To Serve & To Protect Crooks
PIBA is one of the two self-regulatory bodies for insurance brokers. During the first half of 2014, PIBA punished zero brokers for misconduct. If an outsider had no other information, he might be tempted to believe that this is an industry of angels.
He would be mistaken. Most brokers are swindlers (or else extremely ignorant, inexperienced, and naive). The ILAS products they sell are so horrific that no informed, rational human being would ever consider buying them.
The least bad ILAS products are exploitative (due to unjustifiably high fees), and the worst ILAS products are criminal (due to fraudulent design).
Every sale necessarily requires multiple violations of PIBA’s own Code of Conduct, which states that brokers should offer objective advice and act in the best interests of clients.
This Code is obviously unenforced and totally meaningless. It’s primary purpose is to deceive the public into believing that the industry is being regulated according to high principles, when in fact, the industry is largely an unregulated pack of thieves.
History of the ILAS Ripoff
Several decades ago, ILAS was invented in the UK as a clever way to exploit a feature of the UK tax code. By packaging funds within an insurance policy, it resulted in a 15% tax break which was not available when investing in funds directly. Due to this favorable tax treatment, ILAS products were attractive, despite their extortionate hidden charges.
In March 1984, the UK government changed the tax rules for insurance, and the huge tax benefits of ILAS ceased to exist. These products should have disappeared. However, because the products paid such obscenely high commissions, they had become extremely popular with brokers. Since the majority of brokers were unscrupulous and greedy, they did not stop selling the products, even though the products were no longer good for consumers.
ILAS products eventually spread across the globe, becoming especially concentrated in places that were both wealthy and poorly regulated, i.e., Asia and the Middle East.
In Hong Kong, ILAS products were originally sold mainly to expats by expat brokers, but it eventually morphed into a giant scam with locals ripping off locals (and foreign insurers reaping most of the rewards).
ILAS never offered tax benefits to Hong Kongers, so it never should have been sold to them. The unscrupulous/ignorant people who now sell it claim that the outrageous fees are justified because the products offer so-called “free” fund-switching.
This is nonsense. Non-insurance fund platforms, such as Fundsupermart and iFAST Central, offer free switching, access to more funds, better due diligence of funds, and fees which are only a small fraction of ILAS fees.
iFAST offers a better service at a much lower cost, not because it has superior technology, but because it charges a fairer price.
Insurance companies are able to grossly overcharge only because they deceive consumers, buy off the brokers, and (non)regulate themselves.
PIBA’s Unenforced Code of Conduct
Excerpts of PIBA’s Code of Conduct have been copied below. Each excerpt is followed by a brief explanation of how brokers have trashed that section of the Code.
Brokers are supposed to “protect the interests of clients”, yet recommending ILAS products, especially contractual savings plans, is never in the interests of clients.
Brokers are also supposed to “uphold the integrity fostered by PIBA”, but since PIBA fosters zero integrity, there’s no integrity for brokers to uphold.
Because of extortionate fees, ILAS products are always unfair to consumers. If brokers told the truth to clients, then clients would not buy the products. This means every broker who sells ILAS is being dishonest.
If some brokers are not dishonest, then, at the very least, they are negligent. PIBA’s code of conduct requires brokers to “know the product” and to “disclose all material facts”.
If brokers did their research, they’d know that most ILAS savings plans are scams, and the rest are just plain awful. Brokers have no justification for recommending ILAS when better and much cheaper investment options are available.
ILAS is not appropriate for Hong Kongers and definitely not in their best interests. Brokers are clearly giving bad, self-serving advice.
ILAS products are ripoffs, so no broker can sell them without being inaccurate and misleading.
ILAS is never appropriate for Hong Kongers. Obviously, brokers are not ensuring that clients understand the products. If clients understood, they wouldn’t buy them.
ILAS products pay significantly higher commissions than every other investment product on the market, yet the people who sell this toxic waste are generally the least qualified people in the financial industry. This crazy remuneration system is neither fair nor reasonable.
25-year ILAS savings scams pay upfront commissions which are literally hundreds of times higher than other savings plans. This is not just insane; it is criminal.
If a broker accepts 25 years of commissions upfront, it is extremely “disproportionate to the service rendered to the client”. Brokers rarely provide more than a few years of service, and the service is always poor, evidenced by the fact that ILAS shouldn’t have been recommended in the first place.
If conflicts of interest should be avoided, then brokers should not accept commissions from insurance companies. Brokers should instead charge clients a fee for service.
Commissions are a huge conflict of interest (a type of legalized bribery), and this must be disclosed if it can’t be avoided. Presumably, most brokers have been disclosing that they receive a commission for selling ILAS products (usually in very fine print buried in pages of legalese that few people have time to read).
However, brokers have not been disclosing ALL of the conflicts of interest, such as the fact they they receive MULTIPLE TIMES MORE UPFRONT COMMISSION when they recommend highly toxic 25-year savings scams, as opposed to 5-year savings plans or non-contractual savings plans.
This lack of disclosure not only breaches PIBA’s Code of Conduct, but it also clearly violates Section 9 of the Prevention of Bribery Ordinance. According to paragraph (5), commissions are regarded as a criminal offense unless clients give brokers permission to receive commissions, and “before giving such permission, have regard to the circumstances in which it is sought.”
No clients would give a broker permission to accept 25 years worth of commissions upfront if they knew that other plans paid much less (or even nothing) in advance. They especially wouldn’t grant permission if they knew that the commissions were financed by defrauding them out of their first years of savings.
Brokers will be lucky if the ICAC doesn’t eventually fine them and throw them in prison.