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 lindelll@gmail.com.

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 Amazon.com (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, AndrewHallam.com.

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.

Disclaimer

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.

Declaration

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.

號稱香港最大獨立理財顧問康宏理財竟是龐大騙局

人稱「IFA」是指「獨立理財顧問」。第一樣我們要知道關於香港最大獨立理財顧問公司的事實,就是它並非是一間合法的獨立理財顧問公司。

「獨立」之定義

要做到真正的「獨立」,顧問在提供建議時不得存在任何利益衝突。這表示他不得接受佣金,因為此舉會構成一種動力,推薦客戶購買佣金較高的產品。顧問亦必須擁有可就市面可得的所有產品提供建議的牌照,從而他不會產生偏好,並只推薦某些產品。

在英國,這些將自己標榜為「獨立」顧問的先決條件更被收納於法律之中。若顧問並非真正獨立,他必需以「受限」(restricted)顧問自居,而且所有顧問,包括受限顧問,都不得接受佣金。 

獨立理財顧問的受託人責任

作為獨立理財顧問,他有法律及道德責任將客戶的利益置於個人利益之上。這表示他們需以最低的成本及承受最低的風險為前提,推薦有助客戶達成投資目標的產品。這亦表示他們要向客戶提供持平的建議,不容利益衝突存在。康宏在其產品申請表格中亦確認這觀點:

Unbiased Advice

康宏濫用「獨立理財顧問」的稱號

儘管康宏稱自己為「獨立理財顧問」公司,然而它並非「獨立」,且它沒有出售「理財建議」。它出售的是投資相連保險計劃,此乃冒充保險的產品,現可說是「詐騙」的代名詞。為了促進這個危害性的產品,保險公司大肆透過低劣手段向康宏支付龐大佣金,而這些佣金過往卻從未向客戶(亦即是受害人)披露。  

康宏出售投資相連保險計劃已有廿年,且在大多年度,這些保險計劃的佣金都幾乎佔了該公司100%的收益:

Convoy's ILAS Commissions - Chart - Translated into Chinese

數據取自康宏的招股章程年報

投資相連保險計劃的歷史和用途

投資相連保險計劃源自英國。大多投資相連保險計劃基本上只是以虛假的人壽保單包裝而成的基金平台。

根據一名不願公開姓名的英國獨立財務顧問指:「當所得稅和資本收益稅偏高時,以保險包裝而成的產品曾是極為符合稅務效益的投資方法。不過,英國逐步移除這些稅務利益,令投資相連保險計劃對大多英國居民而言的吸引力也愈來愈低。」

換言之,投資相連保險計劃主要是節稅產品。投資者購買這項產品,只有節稅金額能夠抵銷額外費用才稱得上是明智。經過時間洗禮,這些節省回來的稅項被逐步蠶食,少得對大多人而言,購買投資相連保險已不再是明智的地步。  

大多香港人都沒有理由擁有投資相連保險計劃

購買投資相連保險計劃的主因,是為了減少或延遲繳納資本收益及投資收入稅。由於香港人毋須支付這些稅項,所以他們根本沒有理由利用保險包裝基金投資。這只會增加不必要的高昂費用。      

如透過交易所買賣基金或Fundsupermart直接投資基金,不單收費低廉,程序也簡單得多。真正的獨立理財顧問應告知客戶這方面的資料。

康宏過往幾乎只向香港人出售投資相連保險計劃

雖然幾乎沒有香港人應該擁有投資相連保險,但康宏仍然無恥地向所有人大力推銷。根據其招股章程,截至20091231日,其98.2%的客戶都是長駐香港。

我們必須正視這些數據,因為這表示康宏已向眾多客戶作出不少損人利己的建議。

投資相連保險現今在英國的情況

有傳香港自我監管的保險公司及經紀商相互串通,以人為手段抬高投資相連保險的費用及佣金。英國投資相連保險計劃與香港不同,它們的定價比香港的相宜得多。

根據向筆者提供資料的英國獨立理財顧問表示,所有在英國的投資產品,包括投資相連保險計劃現時均以「批發」價出售。

鑒於已有法例禁止收取佣金,保險公司與經紀商已取消曾經用以秘密收回佣金的既高昂又不透明的費用。   

投資相連保險在香港的情況:臭名昭著的「儲蓄騙局」

在香港,剝削投資者最嚴重的投資相連保險計劃往往都稱為「儲蓄計劃」。(筆者稱之為「儲蓄騙局」。)這些計劃鎖定投資者供款長達30年。首兩年的存款絲毫不會保存,卻用作提前支付數十年的費用及佣金。這些資料都沒有向投資者披露。反之,這些事實都被騙人的費用結構和虛假賬戶結餘所刻意隱瞞。如投資者提早終止計劃,而事實上九成九投資者都會這樣做,保險公司及經紀商都不會退回這些費用及佣金的一分一毫。投資者會損失高達100%的投資額。這些產品極為危險,而最近也有一群顧問呼籲禁止這些產品在市場出售

由於這些儲蓄保險產品的佣金最高,故銷售人員銷售這些產品時,都比任何其他香港的投資相連保險落力。  

英國在二十年前已杜絕「儲蓄騙局」

該名英國獨立理財顧問亦表示,那些最不平等的投資相連保險計劃約在二十年前,已從英國市場杜絕。他表示因為稅收變動,加上強制佣金披露的法例在1995年引入,故這些產品都在外界忽略下被遺忘。他認為,這些產品仍存在於香港市場實屬醜聞。

對顧問有利,對投資者有害

因為過高的費用和佣金,所有香港的投資相連保險都不是好產品,但有些尤其比其他差。 

最惡毒的投資相連保險計劃產品,就是那些鎖定期最長的計劃。這是因為較長的鎖定期意味著投資者需承受較高的退保罰款,且蒙受退保罰款的風險也比鎖定期較短的計劃高得多。

此外,較長的鎖定期,亦相對為顧問帶來較高的前期佣金。若顧問出售一個鎖定期為5年的投資相連保險計劃,他便獲得5年預先支付的佣金。若他出售一個鎖定期為25年的投資相連保險計劃,他便獲得25年預先支付的佣金。

因此,投資者購買鎖定期越短的投資相連保險計劃,便越符合他的最佳利益,當然最好就是沒有鎖定期。相對地,顧問出售鎖定期越長的投資相連保險計劃,便越符合他的最佳利益。

這個推動力錯位的情況,造成巨大的利益衝突,可以說如顧問推薦鎖定期超過必要時間的計劃,便已構成盜竊行為。

康宏有系統地推薦最差的投資相連保險計劃產品

由於康宏的高管聲稱他們運營的是一間獨立理財顧問公司,這表示他們有法律責任將客戶的利益置於個人利益之上,且沒有藉口讓僱員出售鎖定期過長的投資相連保險計劃。但即使如此,他們就是允許這個行為。  

筆者曾經接觸多名康宏受害人,或聽聞他們的遭遇,他們都被遊說購買鎖定期至少達20年的儲蓄計劃,一個也不例外。

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。 

公開數據亦顯示這說法是正確的。

根據康宏2010年的招股章程,該公司一直銷售的產品,幾乎所有都由蘇黎世國際、標準人壽、友誠保險和忠利國際發行,這四間保險公司就是發行最為臭名昭著的儲蓄騙局:蘇黎世「豐盛人生」計劃標準人壽「盈聚101」計劃友誠「優裕」計劃忠利「前景投資壽險」計劃

康宏推薦的頂尖保險公司中明顯缺乏如萊斯基亞一類的公司,萊斯基亞提供市場上危險性最低的投資相連保險儲蓄計劃。例如,「靈變儲蓄計劃」的最低供款額相對較低(2,400港元)、無鎖定期,而且收費完全透明。在少有投資相連保險計劃適合客戶的情況下,如果獨立理財顧問沒有推薦,或至少提及這類產品,他便並無盡其本分。

康宏應被檢控

所有證據都顯示康宏幾乎敲詐每一位他們接觸的投資者,更肆無忌憚地違反其所謂的專業應有的一切原則。

筆者強烈認為幾乎所有曾經購買康宏的投資相連保險計劃產品的人,都能成功控告他們違反受託人責任。筆者有意在短期內驗證這一理論。  

康宏高管責無旁貸

Convoy Executives

從左至右:麥光耀(首席財務總監)、王利民(主席)、馮雪心(行政總裁)

王利民、馮雪心及麥光耀曾是康宏三名最大的股東,直至5個月前他們大幅拋售逾半所持股權。究竟理由何在?

此舉不難令人懷疑他們想在公司股價受一堆訴訟影響而急挫前,將虧損轉嫁予公眾股東,從而鎖定他們獲得的不義之財。

作為建立康宏的「建築師」,還有公司所作所為的主要受益人,當公司接近毀於一旦之際,高管實在不能挾帶數以百萬計的財富置身事外。監管機構、執法人員和媒體應阻止這結果出現。

[按此查看康宏現時的股價。]

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

投資相連保險醜聞加劇:前僱員向監管機構披露專業失德及能力不足的問題在香港最大型獨立理財顧問公司肆虐

康宏理財服務正面臨另一場公關噩夢

這次並非來自憤怒的客戶,而是來自氣憤難平的前僱員。

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。  

康宏專剝削缺乏經驗的年輕人 

Shawn表示,康宏有系統地聘請及剝削剛畢業又缺乏經驗的學生,特別羅致內地的年輕人,以便利用他們的簽證身份,與家人、朋友分隔異地,極渴望工作得到機會的心態,還有他們的純真,以及父母的社交網絡(「關係」)。 

儘管經紀人必須專注其在道德及法律上的責任,但這群康宏新丁都被安排接受一個完全只談銷售技巧,而絲毫沒有觸及受託人責任的培訓。Shawn表示:

「康宏並無提供任何有關保險中介人道德和倫理責任、投資者權利和權益,或[投資相連保險計劃]產品的重要條文及條款的培訓。培訓都只以銷售技巧作主導,令公司的顧問有意無意地以個人利益出發,違反職業操守,甚至[以虛假陳述]來誤導投資者。」

換言之,康宏專門挑選不諳投資的人羅致旗下。這些人都太年輕,未曾有機會掙錢,或學習如何處理工作。康宏便利用短期的銷售培訓來衝擊他們,教他們如何推銷投資相連保險這一個異常荒謬、複雜、危險、無意義,而且很多時都帶詐騙成份的投資產品。在缺乏對投資產品廣泛市場的認識下,加上不太理解自己需要銷售的產品,這些新員工都被誤導地標籤成「獨立理財顧問」,然後一併接受同一指令,再被推出門外努力推銷。他們都沒有薪酬,掙回來的錢全都來自佣金。這表示,如果他們推銷不到,便要乞求父母支持,或如Shawn一樣,向銀行借貸。 

推銷電話

Shawn表示康宏在培訓中教導僱員如何透過推銷電話「與客戶溝通,如何找出他們的潛在需要並加以利用,員工都分成不同小隊練習與客戶會面的情況。」

經過培訓後,員工都獲發載有潛在受害人高度私隱的個人資料,這些人都不知道自己的資料已被收集並售予騙子,而騙子就派員工濫用這些資料操控這些被蒙在鼓裡的受害人。據Shawn指:

「當我剛加盟康宏時,新人都會獲發名單,用來撥打推銷電話(我的名單包括本地及內地人士),當中包括聯絡姓名、電話號碼、地址、職業,有些更載有資產詳情(例如持有多少存款,持有那些類型的物業,駕駛何等座架),甚至如果最近有進行個人財富管理活動,都會包括其中。」

當看到資料是如此詳細時,Shawn感到十分驚訝,而當他將此事告知筆者時,筆者的反應也一樣。

向內地人推銷

Shawn來自內地,康宏特意培訓他針對內地人進行銷售,尤其是那些可能從不法途徑獲得財富的人士。

「康宏聘請來自內地的僱員不斷被灌輸要向客戶強調『獎賞』[即一個推銷騙局],還有避稅及保障『資產安全』的概念。而對『資產安全』的詮釋,便可能牽涉不法/不當的收入,甚至是洗黑錢。

筆者要求他詳細說明,他說:「投資相連保險計劃基本上是要人們投入大量金錢,並將之包裝成一個在避稅天堂註冊的保險產品,例如馬恩島。對內地的投資者而言,康宏令他們認為這是安全的產品,且難以追溯他們的財富。」 

利益衝突

Shawn表示佣金率與投資相連保險計劃的鎖定期成正比。這表示最危險的投資相連保險計劃產品便可產生最高的佣金。相對沒有那麼惡毒,而且透明度較高的產品,即那些沒有鎖定期的,「從來都不是顧問首要銷售的產品」。  

這表示康宏不單沒有教導這群無知的年輕「顧問」什麼產品較為適合客戶,更鼓勵他們推銷最差的產品。

Shawn解釋道:

「給予投資者更多的彈性,表示保險公司的經濟利益便會減少,所以他們會給予顧問較少佣金。顧問都不會對例如萊斯基亞『靈變儲蓄計劃』一類的產品感興趣。」 

虛假廣告宣傳

為此,Shawn認為康宏號稱自己是一間「獨立理財顧問」公司,是欺騙公眾的行為: 

「康宏經常聲稱選擇那間保險公司都無關重要,因為它可以完全為了投資者的利益行事,這完全是廢話。」

「康宏沒有告訴客戶,它只在佣金一樣的情況下,才認為選哪間保險公司都無關重要。」

「只要投資相連保險計劃是[顧問]銷售的產品之一就行,不論它是否適合客戶,投資相連保險都是他們第一個向潛在客戶推薦的產品,[因為顧問]可從這類產品獲得較多的佣金。」

「對於真正獨立的理財顧問而言,其底線就是不能與客戶存在任何利益衝突。因此,大多的情況下,顧問只在向客戶提供的服務中獲取報酬。」

「但我不明白的是,為何政府和監管機構會容許他們多年來一直利用『獨立理財顧問』的名義來矇騙公眾?」

這是一個很好的問題,尤其是這個欺詐行為在英國受法律監管,令這問題更為顯著。

Shawn的經歷

Shawn表示他從來沒有應徵康宏的工作。康宏某程度上取得他的資料,聯絡他,向他承諾美滿前途,再邀請他參加面試。

他們的推銷聽起來很有說服力。據說當時他的未來主管單在加入公司的首年已賺取6070萬。如果她做得到,他也一樣做得到。

每位「康宏人」都要面對一個障礙,就是通過6個月的試用期,其中此人一定要達到500萬元「保單價值」的銷售額。如果這些冠以「獨立理財顧問」的職場新鮮人未能達標,公司便慫恿他們要求父母購買500萬元的投資相連保險計劃,從而確保他們繼續「受僱」。 

Shawn 和他數名朋友及認識的人都有如此遭遇。他表示:

「即使我並未出售任何產品,他們仍然極力遊說我、催眠我,令我以為試用期只是小問題,我只需要多一點時間,然後康莊大道就在眼前,而且此時叫父母幫忙完全是值得的。」

Shawn的父親於201011月來港參加他的畢業典禮。途中,Shawn父與其子的主管曾在康宏進行漫長密談。會面後,60歲的Shawn父簽署了蘇黎世「豐盛人生」計劃,他需要在未來25年每月供款17,000港元(合共510萬玩)。這計劃明顯不適合像Shawn父這種年紀的人士,所以Shawn的主管指導他如何填寫資料,從而在申請處理期間不會引發任何惹人關注的警號。這包括虛報其父收入,從而看上來他是有能力承擔保費,即使事實卻不然。該名主管可能真正希望看到Shawn成功,但在關心他的前途以外,她應更著意其他的利害關係。由於康宏的架構像一個金字塔,其主管可從Shawn父購下的該份價值510萬元保單中分得佣金。甚至這名主管的主管的主管的主管都可分得佣金。

《南華早報》近日報導,保險公司支付經紀公司的佣金相當於定期供款的投資相連保險計劃產品之保單價值的4.2%。這表示康宏很有可能收取合共214,200港元的佣金。Shawn表示他獲得當中的1.5%76,500港元)。餘下的2.7%137,700港元)則由公司及高級管理層瓜分,要知道康宏並無給予Shawn任何薪酬,這是非常豐厚的投資回報。

因為康宏從不披露他們的佣金資料,因此Shawn亦不知道公司得到的佣金是如此龐大,近乎是他獲得的2倍。這筆龐大佣金最終會由「豐盛人生」保單首18個月的供款支付(即是這些供款已倒進大海,從此無法收回),但因為這些都沒有在保單文件中披露,加上混淆的收費和帶有欺騙成分的會計方法,把事實隱藏得很好,所以Shawn或購買保單的人都蒙在鼓裡。 

Shawn在康宏持續「受僱」多於一年,直至最後他發現,如他選擇不去扭曲他的對錯觀念,根本不可能憑此工作維持生計。他說:

「我不能相信,我明知親朋戚友及父母

投資相連保險計劃並無實際需要但仍要厚著臉皮』向他們推銷。我亦知道如果他們了解計劃的條款,或知道我對產品不甚了解,他們根本不會購買。」

此外,公司在培訓中教導他這樣介紹投資相連保險計劃:「(它們)是某種形式的避稅或供來自中國大陸的資本外流的工具。拒絕運用可能帶誤導性的銷售方法,是我在康宏銷售表現欠佳的原因之一。」

Shawn最後選擇離職。

「經過8個月的供款,我無法繼續下去(因為部份供款是由本人父親支付,其餘則由本人自己支付)……所以我要求父親停止付款……但我們無意取消保單,直至蘇黎世大約在6個月後向我發出一封信,表示保單已失效。從那時起,我們開始知道問題存在。」 

問題是,他們已付136,000元的供款,完全沒有存入所謂的儲蓄計劃。它們都給蘇黎世及康宏獨吞了。  

因為Shawn與父親沒有支付至少18個月的供款(稱為「初始供款」),蘇黎世會扣回若干支付給康宏的佣金的百分比,表示康宏會扣回若干支付給Shawn的佣金的百分比。Shawn的追回利益為42,900元。

「我在20135月收到康宏的電話,他們說數月前向我發出一封關於佣金回扣的信。但我一直沒有收到,所以要求他們再寄一次。」

Shawn收到後並回覆,解釋他如何被操控,又訓練不足,甚至被慫恿利用不道德的銷售方法。

「根據以上的事實(但這不是事實的全部),本人謹此要求免除任何需向康宏承擔的責任……而本人與父親則放棄索回上述投資相連保險計劃內相應的已付保費的權利,以作為交換的條件。否則,本人作為金融媒體的專業人士,為了公義,唯有利用僅有的資源保障利益,並為本人的損失保留進一步採取法律行動的權利。

請將貴公司的決定,以郵件或電郵通知本人。」  

康宏一直沒有回覆Shawn的函件。然而,接近一年後,他收到收數司的電話。

「我在20143月收到美利勤集團的電話時覺得非常意外。此事令我很不爽,所以決定要打破沉默,並打擊康宏對我做出一切不公正的行為。」  

有必要向傳媒揭發事件

Shawn父向蘇黎世寫了投訴信。蘇黎世回覆表示他們沒有做錯,並轉介事件予康宏。

當然康宏亦聲稱他們沒有做錯,於是Shawn寫信至保險業監督:

「康宏的代表清楚表示,公司過往處理類似的投訴時,從來沒有給予賠償……這令我擔心由於康宏和個別投資者的權力並不平等,在康宏的『內部調查』中,不論投資者是對是錯,康宏都會罔顧他們的利益。

Shawn覺得康宏會將事件當作其主管個人行為不當處理,然後會聯絡其主管,如果她不想償付Shawn及其父親,則康宏便不會有什麼行動,案件終結。

Shawn並不認為將所有責任推卸給其主管是正確的做法。他認為根本的問題比主管的行為嚴重得多。問題的癥結來自康宏聘用沒有經驗的人士,漠視給予他們適當的培訓以讓他們履行專業的職責,反而訓練和誘使他們利用道德敗壞的策略,不惜一切代價推銷產品。

Shawn表示:

「我相信當時我所屬的整個團隊都不清楚理解[初始供款期],即使是我的主管都不了解。(直至現在我仍然認為她並非故意欺騙我,她只是不完全理解實況。)」

Shawn對於康宏會承認責任不存厚望,而且向監管機構投訴亦只會徒勞無功。

「我知道就證監會規管的活動而言,這絕對是行為不當。但對於保險業而言,大多好像香港專業保險經紀協會這類機構都是以自我監管的形式經營,即使它可能是做出不道德的行為,違反操守準則,但我懷疑監管機構對它們是否有執法能力。香港專業保險經紀協會裡的人都是業內人士。他們不會就監管機構對他們業界的不當行為提出疑問而作出懲罰。」

Shawn認為他在沒有選擇的情況下唯有向媒體披露事件。於是他聯絡筆者,並歡迎筆者撰文發表他的經歷和文件。這亦都是他最近接受《南華早報》訪問的原因。

11日前,Shawn邀請了一名記者陪同前往康宏,他本來是要跟康宏商討可行的和解方案。Shawn沒有預先通知康宏,因為他覺得康宏會拒絕有記者隨行。

果然,Shawn的預感沒有錯。

「一如所料,他們拒絕對話。我覺得該名法律及合規部的職員感到錯愕,更有點不爽。」

所以,會議並無按原來計劃進行,Shawn便將一封已預先準備的信,交予該名法律及合規部職員。Shawn說:  

「我不能在沒有證人的情況下參與會議,如果只有我自己跟你們的法律人員對話,我不認為我的最佳利益會得到保障。」

Shawn在信內列出各項他願意進行和解的可行方法,並要求康宏在7日內,即515日或之前回覆。

516日,Shawn尚未收到回覆,所以他致電康宏查詢。他們表示在前一天寄出書面回覆,可能Shawn尚未收到。但數小時後,康宏再度致電Shawn,表示他們其實未寄出回覆,他們會在當日稍後時間寄出。

到了519日,Shawn還是未有收到答覆,筆者問他會否希望延遲發表有關他的經歷的文章。

他說:「無需要,他們完全是咎由自取。」

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”.

Baloney.

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!