Monthly Archives: February 2015

Chinese Media Warns Public to Beware of Investment-Linked Insurance Ripoffs

On Jan 29, Apple Daily ran an article about a Hong Kong Professor who has recently been very outspoken against ILAS. The professor was ripped off by the insurance company, AXA. He is concerned that thousands of other AXA policyholders may have been ripped off as well. The title of the Apple Daily article is 林本利買壽險遭誤導. So far, the article has gotten over 17,000 views and more than 100 Facebook “Likes”. Here’s a screenshot of the article, featuring a picture of Professor Lam:

Apple Daily Article

Professor Lam writes a column every week for Next Magazine. Each of the past four weeks, he has written about ILAS. In his latest article, he cited this blog (to my surprise). Here are links to his last four articles:

壹週刊:安盛如何守護投保人的紅利? (2015年1月22日)

壹週刊:安盛如何守護投保人的賬戶? (2015年1月29日)

壹週刊:回應安盛的投訴信 (2015年2月5日)

壹週刊:三不管的投連險產品 (2015年2月12日)

On Feb 11, Mingpao ran an article titled 不良銷售投連險 議員促修例監管. The article describes the problems with the insurance self-regulatory system and mentions that LegCo member, Sin Chung-kai, has recently been helping about 20 ILAS victims. The article is spreading via social media and has so far received 40 Facebook “Likes”. Here’s a screenshot of the article, featuring a picture of Sin Chung-kai:

Mingpao Article

On Feb 12, the day after the above article was published, Next Magazine also ran an article on ILAS that included a number of victims’ stories. It was titled, 變種保險失控 食人唔lur骨. If you can’t read Chinese, it does not matter. The picture of victims caught in the jaws of a bear trap tells you all that you need to know:

Next Magazine Article

Note: The above article is pay-walled, so you can’t read it unless you have an online subscription to Next Magazine. A hard copy of the magazine can be purchased at 7-Eleven or Circle K for $20 HKD. The article is four pages long and begins on page 66. (Send me an email if it is sold out and you can’t find it.)

One of my contacts, an ILAS victim, was recently interviewed by a Chinese news organization, different from any of those organizations cited above. There will likely be an article coming out soon. I will link to it below when/if it is published.

Highlights from the ILAS Victims Meeting with the Insurance Commissioner

OCI Logo

The Office of the Commissioner of Insurance (OCI) recently agreed to a meeting with ILAS victims. That meeting was held two days ago, on Monday, February 9th, 2015.

Several ILAS victims and OCI staff attended the meeting, including the Insurance Commissioner, Annie Choi.

I prepared a PowerPoint for the meeting. A modified version of it can be downloaded here:

Presentation for ILAS Victims Meeting with OCI

(In the modified version, I have taken out people’s names, clarified on a few points, and corrected an error.)

Victims’ Cases Have Several Issues in Common

At the beginning of the meeting, the Insurance Commissioner claimed that OCI was a fair, unbiased regulator.

I do believe that OCI is objective, reasonable, and makes decisions based on facts. However, it was my impression that OCI, up till now, has not been informed of several important facts.

For example, the Commissioner immediately assumed (and stated) that all of the ILAS victims’ cases were different and couldn’t be regarded as having something in common.

In fact, I think that most of the cases do have several issues in common, including:

  1. Most victims had indicated no need or desire for insurance, which meant that the ILAS products were unsuitable for them. Current regulations clearly state that insurance intermediaries are not allowed to recommend ILAS products to investors who have no insurance needs. Brokers are supposed to act in the best interests of clients. An unsuitable product is by definition not in the best interests of a client.
  2. The insurance intermediaries hid information about their commissions, such as the fact that all or most of the commission was paid upfront and not spread out over the duration of the policy. This remuneration structure rewarded aggressive selling (and mis-selling) rather than the provision of long-term service that the intermediary promised (such as investment advisory service). The Prevention of Bribery Ordinance requires brokers to obtain permission from clients before receiving a kickback from product issuers. Most brokers either did not get permission to receive a commission or else they obtained permission by deception, i.e., by omitting material facts and/or by providing a misleading representation regarding how and when the commission was paid.
  3. Most of the victims’ insurance intermediaries were holding themselves out as investment advisers, which meant they should have been licensed by the SFC to give investment advice. Many of them weren’t SFC-licensed. In cases where intermediaries were SFC-licensed, the intermediaries likely violated SFC’s Code of Conduct (for example, by not fully disclosing their commission). Also, ILAS policies that contain minimal insurance content may fall under the SFO definition of securities (even CIB admits this), so selling such a policy may require an SFC license to deal in securities. Most insurance intermediaries did not have this license. Carrying on a business in an SFC-regulated activity (or pretending to do so) without an SFC license is a criminal offense.

The above issues were raised with the Commissioner. It was my impression that she was open to the possibility that many of the victims’ cases do in fact have these issues in common. Personally, I was quite surprised that she did not raise any objections when I argued that many ILAS sellers likely needed an SFC license. She admitted that OCI was discussing the issue with SFC.

Does a “Good” ILAS Product Exist?

At some point in the meeting, the Commissioner claimed that there were good ILAS products. I disagreed with her.

Obviously, some ILAS products are not as bad as others, but when comparing any ILAS to a pure investment product, ILAS fees are unjustifiably higher.

To illustrate: iFAST Central is a pure fund platform that offers more funds than many ILAS products. iFAST’s platform fee ranges from 0.1 to 0.3% per year. Every ILAS product that I have seen charges 1% or more (i.e., three to ten times as much).

Why are the ILAS fees so much higher? I think it’s because the insurers are overcharging.

It seemed that the Commissioner’s idea of a “good” ILAS product is one that is packaged with a significant amount of life coverage.

If so, then I would still disagree that such a policy is “good”. Buying a pure investment product and a term life insurance policy separately is better. The fees will be lower (especially commissions), and thus the investment returns will be higher.

If there is an ILAS product that is better than “buy term and invest the rest”, then I want to know its name. I do not think it exists.

The Real Termination Rate

The Insurance Commissioner denied that more than 90% of ILAS policies are terminated early (even 25-year policies).

If this is true, then OCI should publish the data to prove it, since experts quoted in the media have said otherwise. At the moment, no one knows who to believe.

Additionally, I think OCI should publish data regarding the percentage of policyholders who maintain payments for the entire premium payment term. According to data obtained by financial adviser, Hugh Stevenson, the average policyholder stops making payments after 7.2 years. This has negative consequences for policyholders.

ILAS Was Sold in Hong Kong as Early as 1977

The Commissioner claimed that ILAS policies were sold in Hong Kong as early as 1977. This was news to me. SFC’s website shows the first ILAS products being authorized in 1990.

If ILAS has been sold in Hong Kong for nearly four decades, then the number of mis-sold policies could be higher than anyone had previously suspected.

Portfolio Bombs Are the SFC’s Responsibility

When I raised the issue of whether insurance brokers needed an SFC license to sell unauthorized funds, even through a portfolio bond, the Commissioner agreed.

According to her explanation, selling a portfolio bond is one thing; selling or giving advice on the investment products to be placed in the bond is a separate issue. She specifically said that insurance brokers who marketed funds (such as the LM MPF) were acting as investment advisers outside their identity as insurance brokers. She said this activity would fall under the SFO, and she would refer any related complaints to the SFC.

The SFC has previously denied responsibility for regulating investment products wrapped in portfolio bonds. The Insurance Commissioner’s statements suggest that the SFC can no longer do this. 

Next ILAS Victims Meeting to be Held with the SFC

After Chinese New Year, there will be another ILAS victims meeting with the SFC. The specific date and time is not yet confirmed. Victims who are interested in attending can email me for more information. (

Regulators Say ILAS Is Not Suitable for Investors Who Have No Insurance Needs—Suggesting that up to Two Million Hong Kongers Have Been Mis-sold

Approximately two and a half million ILAS policies have been sold in Hong Kong over the past 15 years. Insurers have collected more than half a trillion dollars in premiums. According to an adviser interviewed by the South China Morning Post, approximately 75% of investment products sold to Hong Kongers were ILAS products, as of 2012.

Suitable for No One

Most ILAS policies provide little or no life cover, which means they are not suitable for investors who need life cover. However, regulators say ILAS products can only be sold to investors who need life cover. This means that most ILAS policies are suitable for no one. It’s impossible to sell them without “mis-selling” them.


Note: I mis-borrowed this cartoon from Martin Shovel.

SFC Subtly Suggested that Many ILAS Products Are Ripoffs

In a 13 Aug 2009 circular, the SFC stated:

“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.”

SFC here pointed out that ILAS products have unusually high initial charges, long lock-ins, and high exit penalties. SFC implied that these policies are suitable only for individuals who need life cover.

However, most ILAS policies provide no life cover. According to SFC’s logic, such policies would not be suitable or “attractive” to anyone. This is a subtle hint that the products are ripoffs.

OCI Overtly Suggested that Many ILAS Products Are Ripoffs

According to a guidance note issued by OCI on 30 July 2014:

OCI - Unfair Charges (Underlined)

Since most ILAS products have minimal insurance content and multiple high charges (often hidden), the products clearly do not meet the “fair treatment of customers” principal. In other words, the products are ripoffs. This is exactly why, as OCI pointed out, the products are “often” aggressively sold, mis-sold, and fraudulently sold:

Mis-selling and Agressive Selling

OCI - Frequent Mis-selling and Fraudulent Selling

HKMA, HKFI, and OCI Have (in Effect) Banned Most ILAS Products

In a series of circulars issued over the past four years, ILAS regulators have explicitly forbidden insurance intermediaries from selling ILAS products to investors who have no insurance needs. ILAS products can only be sold to investors who need insurance. Because most ILAS products provide no insurance, they can’t be sold to anyone. In effect, they are banned.

Below are excerpts from the relevant circulars issued over the past four years.

HKMA’s 14 March 2011 Circular

HKMA - No Need, No Sale

AI means “Authorized Institution”. HKMA is the Hong Kong Monetary Authority, Hong Kong’s bank regulator.

HKMA’s 22 April 2013 Circular

HKMA - No Mis-selling

AI means “Authorized Institution”. HKMA is Hong Kong’s bank regulator.

HKFI’s 22 April 2013 Circular

HKFI Regulation on ILAS Sales (April 22 2013)

HKFI is the Hong Kong Federation of Insurers, a self-regulatory organization.

OCI’s 30 July 2014 Guidance Note (GN 15)

OCI - Investment and Insurance Needs

OCI - First Assess Needs

OCI is the Office of the Commissioner of Insurance.

HKFI’s 8 Dec 2014 Circular

HKFI - ILAS Sales Flow

HKFI is the Hong Kong Federation of Insurers, a self-regulatory organization.

The Industry Continued to Flog ILAS even after the De Facto Ban

All insurance intermediaries are self-regulated, except for intermediaries who work in banks—they are regulated by HKMA.

In April 2013, HKMA forced banks to begin disclosing ILAS commissions. Since ILAS commissions are at an obscenely unjustifiable level, on par with robbery, banks decided to stop selling ILAS. It was too difficult to rob clients when the clients knew they were being robbed.

As sales of ILAS dried up in banks, the rest of the self-regulated industry (who did not require themselves to disclose commissions) continued to flog ILAS—even though most ILAS products had, in effect, been banned. 

The charts below show the amount of premiums raked in since 2013 by the three main types of intermediaries (agents, bank agents, and brokers):

2013 ILAS Distribution Channels

Source: OCI’s website. See here.

Data published by the Office of the Commissioner of Insurance. See here.

Source: OCI’s website. See here.

Up to Two Million Mis-sold Investors Deserve Compensation

About two and a half million ILAS policies have been sold in Hong Kong over the past 15 years. OCI has not published data for previous years.

Since most ILAS products provide no life cover, it’s likely that most policyholders have been mis-sold (i.e., ripped off). The number of mis-sales could exceed 2 million.

All ILAS victims have paid excessive fees (often hidden) and their investments returns have suffered (sometimes catastrophically). As a result, their retirement plans, college savings plans, and/or other savings plans have been negatively impacted.

As a matter of justice, these victims deserve compensation from the companies that fleeced them.

Contradictory Statements Suggest that SFC Deliberately Lied about ILAS in Order to Evade Regulatory Responsibilities

Lehman Minibond victims angry at the SFC. Photo by South China Morning Post.

Lehman Minibond victims blamed the SFC. ILAS victims are now doing the same. Photo by South China Morning Post.

Schedule 5 of the SFO defines dealing in securities as “making or offering to make an agreement with another person…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”.

Investment-linked assurance schemes (ILAS) are insurance policies whose value is determined by reference to the value of securities, namely mutual funds.

Most ILAS policies provide little or no life cover. Functionally, they are investment products.

On 13 August 2009, the SFC issued a circular arguing that sales of investment-linked assurance schemes (ILAS) did not fall under the SFO definition of dealing in securities, meaning that the SFC had no responsibility to regulate ILAS sellers. The SFC in effect gave ILAS sellers a free pass to regulate themselves—a freedom which they have spectacularly abused.

To support its argument, the SFC made the following three statements, all of which are false:

  • “ILAS are first and foremost insurance policies providing the policyholder with life cover”
  • “Life cover, as distinct from investment, would appear to be the dominant factor motivating a policyholder to acquire an ILAS product”
  • “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 authorizes all ILAS products and their offering documents, which means that SFC should have known that most ILAS products provide minimal life cover. The main reason for purchasing such policies is to “secure a profit from fluctuations in the value of the underlying funds.”

It is possible that the SFC was just ignorant or negligent when it made the false statements mentioned above. However, the information below strongly suggests that the SFC deliberately lied.

SFC Admits that ILAS Is Predominantly for Investment

According to paragraph 3.9 of the SFC’s Code on Investment-Linked Assurance Schemes, the SFC defines ILAS as an investment-linked insurance policy whose predominant purpose is NOT life assurance. This logically implies that the predominant purpose of ILAS is investment.

SFC Defines ILAS as Primarily for Investment (Code on ILAS)

Screenshot of the definition of ILAS in SFC’s Code on ILAS.

The above definition contradicts the SFC’s description of ILAS in its 2009 circular, suggesting that the SFC fully understood the nature of ILAS when it made the false statements in 2009.

SFC Acknowledges that Most ILAS Products Provide No Life Cover

The SFC has also published a template of an ILAS Key Facts Statement (KFS) in which the SFC assumes that insurers will only pay a death benefit equal to an extra 1% of the policy’s account value.

Screenshot of SFC's ILAS Key Facts Statement Template.

Screenshot of SFC’s ILAS Key Facts Statement Template.

Given that the annual fees of an ILAS policy is generally much higher than 1%, the SFC is assuming that the life cover of a typical ILAS policy is essentially nil. This contradicts the SFC’s 2009 claim that ILAS is primarily an insurance policy “providing the policyholder with life cover”, and it also suggests that SFC was not ignorant when it issued the false statements in 2009.


For whatever reason, it appears that the SFC made a conscious decision to lie in its 13 August 2009 circular, in order to avoid having to take responsibility for regulating corporations and individuals who sell ILAS.

Now that the SFC has been caught, it needs to explain itself and take responsibility for its actions.

Well over one million Hong Kongers have likely been mis-sold unsuitable, exploitative ILAS products. This wouldn’t have happened if the SFC had performed its duty to protect the interests of the investing public.

Did the Lehman Minibond Scandal Contribute to the SFC’s Irresponsible Behavior?

Martin Wheatley was the CEO of the SFC in 2009. This was the period right after the Lehman Minibond disaster, when thousands of Hong Kongers were protesting in the streets, demanding that Wheatley “go home”. Protesters reportedly burnt a funeral effigy of Wheatley right outside his office.

As CEO, Wheatley is probably the person who approved the SFC’s 13 Aug 2009 circular, along with all of its lies. Given that the SFC already had one giant mis-selling scandal on its hands and was facing a public relations nightmare, it is conceivable that Wheatley decided that the SFC should distance itself as far as possible from ILAS and all of the problems that were associated with it.

As documented in the decade-old book, The Great Expat Financial Planning Ripoff, insiders have long known that many ILAS products are a scam. More disturbingly, about 2,500,000 of them had been sold in Hong Kong, whereas sales of Lehman Minibonds were capped at about 40,000.

The rubbish in the SFC’s 2009 circular may have been a self-protective response on the part of Wheatley and the SFC to avoid becoming entangled in another scandal, one that was far larger.

About sixteen months after the SFC’s 2009 circular was published, Wheatley announced that he was leaving the SFC to “go home”.

He is now the CEO of the Financial Conduct Authority, the main financial regulator in the UK.