Frequently Asked Questions

What is an ILAS?

ILAS stands for “Investment-Linked Assurance Scheme”. 

It is a kind of life insurance policy. Many ILAS policies are blatant ripoffs.

The value of an ILAS policy is “linked” to the value of underlying investments, such as mutual funds, which are selected by the policyholder, usually with the help of an insurance intermediary. Most insurance intermediaries are not licensed to give investment advice.

There are different kinds of ILAS. Some require a single payment. Others require monthly payments for 30 years or longer. Most policies have very little insurance content.

Some ILAS are more exploitative than others. They often have half a dozen different layers of complex, high fees. Some are promoted using a bogus offer of “free” fund units, which are later reabsorbed by the high fees.

25 and 30-year monthly payment policies are the worst. If you are tricked into buying one, then you just agreed to give away all of your savings for the ensuing two years. Most of the fund units purchased in the “initial period” will be eaten by fees. The only way to to prevent the insurance company from taking back these fund units is by dying.

An ILAS policy’s account value is misleading. It does not represent how much money your policy is worth or how much money you are earning. It represents approximately how much your policy is worth if you die. Many ILAS policyholders do not realize these.

What is the history of ILAS?

According to the book, The Great Expat Financial Planning Ripoff, ILAS policies were invented in the UK several decades ago to exploit a feature of the British tax code. To quote from the book:

Until 1984 the British government, sensibly, encouraged people to insure their lives by giving tax relief (15%) on their life insurance premiums. Smart life insurance companies exploited this by cobbling together savings plans that only just managed to meet the criteria for classification as life policies.

Investing through such plans was a good deal for the investor. Where else could he get a 15% discount on investments into Unit Trusts, Savings Plans, Property Funds and the like? Even the extortionate charges built into these savings plans were masked and often outweighed by the 15% discount.

At midnight on 13 March 1984 all that ended. The privilege of tax relief on life insurance premiums was withdrawn. From that moment ‘Insurance Linked Savings Plans’ became a poor investment medium because of the huge built-in, largely hidden, charges. Probably these products should have disappeared from the scene.”

Instead, they spread all over the world and are now sold to people, such as local Hong Kongers and Singaporeans, who have no good reason to own them.

Where is ILAS sold?

ILAS is sold all over the world. According to Hugh Stevenson, it is a “worldwide scam of breathtaking proportions”.

The author of this blog has been in contact with ILAS victims as far flung as Hong Kong, Singapore, Dubai, China, Japan, Thailand, Vietnam, Cypress, and Spain.

What is ILAS called outside of Hong Kong?

In Singapore, ILAS products are called ILPs (Investment-Linked Policies). In India, they are called ULIPs (Unit-Linked Insurance Policies). In the United States, they are called variable life insurance policies and variable annuities.

The products are also referred to as “offshore pensions” and “insurance wrappers”, among other things.

When was ILAS first sold in Hong Kong?

In a meeting held on 9 Feb 2015, Insurance Commissioner Annie Choi said the products were sold as early as 1977.

A page on the SFC’s website lists all ILAS products that have been authorized by the SFC. The page only shows ILAS products which were authorized in 1990 and later.

Which insurance companies sell ILAS?

Internationally, some of the most notorious companies are: Zurich International, Generali International, Friends Provident, Royal Skandia (which recently changed its name to Old Mutual), Standard Life, RL360, and AXA.

Big names in Hong Kong also include AIA, HSBC Life, Manulife, Prudential, Sun Life, FWD Life, Ageas, Aviva, MassMutual, and Ace Life.

Which insurance brokers sell ILAS?

The biggest broker in Hong Kong is Convoy Financial Services. Others include Centaline Financial Services, AMTD Financial Planning, and Midland Financial. (These companies target local Chinese.)

Internationally, the biggest is the DeVere Group, and it has the worst reputation. DeVere is routinely in the media for ripping off investors. Other brokers include Montpelier Financial Consultants, Austen Morris Associates, Globaleye Financial Planning, the Henley Group, Gilt Edge International, Warrick Mann International, the Alexander Beard Group, SCI Group Ltd., the Sovereign Group, Financial Partners, Mondial, Imperium Capital, Infinity Financial Solutions, International Financial Services, Platinum Financial Services. 

What’s the difference between an insurance agent and an insurance broker?

An insurance agent works for a particular insurance company and sells its products. An insurance broker sells the products of multiple insurance companies.

Legally, insurance brokers are the agents of their clients (not the agents of insurance companies). They are therefore held to a higher ethical standard. Their Code of Conduct requires them to act in the best interests of clients.

However, insurance brokers are notorious for ripping off their clients.

What is an IFA (Independent Financial Adviser)?

In the UK, this term has a legal definition. An “indepedent” financial adviser is one that has no conflicts of interest. In other words, an IFA is one who does not accept kickbacks from product issuers. An IFA is also licensed to give advice on all products in the market (not just insurance products).

In Hong Kong and many other countries, the term “IFA” does not have a legal definition. Consequently, most insurance brokers call themselves IFAs, even though they are not. This is a misleading practice, which Hong Kong should outlaw.

How much investment knowledge and experience do ILAS sellers have?

Many of them have very little experience at all. They are not licensed with the SFC.

Also, large insurers and corporate insurance brokers aggressively recruit young graduates with no background in finance. These grads are naive and easy to exploit.

They are promised a successful career, yet they are paid no salary (just sales commissions). Often, what happens is the grads only succeed in selling ILAS to their loved ones. After they have ripped off all their friends and family, they find that it is very difficult to sell to anyone else. They then have no choice but to find a new job.

Relationships are destroyed in the process, and insurers and corporate insurance brokers repeat this cycle ad infinitum.

It is evil.

What’s a better investment option than ILAS?

Almost anything.

Low-cost ETF index funds are the best option for most people. Management fees are as low as 0.05%. If you are determined to gamble on active fund managers, then consider a fund platform like Fundsupermart. Note that most active fund managers underperform the market average precisely because of their high fees.

If you want to learn more, I recommend reading this article, this book, and watch this video.

Who regulates ILAS in Hong Kong?

The Securities and Futures Commission (SFC) authorizes ILAS products and ILAS offering documents. According to the law, the SFC probably should be regulating ILAS salespeople, but it has not been doing so.

ILAS salespeople are currently self-regulated (except in banks).

The Hong Kong Monetary Authority (HKMA) regulates salespeople in bank.

The self-regulatory organizations (SROs) are PIBA, CIB, HKFI, and IARB.

Insurance brokers are regulated by PIBA (Professional Insurance Brokers Association) and CIB (Confederation of Insurance Brokers).

The Hong Kong Federation of Insurers (HKFI) regulates insurers. HKFI has set up the Insurance Agents Registration Board (IARB) to regulate insurance agents.

The Office of the Commissioner of Insurance is part of the government and has a responsibility to monitor the SROs.

The government is currently setting up a new regulatory system. OCI and the SROs will soon be replaced by the Independent Insurance Authority (IIA).

How do ILAS victims file complaints?

Information is contained in the Resources page of this website.

How big are ILAS commissions?

Hong Kong banned indemnity commissions on 1 Jan 2015. At the moment, it is no longer clear how much commission insurance companies are paying. Prior to 2015, ILAS commissions were gargantuan.

According to an article in the South China Morning post, regular premium policies paid an upfront commission equal to 4.2% of all the premiums to be paid over the premium payment term. So, a 25-year policy with monthly premiums of $1,000 would pay an instantaneous commission of $12,600, an amount which is slightly higher than the policyholder’s first year of contributions. The math looks like this: $1,000 x 12 months x 25 years x 4.2% = $12,600.

A 25-year regular premium ILAS policy paid an upfront commission which was 630 times larger than the average upfront “commission” received when selling mutual funds through iFAST Central. (1260% vs 2%). See HERE for explanation.

A 25-year ILAS policy paid an upfront commission which was 4200 times larger than the upfront commission received when selling MPF funds via special voluntary contributions. (1260% vs 0.3%). See HERE for explanation.

According to the Post article mentioned previously, ILAS portfolio bonds paid an upfront commission of 6-8% prior to 2015.

What percentage of ILAS policies are terminated early?

According to an article in the South China Morning Post, “Peter Hatz, a director of One Axcess, an online trading platform, estimates that only 7 per cent of ILAS products are held to maturity.”

According to an article in International Adviser, Ashok Sardana, CEO of Continental Group, called for regulators to ban 25 year ILAS policies on the grounds that “99% of clients will not see through the 25 years”. He said, “These policies are only good for the adviser and the life company.”

OCI publishes annual and quarterly data about the number of ILAS policies surrendered early. As of mid-2014, ILAS policies were being surrendered nearly twice as fast as they were being sold.

In a meeting held on 9 Feb 2015, Insurance Commissioner Annie Choi denied that ILAS policies were surrendered at a rate higher than 90%.

How many ILAS policies have been sold in Hong Kong?

Since 2001, over 2 million regular premium policies have been sold. Nearly 400,000 single premium policies were sold during the same period. Insurers have collected over half a trillion HKD dollars in premiums since 1997.

What is an ILAS Savings Scam?

A regular premium ILAS that dupes victims out of as much as two years of savings. The longer the lock-in period, the bigger the scam. Read THIS blog post for a detailed explanation.

How are ILAS initial units and “bonus” units reabsorbed?

Assuming an annual charge of 6%, the following chart illustrates:

Illustration of Reabsorption of Initial Units

What is a Portfolio Bond?

It is an “open architecture” ILAS. Anything can be put in it. Expat insurance brokers use the products to market dodgy, offshore, unauthorized funds which pay very high commissions. These offshore funds often collapse after being milked for obscenely high fees during their very short life.

What is a Portfolio Bomb?

A portfolio bond that contains a dodgy, offshore, unauthorized, high-commission-paying fund.

According to an article in the South China Morning Post, more than 80 offshore funds that were sold in Hong Kong have been “suspended” since 2008. Many of them have been exposed as frauds.

Besides ILAS, which other life insurance products are ripoffs?

As a general rule, all life insurance products are ripoffs, except for term life insurance.

Term life is a “pure” insurance product. 

All other life insurance products (such as whole life, universal life, and endowment policies) are primarily savings and investment products. Like ILAS, these products have massive hidden charges which destroy one’s investment returns. It is common to have negative returns for up to a decade or more.

In 2013, insurance companies in Hong Kong earned 99% of new life insurance premiums by selling ripoff products. Term life accounted for less than 1% of new premiums.

To learn more about life insurance ripoffs, see HERE, HERE, HERE, HERE, and HERE.

Why should commissions be banned in Hong Kong?

Commissions are already banned in countries such as the UK and Australia.

As long as commissions (and any other form of conflicted remuneration) are not banned, intermediaries will always have a financial incentive to flog whichever product pays the highest commission.

Usually, the products that pay the highest commissions are ripoffs, which have deceptive and hidden high fees. Currently, insurance products (which are really savings and investment products) pay the highest commissions.

Full commission disclosure would provider more protection for consumers, but consumers would still be easy targets. Intermediaries would still push ripoff products that pay high commissions, and they would still get away with it if their clients trusted them and were not aware of better options.

Consumers usually talk to intermediaries only when they don’t know their options. They are therefore easy prey.

Banning commissions is the only effective way to stop intermediaries from exploiting inexperienced investors.

Which laws have ILAS sellers likely broken?

Most ILAS sellers hold themselves out as investment advisers. In order to do this without committing a criminal offense under Section 114 of the SFO, they must have a Type 4 SFC license. Most ILAS sellers do not have this license.

ILAS policies that contain minimal insurance content may fall under the SFO definition of dealing in securities. Even CIB, a self-regulatory organization, states this on its website. ILAS sellers likely need a Type 1 SFC license to sell these types of ILAS products. Most ILAS sellers do not have a Type 1 license. They may have committed an offense under Section 114 of the SFO.

Insurance intermediaries that sell ILAS portfolio bonds need a Type 1 SFC license in order to sell other products, such as dodgy offshore funds, which are then placed in the portfolio bonds. Many intermediaries do not hold this license. They may have committed an offense under Section 114 of the SFO.

Many insurance intermediaries issue unauthorized advertisements to promote ILAS or the underlying funds. This is a criminal offense under Section 103 of the SFO.

OCI warns intermediaries:

“It is incumbent upon authorized insurers and insurance intermediaries to ensure not only that the materials used for marketing and promoting ILAS to the public have been authorized by the SFC, but also that when communicating with prospective customers either verbally or in writing, they must not depart from the information contained therein. Failure to comply with this requirement might constitute a criminal offence under section 103 of the SFO.”

Section 9 of the Prevention of Bribery Ordinance requires insurance brokers to obtain permission from their clients before accepting a kickback from product issuers. Many insurance brokers do not obtain permission from their clients, or when they do, they often obtain that permission through deceptive tactics. This is likely a criminal offense.

Deceptive tactics including omission of material facts, such as failing to mention that years or even decades of commissions are paid upfront, which means that the intermediary has little financial incentive to provide service after completing the sale, even though he/she usually promises to provide investment advisory service until the policy matures. Another deceptive tactic used by intermediaries is to misrepresent the commission as being paid out incrementally as fees are deducted from the underlying funds every month, when in fact several decades of commission have been paid upfront.

Did Jeremy Hobbins get screwed?

If you do not know about the Hobbins’ lawsuit, then click HERE to read a news article and HERE to read the judgment. Hobbins argued that undisclosed ILAS commissions are an illegal form of bribery. The judge disagreed.

In my opinion, the judge was wrong.

To support his conclusion, the judge stated: “it has long been settled at common law that commission paid to an insurance broker by an insurer does not constitute an illegal secret profit unless it is in excess of what is normally paid within the insurance market.”

“there is no evidence whatsoever that the commission or fees which Clearwater received from Skandia or any other insurer (Zurich, Generali, Aviva) was otherwise than that normally paid in the insurance market.”

The judge’s argument was flawed because ILAS products are investment products, and, in some cases, they may fall under the SFO definition of securities. ILAS commissions should therefore be evaluated against commissions normally paid within the investment market.

The judge also claimed:

“By PBO [Prevention of Bribery Ordinance] s.19 the mere fact that a practice is customary within a trade will not constitute a defence to an offence under s.9.  But in the present case there is more than just a customary practice within the insurance brokerage industry.  That is because the practice has been validated by over a century of judicial authority.”

The judge was wrong about the practice “being validated by over a century of judicial authority”. ILAS products were invented only a few decades ago, and a recent legal case in Germany undermines his point.

I believe Hobbins got screwed, and by extension, all other ILAS victims got screwed.

Hobbins’ lawsuit could and should have set a precedent, ultimately leading to compensation for countless thousands of other ILAS victims.

Hopefully, another ILAS victim will sue again in the future, with a better lawyer and a better judge, and prove that Mr. Hobbins was right.

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