersons and very few are actually providing advisory. It is not viable to provide financial advisory business without making a sale since clients are not paying a fee for advice.”
“Without proper financial planning, Singapore residents could end up…investing in products that does not cope well with increasing inflation. The inability to retire eventually becomes a social and political problem.“
“Who decides which product pays the most and least commission? The product manufacturer. Does it matter that the adviser spent 100 hours on a case to make the sale? Does it matter that the adviser spent 1 hour on the case to close the sale? Does it matter that the adviser spent 1000 hour on a case for which no product sale was made? It does not matter because product manufacturers only pay when a sale is made. The product manufacturer just simply assigns a commission rate to each product regardless of what transpire between the adviser and the client. Why is a regular premium ILP has a higher commission rate compared with say a term insurance? Is the latter less important?“
“In fact, the product manufacturers become commoditized once advisers charge fee because they are no longer bound to sell the product manufacturers’ own products. Product manufacturer are commoditized because they now have to compete based on price and they cannot incentivized advisers with high commissions unlike in the past.”
“advisers have to continue selling products to earn a living. As a result, existing clients are neglected. That’s why clients complain about their advisers not servicing them or ignoring them after the sale is made.”
“I agree that product manufacturers will suffer. I think that is to be expected as they cannot incentivize advisers anymore. They will have to complete on price and features. New product manufactures will be able to come to Singapore. Companies such as Vanguard will be able to do business in Singapore and able to distribute their low cost and superior index funds. They are not able to come into our markets because advisers are paid through commissions. If they are paid by clients through fees, advisers can recommend low cost products without worrying about their remuneration. The loss of jobs in the financial sectors will be make up by new employers setting up shops in Singapore due to the removal of the barrier of entry.”
“I support the move towards a fee-based regime. I encourage Monetary Authority of Singapore to champion clients’ interests to bring the industry to the next level. There is a strong lobby against this move as evidenced by the statements made by the industry in the media. Do not be discouraged.“
Financial advisers with many confusing titles (April 15, 2014)
“Despite the majority of the financial advisers acting as salespersons, the industry uses many different titles to confuse the consumer. As a result, many consumers are unable to differentiate between those who are doing sales and those who are providing advisory service.”
“The Financial Advisers Act (FAA) does not mention the necessity to impose fiduciary duty upon the relationship between financial adviser and client. The FAA only requires that recommendations are to be made based on a reasonable basis. But all FA knows this is a joke”.
“Example 3: Client wishes to save $1000 per month for retirement. It is considered “reasonable” if the FA recommends an ILP with zero mortality for this purpose say over the next 25 years. Under fiduciary duty, the ILP is considered detrimental because it locks the client for 25 years with hefty early surrender penalty and as well as reduced liquidity due to such commitment. An FA under fiduciary duty would recommend an RSP which has no long-term locked in and no early penalty surrender. But this latter recommendation would means zero commission (after netting the FA’s time and expenses). The former’s recommendation would have incurred a gross commission of almost $12,000 UPFRONT!”
Why accredited investors are in for a raw deal (Apr. 8, 2014)
“An accredited investor should not be too happy because they do not have the full protection from the law.”
“When dealing with accredited investors, financial advisers can recommended products that are UNREASONABLE and clearly NOT suitable. Some people in the industry says that since accredited investors are so rich, it is okay to milk their money like robin hood. Robin hood rob the rich to give to the poor. These financial advisers ‘rob’ the rich for their own benefit.”
“The following are my suggestions to improve the BI of regular premium ILPs:
Modify the existing benefit illustration for regular premium ILPs to project based on say three returns; -5%, 0% and 5% up to age 100. Currently it is projected at an optimistic 4% and 8%. If they would to use my suggestion of three projections, consumers will be shocked to discover that their regular ILPs can lapse even when they are still working!“
MAS Issues Response to the FAIR (Oct. 1, 2013)
“It was decided that the first year commission shall be capped at 55% of the total commission…it means the death of 101 ILPs as the current practice is to pay 100% of the total commission in day 1.”
“According to an article HERE, the competition in UK financial services is not working. The article said that the UK financial services companies have not been able to win market share by focusing on customer service and good value products because consumers do not tend to switch from providers who treat them badly. The article state 4 reasons why consumers do not tend to switch providers:
Singapore has identical problems as UK. All the above applies to Singaporeans.”
Unfair commission practice against financial advisers (July 31, 2013)
“(1) A number of investment products have been ‘packaged’ as investment-linked policies. These policies pay most – if not all – of commissions upfront to the financial adviser and firm. This commission that can be as large as one year’s worth of premium for a 25 years ILP. This means there is little or no commission payable from 2nd to 25th year. To help understand the financial implication of this, consider a regular monthly premium of $1000 per month for a 25 years ILP. The commission of about $12,000 is paid to the adviser and firm at the beginning of the policy instead of in stages. This means that if the adviser quit, the new take-over adviser gets NOTHING for servicing the client. Is this fair? Why would any adviser work for free? Some ethical advisers would indeed work for free to their own detriment while other unethical advisers would encourage the client to terminate and buy another product (known as policy replacement or churning).”
“If you look at all the problems, they all have something in common – commissions. Both advisers and clients must understand that the commissions given are meant to reward the one who made the initial sale. It is NOT to reward the existing advisers for on-going work. That is why you can have a situation which a take-over adviser gets nothing but the previous adviser (who did the initial sale) continue to get everything.”
“If there is no commission, there is no problem to begin with.“
Fixed Fee for Professional Service (May 30, 2013)
“It is possible for the client to pay anywhere from a few dollars (e.g. travel insurance) to $60,000 (e.g. $5000 monthly investment using certain product) in fee that is embedded as commissions. The amazing part is that the amount the financial adviser earns has nothing to do with the actual work done! A financial adviser may have done a lot of analysis, gone through the client’s insurance portfolio and investment portfolio and spent many hours poring over countless documents. But at the end of the day, the earnings he get depends on the actual product sold. If his analysis shows that the client need to buy a travel insurance, he earns just $3.”
“A professional must not exploit known weaknesses of clients by using commissions rebates to induce a purchase.”
“A better way to reduce the cost of financial product is to have the product manufacturers distribute products at reduced commissions or without any commissions at all. This is what MAS wanted for insurance companies to sell products directly without commissions. For this to happen, MAS must step in to ensure the lack of commissions actually translate to reduce premiums.”
“In sales and marketing, complexity is ‘good’ because it increases knowledge asymmetry and therefore increases the salesperson’s chances of closing the case. It is easier to close a sale for a confused customer.”
13 reasons why you do NOT want to get a life insurance policy (March 17, 2013)
#7. You wouldn’t want to buy a life insurance just to ‘support’ a friend.
#8. You wouldn’t want to buy a life insurance when your intention is to have the money kept in a fixed deposit.
#9. You wouldn’t want to buy a life insurance for investments.
“Mental image 1: A financial adviser is the one who hangs around at bus interchanges in groups pretending to conduct surveys but ends up selling insurance products. (In other words, a financial adviser is a pretender.) Would anyone want to pay fees to a pretender?
Mental image 2: A financial adviser is one who hangs around in IT shows in groups offering free iPads if customers buy some insurance products. (In other words, a financial adviser offers free goodies.) Would anyone want to pay fees to someone who offers free gifts?
Mental image 3: A financial adviser is the one who sold me a saving plan 20 years ago but the plan matured at half of that initially promised. (In other words, a financial adviser is one who made an empty promise.) Would anyone want to pay fees to a financial adviser who made empty promises?
Mental image 4: A financial adviser is the one who recommends the customer a 20 years lock-in product (e.g. endowment) when the customer wanted to open a 1-year fixed deposit. (In other words, a financial adviser locks people’s money for decades.) Would anyone want to pay a fee to someone who will lock up your money for decades when you can only wait for 1 year?
Mental image 5: A financial adviser is one who sells China equity fund to an 80 years old grandma who uses all her life saving and cannot even understand English. Would anyone want to pay fees to such an adviser?”
Vital to regulate commissions (Jan. 22, 2013)
“Unfortunately, the source of remuneration is flawed because commissions have nothing to do with the actual work an adviser does. Advisers who do a good job may not necessarily be remunerated fairly.
For example, providing advice on a private integrated Medisave insurance plan garners a much lower commission than, say, giving advice on an investment-linked policy.
Yet the work involved is comparable. Thus, advisers will be biased towards recommending high-commission products.”
“I’ve read the Panel’s recommendation many times and my conclusion is that the recommendations will do more harm than good to the industry but consumers will be at the advantage. The reason is because of the Panel’s indecisiveness in its recommendations resulting in a slow & painful death to the industry instead of the alternative of fast & electrifying death but with fast resurrection. I speculate that most of the indecisiveness is due to the industry’s lobby. Initially, FAIR was decisive. It wanted to ban commissions and it wanted to help consumers. It knew the end goal. Now, the FAIR Panel’s decision is neither here nor there.”
FAIR outcome is out & a Career Talk for all (Jan.16, 2013)
“If you have read until this line, it means you have a keen interest in this FAIR outcome. Do not be shaken. All is not over. Why don’t you change career to something which can be more meaningful and that you can really help your clients?”
“It seems everybody wants to create downlines to build their MLM [multi-level marketing] empire. Many advisers who are merely just two or three years experience are already claiming to be ‘associate managers’ or ‘associate directors’…I find it very weird that although the managers do not know how to do proper financial plans for clients, yet is permitted by the regulator to manage a team of financial advisers.”
“It is unfortunate that in the financial industry, competency is measured by the amount of revenue an adviser can bring. Those who can bring in large revenue get promoted quickly to manage large teams. (I never seen any incentive trip that is awarded to advisers who sold the largest sum assured, deliver the best risk-adjusted returns for their clients or helped families reduce their expenditure.) I cannot imagine engineers been measured in terms of the revenue they can secure. If one day this should happen, bridges would collapse, MRT explodes (not merely breaking down), building come crushing down and cars’ steering wheels fail to work because those engineers are measured by the $$ they bring in, not by their technical expertise.”
“Now, the worst part is that these technically incompetent but sales-driven advisers get promoted to lead large teams and the cycle continues in an infinite loop. That is why the regulator is so frustrated by the continuing low quality of advice being given.”
Emergence of a new type of IFA firms (which is not) (Oct. 20, 2012)
“I believe majority of the financial advisory firms are technically not ‘independent’ financial advisory firms. When I see firms chasing after awards, gifts, vouchers, incentive trips by pushing specific products, how can they be considered independent? Exactly, how many firms do not do that? I rest my case!”
Nobody wants to pay fee (July 31, 2012)
“These advanced sales techniques have one weakness – it requires the remuneration to be ‘hidden’ from the consumer. Once the remuneration is transparent like in a fee-based regime, these advanced selling techniques will not work.
It was argued by certain quarters that these advanced selling techniques are necessary evils. It is better to con a consumer to buy an insurance product he doesn’t want otherwise he would be even more underinsured.”
Product distributors, not financial advisers – says MAS (Part 5) (July 15, 2012)
“For a financial adviser, his paymaster comes directly from the product manufacturers. Thus, he is merely a product representatives or a salesperson whose fiduciary duty is that of his paymaster. Indeed, the name ‘product distributors’ should be the correct word to describe the job title of a financial adviser.
To think about it, there is nothing wrong with becoming a product distributor as long as the prospect fully understands the person whom he or she is dealing with is merely a distributor. The issue now is that many of these product distributors misrepresents themselves as financial advisers and this results in confusing outcome.“
“This appears to contradict the MAS mystery shopper survey conducted from October 2011 to December 2011, in which it was found that consumers were recommended mostly unsuitable products. Specifically, only 28% of cases recommended suitable products. 30% were found to be clearly unsuitable and the remaining 40% ‘may be suitable’. Note: ‘may be suitable’ can also mean ‘may be not suitable’.”
“When a wrong product is sold to a client, the client does not know he/she is being mis-sold! The two surveys conducted by MAS and LIA proved my point.”
“One of the key attributes of a professional is that he or she possesses knowledge and skill not commonly understood by the public. This does not mean that the profession possesses trade secrets. On the contrary, he possesses knowledge and skill not commonly understood by the public is because of the long length of study, research and experience. In Singapore, financial advisers are not professional because they only need a couple of weeks to study the M5, M8, M8a, M9, M9a and HI. These were designed for ‘O’ level students. It is so easy that any tom-tick-harry who can click a few buttons on the computer can pass. How can a financial adviser claim to be able to help a person make a few million dollars of retirement money by just studying a few weeks of exam designed for O level students?”
The financial adviser is like a teacher, says MAS (Part 1) (July 7, 2012)
“MAS says: Why do we need financial advisers? In MAS’ opinion, financial adviser’s main roles are not to sell products. Instead, financial advisers’ roles are to impart basis financial planning skills; draw up saving plan, build investment portfolio, what kind of insurance protection is needed. A financial adviser is like a teacher.
In the industry, it is well-known that the financial adviser is a salesperson. The evidence is that he or she is often judged by the amount of revenue brought in. Product manufacturers, agencies and IFAs run incentives purely based on sales brought in. Nobody runs incentive based on how many clients the adviser ‘taught’.”
Pro bono on the rise? It’s the de facto for the FA (June 10, 2012)
“the financial adviser is not a professional and does not have any professional skills…They are merely salesperson selling a product using advanced selling techniques.
Existing FAs who want to become a professional must move out of their comfort zone and do something about it.”
Finance & Insurance worst in productivity (May 18, 2012)
“When a person wants to buy a product, the following have to be done… If it is an insurance product, sign 10000 pages of forms which nobody read or understand. The agent can explain until cow come home but nobody can remember”
“I’ve been in this field for many years and I can tell you that the optimum fee to charge in order to maintain business viability is around $200 to $400 an hour. For a comprehensive case and assuming 25 hours @ $200/hour, the fee is $5000. Anyone who quote less than this is subsidizing the client and not going to be in business for long.”
What is the hourly fee an adviser should charge? It is just $1.85 (April 21, 2012)
“a financial adviser has a diploma (likely minimum qualification of the future) and only need to study 1 week because the CMFAS exams is so easy. CMFAS M5, M8, M9, M8A + M9A and HI just take 1 week to study anyway. Don’t forget that M8A and M9A are almost the same. I heard of someone who took one day to study M8A and M9A and clear both papers in single seating. After that, the adviser can claim to be expert in structured products. Yeah, sure!“
Fee-based scheme not a problem (March 30, 2012)
“With the emphasis away from product sales, product manufacturers will no longer be able to incentivise advisers to push their products. Product manufacturers, not financial advisers, should be worried.”
Why Ipac Singapore close down? (Jan. 12, 2012)
“Ipac Singapore’s closure also throws out the age-old fallacy that only the rich are willing to pay fees. Most of my main competitors only target high networth. Ipac is one of those who target the rich. How long these people need to realised that they are targeting the wrong crowd! The average Singaporeans have no objection in paying large commissions as long as it is hidden from them. This means that the average Singaporeans can pay fees. The issue is psychological one, not an affordability problem.”
Advisers fear of not able to pass new exams (Dec. 19, 2011)
“In the Straits Times today entitled Agents fear they can’t measure up, many financial advisers expressed fear that they may not be able to pass the two new exams required by the regulator.”
What happens when an insurance company goes bankrupt? (Oct. 3, 2011)
“Surrender values of Investment-Linked Policies (ILPs) have no protection at all when the insurance company go bankrupt. This is because the surrender values of ILPs have no guaranteed value. For example, if the underlying funds are worth $50,000, it does not mean that the policyholder will get $50,000 if he surrenders the ILP when the insurer is already insolvent. Also, ‘101%’ regular premium and single premiums ILPs have become extremely common in the marketplace. These products are mainly investments in nature. Therefore, policyholders are subjecting themselves to significant risks. It is better to invest in plain vanilla unit trusts in which the ‘surrender values’ are always based on the bid price and not subjected to the solvency risk of a single institution.”
“If an activity is legal, it does not mean it is ethical. For example, selling a premium of $24,000 per year in ILP for investment is perfectly legal. But it is not ethical when there are alternatives that can achieve similar or better returns without the long-term lock in and better liquidity. Since the action is perfectly legal, there is nothing much a consumer can do because ethical behavior is not enforceable by law.”
Using an Opener to Sell Life Insurance (Aug. 2, 2011)
“Thus, the larger the value of the opener, the higher chance the products will be inferior (due to embedded higher cost to the consumer).”
Why only high networth fights over estate planning matters (July 4, 2011)
“But for an estate size of just $400,000 which is quite representative of the average Singaporean, the downside would wipe out the aggravated beneficiary entirely. The downside risk is too great that it is better to play safe by just writing off the individual’s alleged rightful inheritance.”
ETF sales huge shift due to fee-based advice (March 7, 2011)
“According to this article HERE, “The single biggest driver of ETF sales through financial intermediaries has been the huge shift to fee-based advice. The fee-only adviser has an incentive to keep overall costs low and that makes ETFs much more competitive….. Clients never liked paying commissions, which come across as hidden fees.”
Proof that ILP pays $12,000 in commissions (Dec. 4, 2010)
“This blog is being removed upon request.”
Buy insurance until cannot afford to buy real insurance (Nov. 23, 2010)
“In one of the fee-based financial planning case, a couple was spending more than $23,000 in annual premiums in insurance. I found that more than half of the insurance policies were not needed. Through needs analysis, I uncovered they have a short fall for disability income insurances. But they told me that they cannot afford to buy the recommended disability income insurance anymore because of the prior commitment to those unneeded insurance. This is unfortunately quite common. People buy unneeded insurance but now not able to afford the real insurance. They cannot surrender any of the prior insurances because of major capital lost.
This reminded me of another case in which I found a person who spent more than $80,000 in annual premiums to pay for insurances also. After planning, I discovered that the person cannot retire until more then 70 years old because the burden to service premiums means the need to continue working. It is so silly to work just because of the need to pay premiums! The wonderful part is that the agent who sold most of the insurances had resigned and yours truly (me) took over these insurance as servicing agent for FREE. I had wanted to charge the client an on-going retainer fee but the client cannot afford it because majority of the cash flow goes into those insurance. It is quite unbelievable. I told the insurer to help me out here to clawback the commissions from the original agent but the insurer says they are contractually not allowed to do that. Sigh.”
How cost of investments can delay your retirement indefinitely (Oct. 10, 2010)
“Most people invest in Investment-linked policies for their retirement. These can be regular premium or single premium but recurring…Some ILP have a commission structure of 100% for the first 18 months.”
Insurance is sold, not bought, said DPM Lee Hsien Loong (Sept. 12, 2010)
“In 1999, the then Deputy Prime Minister Lee Hsien Loong made a speech at the 19th Pacific Insurance Conference at Shangri-La Hotel and remarked that “about 90% of life insurance business is sold through the traditional means of insurance agents. Low productivity and high turnover of agents render this one of the most costly distribution channels. Its dominance gives credence to the cliche that life insurance is sold, not bought.” 11 years later, this remark has not changed except that “insurance agents” have taken on new names like Personal Financial Consultant, Wealth Manager, Financial Advisers, Independent Financial Advisers, etc. Life insurance policies continued to be sold, not bought.
He also said then that “Life insurance is still largely sold door to door by agents. There is considerable room for improving the productivity and expertise of agents, and their ability to provide high quality financial planning advice.” 11 years later, insurance agents don’t really go door-to-door anymore but they can be found at bus interchanges, book fairs, MRT stations etc looking for customers. As for any improvement in expertise, well they have become more efficient in selling toxic products and certainty the huge commissions paid from innovative insurers have certainly helped to increase productivity significantly as far as revenue per lead basis.”
What is Million Dollar Round Table (MDRT)? (Aug. 22, 2010)
“For example for year 2011, the qualifying commissions that a Singapore adviser must earn in order to be a member of the MDRT should be at least S$103,000 to qualify for the MDRT. This is based on first-year commissions. Note that many life insurance products pay commissions over a few years. The qualifying commissions are even higher for Court of the Table (COT) and Top of the Table (TOT).”
“These days, being a member of the MDRT is synonymous as having achieved a certain level of income. Those who claimed to be a member of the MDRT are indirectly saying to their customers and peers the kind of income they are earning. Frankly speaking, I find this quite tasteless.”
“Most of the products bought were meant for savings and investments rather than insurance.”
“I come across a case of a ruthless adviser who squeezed every single blood cells out of a cancer patient until the patient is worst off dead. Squeeze and squeeze until all skin and bones. That adviser was so ruthless. When I heard it, I was so angry. Worse than a murder!!! Murderer, murderer!”
Fixed deposit ends up becoming insurance or structured deposit (July 28, 2010)
“You walk to a bank to open a fixed deposit but you walk out of the bank buying a single premium insurance or a structured deposit. The worst part is that you think it is as safe as the fixed deposit.”
“Many financial advisers also offer insurance as solution to almost everything including “savings”. The words “saving-plans” have been abused significantly. People think that buying an endowment is saving. No it is not, it is an investment. The plain vanilla saving is simply to put money into a cash deposit or a fixed deposit.”
“What exactly are insurance advisers doing? Why aren’t they selling insurance products when they claim to be insurance persons?”
“You should never buy an ILP for investment. Some famous ILPs will cost you to lose nearly 100% of your first year capital. It is silly to invest in something only to know that you will definite lose your entire first year capital.”
“Can I sue the company for compensation based on non-fulfilment of service i.e. paying for financial advice and follow up but not receiving any?”
Why Singapore & Australia opposed banning commissions? (Apr. 28, 2010)
“Both MAS and Australia’s opposition party appeared to share similar view that banning commissions will increase cost and restrict access to financial advice for certain segment of the population. Well, I am afraid I disagree with both parties. Both of them are wrong in one assumption which is the assumption that consumers (including the low income group) have access to financial advice in the first place. I personally do not think access to financial advice is that readily available even in the status quo. Many people do not realized that buying an insurance or buying some ILPs, dual currencies and structured notes are not financial advice. In fact, I hardly come across anyone who has truly obtained financial advice.”
“My view is that not only is the current population (including the low income group) not getting financial advice, but they are spending huge amount of money in inappropriate products and commissions.”
“I always encounter emails and meetings with financial advisers who are guilty stricken for harming their clients’ interest due to their high sales quota, agency and firm culture and as well as the pressure just to earn a living. To me, there are better ways to earn a living. Everyone has choices. There is no need to resort to ruining other people’s life just because one needs to earn a living or just because the boss say must cheat. Banning of commissions is a very blunt way of halting all these malpractices. But looking at the present situation, there appears to be no solution in sight to improve the professional standards of the financial industry. There is no association, professional bodies, etc who have the teeth and the professional skill to improve the industry. So I think halting commissions altogether will do the industry good. Since by my estimate only 4% of the population has access to financial advice, banning commissions altogether probably will not have a material impact to consumers’ choices since majority never accessed to financial advice. In fact, banning of commissions would probably help the remaining 96% to save lots of money by avoiding investing in inappropriate products.”
Why you should not buy products with upfront commission? (March 21, 2010)
“1) Many advisers after selling the product offer no after-sales service. When the client wants to modify the policy or do fund switching, the adviser “disappears.”
2) Others would go back to the same client to ask the client to terminate the policy and buy a more “superior” one so as to earn another round of commission. This is called product churning.
3) When comes to claim, short-term advisers would run away and not response to client’s request to help make claims.”
“However, in recent times, majority of the life insurance policies that people buy are investment-linked policy. I’ve yet to come across anyone who did not buy ILP (except for me and my wife – we never buy ILPs).”
“Why is it an obligation? It is because once you entered into a contract, you have a contractual obligation to pay for this premium.”
Should you terminate your Investment Linked Policies? (March 9, 2010)
“Now that you realised you bought a lemon, the next question is whether should you terminate your investment linked policies.”
“a ‘hit and run’ adviser would recommend an ILP to get the commission upfront and locking the client to 25 years commitment earning miserable return.”
Mis-selling of another insurance (Jan. 13, 2010)
“Here is a real case of a person who bought a rip-off insurance policy.”
Mis-selling of medical insurance when buying directly (Jan. 12, 2010)
“the staff recommended the one that has 3.83 times of commission compared with the shield plan.”
“I have done many financial plans for fee-paying clients. Often at the end of the plan, I’ll make some recommendations. Most of these recommendations require the clients to do it themselves simply because I cannot do it. For example, revoking unnecessary life insurance nominations is one example. Other times it involved buying a product directly from the product manufacturer.”
What is the difference between savings and investments? (Jan. 10, 2010)
“For savings, it is usually refer to putting money in asset class which
(1) Will not have any chance of capital lost;
(2) Whose value can be determine easily;
(3) No contractual commitment; and
(4) Highly liquid”
“Most financial advisers earn a living by selling products. The “sales cycle” that an adviser employs is usually group into three stages namely: (1) Prospecting or leads generation, (2) Presentation and (3) Closing.
Typically an adviser needs to put an estimated 80% of his time in the first two stages.”
Mark-up by 15% and discount by 15% (Jan. 8, 2010)
“Having a product mark-up by 15% only to say it will be discounted by 15% is no discount at all. Sometimes upon purchase of a product, you get a free gift. This is similar to the discount problem. They mark-up your purchase price in order to give you that free gift. So actually the free-gift was purchased by you – it was never a free gift.”
Free advice is going to cost you your entire HDB flat! (Jan. 4, 2010)
“Prospects have been thinking that it is the norm to get free advice. This is far from truth.”
Why engaging a financial adviser may not help? (Dec. 31, 2009)
“Most financial advisers will advice their clients to invest in high cost investment products such as structured products, unit trusts and ILPs. The costs of these products are extremely hefty…Despite the high cost, financial advisers have no choice but to recommend these because they could only earn commissions by recommending such products. For me, the prefer instrument is to use index funds such as ETFs.”
“Financial advisers who wish to help their clients and prevent disappointments may wish to consider the following:
…If it is feasible, only recommend ETFs and index funds.”
“ETFs do not pay any commission. So if a financial adviser is relying on commission cannot recommend ETFs.
Therefore, the only way out is to be paid separately by the client.”
Why am I against long-term insurance contract? (Dec. 13, 2009)
“I will always to try my best to recommend investment products that do not have long-term contracts. These are what I call simple products. Unfortunately, such simple products pay little or no commissions. Thus, many financial advisers do not recommend them. Their firms would also prohibit them from recommending those.”
Carrying Commission-Less Products (Dec. 3, 2009)
“To all product manufacturers,
For sometime already, I noticed that my website is significantly visited by product manufacturers. Product manufacturers mean banks, insurance companies and asset management houses. Sometime other IFA firms also visit my website. I would like to propose something unheard of in Singapore. I want to distribute your products or services without any commissions or introducer fees. The cost of product or service naturally have to reflect that fact.”
“I am not interested in toxic assets and complex products. If I don’t understand the product within 5 mins upon reading the marketing material, I considered it as a toxic and complex product…I am looking for simple products for the simple man. The reason i don’t need the commission nor introducer fee is because my clients already pay me a fee separately. My job is to find good products for my clients. Please contact me for discussion if you are keen to work together.”
The Difference between value and price in financial services (Nov. 17, 2009)
“Many people do not differentiate between value and price. Price is what you pay and value is what you get. For financial services, one must determine the value of an advice otherwise any price you pay (whether in fees or commissions) will be exorbitant. From my experience, most Singaporeans do not understand this and as a result make two serious mistakes: either (1) Paying for worthless advice through gigantic commissions or (2) penalizing professional financial services by not paying for it despite their capability of creating high value. Consistently rewarding worthless financial advice and penalizing valued advice only degenerate the industry further. From empirical observation, majority of Singaporeans have never experience valued advice but only worthless one.”
Zurich Vista Commentary (Oct. 22, 2009)
“Currently Vista provides a whopping additional 62.5% more bonus units during the first 18 months for premium SGD 3,200 per month. These additional units are often the selling points used.”
What Fresh Graduates and Young Persons Should NOT Do (Oct. 3, 2009)
“Young persons should also be wary of many financial salespersons who will cheat you. Because these salespersons know your weakness – which is ignorance in financial planning – they will try to sell what you want rather than what you need…financial salesperson will…sell you an ILP (so that you can grow your wealth ‘quickly’)”.
“When an insurance company pays commissions, it will book this payment an amount owed to the insurance company by the policyholder. Thus, the policyholder “borrows” this amount from the insurance company in order to pay commission to the distribution channel.”
“If the insurance company cost of capital is less than 5%, they actually make a profit by paying such a commission and charging a higher discount rate to the policyholder!
What happens if the policyholder terminates the plan early? He will have to repay the amount owed through high surrender penalty. If the surrender penalty is insufficient, the commission will have to be clawed back from the adviser otherwise the insurance company will lose money.”
The Disgusting IFA Freak (Sept. 30, 2009)
“This morning I open my email box to receive a message posted to me from my website enquiry page: “Hi Wilfred, I would like to tell you to stop your bullshit. Shut ya trap.. IFA is purely scams! u disgusting freak”
It was from an anonymous person although little did he or she realized that all enquiry submission records the IP address and timestamp. The IP address (which in this case was SingNet Proxy server) together with the exact timestamp is able to uniquely identify the subscriber details (I was an Engineer who build a firewall you know!) But that’s not my point. In reality I actually agree with this anonymous person. Huh?”
Why financial advisers must abandon their clients (Sept. 27, 2009)
“I often hear of complains from clients that their previous advisers stop contacting them after a few years. Clients often felt that their advisers were just out to make money but did not bother about after sales service.”
Planners shifting to fees for advice (Australia) (Aug. 12, 2009)
“It appears to me that Australia is going through a heated debate regard commissions vs fees for financial planners. At least they are thinking about such issues. In Singapore? Consumers are naive and do not care even if they are cheated. As for MAS, what are they doing?”
“In three years times, the United Kingdom will be banning commissions earned by financial advisers. I think MAS should do likewise too.”
Why referral is important? (Aug. 4, 2009)
“I never claim to give FREE advice. Clients pay according to actual service rendered. Others claim to give FREE advice but in reality use sophisticated but manipulative selling techniques to sell high commission paying products”
Examples of mis-selling an insurance (July 28, 2009)
“The salesperson would tell their customers that they would enjoy bonus units for the first 18 months of the plan and obtain a high rate of return and then they can stop their saving after that. Of course this is only half truth. The ILP can be as long as 20 to 25 years maturity plan. The so called bonus unit is just a gimmick because if the client wants to surrender the policy after 18 months, the surrender value is ZERO. Where is the bonus?”
“But nothing will happen because these customers would have signed the benefit illustrations clearly showing a hefty penalty for early surrender. Since nobody will be punished, this continues to be practiced widely. To make the customer happy, the company would just fire the salesperson. The salesperson happily walks out of the company as millionaire. The customer has no case because of the documentation signed.”
Cessation of volume based remuneration (July 23, 2009)
“Whether it is unit trusts, broker fees, insurance, etc I really feel that paying commissions are not to the interest of the customers. Customers should pay for actual service rendered and not based on the kind and size of the products they purchased. In our current situation, many financial advisers claim to give “free” advice but they actually get huge commissions for selling unsuitable products. As a result of them “spoiling” the market by claiming to give free advice, the fee-based industry could not grow significantly. It is also bad for product providers which want to make good products. Currently, they have to spent huge amount of money in marketing, advertisement and commission to sell their products. If they do not need to pay commissions, they can reduce their cost and compete based on quality.”
GOVERNMENT SUBSIDY FOR FINANCIAL PLANNING – A RADICAL IDEA? (July 11, 2009)
“The rationate is to allow “The lower income group and folks with lower education in particular, would not be left to their own devices and preyed upon by operators guided solely by their pursuance of profit.” This is an interesting idea although I really doubt government will do this.”
What is Really Meant By Independent financial adviser? (July 1, 2009)
“Do not take for granted that your licensed and ‘independent’ financial adviser will always look after your interest.”
“According to Monetary Authority of Singapore, commissions elict a self-interest culture:
“…having remuneration structures that rely primarily on commissions, or which are biased towards rewarding staff for recommending certain investment products is untenable. It will inevitably elicit a culture where the institution and its representatives are more concerned about their own revenue interests, as opposed to having clients’ interests at heart. Financial institutions will have to review the way in which they deal fairly with clients, to provide real value and restore confidence.” – MR NG NAM SIN, Executive Director of MAS. Source: HERE”
Insurance Adviser selling free gifts (June 22, 2009)
“I was at SingPost that day queueing up to post registered mails when i noticed that all counterstaff were quite persuasive to get each customers to sign up for some free gifts. The customer in front of me showed interest and was redirected to a Prudential insurance adviser. It seems to me that the Prudential adviser had to explain to the customer what this free gift is and how he could get it. For those who isn’t aware, SingPost distributes insurance products by getting Prudential to be station in its distribution channels. When I saw what was happening, I really wanted to ask the Prudential adviser whether is this the kind of career he wants – that of a salesperson whose main job is to entice the customer to get that free gift by buying an insurance policy. The agent was very young only. Maybe in his mid twenties. In the industry, using free gifts is what we can lead generation. Moreover, the free gift serves as an “opener” for the salesperson to talk about other things – in this case it will be insurance. However, since the opener is totally unrelated to insurance, this is when it is possible for mis-selling to be able to take place because the customer was looking at the free gift rather than getting the insurance protection. Why such thing happens even in the open?”
Why is an ILP considered inferior/ a time bomb? (June 18, 2009)
“The regular premium investment linked product is an essentially a combination of 1 year renewable term PLUS investment. Since the life insurer does not provide value add service by managing the risk of the underlying investment, there is no reason to buy such a product. It will be more straightforward just to buy a separate term insurance and invest the difference (which is what an ILP does).”
Conversation between my client and his former financial adviser (April 19, 2009)
“Therefore, always ask your adviser how he or she is remunerated. If it is purely by selling products or required by his company to met high sales quota, you’ll always be feeling obligated to buy something from him. It is fairer for both client & adviser in which the remuneration is based on the actual service rendered.”
Buy insurance based on needs, not on agents’ commissions (April 7, 2009)
“Commissions should be outlaw and it will save clients’ ton of money.”
Don’t be deceived by the “hold to maturity” (April 7, 2009)
“The next time a financial adviser tells you to wait for your 20 cents structured product to mature at $1 within the next few years, tell him that you will sell the product to him at a 10% premium. That financial adviser will run away from you and never contact you again.”
Buy and Hold is really buy and hold? (March 26, 2009)
“Many people prefer to ‘Buy and Hold’ their unit trust. But do your realized that a unit trusts consists of many securities of which the fund manager can sell and buy frequently? It is common to see unit trust having more than 100% of turnover…In reality, investors are actually selling and buying non-stop because the underlying securities have very high turnover.”
“How can a fund has a turnover of more than 100%? There are only a few reasons:
[Reason #4] The fund house might be getting some kind of rebate from the excessive brokerage fees. In the industry this is called soft-dollar commission. Apparently it is legal! Unbelievable!”
“For investors – just buy the index and you can sleep well. Active managers funds are like some bats – can suck your blood!”
A case study of how an adviser can mis-sell even without knowing (March 5, 2009)
“I always believe this – if I am in my client’s shoe and if I will not buy it – I will not sell it. If the client insists on buying, I will still refuse to sell it and I’ll tell them to find someone else. Unlike other advisers in such situation who will ask the client to sign a disclaimer and than transact to take that commission, I’ll not even consider the transaction. The test of whether to transact or not is this: If the client allows, will the adviser dare to tell the whole world how he earn that commission or fee? Will he look like a con-man or a true professional?”
The Industry Scandal – Your Active Managed Fund (March 3, 2009)
“As promised, I will reveal the industry’s scandal. This scandal is not a secret but regulator as usual turns a blind eye to it: Active managed funds do not outperform their passive managed counterparts. I believe this will be the next class action lawsuit.”
Estate planning (advisers) (Feb. 27, 2009)
“Advisers who see their clients as a quick way to get rich will usually skew their recommendations to high upfront commission with little on-going renewals.”
Expats should ensure they deal with regulated financial advisers (Feb. 20, 2009)
“Unfortunately, there are cases in which unregulated advisers sold unregulated products to expats. Often this is in the name of ‘tax planning’ purposes.”
A client who spent $27,000 a year on insurances (Jan. 31, 2009)
“When I met this client, his insurance was costing him a whopping $27,000 annual premium covering just 3 persons in the family! There were at least 20 insurance products he had.”
Financial adviser: your commission is your obstacle (Jan. 31, 2009)
“In order to be a problem solver for your clients and in order to market yourself as a financial doctor, you must remove your dependence over commissions.”
Career as a financial adviser (Jan. 26, 2009)
“Traditionally, financial advisers have been taught this: That the purpose and duty of a financial adviser is to do prospecting, get an appointment, make a presentation and close a sale. This 4 steps purpose have been taught in almost every sector of the financial services industry. Whether the person works as a private banker, life insurance agent or an independent financial adviser, all of these advisers have been taught these 4 steps.”
“In this industry, I believe very few clients have met a financial doctor. There is a few reasons why and these are:
UK’s Retail Distribution Review (RDR) Part 2 (Jan. 11, 2009)
“It was observed no country has such high level of mis-selling as compared to UK. However, this could be due to not being detected or not acted upon by other regulators.”
UK’s Retail Distribution Review (RDR) Part 1 (Jan. 10, 2009)
“I took a look at the original document and was pleasantly surprised to see the problems faced in UK were exactly the same in Singapore. The difference is that the FSA is taking steps to address it while MAS cannot be bothered”
“(24 March 2014 update: I discovered all three fee-based UK firms mentioned below has either closed down or bought over by another firm not in the business of fee-based planning).”
“I suspect that mandating the removal of distribution cost from insurance and unit trust is going to harm the industry in the sense that companies which had generated large amount of sales through high commissions will find itself suddenly lack of sales since they have to compete based on quality of the products. Large companies will go-under resulting in further erosion of confident in the economy.”
“Since it is already well-known that passive managed funds underperform active managed funds on a long term basis, why are unit trusts still recommended? It is because these unit trusts pay large trailer fees to these distributors. (However an ETF does not pay trailers. That’s why distributors refuse to carry ETFs.) But clients does not “know” it because these fees are already reflected in the NAV.”
“Why pay wrap fee, should just DIY [do-it-yourself] and buy unit trust from fundsupermart and dollarDex right? Yes and no. Those who can DIY and does not require any adviser should DIY – but DIY [do-it-yourself] in ETFs and not unit trusts!”
“I have a brokerage account in which the securities firm constantly spam my mailbox for latest buy/sell recommendations. While MAS prohibits financial advisers from recommendation without needs-analysis, it seems MAS do not mind securities firm from encouraging their clients to churn without any proper fact finding. Why the double standard? Not surprisingly, seems that MAS is out of touch with what is happening in the ground.”
Tasteless Free Financial Health Check (Dec. 7, 2008)
“Although I respect the advisers who are trying to earn a decent living, I really feel sad for them to have to go so low just to get sales.”
“The obstacles of (force) moving the industry to a fee-based one are…Customers do not wish to pay [advisory] fee due to the above mentioned psychology. Customers will instead go direct to the product manufacturers to buy the product and bypassing the distribution channels. This will kill the entire distribution channel.”
“I know many people thinks I am idealistic. But I refused to be pragmatic. Sometime I am laughed at for advocating fee-based advisory model and sometime got mock at it too. However, UK is going to ban commissions and impose a fee-based model. If UK can do it, so can Singapore. Let’s see who has the last laugh!”
Are you paying 42% extra in insurance? (Dec. 2, 2008)
“If the poor client is going to pay this extra 42% for another 20 years, guess who is the one getting rich? No prize for guessing, it will be the insurer (I think the adviser will get rich too but I’ve not checked the commission rate). I looked at the one that is the most expensive and I cannot find anything great about it that can justify its high cost. In fact, it has a serious flaw as compared to the cheapest one.”
UK financial advisers moving to fee-only financial advisers (Nov. 26, 2008)
“I believe that there is no way the [Singapore] industry can self-regulate and move to a fee-paying model unless regulator steps in.”
Take from the good and give it to the bad (Nov. 3, 2008)
“In Singapore (and perhaps in most part of the world), the bad financial advisers have been selling toxic waste. Actually many of these aren’t toxic waste but it had been based on high commissions and unsuitable products to their clients. Besides the usual minibombs, equity linked notes (ELN), high risk unit trusts and hedge funds with no track records are being sold. I am not against selling these per se but the manner it is sold horrifies me.”
“I feel really sad that many new advisers who join the industry really want to be truly a professional but are forced to become a salesman…I really wish MAS can do something about this by banning this practice. If government can ban chewing gum, why can’t it just ban the practice of salesmanship in financial advisory? Is it because chewing gum contributes hardly anything to the GDP but the salesman financial adviser contributes significantly to the country’s GDP? From what I see, free market play will unlikely result in the financial advisory job to become a true professional. Only regulation can move it there. The question is: Is the government willing to sacrifice a big part of the GDP in doing this?”
Insurance should not be “sold” (Oct. 30, 2008)
“I have seen many cases which upon reviewing a typical client’s situation, I found that he was willing to pay more than $5000 in commissions previously paid to insurance agents who sold uncompetitive products. However, such a client is unwilling even to pay $2000 in financial planning fee for which I can reduce for him $2000 in annual premium for the rest of his life. Why does this happen? Simply generally people do not mind paying hidden cost – irrespective of how costly it is. However, people generally do not wish to pay fee that is transparent in nature even if it is mathematically cheaper. The result of this human behavior is that the market produces more commission-based cum hidden cost style of products while it discourages transparent fee structures. [Lindell’s comment: People don’t mind being robbed – until they find out!!!]
At the end of the day, when clients cried out that they have been mis-sold products, I am not surprised by such outcome since the entire process adopted the sales process rather than the advisory process.”
Lessons to learn from Minibond (MiniBomb) et al. (Oct. 29, 2008)
“Brand name of the institution does not matter anymore. In this modern age, companies aim is to maximize shareholder value, not customers’ value.”
“Be very wary of financial advisers who claim to give “free” advice. Moreover, be aware that many advisers could only earn through commissions. There is no commission when recommending a fixed deposits or participation in auction for Singapore Government Securities. Thus these non-commission paying investments will never be recommended. This is not in line with your interest.”
“There have been reports that highly educated persons like doctors, accountants, professors, etc were fooled into buying high risk products without even knowing it. This shows that making good investment decisions is difficult regardless of a person’s education level. Thus, do not be complacent even if you are ‘well-educated’.”
Top Slogans to remember (Oct. 19, 2009)
Here are some slogans used by famous institutions that have failed or have been bought over due to impending failure (Source: Economist)
AIG – “The strength to be there”
Lehman Brothers – “where vision gets built”
IndyMac – “you can count on us”
Fortis – “here today, where tomorrow?”
Enron – “ask why”
Countrywide – “lender that actually finds ways to make loans”
Fannie Mae – “the American dream grows, so do we”
Washington Mutual – “Whoo hoo”
Regulating Innovative products (Oct. 6, 2008)
“The Financial Adviser is already regulated under the Act but it is not enough. If it is enough, why it seems there are people still complaining about mis-sold products? If consumers keep on complaining, it means something is still wrong. From what I see, there is already enough rules in the regulation governing the behavior of financial adviser such as reasonable advice basis, prohibition on churning. The problem is with enforcement. Why is there so little enforcement? Is there anyone enforcement these rules? No point having rules in the school when there is no disciplinary headmaster.”
Beware of Introducer giving Financial Advice (Oct. 3, 2008)
“How could they allow this to happen to permit an unauthorise person to transact? Cow-boy town is it? I thought Singapore is a “fine” city, I did not know it is now a cowboy city.”
The agent who did not care for 5 years (Oct. 3, 2008)
“It was revealed to me that she has 3 investment-linked policies (ILP)…The policies were bought 5 years ago. The client complained that the agent had never met up with her within those 5 years despite her repeated request to meet up.”
Sales quota of financial consultant (Oct. 2, 2008)
“It is better to be indebted to your parents than to sell your soul and ruin countless lives and families. Do you want to ruin someone’s parents, grandparents or someone’s education opportunity by selling rubbish products? Would you sell toxic waste to your own mother or father?”
Financial Advisers with High Incomes (Aug. 28, 2008)
“even fund manager misrepresents (OK, this one I better not give example because I can get lawyers letter from them)”
Birds and Eskimos (Aug. 5, 2008)
“I have a client who was approached by a friend from company X to buy a limited paying premium whole life policy…I showed her a similar plan from another insurer that is nearly 30% cheaper. She felt that she is torn between because on one hand she want to support a friend on the other her friend’s product is so expensive. It is quite common for people to be approached by their friend and the feeling of obligation to buy is there.”
Role of Financial Advisers (Aug. 5, 2008)
“The role of the financial adviser is a financial doctor…For me, the financial doctor is a noble occupation. Financial doctors must not position themselves as salesperson and consumers must respect financial doctors for the work they do. I hope the industry will improve its image and raise the level of competency. I also hope that consumers will select their financial doctors seriously.”
Fee-based financial planning & the Taxi Fare (July 22, 2008)
“The fee-based service simply compensates me for providing the advice…the fee charged is directly proportional to the work done. Like taxi driver’s meter, the fare is directly proportional to the journey taken. Like a taxi which starts with a minimum fare, there is also a minimum fee for financial planning. I think my occupation is really similar to a taxi driver!”
“What is a professional? One important mark of a professional is self-regulation. There is no need for the regulator to do micro-management because a professional would self-regulate their own industry. Look at what is happening to the financial advisory industry. Self-regulation? It is more like self-deregulation!”
Tips for New financial adviser choosing a firm (July 15, 2008)
“(11) What will the firm do if your production is poor? Some firms will employ “hard” methods such as mandate the adviser come back on weekends to do cold-calls or produce daily activity reports.”
“(12) Does the firm impose a sales quota? If you see your job as a salesman, obviously a sales quota is required. If you see yourself as a financial adviser, run away from firms that impose a sales quota because a financial adviser is not a sales job. Your clients engage your advisory service. The last they want is a salesman.”
“(2) I think it is partly because unit trusts have a good sales charge (typically 3%) and trailer fees. This is better than recommending shares which have just a small brokerage fee and no trailer.”
“I personally believe that the next explosion is when a company launch the first IFA platform that is able support Shares, ETFs, Bonds, Forex. Would any entrepreneur take up the challenge?”
What is really expensive and what is cheap? (April 18, 2008)
“I mentioned about a regular premium ILP [Zurich Vista] that has no apparent sales charge and in fact gives up to 62.5% in extra premium in the first year. If compared to a plain vanilla unit trusts with sales charge (and wrap fee), which is more expensive? On the surface the unit trusts seem more expensive since it has sales charge and no “extra” premium. However, in reality the ILP is much more expensive.”
“There is no free lunch. Products that are perceived to be “cheap” to the client but in reality expensive will eventually show its ugly horns.”
Why wholelife insurance is greatly misunderstood (May 18, 2008)
“Never use a wholelife product for saving and never use saving plan for protection. I met a client last year who was sold a wholelife nearly 20 years ago but was misrepresented by his agent that the product was a saving plan for his children’s education. Poor thing, he discovered that the cash value could hardly send his children to university.”
Official Churning (May 5, 2008)
“I have a stock brokerage account. Everyday I am spamed with emails telling me it is time to buy XYZ stocks or to sell ABC stock. In securities newsletter like Edge, you can see broker telling me to “Buy”, “Hold”, “Sell”. Hello, how come they can tell people to buy or sell without even knowing the investor? If the investment product is bought from a financial adviser (under the FAA), the FA Rep would lose his license for telling people to churn like this. I was told that unit trust is meant for mid to long term and hence such frequent trade is churning but stocks are for short term and so frequent buy/sell trade is OK. This is nonsense. Stocks are for long term too. I have talk to many successful stock investors – and they told me that after they have done their research in the company, they just buy and hold on forever. Amazing? Why is it do we get spam to buy/sell shares if we open a brokerage account? It is because the brokerage house earns through brokerage fee. Brokerage fee only occurs when a trade is made. For buy and hold person, there is no brokerage fee. I think MAS must do something about these official churning spam mails.”
Non-localized game (March 23, 2008)
“For example, some financial advisers are specialized in life insurance, hence they will not be so excited about investment. Instead, they will end up recommending an ILP and market it as an “investment” although technically an ILP is a whole life policy linked with the performance of a chosen few funds without any smoothing in returns.“
“certain financial products are just plain unsuitable and yet they continue to be marketed aggressively.”
Chicken Rice (Feb. 9, 2008)
“A few weeks ago, I had a meeting with someone who came to buy medical insurance from me. He told me that he had wanted to buy medical insurance for sometime already but none of his existing insurance advisers were willing to meet up with him. One of the advisers even told him blatantly that unless he also buys a whole life product, the insurance adviser will not meet him.”
Why clients don’t read the documents given to them? (Dec. 21, 2007)
“Someone asked me what are the pros/cons of an Investment Linked Plan (ILP) from a particular insurer. Knowing that the client has already spoken to an adviser who attempted to sell her an ILP, I knew that my job is to highlight the “bad” points about the plan (I was very sure that all good points have already been mentioned by the other adviser). I just used the insurer’s benefit illustration and zoom in to the mortality and morbidity tables”
Even a dying man the salesman still want his blood (Nov. 17, 2007)
“I frequently come across such cases but this one is really terrible because even a dying man the salesman did not let go. Is there no justice in Singapore? What is MAS doing? Can’t these salesmen just let the dying man live his last days on earth happily?”
Cow-boy Financial Adviser Openly Advertise his service (Nov. 10, 2007)
“From my grapevine, it seems that are syndicates going around misleading people out of their CPF money. Typically guaranteeing returns and/or practicing churning…Also there is an illegal practice of using “sub-agents”. Sub-agents are unlicensed financial advisers going around trying to make financial product sales to unwary clients.”
“Well, coming back that “5% min return” guy, the fact that he can openly advertise in the newspaper means that at the moment it is likely that nobody or very few people has been caught.”
Why so few people invest in Index Funds? (Oct. 28, 2007)
“most people buy products without fully understanding the real cost of the investment. If they managed to buy a ‘no-load’ structured note, they think it is cheap. Actually, the cost is already embedded into the product. The fees are inside the product. From some of my sources, a structured note can command up to 7% in commission! Good money (for the RM)! Unit Trusts is another kind of product with many hidden fees. Brokerage charges, bid-ask spread (of the underlying buy/sell), impact cost and soft dollar commission are hidden. However, these costs do not need to be disclosed. Hence people think that Unit Trusts is ‘cheap’.”
“there is little or no commission to earn from selling Index Funds. The RM or Adviser cannot earn trailer fees or ask from commission from the product provider. For Exchange Traded Funds, these are floated on the stock market. So the RM will not be keen to sell this kind of fund. Advisers like me who need to earn a living will charge some fee to those who wish to purchase Index Funds through me. However, since investors psychologically prefer ‘hidden’ fees then fully disclosed fee, I still have to handle the misconception that my fees are expensive.”
Perception and packaging can swing a person’s judgment call (Oct. 16, 2007)
“When I get more experience in this industry, I beginning to notice that clients often make judgment call based on packaging or external perception rather then logic and common sense.”
“I know of people who are really good in giving advice, who are smart, knowledgeable and ethical. They desire so much to put their competence to good use. Unfortunately their sales are bad because clients judge them by their ‘packaging’. A competent person does not necessarily know how to present hard facts into something attractive for the client. Very unfortunate, client always judge based on the cover of the book.”
“financial adviser isn’t a sales person. He is a professional with duty of care to help his clients. I am very sure everybody agrees that lawyers, doctors, accountants and engineers are professionals and never considered a sales job. Yet, it is very unfortunate that a financial adviser is considered a ‘sales job’.”
Select a product based on its merits, not free gifts (Aug. 13, 2007)
“I often receive in my email inbox of insurers and fund managers giving free gifts, vouchers, plane ticket and even cash to entice customers to buy their products. This becomes so serious that CPF board has to put a stop to this. However, sometime the ‘free’ stuff is not obvious and seemingly harmless. This is to me dangerous because it can destroy a person without even anyone realising it.”
“My general advice to all people is this, a financial product should be purchased based on its own merits and should never be influenced by free gifts, discount or free vaccuum cleaner. You could end up buying that vacuum cleaner and nothing else.”
Vacuum Cleaners and Financial Services (June 27, 2008)
“(1) Just as [Vacuum] Promoter A did not ask us what we really need, many financial practitioners do not ask their clients what they really need. The result is hard-selling of products which may not be suitable for the client. Since their remuneration is based on commissions, clients are often pressured into purchasing a product. Some salaried financial practitioners have high quota to meet and so they may be hard pressed to close a sale.
(2) Some financial practitioners are restrictive in their product range. Frequently they are only able to represent one product manufacturer and thus cannot give accurate information just as [Vacuum] Promoter B gave us incorrect information.”
Conversation with a cleaner (Oct. 31, 2007)
“I had a conversation with a cleaner. Obviously she isn’t very wealthy. As her son likes to play sports, she asked me whether is there any thing that can cover personal accident.
I immediately told her that the most fundamental and important coverage to get is a hospitalization benefit. Later on in the conversation I discovered that a bank has sold her an endowment policy. Immediately I knew that she is into budget problem because of that useless endowment that was recommended to her without any needs-analysis. I felt pity for her to be rip-off by the salesman. I gave her a quotation on how much it takes to cover her son with a good hospitalization shield plan. But it seems she cannot even afford it due to the heavy commitment to that endowment policy. She is really poor.”
“Based on partial information, I already knew that the cleaner’s family needed a good hospitalization plan. But she and her family have none. They have no budget for one either. All thanks to that unethical salesperson who sold her something expensive that she has no need. I felt that salesperson has no conscious at all. The poor cleaner already got so little money, still want to suck until the blood run dry?”
“I personally think that the industry must move away from commission based to something radically different in remuneration. I am not referring to the traditional fee-based renumeration. Rather I suggest another way which is the retainer fee concept. A retainer fee is a regular fee paid to the adviser who manages the portfolio. In the investment realm, this is commonly referred to as “annual advisory fee” or “wrap fee”. This fee is charge as a percentage of the investment portfolio under advice. But I would like to see such retainer fee extended to other financial products such as insurance. Since many insurances these days pay little or no commissions from the product providers, a retainer fee solves this problem by having the FA firm charge a fee to the client directly. In this fashion, the client’s insurance policies become like a “portfolio” which the advisers manages. The portfolio can be potentially complicated because it will include the entire family’s protection needs. The more complex the portfolio, the higher the retainer fee. The retainer fee will also help to reduce the problem of churning in this industry in which clients are asked to terminate and buy new insurance products because the only way which commissions will be paid is when the client purchases new products. In fact, with the retainer fee, the adviser has vested interest in ensuring that the client keeps his policies as long as possible.”
To: The Ethical Tied Agent (including those at the bank) (Aug. 22, 2007)
“To the Ethical Tied Agent reading this blog entry, it is time to move on. Let your capability not be limited by your company. The industry is moving forward. Do not be left behind. (When I say “tied-agent” I am generically referring also to those Relationship Managers working at the banks.)”
An adviser is not paid until the client signs the dotted line (July 26, 2007)
“The phrase ‘An adviser is not paid until the client signs the dotted line’ has a tremendous impact on the client-adviser relationship.”
“It will be beyond the client to understand how the adviser is paid.”
To sell a good product, need to sell a lemon (July 20, 2007)
“it comes with a string attached…in order to sell a good product, the adviser must sell a lemon. How low can the industry gets? No wonder nobody respect the insurance industry.”
The rip-off washing machine repair man (June 28, 2007)
“In a known phenomena in sales, there is this principle of “strike while is hot”. The principle states that the salesman must apply the necessary pressure when the client is interested or positive about the presentation/product. Otherwise later on the client gets less interested or “not so hot” and it becomes very difficult to pressure them into buying. “Strike while is hot” is the known technique used by many relationship managers and financial advisers. The more experience sales man will further apply another technique known as “Strike while is hot and go in for a kill without mercy”. The meaning is always pressurized the client to use all his money into buying that particular product – nevermind he got nothing left.”
The unethical insurer (Apr. 21, 2007)
“Story 1: An Independent Financial Adviser A (IFA A) bought a life policy for her son. Her son is the life assured. She is also the adviser to this policy (i.e. she is the person who transacted the purchase). One day, she got a phone call from an insurance agent (claiming to represent the insurer, not any IFA firm). The anonymous insurance agent claims to be the adviser to her son’s policy without knowing that the mother of the son is the adviser to the policy.
So what happened? (1) It is obvious that the insurer has given the name of existing customer to their own agent to prospect. This is not ethical because the customer is the client of the original adviser. The insurer is trying to undercut the adviser. (2) The insurer must respect privacy. The database of personal particulars given to the insurer is for the purpose of underwriting the insurance contract; it should not be used for marketing and prospecting. (3) The insurance agent lied to the customer with respect to the adviser to the policy.”
The runaway agent (Apr. 15, 2007)
“I am assisting to help process a critical illness claim on behalf of a person whose servicing agent becomes “uncontactable”. Isn’t it a coincidence that when you need these servicing agents that they suddenly “disappear” when comes to claim? Why did they disappear? It is because there is zero dollar to earn for processing a claim.”
Why using ILPs for children’s education planning is a bad idea (Apr. 13, 2007)
“Many parents use ILP to save for children’s education. I think this is a bad idea.“
Is it crazy to put client’s interest first? (Apr. 3, 2007)
“All this for how much only? It will be either $26.67 or $18.42 in commission. That is why I believe many advisers think I am crazy and a bit extreme in the manner I conduct my business because I fanatically believe that to put client interest first, it has to be done in this crazy manner.”
Enough is enough! I am charging fees! (March 17, 2009)
“I have been taken for a ride too many times already. This is especially so for those seeking my advice on protection planning. So many people sought my advice in their insurance needs and I gladly want to help them without making them feel obligated…However, there is now too many who just “disappear” without a trace after the consultation.”
Destructive Financial Adviser Part 2 (March 15, 2007)
“I don’t know whether to laugh or cry. What are these advisers doing these days? Selling vaccuum cleaner? Are they willing to bear the liability of their client who took their advice incorrectly and found they can’t claim?”
Destructive Financial Adviser Part 8 (March 15, 2007)
“Unfortunately this kind of thing keeps on happening everyday at public places like bus interchanges and outside MRTs.
For those who have been reading, all the Destructive Financial Adviser series are real stories that are referring to different persons.”
Not all FA Reps are the same (Oct. 27, 2006)
“Many firms focuses on sales while neglecting competency and knowledge. While an individual representative may desire a balanced advice to his clients, the fact that his firm focuses on sales rather then competency will just means that such an individual will be better skilled as a salesman then as an adviser. A client who has a problem and approaches such an adviser will just mean that the client will end of the day be sold another product rather then a solution to his problem.”
Sales Quota Reloaded (Oct. 7, 2006)
“In a recent media report, it was reported that a staff at the bank was not able to meet her sales quota despite selling $1m worth of structured deposit because she failed meet the quota for unit trusts and insurance policies.”
Commission convolution (Sept. 26, 2006)
“People only want ‘free advice.’ They like to have the best and cheapest but hopefully free of charge. If they can earn a profit through purchase of a product – they will go for it. This convoluted attitude resulted in many families been destroyed by been enticed by free gifts rather then because of product suitability.“
Low class insurance agents knocking on doors (Aug. 24, 2006)
“Today’s newspaper published a story on how insurance agents have made themselves so “low-class” by knocking on people’s doors to sell insurance.”
The Curse of Free Gifts (Aug. 4, 2006)
“Free gifts are paid by the consumer and have already been factored into the cost of the product. There are circumstances that the adviser co-pay the gifts. What it means is that the consumer is paying the gifts for himself. The gift is not free.“
“The value of the gift is only a small amount in relation to the size of the entire purchase. A person may temporary “enjoy” the gift – be it the Home Theater system or the ticket to Taipei. However, if the product purchased is not suitable, his lost could be astronomical. Take for example, if the premium for an insurance is overpriced by $500 a year compared to other competition, a free gift of $1000 is insignificant compared to a over payment of total $15,000 over the next 30 years. Consider another more detrimental case: Let’s say the client only has a budget of $300 a month. He bought into a product (motivated by his own greed, enticed by an unethical adviser) that comes with free gift. As a result, he is left with no budget for other matters such as purchasing a protection plan which should had been his priority. On unforeseen circumstances, he dies leaving his dependents into financial bankruptcy as a result of his under insured state. In such a scenario, no MP3 player or shopping vouchers can help the ruined survivors. I want to question these unethical companies and advisers this – are you willing to be liable for such a disaster as a result of your free gifts tactics?“
Hong Kong’s legislature is debating whether or not to enact a law requiring insurance companies and insurance agents to act in the best interests of clients.
In other words, the legislature is debating whether it should be legal for insurance agents to steal from consumers by hard-selling ripoff products that pay large hidden commissions (products such as ILAS and whole life) instead of recommending cheaper, superior products (such as term life and index funds). The debate inevitably raises questions about the future legality of insurers using commissions to incentivize their salespeople to screw clients.
Predictably, some players in the industry are panicking. Their entire business model is in danger. According to a new article published in the South China Morning Post:
some insurance industry representatives told lawmakers they are not comfortable with the new law containing the principle requiring intermediaries “to act honestly, fairly, in the best interests of policyholders/potential policyholders and with integrity”. They argue that the principle may lead customers to initiate lawsuits and say it is vague to define what is “in the best interests” of policyholders.
The author of the article, Enoch Yiu, says that she and some of her colleagues do not “understand why insurers are so worried about this clause.” She points out that the industry’s self-regulatory bodies long ago issued codes of conduct that use the exact same language, and since then, “we have not heard of many policyholders rushing to sue their insurers or salesmen”.
Why do these insurance industry bodies have their own version of a code of conduct requiring their members to act in the best interests of their clients, but are so firmly opposed to adding a similar line in the law? It just doesn’t make any sense.
Actually, it makes perfect sense.
One of the main reasons the legislature is setting up a new regulator is because the current self-regulatory bodies don’t enforce their own rules. Almost every player in the industry is using unethical sales tactics to push the most costly, crappy products. The current codes of conduct are meaningless because they’ve never been followed, let alone enforced.
That’s why, if ripping off consumers became illegal, it could forebode apocalypse for the industry—especially if the new regulator has the authority and the motivation to punish those who break the law.
Insurers are understandably “uncomfortable”.
But maybe they shouldn’t be too worried.
As Enoch Yiu pointed out, until now, few policyholders have sued their insurer. She implies that this is because “the majority of insurers and agents…are doing a good job.”
That’s obviously not true.
The real reason policyholders haven’t been suing insurers is because it’s too expensive and risky for the vast majority of people to access the legal system. Contingent legal fees are banned in Hong Kong, and class action lawsuits don’t exist. The only ripped-off consumer (that I know of) who has sued an insurer is Jeremy Hobbins. Despite the facts being overwhelmingly on his side, the judge ruled against him and ordered him to pay the other side’s legal fees. Hobbins’ total bill was about $2 million USD. Most people never come across this much money in their entire lifetime. It’s no surprise that policyholders aren’t “rushing to sue their insurer”.
So, even if ripping off consumers were outlawed, it wouldn’t lead to a flood a lawsuits. It’s just not possible until Hong Kong rises from the Dark Ages and introduces class action lawsuits and contingent legal fees. (Click here to learn more.)
Consequently, in order to protect the rights of consumers, it’s essential that the new insurance regulator is truly “independent”. If it isn’t, if it is infiltrated by industry practitioners with shady histories and questionable ties to former employers, consumers will likely remain as screwed as ever.
Enoch Yiu’s article was titled “Insurers should always act in clients’ best interests” because she believes the legislature shouldn’t allow itself to be influenced by the self-serving, twisted logic of the industry. She thinks there’s no justification for watering down the proposed law. I totally agree.
However, I think the law is flawed and inadequate. It will be ineffective at stopping consumer exploitation. History has proven that the temptation to “get-rich-quick” from big commissions almost always overwhelms an agent’s power of reason, ethics, and fear of getting caught. Agents will always find some way to rationalize their actions—at least to themselves—just like a religious person rationalizes his/her belief in magic and fairy tales.
Consequently, as long as commissions remain legal, most agents will continue to push products that generate the largest commissions, no matter how bad the products are for clients.
ILAS and whole life will continue to be scandalously oversold.
Thus, Hong Kong’s legislature must issue a timeline for a complete ban on commissions and other types of conflicted remuneration. The financial well-being of millions of consumers depends on it.
I also think the new regulator would be wise to keep a close watch on all companies who are currently opposing the idea of “acting in clients’ best interests”. Their objections are indicators of past misconduct and an intent to continue engaging in it.