Monthly Archives: December 2014

Undercover SFC Investigation Confirms that Exploitation of Retail Investors Is Widespread, But SFC Is Silent on How It Will Assist the Victims

Yesterday, the SFC released the results of its second undercover investigation into the sales practices of SFC-licensed corporations. The SFC found that mis-selling was widespread, apparently worse than in 2010, the year of its first study.

All of the misconduct was apparently motivated by intermediaries’ desire to sell products which paid higher commissions. In particular, the SFC noted that ILAS was being aggressively promoted by SFC-licensed intermediaries who also held an insurance brokerage license:

Mis-selling of ILAS

SFC noted that some intermediaries failed to rationalize why they recommended the products they did. The true reason, of course, was to line their own pockets at their victims’ expense.

Sales Reps Did Not Rationalize Recommendation

SFC also noted that some intermediaries, in effect, filled out the financial needs analysis forms for their victims. This allowed intermediaries to recommend unsuitable products which paid higher commissions—without getting caught.

Sales Reps Coached Clients Through FNA

At the conclusion of its paper, SFC outlined a “Way Forward”. Sadly, SFC only offered a recommendation that corporations should do better and implied it would have closed-door secret meetings with the executives of crooked companies, whose names have been kept anonymous, for their protection. The SFC said nothing about attempting to locate the victims of these companies and informing them of their right to file a complaint and seek compensation.

Inadequate Way Forward

A More Responsible “Way Forward”

SFC has strong evidence that millions of Hong Kongers have likely been mis-sold in recent years. Consequently, the SFC should focus a significant amount of its resources towards helping victims, most of whom probably have no idea that they were taken advantage of.

SFC has also admitted that the financial industry has become more predatory, and that recently introduced regulations have failed to protect retail investors. Clearly, the SFC needs to try something different, something that works.

It is widely known that mis-selling is motivated by the conflicts of interest inherent in the commission-based advisory model. This is why the UK decided to ban commissions and other forms of conflicted remuneration. 

Just a couple days ago, Martin Wheatley, the former CEO of the SFC and current CEO of the FCA (the British regulator), declared that the UK’s commission ban has been successful at reducing mis-selling (what he called “product bias”).

Hong Kong should start preparing for a move in the same direction.

MPFA and SFC Should Amend Codes of Conduct to Rein in Cowboy Insurance Brokers

No Double Standards

In Hong Kong, insurance intermediaries are self-regulated, which means that, in effect, they are not regulated at all. They write their own rules, and they break them as often as they please. Over the past few decades, they’ve scammed millions of consumers, and to date, they’ve gotten away with it.

Insurance intermediaries, despite their name, are actually engaged in the sale of investment products. In 2013, Hong Kong’s so-called life “insurance” companies earned 99.3% of new premiums through the sale of investment products such as ILAS, whole life, and endowment policies. (Only a small fraction, if any, of these products’ premiums pay for life coverage).

Independent experts from around the world agree that investment products sold by insurance companies are ripoffs, because fees and commissions are obscenely excessive and not clearly disclosed.

“Pure” Investment Products

In Hong Kong, all investment products (except those issued by insurance companies) are regulated by legitimate, independent regulators.

Intermediaries who are licensed with the SFC and MPFA must abide by the Codes of Conduct of those organizations.

Both Codes require intermediaries to clearly disclose any remuneration they receive from product issuers. The MPFA also explicitly requires that intermediaries disclose whether one product pays a higher commission than another, thus creating a conflict of interest.

MFPA Code of Conduct - Commission Disclosure (Underlined)

Perhaps not surprisingly, the insurance industry doesn’t require itself to disclose such information, probably because it would send potential customers into a state of shock and drive them away.

Insurance-related investment products commonly pay commissions which are hundreds and even thousands of times larger than similar products which are regulated by the SFC and MPFA. 

What Happens When An Insurance Broker Holds an SFC or MPFA License?

Over 25,000 insurance intermediaries hold an MPFA license. No data has been published regarding the total number of SFC-licensed insurance intermediaries, but the number is certainly in the thousands. Convoy Financial Services, the largest insurance broker in Hong Kong, discloses that over half of its approximately 2,000 “consultants” are SFC-licensed:

Convoy Consultant Licensing Record June 2014

Source: Page 20 of Convoy’s 2014 Interim Report

I recently asked the SFC and MPFA whether an insurance intermediary has to abide by the SFC and MPFA Code of Conduct when promoting or selling investment products issued by insurance companies. Here is what they said:

SFC’s Response

SFC's Position on SFC-Licensed Insurance Intermediaries

MPFA’s Response

“Thank you for your email of 2 December 2014 to the Authority and the emails of 10 and 12 December 2014 copied to the Authority.  The concerns you raised are noted.

The Authority will continue to monitor the compliance of MPF intermediaries with relevant MPF requirements and will take appropriate action if any breach is substantiated.  If the activities concerned do not relate to the advising on or selling of MPF schemes/funds, the Authority would not be in a position to comment as such activities are outside the MPF regime.

My Response to SFC and MPFA:

All Investment Advice Falls Within the SFC and MPFA Regulatory Regimes

Whenever an MPFA or SFC-licensed insurance intermediary gives advice regarding an investment product issued by an “insurance” company, that intermediary is implicitly (if not explicitly) giving advice on all other investment products which he or she is licensed to give advice on, namely MPF funds or SFC-regulated investment products.

Why is this the case?

Because the act of advising a client to invest X amount of money in one product, such as an ILAS, is in effect a recommendation to not invest that same X amount of money in other products, such as MPF funds (via voluntary contributions) or ordinary mutual funds (via direct investment).

A recommendation to not invest in MPFA or SFC-regulated products is an MPFA / SFC-regulated activity.

When an intermediary recommends a bundled product (containing both investment and insurance), the intermediary is advising against buying pure life insurance and a pure investment product separately.

By logical necessity, any kind of advice that involves helping a client to select the most suitable investment option will fall within SFC and/or MPFA-regulated territory.

Consequently, SFC and MPFA have the authority to regulate commission disclosure during the advice stage, prior to any product sales.

In order to protect retail investors, I encourage SFC and MPFA to amend their respective codes of conduct to require intermediaries to disclose any commissions payable by investment product issuers—even if product issuers are “insurance” companies—and also to disclose whether the size of the commission paid is different depending on which investment product is sold.

Clients of MPFA and SFC-licensed intermediaries have a right to known whether the investment advice they receive is potentially being corrupted by massive secret commissions payable by “insurance” companies.

Former CEO of Hong Kong’s SFC Says Commission Ban Is Working in the UK

Martin Wheatley 2

Photo taken by Bloomberg.

Martin Wheatley, the former CEO of Hong Kong’s Securities and Futures Commission, and now the the CEO of the UK’s Financial Conduct Authority, has announced that the regulatory overhaul known as RDR (Retail Distribution Review) has been successful in stamping out consumer exploitation.

RDR banned commissions (secret kickbacks) and gave a legal definition to the term “Independent Financial Adviser”, thus preventing insurance salesmen from misleading consumers about the nature of the “services” they were providing.

According to Wheatley, “We have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission”.

The Financial Times reports that sales of unit-linked and with-profit “insurance” products have fallen, while sales of low-cost index funds—which have never paid commissions—have risen.

The Financial Times also states that:

“Increasing numbers of investors are adopting a do-it-yourself approach, according to several surveys, particularly those at the less affluent end of the market. Increasing price competition among direct-to-consumer platforms also means that consumers are able to get better deals when managing their own investments online, the watchdog found.”

It Works in the UK, and It Will Work in Hong Kong

Anyone who reads this blog knows that Hong Kong is very badly in need of its own RDR. Hong Kongers have been screwed far worse than consumers in the UK. The insurance industry here has never been regulated, and the legal system is designed to obstruct ripped off consumers from seeking justice through the legal system. Class action lawsuits and contingent legal fees are forbidden.

Thousands of Hong Kongers camped out in the streets for 75 consecutive days because they are hungry for a government that responds more to the needs of society at large and less to the desires of local tycoons and foreign corporations.

It is time for change.

LM Document States that the Managed Performance Fund Was “Not for Distribution to Hong Kong Public”

A source has given me a copy of a document that is sure to outrage the many LM victims based in Hong Kong. I have drawn a red arrow pointing to the key sentence:

LM MPF Bond, Platform,Trust, SIPP Providers (with Arrow)

The LM Managed Performance Fund was not for distribution to the Hong Kong public because it was not authorized by the Securities and Futures Commission. The fund should have been available only to professional investors, not the middle-class families whose lives have been wrecked.

Local brokerages such as Financial Partners, and insurance companies such as the one formerly known as Royal Skandia, have no moral defense—and probably no legal defense—for distributing the LM MPF fund to families in Hong Kong.

For readers who are not familiar with the LM scandal, take a look at the South China Morning Post article, “When an investment fund goes bad“, as well as “The LM Emails“.

Royal Skandia Abandons Tarnished Identity, Renames Itself “Old Mutual”

Royal Skandia Life Assurance Limited (arrow)

Royal Skandia has announced that it will be changing its name to Old Mutual on Dec. 22, 2014. I first learned about this after being informed by one of the company’s victims. (I know several.)

Skandia International to Become Old Mutual International (Highlighted)

A screenshot from Skandia’s website. Are the words in the red block supposed to be a joke?

Skandia claims that the purpose of changing its name is to align itself with its parent company. That may be true, but I suspect there’s another reason that Skandia isn’t mentioning.

If you do a search on Google HK for “Royal Skandia”, one of the top results is an article by Andrew Hallam, titled, “Royal Skandia…On The List of Legal Corruption?

Andrew Hallam - Royal Skandia on the List of Legal Corruption

Screenshot from Andrew Hallam’s website.

Hallam links to a now classic news article about the landmark legal case in which Jeremy Hobbins sued Royal Skandia and Clearwater (Hobbins’ broker) for bribery. The lawsuit has since been mentioned repeatedly in various local and overseas newspapers, including in an article in the Japan Times, titled, “It’s Their Plan for Your Money, So Assume Deception“.

More recently, Royal Skandia has been exposed in newspapers across the globe for its role in facilitating the LM Investment Management disaster, in which 12,000 victims lost all or nearly all their retirement savings. Royal Skandia is once again facing legal action.

Another top search result for “Royal Skandia” is a discussion forum in which a victim from Botswana, who lost more than half her savings, asks for help:

Royal Skandia and so called Savings and Pensions Account

The responses to the lady’s call for help eventually turn into a heated argument between a crafty financial product salesman and several other commenters.

The salesman claims, “The problem is NOT with the product…we can’t blame the manufacturer of the car when we get a flat tyre or run out of oil and the engine blows up…The products are really fantastic savings vehicles.”

The salesman, whose name is Daniel, is rebutted by multiple angry victims:

Skandia Forum 1

Skandia Forum 2

Skandia Forum 3

Another victim shares a link to an article titled, “The Truth about Off-Shore Pensions“, which analyzes one of Skandia’s products, the Managed Pension Account.

The article’s author concludes, “In my own humble opinion, anyone who bought [an offshore pension like Skandia’s] would have to be either naïve or insane.”

He adds, “I believe for all of the regulation that has been imposed on this industry in recent years, regulators would do better to regulate the products and not the advisers, because if such products were outlawed, then they couldn’t be sold.”


Another top search result for “Royal Skandia” is a thread in a Thailand-based discussion forum. Someone asks, “I am considering placing some investment funds with the following offshore company [Royal Skandia] and I would be glad to know if anyone has experiences, positive or not, with them.”

There are dozens of responses, almost all of them negative. Here’s a few of the shorter ones:

Stay far far away (cropped)

It's an insurance company... enuff said (cropped) 2

Skamdia (cropped)

After receiving so many responses, the person who started the thread thanked all of the commenters, saying, “At the time I started this thread I was believing the Skandia Bond was the way to go. Thanks to so many useful, incisive and astute posts–and other research–my eyes have been opened.”

Is Royal Skandia Trying to Distance Itself from Its Skandalous History?

By changing its name to “Old Mutual”, Royal Skandia may be “aligning itself with its parent company”, but it is also ensuring that future clients will be less likely to discover its troubled past.

This can be verified by comparing the Google search results for both “Old Mutual” and “Royal Skandia”. One will find that the results for “Old Mutual” are much cleaner.

However, if the company formerly known as Royal Skandia continues to operate in the same way that it has historically operated, then one day, the top search results for “Old Mutual” will be just as embarrassing as Royal Skandia’s are now.

When that day comes, not just the company formerly known as Royal Skandia, but the entire group of companies known as “Old Mutual”, will all be facing an image problem.

Anonymous Author Updates His Decade-Old Exposé of Insurance-Linked Investment Scams

A source has informed me that the anonymous financial adviser, “Hugh Stevenson”, has once again updated his book, The Great Expat Financial Planning Rip-off.

Six months ago, I wrote a review of the book, titled, “‘A Worldwide Scam of Breathtaking Proportions’: Anonymous Financial Adviser Devotes Entire Book to Exposing ILAS Savings Plans“. At that time, the book had last been updated on July 2011. It has now been updated again, as of September 2014. 

The latest revisions to Mr. Stevenson’s book are minor, which sadly indicates that not much has changed since he first wrote it about a decade ago. However, Hong Kong’s Insurance Authority has implemented Mr. Stevenson’s suggestion to ban indemnity commissions, at least for ILAS policies, but not for other insurance-related investment products, such as whole life.

In response to the new ILAS regulations, Hong Kong’s insurance industry has shifted to flogging other investment products which pay massive indemnity commissions and are more poorly regulated than ILAS.

For more info, see my recent blog post, “Insurance Industry Finds New Ways to Rip Off Consumers after Regulators Crack Down on ILAS“.

Hong Kong Needs a Singapore-Style Web Aggregator and Commission-Free Insurance Products

The Securities and Futures Commission authorizes all ILAS products, and it publishes the principal brochures on its website. See HERE.

It is therefore possible for consumers, brokers, the media, and people such as myself to evaluate and compare all ILAS products (although this is complicated by the smoke and mirrors, complex multi-layered fees, fake penalties, phony bonuses, secret commissions, etc.).

Apart from ILAS, all other investment products sold by insurance companies are not authorized by the SFC. These investment products include whole life, universal life, endowment policies, and annuities. The Office of the Commissioner of Insurance does not publish the principal brochures of these products on its website, nor do any of the self-regulatory organizations. It seems the only way to obtain brochures for non-ILAS investment products is to contact individual insurance companies or an insurance intermediary, give them your personal contact information, show some interest in buying a product, and hope they don’t harass you afterwards.

I was able to find some brochures on a few companies’ websites, but these brochures contained minimal information. They were nowhere near as informative as SFC-authorized ILAS brochures. The non-ILAS brochures said to contact the insurance company for more information.

From personal experience, I have discovered that it is extraordinarily difficult and burdensome for a consumer to shop and compare different products sold by insurance companies.

This total lack of transparency has allowed the insurance industry to gouge consumers for decades. The exploitation is so notoriously bad that the only type of product sold by life insurance companies which is not considered a ripoff is term life insurance—specifically because it isn’t bundled with a massive investment component.

If Hong Kong wants to stop insurers from robbing its citizens, then Hong Kong needs to follow in the footsteps of Singapore.

The law firm, Conventus Law, gives a nice summary of what Singapore is doing:

MAS [the Monetary Authority of Singapore] will launch an online web aggregator to enhance the transparency of information in respect of life insurance products. The web aggregator will allow consumers to compare the premiums and other key features of life insurance products offered by various insurers so that they can make informed financial decisions. MAS will require participating life insurers to submit information on life insurance products for publication on the web aggregator, and to pay a fee for the hosting, operation and maintenance of, and system changes to, the web aggregator.

Life insurers catering to the retail market will also be required to offer a class of life insurance products directly to consumers, without charging any commissions. This will provide consumers, who do not require financial advice, with access to a class of life insurance products that meet their basic protection needs at a lower cost. The features of such products will be broadly standardised to make them easier for consumers to understand and purchase without financial advice.

According to MAS’s website, the new web aggregator will be ready within the first few months of 2015.

Hong Kong lawmakers and regulators need to seriously consider adding an insurance web aggregator and mandatory commission-free products to the Insurance Companies (Amendment) Bill 2014.

Hong Kong consumers need transparency and choice just as much as Singaporeans do.

ILAS ‘101 Plans’ Have Been Effectively Banned Since April 2013, Yet the Industry Has Continued to Flog Them

On April 22, 2013, the Hong Kong Federation of Insurers, a self-regulatory body, issued a circular which forbid agents and brokers from recommending ILAS products to consumers who do not have life protection needs:

According to the above sales flow illustration, if a client indicates no life protection needs, then the broker should not recommend ILAS.

The rationale for this rule may be related to a statement issued by the Securities and Futures Commission in a circular dated August 13, 2009—four years earlier:

“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.

Moreover, on March 14, 2011, two years before HFKI issued its new ILAS rules, the Hong Kong Monetary Authority issued a circular forbidding bank-based insurance intermediaries from selling ILAS products to consumers who have no insurance needs. According to paragraph 6.4:

“Where a customer indicates that he or she does not need/want insurance/investment products, [authorized intermediaries] should not recommend ILAS products.”

In other words, ILAS should only be recommended if a client has BOTH insurance and investment needs.

Six months after HKFI issued its April 2013 circular, HKFI reiterated its position on ILAS once again in a FAQ page published on Oct. 22, 2013:

HKFI FAQ on ILAS Sales Process

According to HKFI’s explanation, it is unacceptable for an agent or broker to sell an ILAS product to a consumer who has no life protection needs, unless the consumer explains in his or her own handwriting why they are buying the ILAS product, despite the fact that it is unsuitable.

Many ILAS products, such as “101 plans” or portfolio bonds, have only a negligible amount of life protection attached to them, just 1% of the account value, which is a mere fraction of the annual fees. These products are not suitable nor desirable for anyone who has life protection needs. 

The products can only be described as investment products, and this is exactly how they are marketed and sold. However, according to HKFI, HKMA, and SFC, the products are not suitable for people who have pure investment needs.

In other words, these products are neither suitable as investments nor suitable for life protection. They have no justification for existing, except as commission and fee generators for the people and companies who sell them.

If HKFI’s regulations had been followed and enforced, sales of these products should have stopped on April 22, 2013. However, these products have remained on the market and are still being sold to this day.

This means that all agents, brokers, and companies who have continued to enrich themselves by flogging these exploitative products have been in blatant violation of HKFI regulations for well over a year. Tens of thousands of Hong Kongers have undoubtedly been ripped off during this period.

One of the victims has contacted this blog and has begun to file complaints with various regulators.

Consumer Council Should Explore Legal Action on Behalf of Victims

Although HKFI issued the new regulations, HKFI cannot be counted upon to help victims, since HKFI’s members are the perpetrators. HKFI has too many conflicts of interest.

Consequently, the Consumer Council should intervene and try to help organize a class action lawsuit (or nearest equivalent), on behalf of victims.

IIA Must Be Given Authority to Force Insurers and Brokers to Compensate Victims

If no one else will stand up for ripped off consumers, then the Independent Insurance Authority must do it. However, the IIA does not even exist yet. The LegCo must ensure that IIA has the authority to intervene in this and many other past insurance frauds and mis-selling scandals.

MPFA-Licensed Insurance Intermediaries Systematically Violate Code of Conduct When Selling Ripoff Investment Products

The Duty of an MPF Intermediary

According to MPFA’s Code of Conduct, MPF intermediaries are required to act honestly, fairly, and in the best interests of clients. They must disclose conflicts of interest (such as commission payments) and any material information which is necessary for a client to make an informed investment decision. MPF intermediaries are also required to be knowledgeable about the various features of the MPF system, including special voluntary contributions (SVCs), which are in addition to mandatory contributions.

Most MPF Intermediaries Are Also Insurance Intermediaries

According to MPFA’s latest statistics, Hong Kong has 30,846 MPF intermediaries. The vast majority of them—25,135—are insurance brokers and insurance agents.

Convoy Financial Services, the largest insurance broker in Hong Kong, discloses that well over half of its insurance brokers are MPFA-licensed:

Convoy Consultant Licensing Record June 2014

Source: Convoy’s 2014 Interim Report

Insurance Intermediaries Have Stopped Selling Life Insurance

Ironically, most insurance intermediaries no longer sell life insurance. Instead, they’ve circumvented the SFC and have capitalized on their self-regulatory system to make a fortune selling ripoff life investments, such as ILAS, whole life, endowment policies, etc. Some of these products are so brazenly exploitative—outright fraudulent—that multiple complaints have been filed with the Hong Kong police. (See here.)

The latest annual statistics released by OCI show that in 2013, the life insurance industry earned 99.3% of new premiums from selling life investments. Only 0.7% of new premiums were derived from pure life insurance (i.e., term).

The reason why life investments have flourished is because sales commissions are obscene—hundreds of times higher than commissions generated by SFC-regulated investment products.

An Upfront ILAS Commission Is 630 Times Larger than the Average Upfront iFAST Commission

An investment-linked assurance scheme (ILAS) is an absurdly high-cost fund platform wrapped within smoke, mirrors, and a veneer of insurance.

At the beginning of this year, I wrote a blog post comparing ILAS to an SFC-regulated fund platform, iFAST Central. The upfront commission for selling funds through a 25-year ILAS turned out to be 630 times larger than the average upfront commission for selling funds through iFAST.

It gets worse when comparing ILAS to MPF.

An ILAS Commission Is 4,200 Times Larger than an MPF Commission!!!

The MPF system is a collection of fund platforms with free switching between platforms.

I recently spoke with an MPFA-licensed insurance broker who strongly insists that ILAS and other life investments are blatant ripoffs. When his clients want to save up for the future, he often recommends MPF special voluntary contributions (SVCs).

He says he recently helped a client invest a lump sum of $250,000 through an MPF SVC. His total commission was $750, or 0.3%.

He says the size of an SVC commission is the same when setting up a regular savings plan—just 0.3% of the amount of money invested on the first month. No commissions are paid for contributions made on the second month or thereafter.

In contrast, the commission for selling a 25-year ILAS savings plan is 1260%, or 4,200 times larger than an SVC commission!!!

This massive ILAS commission comes straight out of a policyholder’s initial contributions. The policyholder saves no money until two years later (though this fact is hidden by the deceptive policy structure).

MPF Intermediaries Use “Bait and Switch” Tactic to Dupe Consumers into Buying ILAS and other Ripoff Life Investments

Every person working in Hong Kong is required to invest 5% of their salary in an MPF scheme. Contributions are capped at $1,500 per month, and employers must match their employees’ contributions.

All Hong Kongers have heard of MPF, because, at some point, they have to choose which MPF funds to invest their money in. Many insurance intermediaries like to use MPF as a conversation starter when talking to new clients. According to an executive from Convoy Financial Services:

MPF is a great ‘door opener’. It concerns everyone and as such it creates direct and indirect business opportunities for industry professionals. Every working person in Hong Kong has an MPF account so the product effectively gives agents and fund providers an excuse to approach potential clients. And whenever the government proposes changes to the scheme, they will always create a huge response from the community, which is great because more public interest creates business.

Lately, Convoy has become criminally aggressive in using MPF as a ‘door opener’. Sky Post busted the company for its involvement in a fraudulent marketing scheme. Cold-callers pretended to be MPFA agents and would arrange meetings with victims to talk about their MPF funds. When the victims arrived, they’d be greeted by a Convoy broker who would try to sell them an ILAS.

Complaints have since been filed with the police.


When investing in an MPF SVC, the investor can switch scheme providers free of charge. They can also cash in all of their funds with no penalty. The fee structure is simple: just one annual fee, expressed as a percent of assets under management. The minimum investment amount is as low as $100 HKD per month.

When investing in a typical ILAS savings plan, the investor is locked into a single scheme for up to 30 years. Switching schemes or cashing in one’s funds can trigger penalties as high as 100%. The first two years of savings are, in effect, flushed down the toilet, deceptively “donated” to the scheme provider. The fee structure is so ridiculously complex that only a specialist can calculate the exact costs. If all the various fees are averaged across a full 30 years, the fees are still twice as high as MPF fees. But even more disturbing is the fact that virtually no investor holds an ILAS for 30 years. Almost everyone exits early, at a steep penalty.

The products are a disaster for consumers, a colossal fraud that has been allowed to flourish for decades. Fortunately, OCI has decided to ban the products, effective January 1st, 2015.

Insurance Intermediaries Deliberately Never Mention MPF SVCs

If one looks on the website of Convoy Financial Services, one will see a button on the menu labeled “MPF”. If one clicks on it, one will find a lot of information about MPF, but there is no mention of SVCs.

It seems that Convoy doesn’t want its clients to know about this investment option. The reason, of course, is that such info would interfere with sales of ILAS schemes, which are astronomically more profitable.

Historically, Convoy has earned nearly all its revenue from selling ILAS:

Convoy's ILAS Commissions

Source: Convoy’s IPO prospectus and annual reports.

When promoting ILAS to clients, Convoy brokers frequently compare ILAS to MPF mandatory contributions. They correctly point out that saving 5% of one’s salary will not adequately prepare one for retirement. One needs to save even more. However, Convoy brokers deliberately do not mention MPF special voluntary contributions. Instead, they present ILAS as the best solution for saving money, implying that no other options are worth mentioning.

Below are two identical handwritten ILAS recommendations written by two separate Convoy brokers. One can clearly see that the brokers are trained to fleece clients by giving an incomplete and/or misleading presentation of the MPF system. The brokers neglect to mention any other investment option, except for ILAS.

Extra Saving Apart from MPF (2) - Highlighted

Extra Saving Apart from MPF - Highlighted

Many MPF Scheme Providers are Insurance Companies that Flog Life Investments

I have already mentioned Convoy Financial Services multiple times, as it is clearly one of the most notorious offenders of MPFA’s code of conduct.

However, I should also mention HSBC Life, AIA, Manulife, Prudential, AXA, Sun Life, Bank of China Life, China Life, FWD, MassMutual, and Ageas.

These companies offer MPF schemes, and, presumably, they all allow SVCs. However, these companies avidly promote life investments at the same time.

The agents of these companies should be familiar with their respective companies’ products, including MPF products. Many of the agents are also licensed with the MPFA.

However, given the huge conflicts of interest, it is highly unlikely that these MPFA-licensed insurance agents promote MPF SVCs. Like Convoy’s brokers, they are probably pushing ripoff life investments, so that they can line their pockets at their clients’ expense.

Insurance Intermediaries Have Made a Mockery of MPFA’s Code of Conduct

Below are excerpts from MPFA’s code of conduct, followed by brief explanations of how MPFA-licensed insurance intermediaries have violated those sections of the code.

Act Honestly, Fairly and in the Best Interests of the Client

MPFA Code of Conduct - Best Interests

MPFA Code of Conduct - Best Interests (2)

ILAS and other life investments are arguably never in the best interests of clients. MPF SVCs are typically a better option. However, dishonest MPFA-licensed insurance intermediaries neglect to mention SVCs so that they can exploit their clients’ lack of knowledge.

The fees and commissions of ILAS and other life investments are excessive, often deceptive, and always unfair.

Disclose Conflicts of Interest

MPFA Code of Conduct - Disclose Conflicts of Interest

MPFA-licensed insurance intermediaries do not disclose the fact that they are paid an astronomically higher commission for selling ILAS than MPF SVCs.

Many also do not disclose that they do not hold an SFC license, which means they cannot sell or advise on investment products which are superior even to SVCs (such as low-cost index funds).

Disclose Remuneration

MFPA Code of Conduct - Commission Disclosure

The above remuneration rule explicitly states that MPF intermediaries must disclose “whether the benefits receivable would be different depending on the choice of the registered scheme(s) or constituent fund(s) made by the client.”

However, when giving MPF advice, MPFA-licensed insurance intermediaries never disclose that they receive 4,200 times more commission by promoting ILAS instead of SVCs.

Disclose Material Information

MPFA Code of Conduct - Disclose Material Information

MPFA-licensed insurance intermediaries are eager to talk about MPF mandatory contributions, but they typically don’t even mention SVCs. They just move straight on to recommending ILAS or other ripoff life investments.

Moreover, when representing ILAS, they do not disclose the fact that the first two years of savings are not saved. The money is instead eaten by a deceptive fee structure. Much of the money is secretly redistributed to the intermediary in the form of commissions. The rest is pocketed by the insurance company.

Understand MPF System and MPF Products

MPFA Code of Conduct - Understand MPF Schemes and Impact of Fees

Most MPFA-licensed insurance intermediaries who recommend life investments—and do not mention SVCs—are swindlers. Those who are not swindlers are ignorant and/or negligent.

They are also in violation of MPFA’s code of conduct. MPF intermediaries are required to be knowledgeable about the MPF system, including SVCs.

Greedy MPFA-Licensed Insurance Intermediaries Are Jeopardizing the Financial Well-Being of Hundreds of Thousands of Hong Kongers

Over a lifetime, the excessive, unjustifiable fees eaten by ripoff life investments, such as ILAS, can destroy well over half the retirement funds of victims. Eventually, hundreds of thousands of ripped off consumers will be forced to work for years longer than is necessary. Some may never accumulate enough funds to take care of themselves in old age. Taxpayers may be forced to eventually pick up the tab when life investment victims can no longer support themselves.

The MPF system was introduced to help Hong Kongers prepare for retirement. However, MPFA intermediaries are undermining the purpose of the system when they steal from consumers by recommending ripoff life investment products, as opposed to better-value MPF SVCs.

MPFA Should Penalize Rogue Intermediaries

It is safe to say that most MPFA-licensed insurance intermediaries are guilty of systematic violation of MPFA’s code of conduct.

According to MPFA’s website, one of MPFA’s roles is to “promote and encourage the development of the retirement scheme industry in Hong Kong, including the adoption of a high standard of conduct and sound prudent business practices by trustees and other service providers”.

In order to deter MPF intermediaries from violating MPFA’s code of conduct in the future, the MPFA should fine rogue intermediaries and strip them of their MPFA licenses.

MPFA Should Help Victims of Rogue Intermediaries

There are hundreds of thousands of victims, at least, and virtually every case of exploitation is almost identical. Consequently, MPFA needs to set up a system for handling complaints efficiently.

Due to information asymmetries, most victims of rogue MPF intermediaries are not aware of the fact that they were ripped off. For this reason, MPFA needs to initiate a public education campaign to spread knowledge of this scandalous situation. Victims need to know how they can seek justice.

Enforcing MPFA’s Code of Conduct Will Guarantee Billions of Extra Dollars Flowing into MPF Schemes, Helping Drive Down Notoriously High Administration Costs

The MPF system has long been criticized for its own excessive costs, though these costs are admittedly nowhere near as exploitative as the hidden costs of life investment products.

The banks and insurance companies who benefit from the MPF system argue that they must charge high fees because managing MPF schemes requires extra administration work. They say that they do not yet have the economies of scale necessary to bring down costs (i.e., they need more money to manage and to extract fees from, before they will be able to reduce fees for each consumer).

These arguments may or may not be self-serving lies, which allow the banks and insurers to continue feasting on the retirement savings of all Hong Kongers, courtesy of Hong Kong’s undemocratic government.

However, there is admittedly a grain of truth to the arguments, which is why MPFA is actively seeking solutions to reduce administration costs.

One solution that MPFA doesn’t seem to have considered, but should, is simply to enforce its code of conduct. Billions of dollars of SVC contributions would pour into MPF schemes if MPFA-licensed insurance intermediaries started behaving like decent human beings, rather than greedy scoundrels.

The additional MPF contributions would give scheme providers the economies of scale they say they need to lower costs.

MPFA Needs to Be a Better Watchdog in the Future

The fact that many MPFA-licensed insurance intermediaries have long been brazenly defiling MPFA’s code of conduct is not just an indictment of the insurance industry, it is an embarrassment to the MPFA.

Hong Kongers deserve better.