Letter to PIBA
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
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
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
Convoy did not disclose all material facts regarding the 25-year ILAS policies it sold to Ms. Leung and Ms. Tsang.
- 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.
- Convoy did not disclose that most of the units in their initial account, including bonus units, would be eaten by fees.
- 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.
- Convoy did not disclose that, historically, 25-year ILAS policies have been surrendered at horrendously high rights, resulting in massive exit penalties.
- 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.
- Convoy did not disclose that it would receive 25 years of indemnifed commissions.
Convoy Does Not Disclose Conflicts of Interest
- 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.)
- 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.
- 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
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
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.