Monthly Archives: October 2014

American ILAS Victims Could Face Criminal Prosecution after FATCA

Never mind the obscene secret commissions, bogus bonus units, phony account values, and insidious fee structures.

U.S citizens and green card holders who have been scammed by ILAS products could be in for an even worse surprise: tens of thousands of US dollars in fines (at least) and possibly imprisonment.

The problem arises when ignorant or dishonest financial advisers (i.e., commission-hungry insurance salesman) tell US persons that ILAS policies and investment gains arising within those policies do not have to be reported to the US tax authorities—because ILAS is “life insurance”.

In fact, most ILAS products don’t qualify as life insurance under US law, and even policies that do qualify must still be reported. Failure to report an ILAS account and underlying investment gains could lead to devastating penalties, charges of tax fraud, and ultimately, imprisonment.

Many Chinese Could Be Affected

The word “American” may conjure up images of white people, but in Hong Kong, many Americans are ethnically Chinese and have both US and Chinese citizenship.

In 2009, 60,000 American citizens were estimated to be living in Hong Kong. The number does not include green card holders.

In 2012, the US Census Bureau reported that approximately 220,000 Americans were born in Hong Kong (but not necessarily still living there).

US tax reporting obligations apply not just to Americans, but may also apply to people who are married to Americans. 

Advisers Often Misrepresent ILAS as “Tax Efficient”

Advisers promote ILAS as a “tax efficient” investment, but many don’t know what they are talking about. They are not qualified to give tax advice to citizens of their own country, let alone foreign countries. They’re just repeating what they’ve read in policy brochures:

Skandia MCA - Tax Efficiency

Excerpt from Royal Skandia’s Managed Capital Acount

For many nationalities, ILAS is no more tax efficient than an offshore brokerage account. ILAS thus provides no additional tax advantages.

For Americans, ILAS is an unmitigated tax disaster.

Normally, long-term capital gains are only taxed at a rate of 20% or less. With ILAS, gains can be taxed at a rate of 50% or higher.

But that’s not the worst part. The real nightmare comes from the reporting obligations.

For example, if an American owns a portfolio bond, each fund within the policy has to be reported separately on multiple different forms. If the adviser was churning funds in order to generate commissions, each churn necessitates additional tax forms. 

Due to the complicated layers of fees and bonuses, currency fluctuations, and lack of information provided by the insurance companies and fund houses, calculating investment gains and losses is nearly impossible for the average person. The US tax authority (the IRS) estimates that one tax form, 8621 for PFICs, takes over 20 hours to fill out. Each fund in a portfolio bond requires its own 8621 form. In order to save time and avoid making mistakes, policyholders are often left with no choice but to hire an accountant, which can cost thousands of dollars or more. 

Due to the headache and high costs which are involved, Americans should never invest in ILAS. It is guaranteed to be a money-losing, time-wasting fiasco.

Skandia MCA - Consult with Your Financial AdviserWARNING: Many ILAS brochures advise prospective customers to discuss tax issues with their financial adviser before making a decision. This is dangerous advice. Investors should discuss tax issues with a tax professional—not a poorly-regulated, unaccountable, commission-driven insurance salesman, who might be tempted to lie to close a sale.

The IRS annually publishes a list of “dirty dozen tax scams“. Offshore life insurance is listed every year under “Hiding Income Offshore”.

FATCA Will Expose Those Who’ve Failed to Report

FATCA, the Foreign Account Tax Compliance Act, went into affect on July 1st of this year. All foreign financial institutions, including insurance companies that issue ILAS products, are now required to hand over the account information of their US clients to the US government (unless the accounts have a value of less than $50,000 USD). This means the IRS will soon discover which ILAS policyholders have not been reporting their ILAS policies.

Even if policyholders failed to report because they thought they didn’t need to (because that’s what their so-called financial advisers told them), they will still face severe penalties. They’ll have to pay all their unpaid taxes, interest on the unpaid taxes, and gargantuan fines. They might also be charged with tax fraud.

Lawsuits Already Emerging

This blog post was inspired by the story of an American family that recently sued their adviser for mis-selling them some ILAS products. The case was settled out of court.

Before the case was settled, the family had racked up hundreds of thousands of US dollars in legal and accounting bills. (Their accountant had to prepare nearly 50 separate 8621 forms!) The family still doesn’t know how much they’ll need to pay the IRS in penalties.

The family’s adviser, a British man, had promoted himself as a specialist in tax planning. Unfortunately, neither he nor anyone at his company knew anything about the tax implications of ILAS for Americans. In defending its recommendation to the family, the company admitted that it had sold ILAS to hundreds of other Americans, but it claimed that none of those other clients had any tax problems.

More likely, none of the clients knew they had any tax problems.

As part of the settlement, the family had to sign a confidentiality agreement to never talk about their case again.

The author of this blog obtained a copy of the court documents before the case was settled. At the family’s request, he has agreed to not reveal any specific details about their case.

He has also been in contact with other American ILAS victims and has knowledge of a separate ongoing lawsuit.

If any other American victims find this blog post and want to know more, send an email to Lindell at

Important Note

ILAS isn’t the only product with punitive tax consequences for Americans. Any fund based outside the US is potentially problematic—including Hong Kong’s MPF schemes. See the comments at the bottom of THIS article.

Further Reading

The crucial implications of FATCA for U.S. Citizens in Hong Kong (Hong Kong Business – July 25, 2013)

“The implications are profound for any U.S. citizen, green card holder or tax resident who has non-U.S. financial accounts or other financial assets, such as life insurance, retirement plans and the like.”

“The failure to comply with [reporting] requirements can have significant, even potentially catastrophic consequences, including potential criminal prosecution for willful violations and substantial civil money penalties.

A willful FBAR violation can result in a penalty of 50% of the balance of any unreported account(s) per year, and the IRS is increasingly aggressive about this penalty. Even non-willful conduct can result in substantial monetary sanctions, and the assessment of tax and interest.

FATCA will largely eliminate bank secrecy for Americans worldwide and enable the IRS to engage in computerized matching of FATCA-compelled data against the IRS’s database of tax and other filings. Where the information does not match, the taxpayer is at risk for a civil examination or even a criminal investigation.”

Handling New IRS Foreign Reporting Requirements Without Doing Jail Time (Forbes – March 6, 2011)

“The penalty for failing to file an FBAR is $10,000 for each non-willful violation. If you willfully did not file an FBAR, the penalty can be much higher: the greater of $100,000 or 50 percent of the amount in the account for each willful violation. Plus, each year is treated separately. The $10,000 threshold for FBAR reporting is in the aggregate, not per account.”

“Here’s the problem with these foreign pension plans. If the IRS says your plan doesn’t qualify, annual income inside the plan is therefore taxable. This means you probably haven’t reported some foreign income each year. You inadvertently triggered the need for the IRS voluntary disclosure compliance program. That regime of penalties is very stiff and to be avoided whenever possible.”

A foreign accounting quagmire

“Deciding to come clean and enter the IRS voluntary compliance program isn’t easy, but it may be the easier part. It can be a nightmare to figure out the accounting and tax treatment when reporting the hidden income, gains and losses.”

“If you haven’t reported both foreign accounts and income deposited or earned in those accounts, consider joining the IRS voluntary compliance program. By doing so you may get to keep a small or large fraction of your offshore money and avoid criminal prosecution. Plus, you will sleep better at night.” [Note: This article is a bit dated. The IRS modified its voluntary disclosure program in June 2014. See article below.]

Life in a Post-FATCA World (Cross Border Planning – Sept. 2014)

“FATCA is indeed a game changer. In the past, when some overseas Americans were confronted with their non-compliance, they would question, “how will the US Internal Revenue Service (IRS) know”? FATCA now provides a clear answer.”

“Now is the time for those faced with non-compliance to address their situation no matter if that involves non-reporting of bank accounts or other financial assets or not filing past tax returns. Especially now that on June 18, 2014, the IRS has modified the Offshore Voluntary Disclosure Program (OVDP) and the streamlined filing compliance procedures. These changes are intended to ease the burdens and help taxpayers come into compliance.

One thing remains constant in the face of so much change; it is always better to come forward and into compliance than to be found out and receive demands from the IRS.”

PFIC, FBAR, FATCA (Mark Plummer, Acuma Hong Kong Ltd. – Sept. 11, 2014)

“As of July 1, 2014, pretty much all financial institutions including banks and insurance companies will report either directly to the US government or indirectly via their own government, all accounts in the name of US Persons over US$50,000.

There are estimated to be about 7 million US citizens residing abroad and it is a criminal offence not to file an annual tax return even if you owe nothing. One estimate is that only 7% of these are filing. That’s 6.5 million non compliant!”

“If you invest in any non US Investment Fund or offshore insurance bond or regular savings plan, then that will qualify as a Passive Foreign Investment Company (PFIC) and these are taxed at income tax rates plus penalty interest rather than the less punitive capital gains tax rates with mountains of paperwork for reporting and whilst in the past, you might have hidden it, not anymore will that be possible unless it’s below $50,000 and even then, some financial institutions will just play safe and report every dollar.”

US Tax Disaster – Offshore Funds, Life Policies, Portfolio Bonds (AngloInfo – April 23, 2012)

“Many American investors are confused by sales pitches of expat investment advisors who are unfamiliar with US tax laws. While it is true that no tax may be payable in the fund’s jurisdiction (Isle of Man, Guernsey or the UAE, for instance), significant US taxes are payable by the American owner. Confusion abounds when Americans invest in foreign mutual funds, life policies, savings plans, portfolio bonds and similar fund arrangements as compared to when they invest in US-based funds.”

“According to Vince Truong, a U.S. CFP® with Holborn Assets in Dubai, the investment that is most often touted by advisors, and which should cause the most concern for US taxpayers, are regular savings plans marketed as an alternative form of pension.  “These are not pensions but rather a contractual form of investing where the client is putting aside monies on a monthly, quarterly or some regular frequency, which then are invested into a variety of mutual funds.””

“A US investor in a PFIC must file various information and tax forms (e.g., Form 8621, Form 8938, FBAR).  Record-keeping and preparation time for the Form 8621, alone, is extremely complicated and a separate Form must be filed for each PFIC owned.  The IRS estimates that the time required with regard to Form 8621 for each PFIC investment is at 22 hours per year!  The tax preparation costs may certainly outdo the value of the investment.  To avoid possible penalties, the investor should examine the proper tax treatment and filings with a tax professional.

Just in case a taxpayer thinks of ‘ignoring’ the rules regarding self-reporting on PFICs, please note that under new tax legislation commonly referred to as FATCA,  commencing 2014, ”foreign financial institutions” will be required to report directly to the IRS about assets held by US persons with that institution. The FATCA rules will make it very easy for the IRS to cross-reference the information provided by the foreign financial institution with the taxpayer’s Form 8621  to determine whether taxes and reporting on the foreign fund have been properly undertaken.”

U.K. 101% Life Policies-Lump Sum or Savings – Tax and Reporting Problems and Tax for Americans (cfo2go – Oct. 31, 2012)

“U.S. Persons who Purchased a Retirement Plan, Savings Plan issued from the Isle of Man, Dublin, Guernsey or U.K. Life Insurance Company are holding a British Style Life Policy (lump sum or savings plan) which requires annual reporting as a PFIC and suffers annual taxes on the growth of 36.9% and huge annual penalties if not reported. The “U.K. Style Financial Advisor who sold thousands of these products had their clients sign a disclaimer that it is not a IRC 7702 or IRC 72 – BUT, they did not tell the customers “WHAT IT IS!”

It is a Passive Foreign Investment Company (PFIC)

The IRS knows what it is and will find U.S. Persons who have those policies because:

The Isle of Man, Dublin, Guernsey and all of the United Kingdom have signed an agreement to notify the IRS of all their U.S. clients and quite frankly the IRS knows what a U.K. Style 101% policy is; a British IFA Offshore Investment Products.”

American Expats: Don’t Get Caught by U.S. Tax Rules on Foreign Investments (Creveling & Creveling – April 10, 2013)

“Unlike U.S.-incorporated mutual funds, where capital gains are deferred until realized and which are subject to preferential long-term capital gains rates, PFICs are subject to a particularly punitive taxation regime by default (unless you actively choose the “mark-to-market” accounting method outlined below).

  • All distributed income is taxed as ordinary income at the highest ordinary federal tax rate (currently 39.6%).
  • Capital gains are converted to ordinary income and taxed at the highest current tax rate (currently 39.6%), regardless of your marginal tax rate.
  • Deferred gains, which are basically undistributed unrealized gains, are subject to a special non-deductible penalty interest charge that is compounded over the deferral period.

As a result, annualized tax rates on PFIC income can exceed 50% or more.”

I have a client with an “Off Shore” insurance policy. Is it a PFIC? (LinkedIn Forum – Feb. 2, 2012)

Offshore insurance policy tax treatment (Fairmark Forum – Apr. 26, 2010)

The Biggest Scam on Earth: Charlatan Financial Advisers, Megalomaniacal Fund Managers, and Parasitic Insurance Companies

Investors, and especially regulators, need to watch this video:

Regulators may not be able to wipe out all the lies and misinformation spread by insurance companies and fund houses, but they can at least ban the corrupt practice of paying kickbacks to self-proclaimed financial advisers. Commissions should be outlawed.

Financial advisers should be paid for giving objective advice—not for selling toxic waste.

Conflicts of Interest Compromise PIBA’s Ability to Handle Consumer Complaints with Impartiality

Letter to PIBA

Leung Chung Yan and DeAnn Tsang filed complaints against Convoy Financial Services Limited well over a year ago.

On September 26th (one month ago), PIBA promised to wrap up the ladies’ cases within two weeks. Two weeks passed, and no conclusion was reached. PIBA claimed that it needed more time, as it was awaiting supplemental information from Convoy.

Four weeks have now passed, and a conclusion has still not been reached. Hopefully this process won’t drag on for an additional year.

However long PIBA takes to wrap up these cases, we hope that PIBA will not ignore the fundamental issues which have been raised by the lady’s complaints. Some of the issues concern not just Convoy’s behavior, but the behavior of the entire insurance brokerage industry. Thus, if Convoy is guilty of misconduct, it logically follows that most other brokerages are also guilty.

Because PIBA is stacked with representatives from the industry, we are deeply concerned that PIBA’s investigation and judgement will be biased in such a way as to protect the interests of the industry, rather than the interests of Ms. Leung, Ms. Tsang, and consumers at large.

If PIBA issues a judgement which is irrational or which completely ignores certain aspects of the ladies’ complaints, we will immediately file a complaint against PIBA with the Insurance Authority. Hopefully PIBA won’t force us to do this.

To be clear, any judgement which PIBA issues will be considered unsatisfactory unless the points below are directly addressed. Each point explains how Convoy has breached a different section of PIBA’s Code of Conduct and Membership Regulations. None of these points are unique to the cases of Ms. Leung or Ms. Tsang. All points refer to practices which are widespread throughout the entire industry.

Convoy Places Its Own Interests Above Its Clients’ Interests

Advice Must Be in Clients' Best Interests

Excerpted from PIBA’s Code of Conduct for brokers conducting ILAS business.

ILAS products are never in the best interests of clients. The fees are so obscenely high that they cause investors to lose about half their retirement funds if the products are held for more than a couple of decades. If the products are only held for a short period of time, then exit penalties will destroy as much as 100% of investors’ contributions. Investors are always better off purchasing mutual funds directly, rather than through an ILAS policy. 

Insurance brokers should be well-aware of the toxicity of ILAS products, since it is their job to know such things. To be compliant with PIBA’s code of conduct, brokers should always advise clients to steer clear of ILAS products. If brokers want to help clients buy funds, then they should obtain an SFC license (if they don’t already have one), so that they can sell funds directly (not through ILAS).

It is blindingly obvious that the only reason Convoy or any other broker sells ILAS is to benefit themselves at the expense of clients. No other investment product pays a higher commission.

Convoy Accepts Payments Which Are Unfair, Unreasonable, and Disproportionate to the [Dis]Service Rendered to Clients

Fees and Remuneration Must Be Fair and Reasonable and Charachterized by Good Faith

Excerpted from PIBA’s Code of Conduct for brokers conducting ILAS business.

Ms. Leung and Ms. Tsang were sold 25-year ILAS policies. The commission which Convoy accepted was roughly equal to 1260% of the ladies’ first investment. To put it another way, Convoy was paid for 25 years of service before that service was provided. Convoy did not inform Ms. Leung or Ms. Tsang about the massive secret commission, nor did Convoy explain how the commission was financed—by defrauding them out of their first years of savings.

If Convoy had sold funds to these ladies directly, Convoy’s commission would have been at most 5% of the first investment. Convoy would not have been paid for any service in advance. Convoy would have continued to receive commissions only if Ms. Leung and Ms. Tsang were satisfied with Convoy’s service.

Secretly charging 25 years of fees before providing 25 years of service is neither fair nor reasonable. It is extremely disproportionate to the (dis)service being rendered, since 25-year ILAS policies are toxic, fraudulent, high-cost, and financially destructive.

Convoy Does Not Disclose Material Facts Regarding the ILAS Products It Sells

Broker Must Know the Product and Disclose All Material Facts

Excerpted from PIBA’s Code of Conduct for brokers conducting ILAS business.

Convoy did not disclose all material facts regarding the 25-year ILAS policies it sold to Ms. Leung and Ms. Tsang.

  1. Convoy did not disclose that the ladies’ first years of savings were not saved, but were instead swallowed by a “smoke and mirrors” fee structure.
  2. Convoy did not disclose that most of the units in their initial account, including bonus units, would be eaten by fees.
  3. Convoy did not disclose that their account value grossly misrepresented their return on investment and concealed the fact that they suffered a near 100% loss during the initial period.
  4. Convoy did not disclose that, historically, 25-year ILAS policies have been surrendered at horrendously high rights, resulting in massive exit penalties.
  5. Convoy did not disclose that ILAS is the worst possible way to invest in mutual funds, since every other option is astronomically cheaper and less risky.
  6. Convoy did not disclose that it would receive 25 years of indemnifed commissions.

Convoy Does Not Disclose Conflicts of Interest

Conflicts of Interest Must Be Avoided or Disclosed

Excerpted from PIBA’s Code of Conduct for brokers conducting ILAS business.

  1. Convoy did not disclose that it would receive indemnified commissions for selling ILAS. Indemnified commissions create a conflict of interest by which the adviser has an incentive to recommend policies with longer lock-in periods, which are far more dangerous for clients. (A 25-year policy pays a commission which is five times larger than a commission for selling a 5-year policy. However, the 25-year policy is far more likely to be surrendered, and the penalties are far worse. It is lucrative for the adviser but catastrophic for the client.)
  2. Convoy did not disclose that selling funds through ILAS paid much higher commissions than selling funds directly. Larger ILAS commissions create a conflict of interest by which Convoy has a financial incentive to promote the worst option for the client.
  3. Convoy did not disclose to Ms. Leung that her adviser, Ms. Lau, was not licensed to advise on or sell mutual funds directly, thus severely limiting the types of recommendations she could provide, and biasing her advice towards ILAS (the worst option).

Convoy Provides Its Services in a Dishonest and Unforthright Manner

Honesty and Fairness

Excerpted from PIBA’s Code of Conduct for brokers conducting ILAS business.

If Convoy conducted its ILAS business in an honest and forthright manner, then Convoy would exit the ILAS business. ILAS products are toxic for consumers. The only reason Convoy is able to sell ILAS is because Convoy misrepresents the “benefits” of owning ILAS and hides information about commissions, the impact of charges, and alternative investment options.

Convoy’s Name Is Deceptive

Name of Company Must Not Deceive

Section 2, Paragraph (d) of PIBA’s Membership Regulations.

Convoy Financial Services Limited is an insurance brokerage, yet its name suggests that it offers a broader scope of services, advice, and products than it actually does. In order to be compliant with PIBA’s Membership Regulations, Convoy would need to revise its name to something that is not deceptive, such as Convoy Insurance Services Limited.

We hope that PIBA will enforce its regulations and require Convoy to change its name.

Bestselling Author Slams Insurance-Linked “Donkeys” and Commission-Hungry “Rip-Offers” in Latest Book on Investing

Cover - The Global Expatriate's Guide to Investing

In The Global Expatriate’s Guide to Investing, Andrew Hallam cuts through the lies propagated by sleazy snake oil salesmen in the financial services industry and explains why actively managed mutual funds—and especially investment-linked insurance policies—are ripoffs.

At various points, Hallam refers to ILAS schemes as “offshore donkeys” and the advisers who sell them as “rip-offers”. He lists several culprits by name.

Guilty insurance companies include: Zurich International, Generali, Friends Provident, Standard Life, Royal Skandia, Aviva. 

Guilty brokerages include: Convoy Financial Services, the deVere Group, Montpelier Financial Consultants, Austen Morris Associates, Globaleye Financial Planning, the Henley Group, Gilt Edge International, Warrick Mann International, the Alexander Beard Group, SCI Group Ltd., the Sovereign Group.

Hallam explains:

“Advisors selling [ILAS] products earn commissions high enough to make a cadaver blush.”

“Recognizing a winning lottery ticket when they see it, many expatriate advisors flog the products exclusively. To a hammer, everything looks like a nail. Consequently, these expensive, inflexible platforms have spread like pandemics among global expats.”

They’ve also spread like Ebola among local Hong Kongers and Singaporeans.

Chapter 6 of Hallam’s book is entirely devoted to exposing the evils of ILAS. It contains multiple stories which were recently reported in the Hong Kong press and on this blog.

In one section, Hallam takes a shot at the vile values of IFA coach, Frank Furness, who proclaims, “For me, [being a financial adviser is] the best job in the world. Where else can I go out and meet somebody, drink their coffee, eat their cake, and walk out with $5,000 in my pocket? No other business.”

[See point 4 in the video below, where Furness talks about his “passion”.]

Original Video – More videos at TinyPic

Hallam’s book is informative not just because it warns investors about which advisers, companies, and products to avoid. More importantly, it tells investors which advisers, companies, and products to seek out.

The book contains an up-to-date list of low-cost brokerages and ETF index funds on stock exchanges across the globe. In plain language, the book explains how (and why) to diversify fund holdings. For investors who feel they don’t have the discipline to do-it-themselves, Hallam provides of a list of “advisers with a conscience” who shun actively managed funds and instead help their clients create and maintain portfolios of low-cost index funds.

The book is primarily targeted at Western expats of various nationalities, but Hallam also devotes a chapter to giving tips to Asians. For example, he points out that buying from the Hong Kong stock exchange is cheaper than buying from the Singapore stock exchange, due to lower bid/ask spreads. He also warns locals to be wary of purchasing from US stock exchanges, since fund holdings valued above $60,000 USD could be subject to US estate taxes when investors die. He names the Canadian and British stock exchanges as attractive alternatives, since foreign investors aren’t required to pay estate taxes.

A Takeaway for Regulators

As long as advisers can earn more money from selling pseudo-insurance products and actively-managed mutual funds (as opposed to low-cost index funds), advisers will continue to fleece investors at every opportunity. This will cause millions of investors to retire poor, leaving taxpayers to pick up the tab when retirees can’t pay for their own healthcare and living expenses.

The best way to effectively preempt this looming crisis is by banning remuneration practices which reward advisers for selling exploitative products. Until such reforms are in place, regulators need to make an effort to spread knowledge and raise financial literacy among the general public. 

If regulators are themselves uninformed about the basic principles of investing, they will find Hallam’s book to be a useful resource.

The ebook version of Hallam’s book is currently available at (see here). The hardback version will be in bookstore next week, on Oct. 27th.

Hallam constantly writes new articles for various magazines and newspapers. To find his latest work, visit his website,

Letter to the SFC (#2): Convoy Systematically Defrauds Investors by Misrepresenting the Licensing Credentials of Its Advisers

Section 114 of the SFO forbids any corporation or its representatives from operating a business that involves dealing in or advising on securities (or holding themselves out as doing so) unless they possess an SFC license. Offenders face up to $5 million in fines and 7 years imprisonment.

Half of Convoy’s Advisers Do Not Have an SFC License

Convoy is a large financial advisory company listed on Hong Kong’s stock exchange (stock code: 1019). One of its subsidiary companies, Convoy Financial Services Limited, is an insurance brokerage licensed under PIBA. Another subsidiary, Convoy Asset Management Limited, is licensed with the SFC.

On page 20 of Convoy’s latest semi-annual report to shareholders, there is a chart showing the license records of Convoy’s 2,200 Hong Kong-based advisers:

Convoy Consultant Licensing Record June 2014

49% (roughly 1,100) of the advisers do not have an SFC license, which means they are not able to sell or advise on SFC-regulated investment products. They can only sell and give advice on investment products that are issued by insurance companies.

Because these 1,100 advisers work purely on commissions, they only earn money when they make an insurance sale. They are paid nothing if they advise a client to speak with a colleague who is more qualified and able to advise on a broader range of investment products. Consequently, these advisers have a strong incentive to exaggerate the attractiveness of insurance products and to hold themselves out as being more qualified and unbiased than they really are.

Advisers who have both an SFC and a PIBA license are only slightly less conflicted. They have little incentive to recommend SFC-regulated investment products, since insurance commissions are obscenely higher.

As a result, Convoy and its advisers have historically focused on flogging ILAS, an insurance product which is widely regarded to be a scam.

Convoy's ILAS Commissions

Data was obtained from Convoy’s IPO prospectus and its annual reports to shareholders.

Convoy’s Website

Potential Convoy customers are likely to obtain most of their information about Convoy through its website.

The home page states, “Convoy deals with each customer’s particular needs through a platform with comprehensive product coverage“. The menu contains links not just to MPF and Insurance, but also to Funds and Securities & Futures

Mobile Screenshot - Convoy's Home Page

Screenshot of Convoy’s home page taken on Oct. 14, 2014. Notable sections have been circled in red.

Under the section, Why Convoy, if one clicks on the link, Independent Financial Advisers, one is brought to another page (shown below) which states, “There are many financial products from the whole of the market, but how do you know which ones best suited your needs?” The implied answer is to talk to one of Convoy’s advisers. They will allegedly “act [in] the client’s best interest and be independent from all product providers“. They will also provide “professional and impartial advice on financial planning“. 

Mobile Screenshot - Why Convoy - IFA - Highlighted

Screenshot from Convoy’s website taken on Oct. 14, 2014. Notable sections have been circled in red. Note that Convoy Financial Services Limited (circled at the bottom) is an insurance brokerage only licensed under PIBA. It can only sell insurance products.

When Convoy claims to deal with “each customer’s particular needs through…comprehensive product coverage” and to offer “impartial advice” about “financial products from the whole of the market“, Convoy is implying that all of its advisers are SFC-licensed.

Convoy’s website contains no disclosure that half of its advisers are not. Nor does it disclose that all of its advisers, including those with an SFC license, have a huge financial incentive to recommend ripoff insurance products, due to much higher commissions.

If Convoy’s advisers were truly “independent from all product providers“, as Convoy advertises, then the advisers would not accept commissions, and they’d all be fully licensed.

Screenshot of Convoy’s Website in 2011

Screenshot of Convoy's Website - Oct. 2011

Above is a screenshot of Convoy’s website from Oct. 2011. The website has remained largely unchanged for the past three years. The screenshot was excerpted from the “User Guide” shown below.

Convoy Online Guide for Clients - Highlighted

An Analysis of Convoy’s “Financial Needs Analysis”

When a consumer meets with a Convoy adviser, the first thing the adviser does is help the client fill out a financial needs analysis (FNA). As its names suggests, the FNA form is supposed to help determine what type of product (if any) the client needs. The form does not presuppose that the client needs an insurance product or an SFC-regulated product, but it does presuppose that the adviser is licensed to offer advice on both types of products, even if the adviser is not.

Below is copy of Convoy’s FNA in 2012. It was filled out by Leung Chung Yan, whose story was reported in the South China Morning Post last year, in an article titled, “Hong Kong Consumers Angry After Being Sold Complex Insurance Product ILAS“.

Convoy’s FNA

Part I

The very first sentence in Part I of the FNA states, “Being an independent financial advisor, we need to provide unbiased analysis for different customers and recommend composite financial strategies for them.” This statement suggests that the analysis has no bias towards any particular products, including insurance products.

However, the adviser who penciled in the form (Lau Wai Tak) did not have an SFC license. She only had a PIBA license.

FNA Part 1

Part II

Part II of the FNA is labeled, “Insurance Cover Questionaire”. These two pages have been crossed out and marked NA (not applicable)—even though the adviser only had an insurance brokerage license.

Part III (A)

Part III (A) of the form is labeled “Suitability Questionaire”. The stated purpose of this section is to “help you assess your attitude towards risk and investment resources and objectives before your selecting financial / investment products“. The section has 12 questions, and it mentions the word “investment” 25 times. Some of the questions ask about bonds, stocks, commodities, futures, and funds, even though the adviser is not licensed to advise on these products.

FNA 5 Highlighted

FNA 6 Highlighted

Part III (C)

Part III (C) of the form appears to have been badly mislabeled. These two pages are not supposed to be given to the client until after the FNA is completed and a product has been recommended. Presumably, the adviser gave these pages to Leung Chung Yan in the correct order, despite the bizarre labeling.

Part III (D) & the Customer Declaration

Part III (D) of the FNA was cut and pasted from a circular issued by HKFI (the Hong Kong Federation of Insurers). This section of the form specifically says it is “for ILAS” and that it is “required by HKFI“.

For ILAS Required by HKFI - Highlighted

Probably 95% of consumers will not know what the acronyms ILAS and HKFI stand for unless the adviser explains their meaning.

Q1 asks, “What are your purposes of buying this product [i.e., ILAS]?”

Q1 Purpose for buying ILAS - Highlighted

When answering this question, the client has not yet agreed or expressed an intent to buy any product yet, including ILAS. The adviser is still in the middle of the FNA process and is not yet in a position to make a recommendation—assuming that the analysis is really unbiased, as is claimed in the first sentence of Part I.

For the reasons just stated, Section D should not be located in the initial FNA. It should only be given to the client after the adviser has determined that ILAS is suitable and preferable to other products.

Immediately below Section D is the Customer Declaration. It states, “the above Risk Profile process is for the purpose of helping me to assess my attitude towards risk and investment resources and objectives before selecting financial / investment products“.

Customer Declaration

This statement contradicts Section D directly above it, since Section D presupposes that ILAS has already been selected.

Most consumers likely won’t notice this contradiction since they won’t understand the acronym “ILAS”. But if they did spot the contradiction, they would likely believe that HKFI is responsible (not Convoy), since Section D’s questions are said to be “required by HKFI“.

Despite the inconsistencies on this page of the FNA, consumers should still expect that their adviser’s analysis will be unbiased, since the first sentence of Part I explicitly says so.

FNA 9 Highlighted

Parts IV, VI, & VII

Part IV of the FNA is the actual analysis. After helping the client (Leung Chung Yan) fill out the FNA, the adviser (Lau Wai Tak) recommended that Ms. Leung buy an ILAS product—the only type of investment product which Ms. Lau was licensed to sell.

Financial Planning Analysis - Highlighted

None of the FNA forms disclosed that Ms. Lau was unlicensed to advise on SFC-regulated investment products.

[NOTE: According to Schedule 5 of the SFO, advising on securities would include advising someone to NOT buy securities, such as mutual funds, and to instead buy ILAS.]

Part VI of the FNA is the Disclaimer. It’s the only section which mentions Convoy’s subsidiary companies. It refers to the adviser, Ms. Lau, as a representative of the “Convoy Group”, which implies that she represents all of the company’s subsidiaries, including Convoy Asset Management Limited, which is licensed under the SFC. Actually, Ms. Lau only represented Convoy Financial Services Limited, an insurance brokerage.


Part VII is the Declaration. It states that the FNA is “for the purpose of enabling my Financial Consultant to identify my needs and to determine the suitability of particular financial products“. This statement reaffirms that Section D of Part III (labeled “for ILAS“) should not have biased the analysis towards ILAS.


However, the analysis was biased for a different reason: Ms. Lau was not licensed to sell any other investment products.

FNA p10 Highlighted

Concluding Remarks about the FNA

The purpose of analyzing the above FNA was not to focus criticism on Ms. Lau Wai Tak. She was inexperienced and freshly hired when she helped Leung Chung Yan fill in the above forms. Ms. Lau, like hundreds of other Convoy advisers, probably did not realize that she did anything wrong.

However, Convoy’s executives are fully aware that they systematically misrepresent the qualifications and impartiality of their advisers, both on their company’s website and on their FNA forms.

They have no excuse for issuing FNA forms that do not have a disclosure section about their advisers’ licensing credentials (or lack thereof).

For this, and for the misleading claims on their website, they should be held accountable.

Recap: A Five-Step Fraud

Step 1: Convoy falsely advertises that all of its advisers are more qualified and impartial than they really are.

Step 2: After a consumer is attracted by the false advertising, a Convoy adviser schedules a meeting with the potential customer. Half of the time, the adviser only has an insurance brokerage license.

Step 3: The adviser conducts a financial needs analysis, pretending that the analysis is unbiased. The adviser also pretends that he/she is more qualified to evaluate the client’s needs than he/she actually is. The adviser does not disclose that he/she does not have an SFC license and can’t advise on most investment products.

Step 4: The adviser recommends an investment-linked assurance scam (ILAS), the only investment product that he/she is licensed to sell.

Step 5: After the adviser successfully closes the sale, the insurance company pays a massive commission to Convoy. Convoy keeps most of the commission and passes the rest to the adviser.

Letter to the SFC (#1): Why Did the SFC Publish Blatantly False Information about ILAS in a Circular Meant to “Clarify” Licensing Requirements?

The SFC issued a circular on 13 August 2009 which stated that the SFC did not regard sales of ILAS as falling under the SFO definition of “dealing in securities”, meaning that companies or people who sell ILAS do not need an SFC license.

Schedule 5 of the SFO defines “dealing in securities” as:

making…an agreement with another person, or…attempting to induce another person to enter into…an agreement…the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities

To support its view that selling ILAS does not constitute “dealing in securities”, the SFC gave the following rationalization, which contained three blatantly false claims (highlighted in red):

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

Many ILAS policies, such as portfolio bonds and “101 plans”, have effectively zero life cover. When policyholders die, they only get an extra 1% of their account value, which is a mere fraction of the exorbitant annual fees. The only possible reason for buying such policies is for investment—not life cover.

One doesn’t need to read the policy documents to determine that some ILAS are “first and foremost” investment products. One can just read their names:

  • The Executive Wealthbuilder Account
  • Fortune
  • FORTUNE Builder
  • Harvest Wealth Investment Plan
  • Wealth Regular Investment Savings Plan
  • International Investment Account
  • International Wealth Account
  • Manulife Wealth Creator
  • Premier Investment Plan
  • PRUlink smart wealth builder
  • PRUsaver Investment Plan
  • Rainbow Investor
  • Rainbow WealthMaster
  • SunWealth
  • SUPRA Savings and Investment Plan
  • SwissInvestor
  • SwissWealth
  • Treasure Accumulator
  • Uniflex Investment
  • “Wealth Accumulator” Plus
  • Wealth Amplifier Investment Plan
  • Wealth Builder
  • Wealth Express Invest Plan
  • Wealth Plus Invest Plan
  • Wealthmaster Plan

Some insurance companies who sell ILAS don’t even call themselves insurance companies. Standard Life calls itself as “a major long-term savings and investment company”.

Standard Life's Self-Description

Excerpt from Standard Life’s Harvest 101 ILAS brochure, which the SFC authorized.

Before buying an ILAS policy, consumers are required to fill out a Financial Needs Analysis form. The first question is: “What are your purposes of buying this product?”

Most people tick “Savings” or “Investment”, not “Life Protection”.

FNA - Purpose for Buying ILAS

Excerpt from a Financial Needs Analysis Form which was given to a victim of Convoy Financial Services Limited

The SFC authorizes all ILAS policies and their accompanying documents, so the SFC should be well-aware that most ILAS policies are investment products with effectively zero life cover. 

So why would the SFC deny that the purpose of buying an ILAS policy is for investment?

Either the SFC was extremely negligent in its due diligence, or else the SFC was lying. Whichever the answer, it calls into question the SFC’s conclusion that ILAS sellers do not need an SFC license.

The penalty for dealing in securities without a license is severe—up to $5 million in fines and 7 years imprisonment.

The seriousness of this issue demands an immediate response.

The SFC needs to reassess its understanding of ILAS and its views on whether those who sell ILAS need to be SFC-licensed. The SFC should then publicly reaffirm or revise its views as stated in the August 2009 circular. Lastly, it should apologize for the unnecessary doubt and confusion it has caused with its nonsensical remarks.








Unbiased Advice




Convoy's ILAS Commissions - Chart - Translated into Chinese






























一名康宏前僱員Shawn Wong,確認康宏顧問向客戶推薦鎖定期最長的計劃是標準的做法。 








Convoy Executives






本文載於無分類,於2014522Lindell Lucy撰寫。

Why Insurance-Linked Savings Plans Violate Hong Kong’s Theft Ordinance

Section 16A Theft Ordinance

If Hong Kong’s fraud law were applied specifically to insurance products, it would read as follows:

If any [insurer or broker] by any deceit…and with intent to defraud induces [a consumer] to [buy a product], which results either-

(a) in [profits] to [the insurer and broker]; or
(b) in [financial losses] or a substantial risk of [financial losses] to [the consumer],

the [insurer and/or broker] commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years.

Only two questions need to be answered to determine whether an insurance product breaks the law:

1.  Is the product intentionally designed to deceive and defraud consumers?
2.  Do sales of the product result in one of the following:

(a) profits to the insurer and broker
(b) financial losses or high risk of financial losses to consumers?

If the answers to both questions 1 and 2 are yes, then the insurer and/or broker will face up to 14 years imprisonment.

Question 1

Are ILAS Savings Plans Intentionally Designed to Deceive and Defraud Consumers?

Countless news articles, blogs, and books have been devoted to exposing the fraudulent nature of ILAS savings plans. Titles include:

Some of the fraudulent aspects of ILAS savings plans are summarized below. An investment term of 25 years is assumed, since it is the most exploitative and most frequently sold term. The initial period is assumed to be 24 months.

  • Consumers sign up for ILAS savings plans because they want to begin saving and investing. However, these so-called “savings plans” immediately destroy savings. Most of the first two years of contributions are funneled into the pockets of insurers via a “smoke and mirrors” fee structure.
  • Insurers claim that the plans have no upfront charges. This is misleading because most of the first two years of savings are predetermined (upfront) to be eaten by charges.
  • Insurers lure consumers into their trap by offering a large amount of free fund units, known as “bonus units”. These massive “bonuses” make a consumer’s account value show an immediate and impressive profit. However, the profit is fictitious. Most of the “free” units, along with the other units that the consumer purchases during the initial period, are guaranteed to be clawed back by fees. The units only reside in the consumer’s account temporarily, just long enough to inflate its value and prevent the consumer from realizing that he or she has been scammed.
  • Insurers give extra “bonus units” to trick consumers into believing that a 25-year plan offers better value than a plan with a shorter contract. Insurers do not disclose that nearly 100% of 25-year plans are surrendered early, which triggers an exit penalty that results in huge losses for consumers and correspondingly large profits for insurers. [Note: This instantaneous transfer of wealth from consumers to insurers is imaginary and happens only on paper. The real transfer already occurred during the first years of the plan, but it was hidden by the phony account value and deceptive fee structure.]
  • During the initial period, the consumer is unknowingly buying units solely for the benefit of the insurer, since these units are predetermined to be absorbed by the insurer’s fees. In effect, the units do not belong to the consumer—they belong to the insurer. However, the consumer’s account value is based on the value of these units, which gives the consumer the false impression that he is profiting from units that do not actually belong to him.
  • In other words, the account value indicates that the consumer is saving money and making huge profits, when he is in fact being scammed out of almost all his savings.
  • If the plans were not deceptive (not fraudulent), the account value would read $0 during much of the first two years, and the policy documents would clearly state that the insurer imposes an upfront fee roughly equivalent to the first two years of savings, regardless of whether the consumer’s annual savings are as little as $1,000 or as much as $1,000,000.
  • Without disclosure to consumers, insurers pay 25 years of commissions upfront to brokers. This payment is tantamount to a bribe, and it is equivalent to more than one year of a consumer’s savings.

[Note: “Deceit” is defined in subsection (3) of Hong Kong’s fraud law. Deceit includes not just false or misleading statements, but also omission of material facts.]

Question 2(a)

Are ILAS Savings Plans Profitable for Insurers and Brokers?

The products are massively profitable. Insurers, with the help of brokers, deceive consumers into giving away nearly all their savings for the first two years of the plan. More than half the money goes to brokers, and the rest goes to insurers. Insurers then collect unjustifiably high fees on all money invested after the second year. 

Question 2(b)

Do ILAS Savings Plans Cause Financial Losses or High Risk of Financial Losses to Consumers?

Obviously. Consumers are deceived into giving away most of their savings for the first two years of the plan. In part, the money pays for the 25 years of commissions that insurers secretly give to brokers upfront.

Because brokers are paid for 25 years of service in advance, consumers are exposed to high risk that they will not receive the service they unknowingly paid for. The high risk is a result of the fact that (1) many brokers switch employers or leave the industry within a few years, and (2) a significant number of brokerage companies go out of business in less than 25 years.

Also, consumers are duped into buying a policy which nearly 100% of people surrender early. As any honest financial adviser will readily admit, it’s impossible to know with certainty what anyone’s financial circumstances will be 3 year down the road, much less 25. A job loss or emergency can happen at anytime. Locking consumers into a ripoff savings product for 25 years is therefore a recipe for disaster.

Insurers should have phased out toxic long-term savings plans long ago, but instead, they’ve unscrupulously continued to sell them while hiding information about historical surrender rates.

The Industry’s Weak Self-Defense

An abundance of evidence supports the view that ILAS savings plans are in violation of Hong Kong’s Theft Ordinance.

However, insurers and brokers will deny culpability. They will point to the fact that they required every customer to sign a statement saying that he or she read and understood the policy documents—as if this somehow legalizes fraud.

It doesn’t.

ILAS policy documents do not disclose numerous material facts, and a lot of the provided information is deliberately misleading. Customer signatures are therefore obtained illegally—by fraud. 

Illegal acts are not self-legalizing.

Example Declarations

The three declarations below are excerpted from Standard Life’s Harvest 101 application form. Consumers can read, understand, and agree to every word of these declarations, yet they still won’t have a clue that they are being scammed.

Consumer Declares that He/She Understands the Principal Brochure, Key Facts Statement, and Illustration Documents

Fully Understand the Principal Brochure, Key Facts, Illustration Documents

The Principal Brochure, the Key Facts Statement, and the Fee Illustration do not say that the bonus is bogus, that the first two years of savings are not saved, or that the units in the initial account are purchased for the benefit of the insurer. All of these documents imply the opposite. 

The documents also do not disclose that the insurer pays 25 years of commissions upfront to the broker, which is equivalent to more than one year of a consumer’s savings. Nor do the documents explain that the insurer secretly offers five times more upfront commission if the broker recommends an extremely toxic 25-year plan, as opposed to a less dangerous (and less profitable) 5-year plan. 

Consumer Declares that He/She Understands the Exit Charge

Understand Exit Charges

Consumers understand that the policy has a massive exit charge, and they accept this because they think they will avoid the charge if they wait 25 years to cash in their policy. What consumers do not understand, because insurers do not disclose it, is that the exit charge is, in effect, unavoidable. If consumers do not pay the exit charge, they are guaranteed to pay an equivalent or even greater amount of money as a result of annual administration charges which accumulate over 25 years. 

Often, brokers tell consumers that the exit charge is a positive feature of the policy. They claim that the charge “locks up” initial fund units for the benefit of policyholders, to force them to save for retirement, just like an MPF account. This is not true. Initial fund units are “locked up” for only one reason: to guarantee that most of them will be eaten by charges, which pay for the broker’s obscene commission and the insurer’s profit. It is not for the consumer’s benefit.

Consumer Declares that He/She Understands the Nature, Structure, and Risks of the Policy, as Well as the Fees and Charges

Understand Nature, Structure, Risks of Policy

Consumers understand that the policy has an exit charge, an administration charge, etc., but they won’t understand why the policy has this charging structure, since the reason is not disclosed. (The secret reason is to hide indemnified commissions and other upfront costs of the policy.)

Consumers will also “understand” that the policy has a huge bonus and no upfront charges. These features of the policy are deliberately misleading, so if consumers’ understanding is incomplete or incorrect, that’s because the insurer attempted to induce misunderstanding.

The policy also has hidden risks which consumers will not know, such as the fact that policyholders have a near 100% likelihood of surrendering a 25-year policy early, or that their brokers could run away with 25 years of secret commissions long before providing 25 years of service. 

Of course, consumers do not understand the fraudulent nature of the policy. If the product were advertised as a fraud, then it would no longer be a fraud, and it would soon seize to exist, since no one would buy it.

A Picture of Justice

ILAS savings plans are designed to earn huge profits for insurers and brokers at the expense of deceived consumers. The products are therefore fraudulent and break the law.

The millions of victims who were deceived into purchasing these products made their decisions based on incomplete and misleading information. They deserve to be informed of the truth, and if they wish, their policy contracts should be invalidated, accompanied by a full refund, plus interest. Those victims who’ve already surrendered their policies deserve to be fully reimbursed for their losses.

The executives who are responsible for creating and distributing these products should be punished to the full extent of the law. This would send a clear message to other crooks that consumer fraud will not be tolerated in Hong Kong.

Recommended reading:

Investment-Linked Assurance Scams Explained: A Look at How Insurance Companies Defraud Investors out of Years of Savings and Why They Could and Should Be Prosecuted




經過多番受騙、操控,甚至被利用作為欺騙親父的工具後,Shawn Wong正透過向監管機構及傳媒披露自身的經歷,為不平等的待遇伸張正義。  
































Shawn 和他數名朋友及認識的人都有如此遭遇。他表示:







































本文載於無分類,於 2014519Lindell Lucy撰寫。

Hong Kong, UAE, and Singapore Regulators Allow Insurance Companies and Financial Advisers to Openly Scam Consumers with Impunity

A few days ago, the United Arab Emirates’ national newspaper published a shocking article about local residents falling victim to insurance-linked investment scams. Just like in Hong Kong and Singapore, the UAE’s insurance industry is very poorly unregulated. Fraudsters have been able to operate openly without much worry that they’ll ever be held accountable for their crimes.

According to the article:

The UAE has…put many consumer protection laws in place over recent years, but one area that seems to have fallen through the cracks is investment schemes administered by insurance companies such as Friends Provident, Zurich and Generali. These are then sold – through financial advisory firms – to individuals who often possess little financial know-how and put a lot of trust in what they are being told by advisers.

…Matt Cowan, the regional director for the London-based Chartered Institute for Securities & Investments, a body that awards industry qualifications, says that there is currently no regulatory requirements in the UAE for wealth managers to be professionally qualified. And that opens the door for fly-by-night operators looking a quick buck at the expense of their clients.

…[A victim, Pete Manzi,] says advisers are able to act without fear of being taken to task because there isn’t a regulator that has clearly taken on the role of overseeing these types of investments. Neither has he been able to get any watchdog to address his grievances, he says.

“There is no one to go to,” says Mr Manzi. “I went to the administrator of the fund I was put into and they basically ignored me. They said tough luck. The problem in the UAE is that there isn’t a regulatory body and you can actually become a financial adviser without any qualifications. You can walk off the street and say you want to become one.”

Disturbingly, the same insurance companies who are scamming consumers in Hong Kong and Singapore are also scamming consumers in the UAE. These companies are also using the same products (25-year savings plans) and the same tricks (decades of secretly indemnified commissions, bogus bonus units, deceptive fee structures, and phony account values).

A managing director from Friends Provident was interviewed for the article and defended the practice of tricking consumers into paying decades of undisclosed commissions in advance. He also claimed that most brokerages — who collaborate in the fraud — are “respectable”.


Individuals who make a living out of deceiving others are despicable and deserve to rot in prison.

The governments of Hong Kong, Singapore, and UAE need to wake up and bring these crooks to justice.


Correction: A reader has pointed out that Japan, China, Thailand, Vietnam, etc. have been left off the list of countries with negligent regulators. Victims from all of these countries have been in contact with the author of this blog. Apologies to them!