Category Archives: Convoy

Convoy Financial Services

Financial Analyst David Webb Calls On SFC to Investigate Convoy for Market Misconduct

Convoy - Your Finance Destroyer

A few weeks ago on New Years Eve, financial analyst and activist, David Webb, published a disturbing analysis of several shady transactions relating to Convoy, the largest financial advisory company in Hong Kong. The link is HERE.

Stock Market Manipulation

Convoy is publicly listed on the Hong Kong Stock Exchange (stock code: 1019). Webb claims that most of Convoy’s recently reported profit can be attributed to an investment in a single “massively inflated” stock (Finsoft Corp), whose price appears to have been manipulated by some unknown person(s):

Waited to Publish

In Hong Kong, stock market manipulation is a criminal offense. The maximum punishment is a fine of $10 million HKD and 10 years imprisonment.

Dissemination of Misleading Information

Webb also claims that Convoy published false and misleading information in its 2014 interim report, seemingly in an attempt to hide from investors the concentrated and questionable source of much of its profit.

In Hong Kong, it is a criminal offense to disseminate false or misleading information in order to “maintain, increase, reduce or stabilize the price” of a stock. The maximum punishment is a fine of $10 million HKD and 10 years imprisonment.

Webb has called on the SFC to conduct an investigation:

SFC Should Investigate Convoy (Underlined)

On January 9th, Webb updated his article and further claimed that Convoy failed to disclose Inside Information and a Disclosable Transaction:

Inside Information and Disclosable Transaction

Conspicuously Underpriced Warrants

In another section of the article, Webb pointed out that Convoy placed conspicuously underpriced warrants on two separate occasions (Feb 2011 and Feb 2013). The fact that the warrants were so underpriced suggests that the placement was not in the interest of public shareholders, but rather, in the interest of some unnamed third parties.

Suspicious Warrants

I myself had noticed the suspicious warrant placements more than a year and a half ago and subsequently filed a complaint with the SFC. It seemed to me that someone had attempted to manipulate Convoy’s stock price upwards immediately after both warrant placements. Upon the second warrant placement, Convoy’s stock price nearly doubled in price for no apparent reason.

I wrote a blog post about this, titled, “Was Convoy Involved in Illegal Market Manipulation after Issuing 80 Million Underpriced Warrants?” Below is a chart from that post:

On-Two-Occasions-Convoys-Stock-Price-Spikes-After-Warrants-Are-Issued

In response to my complaint, SFC replied to me, thanking me for bringing the issue to their attention, but they said they could not tell me anything else, due to a secrecy provision in the SFO. However, they did say this:

SFC Response

It has been a year and a half since they said that, but I have seen no press release.

Convoy’s CEO Resigns

In his article, Webb noted that Rosetta Fong resigned as CEO, effective 1 Jan 2015. Here is the official announcement released by the company:

Rosetta Fong Resigns as CEO

Source: Convoy’s 24 Dec 2014 Announcement

The announcement claimed, “Ms. Fong has confirmed that she has no disagreement with the Board and there are no any matters in respect of her resignation as the CEO that need to be brought to the attention of the holders of securities of the Company.”

The Parent Company Sells All Shares of the Publicly Listed Company

Webb also noted that on 21 Nov 2014, Convoy Financial Group Limited (the parent company) sold all of its shares of Convoy Financial Holdings Limited (the publicly listed company). My understanding of this transaction is that former CEO Rosetta Fong disposed of most if not all of her remaining ownership in the publicly listed company. Here is the shareholding structure in Sept 2014, before the parent company sold its shares:

OCI Bans ILAS Indemnity Commissions

Historically, nearly all of Convoy’s revenue has been derived from indemnified commissions which they received for flogging investment-linked assurance scams (ILAS):

Convoy's ILAS Commissions

Source: Convoy’s IPO prospectus and annual reports.

Last July, OCI banned insurance companies from paying indemnity commissions to brokers that sell their ILAS products. As a result, all commissions must now be paid on an earned basis—not upfront. The new regulations went into effect on January 1st, the same day that Rosetta Fong resigned.

Now, Convoy can no longer deceptively extract 25 or 30 years worth of commissions upfront from clients, which means the company’s primary source of revenue has completely disappeared.

In a recent interview with the South China Morning Post, Glenn Turner, former chairman of the Independent Financial Advisers Association, estimated that ILAS sales will “probably drop by 80 to 90 per cent…as agents lose interest in pushing them.”

Falling Knife or Coiled Spring?

Before OCI banned indemnity commissions, I wrote a blog post raising the question of whether Convoy’s stock was a “Falling Knife or Coiled Spring?

According to David Webb, the answer is neither. He says it’s a bubble, and he’s calling on the SFC to prick it. I am too.

Pop a Bubble

Further Reading

Hong Kong Consumers Angry After Being Sold Complex Insurance Product ILAS (SCMP – May 17, 2013)

American Schoolteacher Takes on HK’s ILAS Establishment (International Adviser – July 12, 2013)

The ILAS Scandal Intensifies: Ex-Employee Tells Regulators that Professional Misconduct and Incompetence Are Rampant at Hong Kong’s Largest IFA Company (May 19, 2014)

Whistleblower, Shawn Wong, Answers Questions about His Experience at Convoy Financial Services (May 22, 2014)

Convoy Financial Services, the Largest So-Called IFA Company in Hong Kong, Is a Colossal Fraud (May 22, 2014)

Reforms on insurance-linked investment products bring shake-up (SCMP – Aug. 11, 2014)

Letter to the SFC (#2): Convoy Systematically Defrauds Investors by Misrepresenting the Licensing Credentials of Its Advisers (Oct. 16, 2014)

Essential Info for ILAS Victims: How to File a Complaint

[NOTE: This is the first in a series of posts I’ll be publishing over the coming days. It deals with the logistics of filing a complaint. The next posts will explain in detail all the laws and regulations which the insurance industry has broken. That info can help you write your complaint. For convenience, I have added the information contained in this post to the Resources page of this website.]

Snow ball

Snowball effect: As complaints pile up, pressure grows for regulators and law enforcers to take action.

ILAS victims (including savings scam and portfolio bomb victims) should file a complaint with every regulator and law enforcer that is responsible or potentially responsible for handling any matter related to your case. This will increase the likelihood of recovering your money.

When you file a complaint with a self-regulatory organization (such as PIBA, CIB, or IARB), make sure you copy your complaint to the Office of the Commissioner of Insurance (OCI), which has a duty to monitor how these organizations handle your complaint. None of these self-regulatory organizations can be trusted, as the committee members are also the executives of companies which openly scam consumers and violate regulations. They protect their own interests, not the interests of the people they scammed.

Below, I have listed all the relevant regulators/law enforcers and their contact information, accompanied by notes which explain what the regulator/law enforcers do and other important facts.

For convenience, if you would like to send a complaint to some or all of the relevant regulators/law enforcers simultaneously, I have listed their email addresses here at the top, so that you can simply copy and paste:

iamail@oci.gov.hkcomplaint@sfc.hkbankcomplaints@hkma.gov.hkgeneral@icac.org.hkcrimeinformation@police.gov.hkcc@consumer.org.hkmpfa@mpfa.org.hkhkfi@hkfi.org.hkinfo@piba.org.hkinfo@hkcib.orgcomplaints@ombudsman.hkbc_06_13@legco.gov.hkiia_consultation@fstb.gov.hkfso@fso.gov.hk

At the bottom of this post, I have provided links to laws, lawsuits, regulations, and codes of conduct which will be of interest to people filing complaints.

Anyone who has questions or would like help filing a complaint can send me (Lindell Lucy) an email: lindelll@gmail.com

Filing a Complaint

Office of the Commissioner of Insurance (OCI)
Website: http://www.oci.gov.hk/about/index08.html
Email: iamail@oci.gov.hk
Phone: 2867 2565
Address: 21st Floor, Queensway Government Offices, 66 Queensway, Hong Kong.
Note: You can file a complaint against any insurance company, insurance agent, or insurance broker with OCI. Your complaint will be forwarded to the relevant self-regulatory organization (PIBA, CIB IARB). OCI will monitor their handling of your complaint. It would be foolish to file a complaint with a self-regulatory organization without notifying OCI, as your complaint may not be handled in a fair manner.

Securities and Futures Commission (SFC)
Website: http://www.sfc.hk/web/EN/lodge-a-complaint/
Email: complaint@sfc.hk
Phone: 2231 1222 (press 2 after selecting your preferred language)
Address: 35/F, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong
Relevant Laws: Section 114 and Section 103 of the Securities and Futures Ordinance
Note: If your insurance broker has an SFC license and he/she has breached SFC regulations or the SFC Code of Conduct, you can file a complaint with the SFC. (You can do a search on the SFC’s website to see if your broker has an SFC license.) If your insurance broker/agent violated the Securities and Futures Ordinance, regardless of whether they hold an SFC license, you can file a complaint against them with the SFC. Self-regulated insurance brokers are terrified of SFC!!!

Hong Kong Monetary Authority (HKMA)
Website: http://www.hkma.gov.hk/eng/other-information/contact-us.shtml
Email: bankcomplaints@hkma.gov.hk
Phone: 2878 8196
Address: 55th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong
Note: If you were sold a ripoff insurance policy in a bank, then you file your complaint with HKMA, as it is the bank regulator. You can also send the complaint to OCI.

Independent Commission Against Corruption (ICAC)
Website: http://www.icac.org.hk/en/report_corruption/index.html
Email: general@icac.org.hk
Phone: 25 266 366
Address: G/F, 303 Java Road, North Point, Hong Kong
Hours: Open 24 Hours
Relevant Law: Section 9 of the Prevention of Bribery Ordinance
Note: If you were sold an insurance policy by a broker, then you may be able to complain with the ICAC. A broker is supposed to be your agent, not the agent of an insurance company or fund company. The broker must disclose any conflicts of interest, especially about commissions. If your broker did not get your permission to receive a commission (a kickback from the product issuer), and if he/she did not disclose material information about how much commission he/she received and when he/she received it, then he/she violated Section 9 of the Prevention of Bribery Ordinance, which is an offense punishable by $500,000 in fines and 7 years imprisonment.

Hong Kong Police
Website: http://www.police.gov.hk/ppp_en/02_er_room/
Email: crimeinformation@police.gov.hk (only accept attachments up to 10 MB)
Phone: 2860 5012 (Commercial Crime Hotline)
Address: Find your nearest police station.
Hours: Open 24 hours.
Relevant Laws: Section 16A of the Theft Ordinance and/or Section 36 of the Crimes Ordinance
Note: If you were sold a scam insurance policy (a fraud), or if your broker deceived you for financial gain (defrauded you), then file a fraud complaint against the insurance company who created the scam and the insurance agent or broker who sold it to you. Fraud is a serious offense punishable by up to 14 years imprisonment.

Consumer Council
Website: http://www.consumer.org.hk/website/ws_en/complaints_and_advices/how_to_complain/howtocomplain.html
Email: cc@consumer.org.hk
Phone: 2929 2222
Address: Find your nearest Consumer Advice Center.
Hours: Mon to Fri, 9:00 – 1:00, 2:00 – 6:00
Note: Any ripped off consumer can file a complaint with the Consumer Council. The Consumer Council will act as a mediator and a monitor, similar to OCI.

Mandatory Provident Fund Schemes Authority (MPFA)
Website: http://www.mpfa.org.hk/eng/supervision/mpf_intermediaries/complaints_against/index.jsp
Email: mpfa@mpfa.org.hk
Phone: 2918 0102
Address: Units 1501A and 1508, Level 15, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong.
Note: Many insurance agents and insurance brokers hold an MPFA license, and presumably, they should have to abide by MPFA’s Code of Conduct, which is more strict than the self-regulatory codes of conduct. File a complaint to MPFA if your agent/broker held an MPFA license and breached the MPFA code of conduct.

Hong Kong Federation of Insurers (HKFI)
WARNING: Self-Regulatory Organization / Has Conflicts of Interest
Website: http://www.hkfi.org.hk/#!/consumer-zone/avenue-for-complaints
Email: hkfi@hkfi.org.hk
Phone: 2520 2728
Address: 29/F Sunshine Plaza, 353 Lockhart Road, Wanchai, Hong Kong
Note: If you want to file a complaint about an insurance company (for creating a scam product and selling it to you), send the complaint to HKFI. Copy your complaint to OCI, so OCI can monitor the complaint. If you are complaining about a company’s agent, the complaint will go to the IARB.

Insurance Agents Registration Board (IARB)
WARNING: Self-Regulatory Organization / Has Conflicts of Interest
Website: Go to HKFI’s website.
Email: hkfi@hkfi.org.hk
Phone: 2520 1868
Address: 29th Floor, Sunshine Plaza, 353 Lockhart Road, Wanchai, Hong Kong
Note: The IARB was set up by HKFI. If you were sold a ripoff insurance policy by an insurance agent (not a broker), complain to IARB. Copy your complaint to OCI, so OCI can monitor the complaint. An insurance agent is the agent of a particular insurance company, whereas an insurance broker is your agent and is not tied to a particular insurance company.

Professional Insurance Brokers Association (PIBA)
WARNING: Self-Regulatory Organization / Has Conflicts of Interest
Website: http://www.piba.org.hk/index.php/en/about-piba/establishment-of-piba
Email: info@piba.org.hk
Phone: 2869 8515
Address: Room 2507-08, 25/F, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong
Office Hours: Mon to Fri, 9:00 – 12:30 / 1:30 – 6:00
Note: Insurance brokers are self-regulated by two different organizations, PIBA and CIB. If you were ripped off by an insurance broker, check to see whether your broker is licensed with PIBA or CIB. You can search the register of members on PIBA’s website to find out if the broker is licensed with PIBA. Note that there is a register for companies and a register for individuals. Complain to the organization with which your broker is licensed with. Copy your complaint to OCI, so OCI can monitor the complaint.

Confederation of Insurance Brokers (CIB)
WARNING: Self-Regulatory Organization / Has Conflicts of Interest
Website: http://www.hkcib.org/hkcib/en/about/ourMission.html
Email: info@hkcib.org
Phone: 2882 9943
Address: Room 3407, AIA Tower, 183 Electric Road, Fortress Hill, Hong Kong
Note: Insurance brokers are self-regulated by two different organizations, PIBA and CIB. If you were ripped off by an insurance broker, check to see whether your broker is licensed with PIBA or CIB. You can search the register of members on CIB’s website to find out if your broker is licensed with CIB. Complain to the organization with which your broker is licensed with. Copy your complaint to OCI, so OCI can monitor the complaint.

Office of the Ombudsman
Website: http://www.ombudsman.hk/en-us/how_to_lodge_a_complaint.html
Email: complaints@ombudsman.hk
Phone: 2629 0555
Address: 30/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong
Hours: Mon to Fri, 8:45 a.m. to 5:45 p.m
Note: If SFC, HKMA, or OCI is not handling/monitoring your complaint in a responsible manner, then file a complaint against them with the Office of the Ombudsman.

Legislative Council (LegCo)
Website: http://www.legco.gov.hk/general/english/members/yr12-16/biographies.htm
Email: Click HERE to download the emails of all LegCo members.
Phone: Click HERE to download the phone numbers of all LegCo members.
Note: You can try contacting one of the 70 members of the LegCo for help. LegCo members have power and influence. I suggest you avoid members of the LegCo who are not democratically elected, such as Chan Kin-por, who was elected by 52 insurance companies in 2008. Choose a member who was elected by a geographical constituency, NOT a functional constituency.

Bills Committee on Insurance Companies (Amendment) Bill 2014
Website: http://www.legco.gov.hk/yr13-14/english/bc/bc06/general/bc06.htm
Email: bc_06_13@legco.gov.hk
List of Members: http://www.legco.gov.hk/yr13-14/english/bc/bc06/general/bc06_mem.htm
Note: These members of the LegCo are responsible for overseeing the drafting of the bill which will set up a new insurance regulator (the Independent Insurance Authority). The bill will legally require insurance intermediaries to act in the best interests of clients. Contact these guys to pressure them to make sure that the bill is not corrupted by lobbyists from the insurance industry. Pressure them to amend the bill so that the new independent regulator will be able to take consumer complaints as soon as possible. It is outrageous that victims must file complaints with organizations that represent the very companies that committed the wrongdoings.

Financial Services and Treasury Bureau (FSTB)
Website: http://www.fstb.gov.hk/fsb/iia/eng/establishment/index.htm
Email: iia_consultation@fstb.gov.hk
Phone: 3655 5088
Address: Special Duties Division, 24/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, Hong Kong
Note: Complain to the FSTB if you are unhappy with the way insurance is regulated in Hong Kong. They are responsible for setting up the new insurance regulator (the Independent Insurance Authority).

Financial Secretary
Website: http://www.fso.gov.hk/eng/role.htm
Email: fso@fso.gov.hk
Phone: Not Listed. Fax number is 2840 0569.
Address: 25/F, Central Government Offices, 2 Tim Mei Avenue, Tamar, Hong Kong
Note: If you’re unhappy about the way insurance is regulated in Hong Kong, complain to the Financial Secretary (John Tsang). “The Financial Secretary’s primary responsibility is to assist the Chief Executive in overseeing policy formulation and implementation in financial, monetary, economic, trade and employment matters.”

Laws

Section 9 of the Prevention of Bribery Ordinance (Corrupt transactions with agents)
Maximum punishment for offense is 7 years imprisonment and a fine of $500,000 HKD

Section 16A of the Theft Ordinance (Fraud)
Maximum punishment for offense is 14 years imprisonment

Section 114 of the Securities and Futures Ordinance (Restriction on Conducting Business in Regulated Activities without an Appropriate SFC License)
Maximum punishment for offense is $5 million HKD and 7 years imprisonment

Section 103 of the Securities and Futures Ordinance (Offence to issue advertisements, invitations or documents relating to investments in certain cases)
Maximum punishment for offense is $500,000 HKD and 3 years imprisonment
[NOTE: When insurance brokers distribute unauthorized funds to retail investors indirectly via portfolio bonds (the fund is technically bought by the insurance company, not the investor), it is an offense to give investors a copy of the fund’s information / marketing documents, as these documents have not been authorized by the SFC.)]

Section 36 of the Crimes Ordinance (False statutory declarations and other false statements without oath)
Maximum punishment for offense is a fine and 2 years imprisonment

Section 25 of the Organized and Serious Crimes Ordinance (Dealing with property known or believed to represent proceeds of indictable offence)
Maximum punishment for offense is a fine of $5 million HKD and 14 years imprisonment
[Note: This law is related to money laundering, which is the act of making “dirty” money (illegally gotten) appear as if it were legitimately gotten.]

Section 25A of the Organized and Serious Crimes Ordinance (Disclosure of knowledge or suspicion that property represents proceeds, etc. of indictable offence)
Maximum punishment for offense is a fine of $50,000 and 3 months imprisonment.
[Note: This law is related to money laundering. If someone (such as a bond provider) is aware of another person (such as an insurance broker) obtaining money illegally, but does not report this information to authorities, the person has committed an offense.]

Section 82 of the Inland Revenue Ordinance (Tax Evasion / Tax Fraud)
Maximum punishment for offense is $50,000 HKD fine + triple the amount evaded + 3 years imprisonment
[Note: Sources say that some insurance brokers hide fund commissions offshore to evade corporate taxes and to avoid violating Section 114 of the Securities and Futures Ordinance.] 

Hong Kong Competition Ordinance (Anti-Trust Laws)

Lawsuits

Judgement – Jeremy Hobbins vs. Skandia and Clearwater (Famous lawsuit in which undisclosed ILAS commissions were argued to be a form of bribery)

Article about the Hobbins lawsuit in the South China Morning Post: Cost in the Mists of Time

A Lawsuit in Singapore which was Settled out of Court — I visited Singapore last summer and obtained a digital copy of the court documents before this case was settled. It involved an American family who sued their financial adviser for mis-selling them an ILAS product, which caused them hundreds of thousands of US dollars of tax penalties, accounting bills, and legal bills. ILAS is a disaster for Americans. See this blog post: “American ILAS Victims Could Face Criminal Prosecution after FATCA“. Anyone interested in learning more about this lawsuit may contact me for more information (lindelll@gmail.com).

Regulations, Circulars, Codes of Conduct

SFC – 31 Oct 1996 – Introduction of ILAS Illustration Document (In Response to Complaints)

Consumer Council – 15 January 2004  – Warning for Consumers to Avoid ILAS

SFC – 23 February 2005 – Report on Selling Practices of Licensed Investment Advisers

SFC – 13 August 2009 – Clarification of ILAS Licensing Requirements

HKFI – 1 February 2010 – Code of Practice for Life Insurance Replacement

HKMA – 14 March 2011 – Enhanced ILAS Regulations

CIB – 22 July 2011 – Regulations for Brokers Selling ILAS

CIB – Code of Conduct for Insurance Brokers

MPFA – September 2012 – Code of Conduct for Registered Intermediaries

HKMA – 22 April 2013 – More Enhanced ILAS Regulations

HKFI – 22 April 2013 – Updated ILAS Regulations

SFC – 3 May 2013 – Enhance Disclosure Requirements for ILAS

Consumer Council – 16 September 2013 – Warning to Consumers about High ILAS Fees

SFC – October 2013 – Code of Conduct

HKFI – 22 October 2013 – FAQ on Updated ILAS Regulations

PIBA – 1 March 2014 – Updated Code of Conduct

OCI – 30 July 2014 – Ban on Indemnity Commissions and Unfair Charges (GN 15)

HKFI – 8 December 2014 – Updated ILAS Regulations

HKMA – 8 December 2014 – Mystery Shopping Programme Findings

HKMA – 8 December 2014 – Enhance Regulation of Non-ILAS Insurance Products

OCI – 10 December 2014 – GN 15 (Second Edition) – Ban on Indemnity and Unfair Charges

HKMA – 17 December 2014 – Update on ILAS Commission Disclosure Requirements

SFC – 22 December 2014 – Mystery Shopping Programme Findings

ILAS Victims Meeting To Be Held On January 13 at the Legislative Council Complex in Admiralty

LegCo Complex 3

Photo was borrowed from the LegCo website.

This is a notice to all ILAS victims, ILAS regulators, the ICAC, and the police. There will be an ILAS victims meeting next Tuesday at the LegCo Complex. Any victims interested in attending can email me (Lindell Lucy) for more details: lindelll@gmail.com.

The meeting is being hosted by a member of the Legislative Council who has promised to help hold regulators’ feet to the fire. This LegCo member is on the bills committee for the Insurance Companies (Amendment) Bill 2014, a bill which will establish a new insurance regulator and require insurance intermediaries to act in the best interests of clients.

So far, 16 people have confirmed that they will attend the victims meeting. Some of the victims are Chinese. Some are expats. Some were sold 25-year savings plans (aka savings scams). Others were sold unauthorized toxic funds via portfolio bonds (aka portfolio bombs).

These victims were ripped off by insurance companies including Standard Life, Zurich International, Royal Skandia, Friends Provident, Prudential, AIA, and AXA. They were ripped off by insurance brokerages including Convoy Financial Services, Centaline Financial Services, and Financial Partners.

The number of victims attending the meeting may seem small, but the number of victims throughout the city is undoubtedly gargantuan. Consider the following:

Approximately 2.5 million ILAS policies have been sold in Hong Kong over the past 14 years. There are approximately 2.5 million households in Hong Kong. On average, that is one per family.

Since 1997, insurance companies have collected well over half a trillion Hong Kong dollars in ILAS premiums.

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.

PIBA’s Conduct Is Inexcusable: A Complaint to OCI, the HK Police, and the HK Legislature

PIBA Logo 

“To Serve & To Protect”

PIBA’s motto is a joke. This organization has served and protected nothing but the interests of its members. It has sanctioned wholesale consumer fraud for decades.

25-year contractual savings scams should not and should have never existed. The executives who are responsible for creating, selling, and authorizing the sale of these products deserve to go to prison.

Two of my friends were scammed by these products via Convoy Financial Services. My friends filed complaints with PIBA more than one year ago. (See here and here.) One case was a top story in the South China Morning Post. 

Six months ago, we asked PIBA for an update. A staff member told us that PIBA was “still investigating”. We asked when this so-called investigation would be finished. She told us that one of the cases would be finished in less than one month

It is now six months later, and we are still waiting for an answer.

This is inexcusable.

I called PIBA a few days ago and asked for an explanation. A staff member told me again that PIBA was “still investigating”.

I asked, “What is the average investigation time for a complaint? Do you think more than one year is reasonable?” He did not give me an answer.

Personally, I think there is not a genuine investigation. PIBA has too many conflicts of interest, since several of its members are guilty of flogging 25-year savings scams. For PIBA to conclude that Convoy is a rogue organization is to conclude that many other PIBA members are equally bad. But for PIBA to deny this obvious truth is also incredibly damning. It is thus in PIBA’s interest to never reach a conclusion, to pretend to investigate for as long as possible, while its members continue ripping off thousands of unsuspecting consumers in the meantime.

I am hereby requesting that OCI, the police, or the legislature please intervene in this matter. 

Undercover Reporter Exposes Convoy in Fraudulent Marketing Scheme

Click HERE to see the news. The article includes a photo that was apparently taken in secret.

Convoy Financial Services is the largest pseudo-independent financial advisory company in Hong Kong. The company doesn’t sell objective advice; it sells ripoff insurance products. 90% of its revenue is derived from ILAS commissions (i.e., kickbacks from the insurers who manufacture these exploitative products).

The news story is written in Chinese, so I asked some friends to help translate and summarize. Here’s the headline and subheadline:

電話直銷訛稱積金局委託 推銷基金
Cold Callers Falsely Represent Themselves as Appointed by MPFA, Then Peddle Funds

非本地人來電邀約 強調不收費
Non-Locals Call for Invitation, Emphasizing Free Service

One of my friends described the news story like this: “Convoy hired an outside offshore marketing company to make calls here, pretending that they are staff from MPFA and want to meet up with the victim. When the victim sees Convoy, you know the rest.”

Another friend summarized it like this: “The reporter received a call from a non-local, and agreed to meet up. But it was a senior wealth management consultant from Convoy who came to the meeting, and mentioned Convoy does cooperate with the marketing firm but declined that she was appointed by MPFA, and was only instructed by her supervisor to explain MPF plan to client. The reporter contacted Convoy for questions and Convoy denied any wrongdoing, saying the company will conduct an internal investigation. MPFA has received several complaints about this type of fraudulent scheme (involving not just Convoy) and has asked the police to investigate.

Note: MPFA stands for Mandatory Provident Fund Schemes Authority, the regulator for Hong Kong’s compulsory retirement savings program. When the article mentioned that the Convoy adviser was peddling funds, presumably she was peddling funds wrapped in an ILAS, which can increase the commission payout by a factor of several hundred. These massive commissions are fraudulently hidden by a deceptive fee structure and bogus bonus units. Multiple Chinese ILAS victims have told me that their adviser never explained that they were buying an insurance policy (linked to the value of funds) and not actual funds.

It will be interesting to see how the police deal with this.

Falling Knife or Coiled Spring? Convoy’s Stock Hits New All-Time Low

Convoy—Hong Kong’s largest pseudo-independent financial advisory firm—hit a record intraday low of $0.93 on Friday. The only other time the stock has been near these levels was two years ago, shortly after the Jeremy Hobbins lawsuit threatened to wipe out the entire “I”FA industry.

Convoy Hits New All-Time Low

The Hobbins Lawsuit Revisited

Part 1: Bribery

Hobbins pointed out that massive, undisclosed ILAS commissions violate Hong Kong’s anti-bribery laws. The judge, Anselmo Reyes, disagreed.

He said as long as the commissions weren’t significantly larger than what was normally paid in the “insurance market”, then the commissions did not amount to bribery. Reyes’ logic was flawed because none of the ILAS products sold to Mr. Hobbins were genuine insurance products—they were all investment products. Consequently, Reyes should have asked whether the commissions were larger than what was normally paid in the broader “investment product market”. If he had done this, then he would have been forced to conclude that the entire “I”FA industry was guilty of bribery, because ILAS commissions are multiple times higher, sometimes hundreds of times higher, than commissions paid for selling competing and far superior investment products. 

Part 2: Breach of Fiduciary Duty

Hobbins also argued that by not disclosing how stunningly massive the commissions were (nearly $1 million USD for a single transaction!), Clearwater, his “I”FA, had breached its fiduciary duty. Once again, the judge disagreed.

Although Clearwater did not disclose the amount of commissions it would receive for selling ILAS products to Mr. Hobbins, it did disclose that it would receive commissions. This disclosure was buried somewhere in the mountains of papers that Mr. Hobbins signed.

The judge claimed that this partial commission disclosure by Clearwater was just barely enough to “discharge its obligation as fiduciary”.

In response to this jaw-dropping judgement, a fee-based financial adviser remarked, “What the hell is Hong Kong’s idea of ‘fiduciary’ duty?? Fiduciary duty means a legal obligation for the IFA to put the client’s best interest ahead of their own. On what planet could an ILAS ever be construed as in the client’s best interest?!”

Damage Control

Clearwater emerged unscathed, but there was no guarantee that the next target of an ILAS lawsuit would be as lucky. Insurance regulators scrambled to cope with a rising tide of negative publicity.

For months, they deliberated over whether or not to start mandating full commission disclosure. Some feared that the industry might face another legal crisis involving not just lawsuits but investigations by the Independent Commission Against Corruption (ICAC).

During this period of regulatory uncertainty, Convoy’s stock spiraled downwards, going as low as $0.95. Insiders voiced fears that full commission disclosure would destroy sales of ILAS—the primary source of Convoy’s revenue. They correctly reasoned that no informed consumer would be willing to pay well over a year of savings for biased, unprofessional advice and access to a costly, inflexible “monthly savings plan”.

Out of self-interest, the “I”FA industry vehemently opposed full disclosure. Regulators, as usual, gave them exactly what they wanted.

They decided to mandate partial disclosure, the bare minimum that had saved Clearwater from legal repercussions but had failed to protect Mr. Hobbins from falling into a trap. In other words, the new rule was just enough for “I”FAs to cover their asses legally while still preserving their ability to easily exploit the trust of clients.

The industry breathed a sigh of relief. Convoy’s stock eventually recovered, suspiciously rocketing after a placement of questionably-priced warrants.

Independent Insurance Authority Reignites Fears of Doom

For the past couple of months, Hong Kong’s legislature has been debating a new law that will set up an independent regulator to replace the current self-regulatory system.

Players in the industry have been shitting themselves. Last month, South China Morning Post published an article entitled, “Forced disclosure clause in draft insurance bill could kill industry, insiders complain“.

These fears have caused Convoy’s stock to plummet back to post-Hobbins levels. It remains to be seen whether or not the fears are justified.

Falling Knife or Coiled Spring?

Convoy’s stock could sink like a stone towards zero, or it could snap back to $2.00 or more in a short period of time.

No one can know for sure. The answer depends on a few variables.

  • Will the legislature and new regulator rein in ripoff insurance products and predatory sales practices? Or will it bless the industry and wish it “happy hunting”?
  • Will Convoy be investigated by the Independent Commission Against Corruption (ICAC)?
  • Will some of Convoy’s pissed off clients retaliate with lawsuits, and will Convoy be able to survive? [This blog post lists several reasons why the company is a sitting duck.]

In other words, will justice prevail?

If not, then it’s business as usual, and Convoy’s shareholders will profit at the expense of ripped off consumers.

If justice does prevail, then Convoy will be fined and/or sued into oblivion, and shareholders will lose everything.

Personally, I am rooting for justice.

Convoy’s Stock Hits 52-Week Low as Regulatory Overhaul Threatens to Crush the Company’s Unethical Business Model

Convoy is the largest pseudo-independent financial advisory firm in Hong Kong.

10 months ago, its stock was at $2.31. Three months later, the company’s executives dumped more than half their shares at $1.50. Yesterday, the stock hit a 52-week low of $0.98 before closing at $1.00. The trading volume was nearly 4 times its average.

Convoy Statistics

What does this sell-off mean?

Clearly, it means that the company’s shareholders (and executives) are worried. I think they should be worried. Here are four reasons why:

  1. 90% of Convoy’s revenue is derived from ILAS commissions. In other words, 90% of the company’s revenue is derived from ripping off consumers.
  2. Hong Kong’s legislature is about to enact new laws and establish an independent regulator that will make it increasingly difficult for Convoy to exploit consumers.
  3. Due to a never-ending stream of scandals hitting the newspapers, Hong Kong consumers are learning that they should avoid ILAS.
  4. A growing number of ILAS victims are becoming emboldened to take legal action against their ‘I’FAs. As the largest ‘I’FA company in Hong Kong, Convoy is the most likely target of future lawsuits.

Whistleblower, Shawn Wong, Answers Questions about His Experience at Convoy Financial Services

The following questions and answers are based on 6 weeks of email exchanges, a lengthy phone call, and a couple of in-person meetings. Shawn asked me to correct his spelling and grammar mistakes, so I’ve done that. If you would like to ask Shawn more questions, you may submit questions via the comments section below. All questions/comments will be moderated.

Shawn, obviously you are pissed about the personal financial problems that Convoy has caused you, but your decision to speak publicly about it is motivated by more than just self-interest. Explain.

I hate personal inconveniences, but I hate injustice more. I want investors, fresh graduates and even the ones who want to work as financial planners, to be safe from the harm of this company and this product [ILAS].

How does one become licensed to sell ILAS?

A Convoy consultant is supposed to be a PIBA technical representative to sell ILAS, which requires 3 exams – Paper I, III, V. I only took 2 because my major in university was economics, and I got an exemption in Paper V. For me, the exams were really easy. I used a thin book of past questions (all multiple choice) provided by Convoy, and my preparation for each exam was no more than 3 days. The exams were taken online in a computer room, and one can choose questions to be in English or Chinese.

What educational qualifications does one need to get a license to sell ILAS?

The education requirement for the licence is: “has the minimum education standard of Form 5 or equivalent”. HK secondary school is 7 years. Form 5 means you’ve finished the 5th year. [10th grade.] You can check it out here : http://www.oci.gov.hk/download/minrev_20081001.pdf (page 19)

How often must employees go to the office at Convoy?

For the ones who have a base salary/allowance in probation, they have to go to the office and report to duty by 9:00/9:30 (can’t remember) during the first six months’ probation or their salaries will be deducted. For the ones like me who have no base in the probation, there is no need. Beyond that, there is no compulsory working hours in the office. So employees basically can go to the office only for training or signing of sold products and can choose to not go whenever they want.

How often did you go to Convoy’s offices? 

I just went there occasionally whenever I felt like going. I can’t recall what I did in the office…mostly just chill, I guess? Or tried to boost my sales skills by practicing or asking for seniors’ experience.

You said a lot of people selling ILAS are “aunties” and “grandmas” with a lot of spare time on their hands. Can you give me an idea of how many aunties and grandmas are at Convoy?

As I mentioned before, the entry barrier for this job is very low, and there’s no working hour requirements – easy for aunties and housewives to get on with. And you know it’s a sales job – aunties are quite good at doing “persuasive talk” to their knowledgeless peers. So I have no idea how many aunties there are, as they didn’t need to show in the office.

Did you meet any people at Convoy who were non-degree holders? How about fresh grads with no background in math, finance, or economics? 

Of course! I bet you still think this is a job with at least some technical skills required, as I once did. But it is not. It is a pure sales job. If you can sell products to ordinary people, then you are good.

How often does Convoy fire people?

Besides probation, Convoy basically does not fire people. Why should they? Their expense is basically zero, and they get pure profit from consultants’ sales. But I do remember there was a clause about the consultant needs at least one sale deal (don’t know if there’s any size requirement) within one period (about 15 or 18 months or something), or the employment will be terminated.

Why didn’t Convoy pay you a salary during your 6 month probation? Is this a regulatory violation?

The biggest loop hole is, all 2000+ (or at least most) Convoy consultants, who are actually frontline sales, are under self-employment contracts with Convoy. This type of employment is a long existing and highly debatable contract wildly used in the insurance industry in HK. So, I think not paying me a salary doesn’t violate current regulations. I believe this is the root of the reason why Convoy can stay safe from all kinds of obligations [when its employees engage in misconduct].

You took out a bunch of loans to support yourself during your “employment” at Convoy, and you are still paying them off. Did Convoy help in securing those loans? Or was that something you decided to do independently?

That was purely my decision, as my parents didn’t know I had no base salary, and I didn’t want to ask them for support even though I knew they would not hesitate to do so. My credit record is pretty good, so it’s quite easy to get installments from HK banks.

Can you clarify about when you started working at Convoy and for how long? When did start having problems with the commission clawback?

I lost my contract copy, so I can’t recall my exact start date. I started to work and train in Convoy around June 2010, but I didn’t sign the contract immediately. I think I signed it around August 2010. Later, my dad came for my graduation ceremony in Nov 2010 and signed the ILAS, and all docs were sent to Zurich by Dec 2010. The first payment was settled in Jan 2011.

I started looking for other job/money making opportunities around May/June 2011. I sent the official resignation by the beginning of Nov 2011 when I had gotten some freelances. After 8 months of payments, I was unable to make further payments (since they were partially made by my father and the rest by myself), and I was also determined that I would leave Convoy. So I asked my father to stop payments. But we didn’t plan to cancel the policy until Zurich sent me a letter after ~6 months or so and said the policy had lapsed. Then we started to realize the problem.

I received a call from Convoy in late May 2013. They told me they had sent a letter for commission clawback a few months before. I hadn’t received it, so I asked them to send it again. Then I sent them the first letter reply in early June 2013. There was not any response. Then I unexpectedly got a phone call from Milliken and Craig in March 2014. This is what pissed me off, and then I decided to break the silence and fight against every injustice Convoy forced on me.

Why did you leave Convoy?

I didn’t believe I had the “thick face” to sell ILAS to my relatives/friends and my parents’ friends while knowing that they didn’t actually need it. I also knew there was no way they would buy it if they had understood the clauses or knew that I didn’t understand them.

You said the brokerage licensing exam was easy. You also claimed that Convoy gave no training sessions explaining how the policies worked or how they were better/worse than other products or how to determine if ILAS, or a specific ILAS, was truly the best option for a client. Did you feel like anyone there actually comprehended how truly rotten these products are? Can you tell me a little more about the minimal training you got that was not related to sales? Was there zero quality control? No attempt to verify that employees had actually read and understood the policies? No one explained that the exit penalty is usually 100% during the ICP [initial contribution period]? This was not even a question on the PIBA exam? How are Convoy “consultants” able to answer questions posed by clients? Do they just make shit up?

Yes, Convoy only has sales-oriented trainings – How to talk to, warm call/cold call clients, how to find their potential needs and how to fire on it, and there are drills within teams to practice meeting clients. There are credit bearing trainings held by PIBA for some required minimum learning hours you have to attend for the license. These are quite general lessons about the industry and ethics, which did not talk about specific conditions or clauses of ILAS contracts. Knowledge about product details are from your own readings or what your supervisor teaches you. I don’t know of any attempt of Convoy’s for verification of knowledge. But I believe my whole small team at that time all had no clear understanding of the ICP, even my supervisor. (Yes, even now I still believe she did not trick me on purpose about this. She just did not have a clear clue either.)

You said Convoy didn’t make any attempt to educate you about the most important clauses and provisions of the ILAS policies you were supposed to be selling. Did they make any attempt to ensure you understood your employment contract?

When I signed the employment contract, no one ever pointed out that there might be any liability or obligation after resignation. And I don’t know why in “commission clawback”, the commission suddenly became “Loan due to Convoy” in their statement. There is a line about clawback in the contract and Convoy pointed it out the other day. It says:

“In the case that commission and/or remuneration received by the Company is subject to any kind of clawback or reimbursement clause(s), the Agent who received such commission and/or remuneration in whatever means and with whatever reasons shall be liable to the same clawback and reimbursement clause(s).”

I have nothing to argue about this statement, but to my understanding, since “commission clawback” is only “in the case that” and is not universally applied, when I was given the particular commission amount which is subject to a clawback clause, Convoy should be obligated to inform me by some means that this particular amount is under a clawback clause. But they didn’t, so didn’t know it was. So now I have this doubt about whether this “commission clawback” against employees has legal admissibility. I asked them a question about this in the email I sent just before they called me…

Can you explain some more about how Convoy is able to exploit mainland students, using their need for a work visa?

Mainland students are subject to “Immigration Arrangements for Non-local Graduates”, or IANG. The first year after graduation, we can stay in HK with no condition attached (no need to find a job), but we need a working visa afterwards until we stay here for 7 years. Convoy approaches fresh mainland grads, using their mainland employees to act as “mentor” and “friend”, plot the career in Convoy as warm, supportive, quick money, fast career path, self-fulfilling with extremely flexible working hours, and with working visa provided. And this worked for a young fool like me, and lots of other fresh grads. Even when I had not sold any products, their persuasions could still get me hypnotized to believe that probation was just a small barrier, a little more time is all I needed, a brighter future was right after it, and asking my parents to help at this point was totally worth it.

As I told you before, I was so stubborn and blindly believed I could have a very good income soon after I got on the right track (like my supervisor who supposedly got 600-700k in her first year). The original plan was, I’d have the Vista plan for mid-to-long term savings, and my father would help me with most of the first year payments, after which I should be able to make the payments by myself. But apparently things did not go my way. So I decided I had to cancel the policy when I realized there was no future in Convoy and I couldn’t afford it on my own.

You said fresh mainland graduates can work at Convoy for 1 year without Convoy sponsoring a work visa. But in order to stay at Convoy beyond the 6 month probation period, they need to sell $5 million in “business value”. Is this Convoy’s requirement or the government’s requirement? 

This is Convoy’s requirement.

Was the $5 million you sold to your father during probation needed to apply for a new work visa? 

For the 1st year IANG, there is no requirement. After that, we need a proper job for a “working visa”, which is still called IANG. A “proper job” means a proper company and a proper income. So Convoy needs me to get a sizable deal to show the Immigration Department that I can have proper income in the next 3 months (something like 10K+ per month, I suppose).

Do local HK employees also face a probation period? Do they have a minimum amount they need to sell to stay employed?

Yes, their probation is the same – total 5m – normally $2m for 1st half of probation, $3m for second half. But there are some probation extensions in case the tasks aren’t done in time. And they also have two contracts – with or without base salary in first 6 months.

How many non-Chinese employees (Western, Japanese, etc.) did you see at Convoy? Does Convoy make an effort to recruit them?

I didn’t see any. But Convoy’s 2013 annual report mentioned its expansion in Japan and South East Asia, so I bet they now may have some.

On the phone, you said Convoy will hire any mainlander that just graduated from university in HK, because Convoy knows their family must have financial resources, otherwise they couldn’t afford to study in HK. You also said Convoy exploits their need for a work visa. Does Convoy put special emphasis on hiring mainlanders because it earns more money from them? Does this lead Convoy to hire mainlanders indiscriminately, and as much as possible?

A bright outlook of money, ability to apply for visa, with extremely flexible working life as a bonus – this package could sound intriguing enough to lots of fresh grads from the mainland. When a senior starts to form his/her team, there is a quota of how many new hirings can have a contract with a base salary, and others can’t. When I started in Convoy, my supervisor was left with only one quota, and she spent tons of time persuading me to give the quota to another girl and sign the contract without base, given that I was unwilling to. Basically, she described the future, told me how much she believed in me, and urged me to take the faster path. (Commission rate and title ascend with the total business value one’s sold. And if under no base salary contract, then one can skip a 1.7% or 1.9% commission phase, I think, and move faster). So this means, Convoy’s yearly salary expense is pre-settled. It won’t cost them anything to hire more people, so why not? And mainland fresh grads – if they do it badly, Convoy doesn’t have much to lose; if they do it well, Convoy can get a lot of money from the big ILAS policies they’ve sold. As I said, ILAS sold to locals are usually only a few thousand a month, but the ones sold to mainland investors are mostly above 10k. Mainland employees can’t survive on small deals as they can’t get the same quantity that the local employees do. They have fewer contacts here.

Your supervisor encouraged you and your father to buy a $5 million “business value” ILAS to help you get past your probation. Which parts of the needs analysis forms and risk profile questionnaire did your supervisor falsify? For what reasons did she do this? Were any other parts of the documents falsified?

She taught me to designate myself as the life insured. My father was 60+, so it was unreasonable for him to sign a 25 yrs policy with himself as the life assured.

The income was exaggerated to meet the requirement for the large contribution.

The suitability declaration was taught by her.

In the Needs Analysis form:

  • Questionnaires were done by her to make it look like medium and higher risk tolerance.
  • Accumulative amount of liquid assets was filled in by her, which is I think just a random reasonable-looking number.
  • Financial Planning Analysis was done based on examples she provided.

All these were to make my father look like he had 1) sufficient income and assets, which are reasonable and not too much so that there’s no need for proof, 2) medium to high risk tolerance, and 3) determination to sign this policy.

Convoy uses multi-level marketing, a widely criticized and controversial business strategy. Did your supervisor get a cut of your commission? How much? Do you know the commission rate for all the higher levels of management? Is management ever responsible for the misconduct of employees under their supervision? It seems they could benefit financially from teaching their “team” to engage in misconduct, as a means of boosting sales. If so, are the “team leaders” shielded from any responsibility when one of their “team members” is caught?

She had a cut. But I don’t know the number, and I doubt Convoy can retrieve it from her since she might not live in HK now. I can’t really remember others’ rates, but it seems around 2.x%? or 3%? for associate director. You can check out the career path here: http://www.convoyfinancial.com/en_US/careers/careerspath. Consultancy Management Path is the more common one which means you will build your own team. Financial consultant path is where you don’t build a team and your commission only comes from your own sales. But I think the rate is higher than Consultancy Management Path for higher levels. As I mentioned, Convoy’s consultants are under “self-employment”. Convoy and the management is easily off the hook for any liability. Since Convoy’s compliance is very weak and there’s basically no internal control (at least I think so), there could be lots of stuff going on between consultants or external parties for more financial benefits.

Were you asked to recruit other mainlanders? 

Of course I was asked to promote Convoy and pay attention to whether anyone’s interested. And there were company tours for fresh grads, and we were asked to share our “success story” and experience to them. But I was at the lowest level, so I was not included in actual recruitments.

After looking at the ILAS applications of multiple Convoy victims, it seems to me that consultants just copy their Financial Planning Analysis out of a guidebook, because all the hand-written statements I’ve seen are identical. Can you tell me a little more about this guidebook? You said you copied the statement on your father’s application. It’s in Chinese, so I can’t read it. What does it say? 

I don’t know if there is a guide book, but the statement is definitely mostly copied from previous ILAS plans as examples. Translation of the “analysis” part in my father’s policy:

Financial Planning Analysis

IV: Financial Planning Analysis

Financial planning goal: Client is now 60 years old, hoping to have this as additional saving in addition to current retirement savings. Thus suggest him to invest in 25 years ILAS.

Affordability: Client’s annual salary is about HKD800,000, and can afford HKD17,000 monthly contribution.

Age consideration: Client chooses the 25 years product, and will be 85 years old by the end of the contribution period.

V: REMARKS Consultant reminded the client that the contribution period may not be finished when he’s retired. But the client pointed out he has the ability to finish the contributions and insist to apply.

(My father’s signature)

How do Convoy advisers decide which funds to recommend to their clients?

As far as I know, it is very common that “advisors” don’t have enough knowledge about the ILAS and related funds they sell. They usually keep several names of funds in mind which have different average returns but all have good track records, and recommend them to all potential clients – if the client is risk adverse, then they give him/her the one with a lower return. They don’t have sufficient knowledge about the market, the fund’s structure, the fund’s investment portfolio and risk level. Most of them just roughly check out the fund’s periodic factsheets (some responsible ones may check out ratings and basic analysis on sites like Morningstar), and as long as the track record is good, it will be listed in their recommendations. And as long as ILAS is one of the products they sell, no matter whether it is suitable or not, ILAS will always be the first thing they recommend to potential clients. How can it not be? – “Advisors/consultants” can get much more commission from this type of product.

Under the old regulations, ILAS illustration documents had to show average returns assuming 5% and 9% (it’s now 3%, 6%, and 9%), yet you said you and your friends at Convoy were given illustration documents which assumed average returns between 9% and 18% [created by Convoy, not by insurers]. You were trained to use these when pitching ILAS to new clients. Can you tell me a little more about this?

I, and all the friends I know who previously worked in Convoy, were taught to use 9% as some sort of “benchmark” safe rate for risk adverse investment illustrations. Usually the return in the illustrations and examples provided to prospective clients ranged from 9% to 18%. I don’t know about the “advisors/consultants” who target local investors, but I suspect this should be quite common. When I was in Convoy in 2010-2011, I didn’t know and wasn’t told by anyone whether there were any regulations on the return assumptions. My friends also didn’t know. The illustration I was taught was normally using 12% as an ordinary case, and also showed the prospective client illustrations from 9% to 18% as well. And the fund examples I was given to show client were also the ones with best returns. The “illustration” is basically an Excel worksheet for a particular ILAS with no fee details (at least not that I know of). The consultant only needed to fill in some conditions such as expected annual returns and years to maturity, then it will run itself.

Did you make any cold calls? Did you have a script to follow? Did you ever call people you know and introduce them to ILAS? What was that like? Do people at Convoy use social media, like Facebook, to advertise their “services”? What’s their other sales strategies?

Yes, I made cold calls (2 or 3 times) based on a list I was provided (it was surprisingly detailed) but mostly for practice since mainland employees are not usually doing business based on cold calls. And of course there were scripts, but now I can’t find any copies. I did introduce ILAS to people I know – not over the phone, but face-to-face when I went back to China – again, extreme flexible working life. I am not sure about the other strategies “consultants” use, but I believe they will use every tool available to do it. Calls, booths, social media, ads…

Did you ever hear anything about Convoy poaching staff members or clients from competing companies?

Yes, I think so. I, for example, did not make any application for Convoy’s job, but I got phone calls and was approached by them and they knew my background and current status. So I don’t know where they got my details. You mentioned that your friends have gotten these kinds of phone calls as well.

Also, when I was new in Convoy, newbies were provided contact lists to make cold calls (I got both locals and mainlanders) including contact names, phone numbers, address, occupations, some even had assets details (like how much their savings are, what kind of properties they owned, what kind of car they drive) and recent personal wealth management activities, if there is any. I know companies like Convoy can always get contact lists from suspicious sources, but I didn’t know the lists could be so detailed.

SwissPrivilege (a company similar to Convoy) has offered clients “free” exotic trips to places like Dubai, Africa, and Eastern Europe. To be eligible for these trips, clients first had to invest ungodly amounts of money in an ILAS policy. Did you ever hear of any “promotions” like that at Convoy?

There are cases I found from news that when meeting or cold calling clients, some Convoy consultants promised gifts upon meetings (like a free trip) but it was just a scam, and they did not give clients anything. And some claimed to be an “MPF agent” when making cold calls. But Convoy’s PR claimed these were all personal misdeeds, and Convoy strictly forbids this kind of misconduct, as always.

How was your commission calculated at Convoy?

Normally, a monthly contributed ILAS will have an 18 month ICP, and the consultant’s commission will be calculated by: his rate*monthly contribution*12*year to maturity. If the ICP is longer or shorter, then the commission will be adjusted with another coefficient (<1 or >1). Following are examples.

Assume: Commission rate is 1.9%. Policy is 10,000/month, 20 years. Coefficients are 0.8 and 1.2 for products of ICP of 12 months and 24 months respectively.

If ICP=18 months, commission=1.9%*10,000*12*20

If ICP=12 months, commission=1.9%*10,000*12*20*0.8

If ICP=24 months, commission=1.9%*10,000*12*20*1.2

You can see, the commission is totally based on how long investors’ money can be locked in.

Does Convoy disclose to its employees how much commission Convoy receives from the insurer? The new regulations require intermediaries to disclose ILAS commissions. Obviously, the client would want to know how much the insurer is paying in total to Convoy, not just how much Convoy passes along to the employee. Convoy itself has loads of interest conflicts which, as you mentioned, corrupts the way Convoy hires and trains employees. If intermediaries aren’t disclosing Convoy’s cut of the commission, then they’re arguably violating the regulations. But if Convoy is withholding this information from employees, it’s not the employees’ fault. Convoy is forcing them to violate the regulations, which means Convoy should be held accountable.

When I worked in Convoy, I was shown the commission rate for different positions along the career path to associate director. But I have no idea how much commission the company gets.

I agree it could be a violation now if the client doesn’t know the whole commission package for Convoy and all the related senior employees. But if it is not treated as a violation, then the regulators have created a big loop hole in the new regulations for Convoy to take advantage of.

How do Convoy advisers decide which ILAS policy to recommend to clients? Why did you buy a Zurich Vista instead of something else? I’ve met a large number of Vista victims, so it seems to me that this policy has been flogged harder than others. Do you know why?

Zurich Vista is a pretty standard ILAS in HK, given its standard 18 months ICP. For my case, all I wanted was an ILAS of $5 million “business value” for passing my probation, and Zurich has several selling points compared to others including a better company branding, “reasonable” annual management fee (maybe), a larger diversified fund pool, and good bonus. My bonus was 100% of ICP contributions. Sometimes the bonus can be approximately 120%, but this is changing periodically.

So, for a consultant, as long as the ICP and policy life span (or lock-in period) is confirmed, his/her commission is basically also confirmed. Then they can start to consider the client – amongst the several similar products, which one has slightly better or more attractive clauses for the client. Zurich Vista could be a “better” one for normal cases.

However, I do remember (but not clearly) that there are some clauses of Standard Life’s or Friends Provident’s that seem to be better for a policy with shorter life span, say less than 10 years. But obviously, the longer the policy is, the happier the consultant will be. So Zurich seems to be a more “attractive” one for a policy with longer life.

Some regular premium ILAS products are MUCH more flexible than others. In particular, I am thinking of Skandia’s Executive Wealthbuilder Account (EWA) and Managed Capital Account (MCA). Both of these products don’t have a minimum contribution period, which means clients lose nothing by suspending payments. The MCA only has a 5 year lock-in, and the EWA has no lock-in. It seems to me that brokers are violating their fiduciary duty when they don’t recommend these more flexible products, but instead recommend policies with massive exit penalties and 25 year lock-ins. 99% of people allegedly exit these policies early, and face a penalty. I was wondering, does Convoy have an agreement with Skandia? If so, why isn’t Convoy recommending Skandia’s regular premium products?

I know there were Skandia products in Convoy. I remember that they had some better clauses for investors, but it was never on the top list for consultants to sell, so I can’t recall the details.

Based on the features of the Skandia MCA, I do remember Convoy had this product, or at least something similar. But when calculating the commission, it will be much smaller. This is obviously something that a consultant only presents to a client when another ILAS hasn’t worked out.

Of course there are some regular premium ILAS products that offer more elasticity for investors like the Skandia ones you mentioned. However, more elasticity for investors means less financial benefits for insurers, so they give less commission to consultants. For products like the Skandia Executive Wealthbuilder Account, the consultant will not be interested.

In your letter to OCI, you mentioned that ILAS may be recommended to mainlanders as a way to launder money, protect assets, and avoid taxes. Can you explain some more about this. Why would someone in the mainland want to use it for these purposes? What is the tax rate on the mainland? Does there really end up being any tax savings after factoring in ILAS fees and the damage caused by reduced earnings from compound interest? I am curious to know if there is a rational reason for a mainlander to want to own one of these. If there is, I am certain it would only make sense to own a single premium, or something like Skandia’s Executive Wealthbuilder Account, which has no minimum contribution period and no lock-in.

ILAS basically allows people to put lots of money in it and packages it as an insurance product registered in some tax haven, such as Isle of Man. For mainland investors, Convoy makes them think this is a safe product and hard to trace. China’s tax system is still underdeveloped, so tax is actually not a major concern for them, but Convoy still likes to emphasize future possible needs for tax avoidance. Other reasons, which may not be “rational” (i.e., may not be valid, but Convoy makes investors think they are valid) include:

  • Eligible for Investment Immigration scheme
  • China may apply heavy inheritance tax in future
  • Saving for their children
  • Income/assets proof is not needed if contribution is not too large
  • Or simply: offshore, insurance appearance, hard to trace

Lots of mainlanders have this strong but blind belief in the Hong Kong financial industry, and think it is well-developed and well-regulated, and the products are way better than the ones in China. Of course there are investors who invest in ILAS with legit reasons and considerations. But the fact that lots of mainlanders want to put their money outside the country is not something new, and mainly because the source of their assets may be unlawful, especially for those who work for the government, it could be a major concern. So for them, safety is prioritized above liquidity and fees/costs. Convoy makes them believe ILAS is safe.

Why do they invest in regular savings ILAS products with long lock-ins? One reason is, they don’t know about the others. They only know what the consultant presents to them, since they live in China and don’t have a clear idea about the industry in Hong Kong. Regular payment is also something that has a lower entrance fee, looks easier for investors to accept and can generate the most commission. For instance, if an investor makes a 5m one time lump-sum in a plan with no lock-in period, then the business value for the consultant is 5m. If he makes a 1m one time lump-sum with 5 yrs lock-in period, the business value is 5m too. If it is ILAS, 17k/month, 18 months ICP, 25yrs, it only requires investors to put 17k*18=306k or 0.306m in the plan, and the consultant can have a 5m business value too. So, for the consultant, the most important thing is to let investors know that regular is better than lump sum (using something called Dollar-Cost-Averaging theory), and using legit or illegit wordings and techniques or diverting investors’ attention to ease their concern about the lock-in period and simply skipping it in their presentation.

How do you feel about Convoy calling itself the largest IFA company in Hong Kong?

I think one main argument about whether Convoy is a legit existence is the use of the name “Independent Financial Advisor”. Usually for a type of product like ILAS, most companies give the same commission to consultants, because of the products’ similar structures, which are 18 months ICP, and ICP contributions are completely locked in during the whole life span of the policy. Thus, Convoy always claims that it is indifferent when choosing which insurance company for clients, so that it can act completely for investors’ benefit, which is complete bullshit. For a real IFA, the bottom line is, there is not any sort of interest conflict between the advisor and the client. Thus, for most cases, the advisors are only compensated by the client for the service. However, for companies like Convoy, the interest conflicts are hidden. They play the wording game and fool people that they are an IFA and act only for investors’ good. Convoy likes to say something like “indifferent in choosing insurers”, but what Convoy does not tell clients is, it is only “indifferent” when choosing insurers if the commission is the same. So, what this means is, amongst all products, ILAS offers the highest commission, and as long as they can persuade clients to buy ILAS, it is “indifferent” when recommending different insurers’ similar ILASs.

What I don’t understand is, why have the government and regulators allowed them to use the term “IFA” to fool the public for so many years?

How should a Convoy victim structure a complaint or take legal action against Convoy?

They may fire against Convoy’s violation of code of ethics when dealing with interest conflicts and prioritizing its own interests over clients’ while claiming to be an IFA without further disclosure. I know for SFC regulated activities, these are all 100% misconducts. But for the insurance industry, which is mostly self-regulated by entities like PIBA, even though it may be morally wrong and violates the code of conduct, I doubt there is enforcement power over that. People in PIBA’s committee are industry players too. They won’t punish misconduct if it raises questions about their own behavior.