News

Below are links to news article about ILAS and other related topics. I update this page periodically, so check back later for new articles. The most recent stuff will be on the Twitter feed. (If you cannot find it, click HERE.)

How rogue ‘financial advisers’ in Spain stung British pensioners for millions (The Telegraph – April 18, 2015)

“According to the FCA, around 75pc of unregulated investments result in losses for private investors. But the people selling them are well trained to ensure they sound very attractive. Typically they make promises of “guaranteed yields” or high income payments, something many retired people desperately need.”

Expert criticises claims HK reforms will cause ‘collateral damage’ (International Adviser – April 20, 2015)

Jessica Cutrera: “These indemnified commission contractual saving plans which have been sold in Hong Kong for years – but are illegal in many other developed markets – are long overdue to be removed from sale.”

“I do think there will be a demise of the firms whose primary business was selling these very lucrative savings plans.

“These products are financially toxic and eliminating the sale and the seller is a good thing. Plenty of the IFAs in Hong Kong will survive and thrive, particularly those that have always offered a diverse range of products and services to their clients, not limiting themselves to selling savings plans, and who put their clients’ interests ahead of commissions.

“I sincerely hope that the sale of these or similar products that are harmful to investors does not ever recover.”

Thai LM Investor Group File SEC Complaint Against 11 Unlicensed Advisors (LM Investor Victim Center – 15 April 2015)

“LMTIG are a sixty strong Thai based aggrieved LM Investor Group holding regular action meetings in Thailand to address multiple criminal aspects of the massive Australian LM Property Ponzi / Fraud.

LMTIG have filed a group complaint with the Thai Securities and Exchange Commission (SEC) relating to eleven ‘Financial Advisers’ operating in Thailand without license.”

Suffering from LM (The Big Chilli – 3 April 2015)

“Two years have passed since the infamous Australian-based fund went into administration, stripping thousands of investors of their savings and pensions, including at least a hundred expatriates here in Thailand. Five victims of this notorious scam talk about their introduction to the fund by Bangkok IFAs and how their lives have been blighted by the LM calamity.”

Thai expat-focussed advisory firms consider SEC regulation (International Adviser – 29 Aug 2013)

“Some industry sources say that the reason more advisers are looking to become SEC-regulated reflects a growing sense that the regulator is planning to begin overseeing the financial advice-giving industry – including firms that look after foreigners – more than it has in the past.”

“Those who give securities investment advice without a licence are “deemed [to be] in contravention of and shall be liable to” penalties contained in the Securities and Exchange Act, [an SEC spokesperson] added.

A check of this 95-page document reveals the prescribed punishment to be “a [prison] term of two to five years, and a fine [of] from Bt200,000 (£4,000, $6,215) to Bt500,000 (£10,000, $15,540), and a further fine not exceeding Bt10,000 (£200, $311) for every day during which the contravention continues”.”

Funds marketed in Hong Kong linked to Belvedere fraud probe (SCMP – April 7, 2015)

“Questions are mounting over several funds promoted in Hong Kong that are now dogged by fraud allegations, director resignations and the arrest of 13 traders at a London-based foreign exchange brokerage.

The US$130 million Kijani Commodities Fund and the Capital World Markets (CWM) Brighton funds are both linked to Mauritius-based Belvedere Management Group, an offshore financial services firm under investigation by regulatory authorities in Mauritius and Guernsey.”

“Another Belvedere-linked fund distributed in Hong Kong, the Strategic Growth Fund, was sold to clients of wealth management firm Devere Group, up until the fund’s suspension in 2013 amid concerns over its performance.”

DeVere Group Kicked Out of Thailand (Thai Visa Forum – Feb. 2, 2015)

Comment #88: “I have been an employee of the Devere Group for the last year and would cold call about 100-200 people a day. There is no limit to how to obtain someone’s contact information.

Some of the contact info genuinely does come from referrals but really, not very much of it. Most consultants are too afraid to ask. Some examples of how we’d source include: Attending networking events and trade shows, exchanging databases with non competitors (real estate companyies, marketing companies etc), buying confidential data from locals with access to the data (we’d offer $100 for each contact that went to business), fake competitions (prizes included holidays, dinner vouchers etc), bowl drops for business cards in popular bars, coffee shops hair salons- often again for bogus prizes. Any way that there is to obtain a phone number will be tried.

We’d offer ‘independent financial advice’ when making our pitches. One of the few products that we’d try and get persuade people to invest in was with Providence Life which, Devere’s CEO is a shareholder of. We don’t offer a lot more than a handful of products although there is access to thousands. There is a lot of pressure to focus on offering a small handful of products only, as these have the fattest commisions.

During the original training course which lasts a week, people who seemed to have any background in finance previously or ask too many questions are eliminated from the training. Ideal consultants are desperate, inexperienced people who can be moulded to work the way the company wants them to. I have met only two employees that have any kind of financial background prior to working for Devere. I have no financial background prior to Devere. Previously I worked in an admin department at a hospital.”

Life companies to sell advice-free insurance in Singapore (International Adviser – April 1, 2015)

“Premiums underlining direct purchase insurance – which can be identified by the word “direct” in their product names – are lower than comparable life insurance products because no commissions are charged. MAS said these products will be easier for consumers to understand and come equipped with a factsheet and a checklist.”

Scam fears grow as UK pension freedom day nears (International Adviser – March 30, 2015)

“A Daily Mail investigation revealed that private financial information on people’s pension pots and income is already being passed on by firms without their customers’ knowledge. The paper said this data is then repeatedly sold on, ending up in the hands of fraudsters and cold-calling firms.”

“The Daily Mail investigation revealed that one its reporters had been able to buy data on 15,000 individuals, which included details of their salary, pension pots and investments.

When it contacted some of the 15,000 on the database, they revealed that they already been inundated with cold calls from conmen who seemed to know their highly sensitive personal information.”

Who Is Watching the Securities and Futures Commission? (SCMP – March 25, 2015)

“However, when there’s a “real” issue and “real” complaints from the public about some of the wealth management scams that proliferate in Hong Kong, the complaints disappear into a black hole in the SFC and nothing more is heard.

If, for example, the SFC had been on its toes and shut down LM Investment Management some years ago when it illegally operated an office in Hong Kong, held illegal sales pitches and seminars, and illegally sold unauthorised funds, it could possibly have saved hundreds of investors from financial ruin.”

Hong Kong-linked company appears on Thai SEC alert list (South China Morning Post – March 18, 2015)

“We see that one of Mark Kirkham’s companies has come to the attention of Thailand’s Securities and Exchange Commission (SEC). PFS International Consultants can now be found on the Thai SEC’s alert list. The SEC website says that PFS was put on the alert list for conducting securities and derivative business without a licence from the commission.”

Caution 101 (Macau Business Daily – March 12, 2015)

“It’s already been withdrawn in Hong Kong. But rumour has it, it may be introduced here. A high commission-paying investment-linked assurance scheme (ILAS) product.”

“Citing unidentified insurance industry sources, Hong Kong Chinese language newspaper The Sun reported that some insurance firms – licensed in both Hong Kong and Macau – are partnering with co-brokers from Hong Kong to sell the ‘101 Plan’ in Macau to Mainland Chinese clients.”

 

Advisers underestimating all-inclusive costs (International Adviser – March 9, 2015)

“Advisers are underestimating all-inclusive costs to clients by as much as 1% per year a new survey by Defaqto suggests.”

Ripe for the picking – platform view (International Adviser – March 9, 2015)

“many doubters [say] “the market isn’t ready for it”, choosing instead to believe that the Offshore Bond [i.e., ILAS] will continue to dominate sales despite the fact that, for many investors, the Offshore Bond is a high charging vehicle that isn’t at all appropriate; in effect I think that these doubters are sticking their heads in the sand and just hoping that the trouble passes but I think they are in for a rude awakening…”

“The situation reminds me very much of the late 1990s in the UK when life companies ruled the roost and clients were inevitably let down when it came to pay-out time.  The opaque nature of the products left those that invested in them with a lot less than they had expected and indeed were led to believe by the life companies they were getting (remember Capital Units and With Profits with its Market Value Adjuster?).

The dirty tricks that were played effectively led to the industry destroying itself as the public became increasingly aware of the way the market worked and the emergence of the platform concept in around 2000.”

Pension freedoms to be ‘open season’ for fraudsters (BBC – March 6, 2015)

“Big changes – which will make it easier to access money in pension pots – are due to happen in one month’s time.

But some in the pensions industry are warning that those changes will also encourage criminal activity.

The government is advising people not to take cold calls from fraudsters posing as pension professionals.”

In Defense of Advisors Who Sell Variable Annuities (AssetBuilder – Dec. 15, 2014)

“Wall Street Journal writer Matthias Rieker says that many people file complaints about variable annuity sales.  Ken Fisher, writing for Forbes, recently called them “scumbag products.” But I’m going to defend the advisors selling them.  Somebody has to.”

[Note: This article is supposed to be a joke. It doesn’t actually defend variable annuities.]

What To Do If Zurich International Holds Your Money Ransom (AndrewHallam.com – Nov. 18, 2014)

“Recently, I received an email from a British couple.

They had invested in a Zurich International Vista plan. These are extraordinarily profitable for a salesperson to flog. As such, they have spread like pandemics among global expatriates. British investors tend to be the most likely victims.

The couple that emailed me is locked in to their investment plan until 2026. They have withdrawn all that they can, without paying a penalty. But they have $168,000 SGD remaining in the plan. If they withdraw this remaining sum, Zurich will penalize them. Instead of the couple receiving their full $168,000, the company would keep $75,600 as an early withdrawal penalty.”

The salesmen were smooth talking – and promised juicy profits. But now savers are asking: Where are our missing pension millions? (Daily Mail – March 4, 2015)

“Those who signed up with Capita Oak or Henley Retirement Benefit initially received letters welcoming them to the pension. Typically, though, alarm bells started ringing after a year when they didn’t receive an annual pension statement.”

Should U.S. Expats Buy Variable Annuities? Ask an Expert (Wall Street Journal – March 2, 2015)

[Note: A variable annuity is the US version of an ILAS. The authors advise readers to avoid variable annuities, due to high fees, long lock-ins, and tax disadvantages. The authors recommend investing in low-cost ETFs to minimize management fees and taxes.]

HK regulation drives trend for consolidation (International Adviser – Feb. 26, 2015)

“Significant consolidation is expected in Hong Kong as advisory companies adjust to evolving remuneration models. On 1 January, local regulators banned indemnity commission on the sale of investment-linked assurance schemes (ILAS), forcing advisers to re-evaluate their business models.”

Royal London 360 – I Dun Goofed (Mr. Money Mustache Forum – March 27, 2014)

“I was sold the EXACT same product. I am in Dubai.

The salesman sold the same product to 4-5 of my friends and uses high pressure techniques to solicit referrals from you in order to sell the same products to all of your friends.

I wised up to this product about 7 months in and ended up walking away from $7,800 invested. These are terribly shitty products, sky high fees and a a massive upfront commission for the “financial adviser””

“I would say you need to consider the current investments into this ILAS piece of shit as a loss and don’t fall prey to the illusion of the sunk cost fallacy. 🙁

When I told the financial salesman that I was planning to quit the product he quickly arranged a meeting with me and his boss. I secretly recorded the meeting on my phone and have audio recording of him mis-representing the product. Firstly he understated the annual charges, and secondly he understated the surrender charge that applies for early policy surrender.

Get out of this product today. Tell all of your friends that are in the same product.

The Financial Advisor will then be forced to repay several thousands of dollars in commissions that he/she has earned from your acc.

All commissions are paid in full on day 1, so as soon as you sign the adviser gets several thousand dollars in commissions.

I would also encourage you to NAME AND SHAME your financial adviser and the firm he/she works for. These people are notoriously litigious and online-reputation savy, If you google the name of your adviser you probably won’t find anything at all. I would not be surprised if he/she is using a false name.

Everything about these products is absolutely awful. The seller gets a massive commission for selling them, and such arrangements are ILLEGAL in the UK.

Cancel your standing order asap.”

DeVere pays £190k for mis-selling (International Adviser – Feb. 5, 2015)

“A financial adviser has won a long-standing battle against deVere UK to return £190,000 to his clients after the multi-national advisory firm mis-sold high-risk products.”

“Despite the FOS demanding that deVere pays the maximum £150,000 in reimbursement to the couple in July last year, the advisory firm took more than seven months to pay the money, causing the FOS to threaten to take the case to the Financial Conduct Authority.”

““The process was long-winded,” said Sacks. “Particularly at first because there seemed to be a lot of procrastinating from deVere.

“This company dragged its heels for two years when I’m sure it has the financial means to pay straight away” [said Sacks].

“[FOS] also highlighted that four of the five funds the couple had invested in were suspended in 2012, including the EEA Life Setlements Fund.”

New Year, New Rules (International Adviser – Jan. 29, 2015)

“Ushering in the new year has bought a whole raft of regulatory changes for Hong Kong IFAs, some of which are deemed unwelcome.”

“Post-1 January, what are IFA firms doing in order to survive once the indemnity tap is turned off?…

One thing is certain and that’s much more [pseudo]insurance will be promoted (which is what the OCI wants) and for some of us that will bring a sense of déjà vu as we are actively encouraged to sell endowment policies.”

Intermediary Profile with the Fry Group (International Adviser – Jan. 28, 2015)

““It’s a sad state of affairs when regulation is needed to improve standards in an industry,” says Pugh. “FAIR is a good start and a step in the right direction, but it is just a step; we need a lot more, we need a big cultural shift in the way advisers are doing business and the products insurance companies are providing.”

Another stand-out proposal is “commission deferral”, which, in a similar vein to Hong Kong’s ban on Indemnity Commission, will ensure payments to an adviser are made over a period of six years or over the premium term of a policy rather than in one up-front lump sum.

“While the deferral of commission is a good thing, it’s only on a very poor type of product, which is essentially an endowment policy. When they were banned in the UK 10 years ago, salesman came to Asia and sold them here, and they still dominate the market. Commission deferred or not, it’s still a lousy product. Similar steps could be taken to expand it across the industry.”

A much-debated issue in Singapore of late has been the quality of its advisers.

Many have argued that the minimum requirement to become an adviser in the region is inadequate, and that the profession should be viewed alongside those such as accountancy and law in terms of the level of specialism required.

Pugh agrees: “‘Adviser’ is just a word here unfortunately; anyone can call themselves an adviser after passing a couple of exams and that is categorically wrong. We need to take strides as an industry to improve professionalism. Regulation can only take us so far; we need more.””

ILAS Rules Tightened for HK Investors (International Adviser – Jan. 21, 2015)

“As of 1 January, investments sitting inside those ILAS products available in the region’s retail market must now be authorised by the Securities and Futures Commission (SFC).

The change means that only professional investors are allowed to invest in open architecture ILAS products, which continue to offer an open investment platform.”

“Christal [of Old Mutual International] said the firm has introduced a new offshore solution for clients who do not meet the professional investor criteria: the Wealth Management Plan.

The strategy offers a range of SFC authorised funds when a client is a resident in Hong Kong, while also giving internationally mobile investors the flexibility to access a wider range of investments if they are residing outside of the region.”

Old Mutual Int’l launches ‘commission ban’ compliant bond (International Adviser – Jan. 14, 2015)

[Note: Old Mutual is targeting the locals, for whom there is zero tax advantages to owning an ILAS. The insurance wrapper just adds a layer of fees, enriching the insurance company at the expense of the investor. This business is fundamentally parasitic and should be wiped from the face of the Earth.]

“Mike Leeson, head of sales, Hong Kong and North East Asia at Old Mutual International, said the plan is aimed at the “mass affluent” Asian market, which consists largely of young professionals who have accumulated wealth, are beginning to acquire capital, and have a desire for more income.

The banning of indemnity commission payments to advisers selling Investment Linked Assurance (ILAS) products, which was first announced in July by the Office of the Commissioner of Insurance, is expected to have a knock-on impact on many advisory firms in the Hong Kong region.

However, Leeson said he feels that the changes “foster long term relationships and ensure customer needs are met and received on an ongoing basis”.

He added that regulators need to “ensure a level playing field” across distribution channels and products by eventually adopting similar regulations to those on ILAS products throughout the rest of the industry.”

New Rules to Affect Sales Practices for Investment ILAS Products – Radio Interview with Jessica Cutrera (RTHK Money for Nothing – Aug. 8, 2014)

“Jessica Cutrera, Managing Director EXS Capital, says regulatory changes affecting commissions paid on investment linked assurance schemes (ILAS) due to be imposed at the start of the new year should lead to simpler products and improved selling practices.”

SFC’s Mystery Shopping Programme Findings (SFC – Dec. 2014)

“The exercise also revealed deficiencies in the KYC process and information disclosure. These deficiencies included encouraging shoppers to change risk tolerance levels in risk assessment questionnaires and failing to disclose product features and major risk factors of recommended products. It was noted also that certain sales staff who are both SFC-licensed representatives and registered insurance agents tended to promote Investment-Linked Assurance Schemes (ILAS) to the shoppers ahead of other products.”

“While ILAS are not Investment Products under the Securities and Futures Ordinance, it was noted that sales staff who are both SFC-licensed representatives and registered insurance agents were inclined to recommend such insurance contracts ahead of other products. In some instances, sales representatives did not properly disclose the capacity in which they were acting (i.e. whether as an insurance agent or a licenced representative), leading the shoppers to believe that ILAS and Investment Products are subject to the same regulatory regime.

In some instances, the sales representatives recommended shoppers to invest in ILAS and referred to ILAS as “fund platforms” during the selling process. It appeared that the sales representatives failed to explain the genuine nature of the recommended products, despite the fact that the shoppers were subsequently provided with marketing materials. One sales
representative even explained to the shopper that ILAS were Investment Products or savings products which were sold in the form of insurance policies without any insurance element merely for taxation purposes.”

The Truth about Off-shore Pensions (ExpatArrivals – No Date)

[Note: This article takes a close look at Royal Skandia’s Managed Pension Account. Royal Skandia has since changed its name to Old Mutual.]

“There are several variations on a theme depending on the life assurer involved but what I would like to do here is to take a close look at one of these plans because in my own humble opinion anyone who bought one would have to be either naïve or insane, and yet many are sold around the world each and every month to people whom I’d opine either didn’t fully understand them or didn’t do their homework in full.”

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

Australian regulator moves against failed fund house LM (SCMP – Nov. 20, 2014)

[Note: In this article, SCMP confirmed what many had been speculating—that LM paid a maximum of 15% commissions (not 9% as previously reported). This 15% was on top of the 7-8% commission paid by the insurance companies, whose ILAS products the LM funds were wrapped within.]

“The fund paid high up-front indemnified commissions, equivalent to three per cent of the sum invested for every year an investor locked up their money. Originally structured as a one-year investment term, by late 2012 the fund was offering a five-year fixed-return product that paid 15 per cent commission to advisers.

Hong Kong investors have filed complaints against their financial advisers with the Securities and Futures Commission, the Confederation of Insurance Brokers and the Hong Kong Police.”

Proposed regulator needs to consider interests of mainlanders who buy insurance policies in HK (SCMP – Dec. 1, 2014)

“Mainlanders accounted for 20.3 per cent of new life insurance sales in Hong Kong in the first three quarters of this year. That compares with 16 per cent last year, 13 per cent in 2012, 9 per cent in 2011 and 4 per cent in 2010.

The bad news is an increase in regulatory concerns. Why are so many mainlanders buying insurance policies here and why has the growth rate been so strong?

Current rules ban Hong Kong agents from selling policies on the mainland, but mainlanders can buy policies when they travel here.

The grey area revolves around the fact that industry players say many insurers now prefer to recruit new migrants from the mainland as agents so that they can invite their friends and relatives on the mainland to buy policies.”

Why we urgently need an insurance authority in HK (SCMP – Nov. 22, 2011)

“The Consumer Council has warned consumers to beware of the complicated fee structure of [ILAS] products. Early surrender of the policies may mean policyholders only get back a small amount of what they paid in.

A Consumer Council report showed there were agents who had not clearly explained policies to customers. In one complaint an agent told a policyholder that they only needed to pay a premium for two years. In fact the contribution period was 48 years, so the 52-year-old policyholders would have needed to contribute until they were 100 years old. The case has been referred to the Insurance Agents Registration Board (IARB).

Hong Kong already has high-powered regulators such as the Securities and Futures Commission and the Hong Kong Monetary Authority to check on banks, brokers and fund managers.

Previously, agents were mainly selling simple life protection products only. Now they are selling a range of investment products. So why are they not yet overseen by an independent regulator?

In Hong Kong, the Office of the Commissioner of Insurance regulates insurance companies, but it does not cover salespeople or offer any consumer protection.”

Insurance Authority Scheme Pushed (SCMP – Feb. 16, 2010)

“The government will open consultation this year on the long-awaited proposal to set up an independent insurance authority – an idea first mooted 16 years ago.”

“Chan Kin-por, legislator for the insurance sector, supported the proposal but warned the new regulator should not impose too many costs on the industry, or over-regulate insurers.”

Hong Kong confidential – business strategies (International Adviser – Nov. 13, 2014)

“On 1 January 2015, the new Guidance Note on Underwriting (GN15) regulatory framework of Hong Kong comes into effect. The GN15 implementation signals significant changes to the Investment Linked Assurance Scheme (ILAS) industry and challenges for those companies unprepared for it.

At present, it appears that the insurance industry will struggle to have new product offerings in place before the New Year, and as a result, some of the older and smaller brokerages will struggle to survive without the large upfront commissions their business models depend on; regular premium ILAS product sales are estimated to fall by up to 80%.”

“With new lump sum products looking like they will have a maximum term of five years, and regular savings sales set to plummet, Capstone will join other advisers in moving a larger portion of our client book to SFC regulated platforms”.

Standard Life Pulls Out of Middle East (International Adviser – Nov. 5, 2014)

“The company said it had taken the decision, which is subject to regulatory approvals, “following changes in the regulatory landscape and resulting environment”. It added that it will be contacting all customers with an in-force savings and investment plan to offer them a closure value – this will include an 8% enhancement which will be paid into their plan.”

“At the beginning of last month, Standard Life also revealed it had withdrawn both its investment linked assurance scheme products, Harvest Elite Investment Plan and Harvest Wealth Investment Plan, from Hong Kong in preparation for a ban on indemnity commission due to be enforced from January 2015.”

“Armitage also revealed it has already submitted new indemnity commission-free products to the Securities and Futures Commission and Office of the Commissioner for Insurance in Hong Kong for approval.”

Looking Past the Sales Pitch: Analyzing an Insurance-Linked Investment Scheme (Creveling & Creveling – Aug. 11, 2014)

#5: Tax-Free Investing

Advisors often sell these insurance-linked investment products based on their tax advantages. In many cases, however, non-American expats are not taxed on their offshore investments in the first place. For example, most countries do not tax nonresident citizens on assets held outside their home countries. Many expats also work in countries, particularly in Asia, that do not tax assets held offshore. If they did, these products would offer no protection. These products do not confer any real tax benefits, beyond what most expats naturally receive simply by working and holding their assets outside their home countries.

For Americans taxed on worldwide income and assets, offshore insurance wrappers are unlikely to qualify for U.S. tax-deferral benefits from the IRS. Worse, the investments they house will likely also be considered passive foreign investment companies (PFICs). Unlike U.S.-incorporated mutual funds, where capital gains are deferred until realized and which are subject to preferential long-term capital gains rates, PFICs are subject to a particularly punitive taxation regime. Annualized tax rates on PFICs can total 50% or more.

#6: Access to a Range of Investment Specialists

In this case, the scheme offers mirror funds linked to 200 external mutual funds from 35 different fund houses. A mirror fund is set up by the scheme provider and is designed to “mirror” the fund of an external manager. It does this by investing mirror fund assets net of fees in the external fund. Due to fees and other factors, the mirror fund will not necessarily track the performance of the external fund. The mirror funds can be accessed only through the scheme provider.

But how notable are the scheme’s investment options in reality? For comparison, consider that one global discount broker affords direct market access to thousands of stocks, options, futures, forex, bonds, ETFs and CFDs in 100 markets across 23 countries.

Five Things to Consider Before Buying Offshore Investment Schemes (Creveling & Creveling – Jan. 31, 2011)

4.  There are better options. …For example, if you expect that overall global markets can return 9% per year on average over the 25 years you plan to invest, consider the following two choices:

  • Offshore scheme inside insurance wrapper with $1,000 monthly contributions for 25 years. No upfront commissions or explicit fees for advice, 1.2% per year in imbedded mirror fund charges, 1.5% quarterly initial unit charges, and 2% per year average external fund charges. Total contributions: $300,000. End plan value: $596,158. Internal rate of return: 5.29%.
  • Offshore investment portfolio held in a brokerage account with $1,000 monthly contribution for 25 years. Total portfolio costs averaging 0.56% per year including custodial fees, brokerage trade commissions, and fund total expenses. Total contributions: $300,000. End of plan value: $978,146. Internal rate of return: 8.74%.

Based on the above numbers, you end up with far more in your pocket after 25 years if you choose the offshore investment portfolio without the insurance wrapper.

Adviser faces $900k fine and industry ban over EEA mis-selling (International Adviser – Oct. 9, 2014)

“A former chairman of PFC International has had his licence revoked and been fined $900,000 for mis-selling the controversial EEA Life Settlements Fund to clients.

An investigation by Hong Kong’s Securities and Futures Commission (SFC) revealed that between March 2009 and October 2011 Lawrence sold the fund – controversially described by the FCA as “toxic” – to 31 client accounts, even though the PFC had classified the fund as “execution-only” and had stipulated that the fund should not be promoted to clients.

In a transaction that amounted to $28m, Lawrence sold the fund to a significant number of elderly clients, despite the risks surrounding liquidity and the deferral of redemption requests associated with the product.”

Capstone Financial responds to HK regulations on ILAS sales (International Adviser – Oct. 8, 2014)

Arkey said: “There are big changes afoot here and not before time really. I have advocated changes in this direction for years in the hope it would clear out the usual riff-raff.  That may well happen soon as legislation is enacted to kill off the rogue sales personnel next year.”

Standard Life withdraws ILAS schemes in light of commission ban (International Adviser – Oct. 7, 2014)

“Standard Life has closed its two regular savings plans to new business as it prepares to introduce new products in light of the indemnity commission ban due to come into force in Hong Kong in January.”

Be careful when investing your UAE earnings (The National – Oct. 3, 2014)

“The UAE has also put many consumer protection laws in place over recent years, but one area that seems to have fallen through the cracks is investment schemes administered by insurance companies such as Friends Provident, Zurich and Generali. These are then sold – through financial advisory firms – to individuals who often possess little financial know-how and put a lot of trust in what they are being told by advisers.

A spokeswoman for Friends Provident, which administers Mr Naidoo’s policy, says the company does not offer investment advice or make any representation as to the suitability of a fund. “We are not party to a customer’s individual circumstances and have no involvement in the advice provided by an independent financial adviser,” she adds.

Matt Cowan, the regional director for the London-based Chartered Institute for Securities & Investments, a body that awards industry qualifications, says that there is currently no regulatory requirements in the UAE for wealth managers to be professionally qualified. And that opens the door for fly-by-night operators looking a quick buck at the expense of their clients.

The British expat Pete Manzi, 54, says he ended up losing £11,000 (Dh65,462) on investments when he was hooked by a financial adviser.

The owner of a window-cleaning business says advisers are able to act without fear of being taken to task because there isn’t a regulator that has clearly taken on the role of overseeing these types of investments. Neither has he been able to get any watchdog to address his grievances, he says.

“There is no one to go to,” says Mr Manzi. “I went to the administrator of the fund I was put into and they basically ignored me. They said tough luck. The problem in the UAE is that there isn’t a regulatory body and you can actually become a financial adviser without any qualifications. You can walk off the street and say you want to become one. So buyer beware, caveat emptor as my father used to say.””

“…Matt Waterfield, the Middle East managing director for Friends Provident, said the majority of brokerages are respectable. Mr Waterfield, however, defended the practice of long-term investment schemes and the collection of fees in advance, which Mr Wells sees as unfair to the consumer who should not be expected to know what his circumstances will be three years down the line, let alone 25 years.”

Pension Life (Support Group for Victims of Fraudulent Pension Schemes)

“Sadly, the pensions world is rife with scammers, fraudsters, thieves and scoundrels…Many thousands of victims have been ripped off in recent years, and billions of pounds’ worth of pensions have been put at risk.  Victims face financial ruin in the short and long term, as well as crippling tax liabilities and years of stress and uncertainty.  Unfortunately, there is no one-stop shop to sort these problems out, and many people have spent thousands on legal fees trying to unravel the train wrecks left behind once the bad guys have done their work.”

“The industry needs cleaning up in the UK and abroad, and perpetrators need to know they can’t hide behind loopholes, weak regulation, un-coordinated authorities and agencies.  Governments need to know what is going on under their own noses and ensure that all countries work together to outlaw bad and criminal practices in the pensions world.”

Life company execs unite in bid for ‘improved communication’ with fund groups (International Adviser – Sept. 25, 2014)

“Meanwhile, when asked regulatory activity in Hong Kong, which recently banned indemnity commission, Clive Baker, chief executive officer at Zurich International Life, said the country “did not currently offer a level playing field”.

“There is turmoil at the moment, but it will eventually level itself out,” he added.

Chief executive at RL360, David Kneeshaw, added that his company withdrew its products from the region long ago because “the regulator is anti-ILAS (Insurance Linked Investment Schemes) and this will not change for a long time”.”

Still bashing annuities after all these years, with good reasons (MarketWatch – April 28, 2008)

[Note: Variable annuities are the American version of ILAS.]

“In fact annuities have countless, hidden flaws that all too often remain undisclosed until it’s too late: excessive commissions, lower returns, payout delays, surrender fees and long lock-ins. Still annuity sales climb.

As BusinessWeek puts it: “Potential buyers can ignore the sales fluff and dig into the fine print to figure out if an annuity is right for them. But that can be a real slog.” Some prospectuses can run “over 500 pages, so you know why most buyers wind up relying on a sales spiel.”

The big reason annuities sell so well is simple: Sales commissions are lucrative for annuity sales agents, some as high as 14%. As a result, the industry attracts aggressive hustlers with questionable ethics preying on vulnerable customers, especially the elderly, a pattern that gives the rest of the industry a bad name.”

Centaur Litigation funds ‘misappropriated’, backed failed lawsuits (SCMP – Sept. 18, 2014)

Should you hand your pension money to the government? (The Guardian – Sept. 9, 2014)

“The pensions industry, for so long riddled with absurd charges and overpaid and underperforming fund managers, finally has a real competitor. It’s called the British government…”

“Unlike the private providers, Nest said it could perfectly well manage small contributions that may stop and start (for example, while on maternity leave). It does so without public subsidy, for an annual charge of 0.3% of the person’s money.

That number horrified the pensions industry, which has routinely milked members for between 1% and 3% a year – money used to pay fund managers £1m-plus salaries and fat commissions to brokers. It declared Nest was unfair competition and demanded it be allowed only to take workers who paid in small amounts (the customers they didn’t want anyway) and that it be banned from accepting transfers of big company schemes (their juiciest customers).”

Expat investors launch suits against advisers, trustees and insurance firms (SCMP – Aug. 28, 2014)

“Australian-based investors have already won lawsuits because financial advisory firms gave inadequate advice and did limited due diligence, said Fraser Whitehead, head of group litigation at law firm Slater & Gordon.

The challenge was harder for Asia-based expatriates as many financial advisers have no professional indemnity insurance. That made insurers and trust companies a natural target for litigation, Whitehead said.

Several LM investor groups told the South China Morning Post that they were now consulting lawyers and filing suits. In Hong Kong, investors are also lodging complaints with regulatory authorities and the police.

Investors argue that insurers and trust companies have duty of care and fiduciary responsibilities.”

Out-of-pocket expats seek redress (International Adviser – Sept. 6, 2012)

“One need only look at some of the toxic postings on certain expatriate and consumer complaint websites, or talk to lawyers who specialise in looking after investors in offshore jurisdictions who are taking their wealth managers to court, to realise that there are some unhappy people in such popular expat destinations as the United Arab Emirates, Spain, Thailand and elsewhere on the expat trail.

In July, The Lawyer, one of the legal profession’s most respected publications, ran a special report detailing what it said has become a “perfect storm” of litigation in the offshore space, “as investors and creditors seek redress for losses sustained in the financial crisis”.

“The scale of this, say offshore lawyers, is unprecedented,” the article reports, as it goes on to quote global litigation partners from some of the largest offshore law firms.

Journalists, including those at International Adviser, have been on the receiving end of a growing number of phone calls and emails in recent months from people who are either dismayed about their treatment by financial services companies, or who are advisers themselves, and frustrated by having to share a marketplace and an industry with companies they say they are sure are knowingly ripping off their clients in an effort to make a profit.

Anonymous email and telephone tip-offs about advisers whose businesses have either been quietly shuttered, or the subject of scurrilous gossip on offshore websites, have also increased since the beginning of the year.”

How to solve the problem of the ‘spank shops’ (International Adviser – Sept. 7, 2012)

“The online Urban Dictionary defines a ‘spank shop’ as “a financial investment company set up offshore, usually [in] Spain, and thus not subject to UK regulations, with the intention of ripping off as many people as possible”.”

Peter Drake, life offices and advisers criticised over LM (International Adviser – Aug. 21, 2014)

“An adviser who claims his clients were refused redemptions by LM Investment Management for around three years prior to its collapse, has launched a scathing attack on those he feels are culpable.

In a very strongly worded open letter to former LM chief executive Peter Drake, Martyn Terpilowski, who is a financial adviser based in Hong Kong, describes how he sent “hundreds of emails” to Drake and to the other advisers and life offices which he feels were complicit in allowing clients to lose their money in the LM range of funds.”

Letter to Editor (Tan Kin Lian): High charges cannot be justified (SCMP – Aug. 12, 2014)

“It is difficult to see how an investment linked assurance scheme or life assurance policy, which pays a large upfront commission to the agent or financial adviser, can be in the interest of consumers who are looking for a fair return on their investment.

In some cases, the products are designed to hide the commission by using back-end charges that are not transparent to consumers or purport to give a bonus that is taken back by the back-end charges. This is an unethical practice, which could amount to fraud.”

Confidence and Con Men (Asia Sentinal – Jan. 30, 2012)

“It turned out that an ethnic Chinese who spoke both Cantonese and English and who claimed to be an insurance broker, brought mainland Chinese tourists by the busloads to insurance agents in Hong Kong to buy whole-life policies, a more-than-welcome event for insurance companies who gladly processed the eager new customers.

There was nothing suspicious and no red flags were found so the policies were signed and premiums received from the new customers — until the same Chinese middleman called up some months later saying all of the customers had decided to discontinue their coverage.

One insurance agent and one insurance company alone can’t possibly recognize that there was any element of fraud or scam — just bad luck and bad customers, or so they thought until they learned that they were not alone. Through my investigation, at least five insurance companies had the same experience from the same Chinese middleman.

They had been conned big time. Insurance companies pay high commissions to encourage new policies signed, to the tune of some 75 percent of the premium for the first-year commission on new life policies but the rate dives to a mere average of 7 percent and even lower on subsequent years for existing policies, according to a seasoned insurance broker friend of mine.

Thus the beauty of the scam as described above: the insurance companies ended up paying out far more commission than they would ever collect in premiums when those customers lapsed their policies in total just months later.”

Fallen Centaur fund linked to regulatory executive (SCMP – Aug. 11, 2014)

“An unlicensed investment fund under investigation by the Securities and Futures Commission and in liquidation was sold by companies belonging to a senior member of Hong Kong’s insurance regulator.”

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

“The regulators wanted to ‘house clean’ the insurance industry after years of complaints about mis-sales and bad practice, said Glenn Turner, a former chairman of the Independent Financial Advisers Association.

The ban will hit a cut-throat insurance savings plan industry that took in HK$19 billion in new premiums last year through products marketed to both expatriate and local investors.”

“Last year, Convoy Financial Services Holdings made HK$776.7 million from ILAS commissions, accounting for 89.7 per cent of its local product sales revenue, according to the firm’s annual report. The company employs close to 2,000 consultants and trainees in Hong Kong, according to the report.

A Convoy spokesman declined to comment, saying the firm had entered a media blackout period ahead of its first-half results release.”

“Some agents will say it is not as profitable as in the past” and leave the industry, said Kenneth Lam Kin-hing, the chief executive of Quam Financial Services Group.”

“[Glenn] Turner [former chairman of the Independent Financial Advisers Association] says ILAS sales will probably drop by 80 to 90 per cent next year as agents lose interest in pushing them.”

“The changes will make life tougher for some operators but will reform a sector long plagued by bad practice.

In earlier interviews with the Post, former advisers at various brokers said they were encouraged to sell ILAS products because these products paid the highest commissions, but the consultants said they were not fully trained in the product features and later learned they had misadvised clients.

One common error was to tell clients they could withdraw all their savings from the account once an initial mandatory payment period was completed, the former consultants said. In fact, premiums paid during this period are locked into the account until maturity unless hefty exit penalties are paid. This is the problem Ellis said she now faces.”

What’s in a name? Some insurance policies smell too sweet (SCMP – Aug. 11, 2014)

“The government should think about banning products from being called life insurance if the life coverage is too low.

New guidance issued by the Office of the Commissioner of Insurance last week tightening regulation of investment-linked insurance requires the insurance benefit for the policyholder in case of death to be at least 105 per cent of the account’s value.”

“‘Five per cent is obviously not much better, but it’s going in the right direction,’ Credit Suisse analyst Arjan van Veen said.”

“Instead of turning ‘101’ into ‘105’, better to require a name that reflects the truth.”

City insurance authority bans indemnity commissions (SCMP – Aug. 5, 2014)

“Hong Kong’s insurance authority has banned upfront commission payments on long-term insurance policies in a much anticipated move to clean up a HK$17 billion a year business plagued by persistent complaints of unscrupulous sales practices.

The ban will hit a cut-throat insurance savings plan industry marketed to both expatriate and local investors which combine life insurance, investment, and estate planning structures.

Sales of these products typically fall between the various stools of the city’s fragmented regulations that critics say agents exploit to engage in aggressive sales tactics to secure big commissions at the expense of client interests.”

Government stands by best interest clause in proposed insurance law (SCMP – July 21, 2014)

“The government said it will not agree to insurance industry requests to scrap a provision in proposed legislation requiring all insurance salespeople to act in the “best interest” of their clients.”

“The Hong Kong Federation of Insurers (HKFI), representing the industry, is opposed to the best interest provision. Chief executive Peter Tam said the industry supported policy holder protection, but the proposed provision would lead to lawsuits.

“Best interest is a vague and subjective concept. It sets a very high expectation standard for insurance agents, and that may easily lead customers to launch lawsuits and claims against intermediaries,” he said.”

Commission-free insurance will force change in distribution, says Fitch (International Adviser – Aug. 4, 2014)

“But, the rating agency said this might prompt companies to refocus their client base and shift the agent-channel toward more complex products and larger assured sums and away from segments, which are likely to only utilise the commission-free products.”

Commission-free insurance available in Singapore ‘next year’ (International Adviser – July 30, 2014)

“The initiative, which was proposed in the jurisdiction’s Financial Advisory Industry Review (FAIR), will offer consumers commission-free products that are “easy to understand and purchase” without the need for financial advice.”

[NOTE: Commission-free only applies to term and whole life insurance. NOT investment-linked insurance. “I”FAs will still flog the same old crap. Only sophisticated consumers will buy term insurance direct. Singapore originally intended to ban commissions, but the “I”FA lobby succeeded in killing this idea.]

Indemnity commission ban heralded a ‘game-changer’ (International Adviser – Aug. 1, 2014)

“Rawson warned however that there may be some advisory firms which will be less able to adapt and that “despite ‘warnings’ of change to this industry over many years, the reality is most have made no changes to their business models.

‘They have no reserves, no ability to pay overheads other than through commissions in, no infrastructure to help develop their business etc the majority of firms have simply stuck to ‘old models’ and will now struggle to adapt,’ said Rawson.”

Indemnity commission to be banned in Hong Kong (International Adviser – July 31, 2014)

“The OCI stated that, due to the susceptibility of the products to “mis-selling and aggressive selling” and to ensure insurers do not create “misaligned incentives”, indemnity commission “or any standing arrangement that offers advance payment of commission, is strictly prohibited”.

“ILAS products have been subject to increased scrutiny over the past couple of years, due in part to some widely reported cases where they had been mis-sold. One of the more high profile cases was that of a kindergarten teacher who claimed to have been mis-sold one of the schemes.

The teacher’s boyfriend, an American and also a teacher named Lindell Lucy, has led a noisy media campaign to get his girlfriend’s money back.

Campaigns like this are largely responsible for the regulatory changes of the past couple of years.”

China: Regulator mulls moves to slow launch of new life products (Asia Insurance Review – July 30, 2014)

“In a bid to manage risks, the regulator will also ban firms from distorting the scope of their coverage and from selling complex products that will be difficult for consumers to understand.”

When an investment fund goes bad (SCMP – July 27, 2014)

[Note: This article is an absolute must-read, as well as its comments.]

“Thousands of people saw their life savings wiped out when the ‘low-risk’ fund into which they had put their nest eggs imploded last year.”

“”When you did the arithmetic … the cash [coming in] was being used just to pay two things – fees and income distribution – and that is the classic Ponzi scheme,” says Rodger Bacon, chairman of Australian fund group Trilogy. After becoming suspicious, Bacon hired a barrister to investigate LM in 2012, a year before its collapse. Using a procedure permitted under Australia’s securities law, Bacon then persuaded clients in another LM fund to elect Trilogy as the fund manager to replace LM.”

“”The growth was fuelled by the greed of advisers,” says Terpilowski, describing the Managed Performance Fund as a scam. “I don’t believe that clients were aware when investing new money of the new commission levels or the redemption problems, or why would they invest?””

“Peter Ness, a former adviser at the firm used by the Clarks in Japan, says GWM invested with LM for many years. He admits, though, that the firm “did not have the people with the skills and expertise” to study funds and only a handful of people working there had a university degree.”

Letter to Editor (Tan Kin Lian): Insurance law would protect consumers (SCMP – July 27, 2014)

“I support the view that the legislation in Hong Kong should require the insurers and intermediaries to act in the client’s best interest.”

“If this approach is too problematic, the legislators should consider taking the approach of the United Kingdom and Australia, which ban the payment of commission for life insurance policies that are taken primarily as an investment vehicle.”

Letter to Editor (Lee Faulkner): Insurance industry failing to look after customers’ interests (SCMP – July 25)

“The insurance industry worldwide limps from one mis-selling scandal to another because it looks after its own interests first and consumers’ second. It preys on customer ignorance and designs policies that are incredibly difficult for most people to understand.”

“Most Hong Kong-based regional players are now focusing on plying their trade in markets with poor consumer knowledge, weak regulatory structures and inadequate enforcement agencies, all similar to the ways the tobacco industry operates.

First-year policyholder lapse rates (proportion of policyholders who cancel policies in the first year) are a good indication of how well insurers really look after their clients’ best interest – lapse rates in these new markets are nothing short of horrifying.”

Letter to Editor (Lindell Lucy): Strengthen licence requirements for insurance agents (July 19, 2014)

“Two million ILAS products have been sold in Hong Kong over the past decade.”

“In fact, insurers have exploited millions of consumers by hard-selling them costly and unnecessary savings and investment products that have little or nothing to do with insurance.”

“There are many wealth management products on the market, but the products offered by the insurance industry are not competitive. It’s almost never in anyone’s interest to purchase an ILAS product (or whole life insurance, for that matter).

The only reason these products have been distributed so widely is because insurers have incentivised their salespeople with shockingly large commissions. When agents recommend such products, they are generally motivated by self-interest, not a sense of fiduciary duty.”

Make medical cover clear (SCMP – July 22, 2014)

“The mounting complaints do not augur well for the government’s plan to encourage more people to take out medical insurance. Given the potential growth in the insurance business, it is in the industry’s interest to enhance its professionalism and public trust.”

Consumer council warns of ‘traps’ in medical insurance (SCMP – July 16, 2014)

“The consumer watchdog has warned holders of medical insurance policies to be wary of traps arising from the issuing of incomplete or opaque statements by insurers.

The warning came after complaints to the Consumer Council about insurance services rose to 195 in the first six months of the year – a 30 per cent increase from the same period last year.

In one complaint cited by the council yesterday, a patient with severely obstructed coronary arteries who required immediate angioplasty was denied indemnity by his insurer. The insurer claimed that, although surgery for coronary artery disease was covered, angioplasty – which involves using a balloon to enlarge blocked arteries – was a non-surgical technique and excluded.

In another case, a complainant was denied two-day coverage for an overnight stay at a hospital after being told by his insurer that a two-day ‘hospital confinement’ meant being at the hospital for not less than 48 hours.”

Letter to Editor: Conflict of interest in insurance sales (Straits Times – May 28, 2013)

“WHILE I do not deny the need for insurance agents and the useful role that some of them play, I question the conflict of interest and high levels of commission paid to agents by insurance companies.”

“While there may be some who are in the business for altruistic reasons, most are in it for the monetary rewards. It is therefore natural – and not a question of right or wrong – for them to sell products that reward them with the highest commissions instead of what the customers truly need.

Second, there is information asymmetry in any insurance transaction. Insurance companies are not transparent about their costs and charges. As a result, many customers are overpaying without realising it. For example, the commission for some policies can be as much as 100 per cent of the first year’s premium. How many customers would be willing to pay a year’s premium just to receive advice from an agent?”

“we should be moving to a fee-based model, which is practised in many developed markets, instead of being stuck in a commission-driven model.”

Hong Kong financial planners barred from World Cup semi-final over ‘fake’ tickets (SCMP – July 10, 2014)

“Four financial planners on an incentive trip to the soccer World Cup in Brazil were refused entry to the Netherlands-Argentina match after being told that their tickets were fakes.

The four were awarded the trip by employer Convoy Financial Services after achieving a business target of HK$60 million.”

Insurers should always act in clients’ best interests (SCMP – July 8, 2014)

“Going by the debates, it appears there are no strong objections to establishing the [Independent Insurance Authority] but there is an interesting discussion over a provision in the new law requiring insurers and their agents to act in the best interest of the policyholders.

This debate is a surprise to many. Common sense assumes all financial professionals, including the insurance sector, should act in the best interests of their clients.

But what has come out after several committee meetings is that some insurance industry representatives told lawmakers they are not comfortable with the new law containing the principle requiring intermediaries ‘to act honestly, fairly, in the best interests of policyholders/potential
policyholders and with integrity’.”

“Why do these insurance industry bodies have their own version of a code of conduct requiring their members to act in the best interests of their clients, but are so firmly opposed to adding a similar line in the law? It just doesn’t make any sense.”

Oversupply of Financial Practitioners And Its Effects (SethWee.com – Aug. 23, 2012)

“We [Singaporeans] have more advisers than Australia, a country which has more than four times our population!”

“I agree with the comment’s suggestion that agents will have problems recommending term insurance if he has too few potential customers. The situation of an adviser having a small number of potential customers is largely the result of an oversupply of advisers. This is clearly a systematic problem that greatly hinders an advisers’ ability to recommend low cost solutions.”

Scandals in insurance sector set alarm bells ringing (Irish Independent – Jan. 26, 2014)

“The absence of transparency in the operation of unit-linked funds is troubling. Coupled with an absence of regulation of the operation of the funds and the fact that there is no market in the units, means that life companies are effectively free to calculate the price for the units of funds as they see fit.

Equally a lack of regulation means that operational costs levied by the life companies on unit-linked funds are entirely at the discretion of the company – as are the investment management charges.

All in all, this situation exposes investors and pension funds to potential abuses which may go undetected. A succession of recent scandals in the insurance sector (eg, Quinn, RSA, PPI etc) should be grounds for regulatory concerns about insurance products, at the highest level.”

Investors lost Rs.1.5 trillion due to insurance mis-selling (Live Mint – Feb. 6, 2013)

“Policyholders in urban India, where few buyers of insurance can claim they don’t have a rip-off story to tell, would know exactly what Chidambaram meant.”

“So big became the public uproar over the predatory sales of life insurance products that the regulator, in July 2010, was forced to step in and change the rules around the product being mis-sold—the unit-linked insurance plan (Ulip). But the damage had been done. Ulips, almost single handedly, have caused a deep erosion of investors’ money and confidence in the markets.”

“No surprises here, the biggest gainers in the great Indian insurance rip-off were the agents, banks, corporate sellers and the insurance companies themselves.”

Scandals eroded trust in financial advisers (Financial Times)

“The Retail Distribution Review is, in part, a response to a string of scandals in the UK investment advisory sector, which have cost consumers hundreds of millions of pounds in lost savings.”

Investment-Linked Business — A Time-Bomb? [This as an essay in a pdf file. In the last pages of the file, there are several very interesting Straits Times article about an ILAS scandal that happened in Singapore in 2005. I highly recommend the article entitled “Five reasons why ILPs are an Insurer’s best friend”.]

Reigning in Unethical Insurance Practices (Straits Times – Jan. 29, 2013)

“SINGAPORE’S commission-based system for insurance agents has often been cited as the main cause of unethical selling of insurance products.

The criticism goes that agents push particular products to land higher commissions for themselves, rather than recommend those suitable for the consumer.

This longstanding problem was one reason behind the Monetary Authority of Singapore’s (MAS) launch of a comprehensive review of the industry last year [FAIR].”

“…The panel concluded that Singapore is not ready for a fee-based advisory now…”

“Those who support the move towards a fee-based scheme for the agents attribute the backtracking on this issue to the huge resistance put up by the big boys in the industry.

Almost every major insurer – Great Eastern, Manulife, Prudential and AIA – stated their views opposing the fee-based structure.

Financial advisers were also up in arms, meeting regulators behind closed doors to state their cases, and even holding a media event to get their point across.”

The Truth about Life Insurance (The Online Citizen – May 7, 2008)

“Many families are being grossly overcharged for the modest financial protection offered by the life insurance policy. After deducting the high expenses, their net savings do not earn a sufficient yield for them to live on during their retirement.”

“The investment-linked policy is equally bad for the policyholder. I have seen benefit illustrations for these policies where the reduction in yield is 4% or more…This is taking too much from the unsuspecting consumer. It amounts to daylight robbery.”

“Do not buy any high-cost life insurance policy. High-cost life insurance plans are those where the policy combines life insurance protection with savings. Low-cost life insurance policies – term insurance policies – cover protection only.

Examples of high-cost life insurance policies include whole life, endowment, critical illness, education and investment-linked policies, where many months of your premium are used to pay the insurance agent’s commission.”

Forced disclosure clause in draft insurance bill could kill industry, insiders complain (SCMP – June 26, 2014)

“A spokesman for the Financial Services and Treasury Bureau, which drafted the bill, said the bureau will not require the IIA to use the rule. They are just codifying their power to force disclosure on ILAS should they wish to.”

“It’s not even clear if the proposed disclosure rule in the IIA bill would go beyond this half measure – the language is ambiguous by design. Said the FSTB spokesman: ‘The purpose is to allow certain flexibility to update the regulatory requirements to respond to market developments.'”

Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers (Bloomberg – June 17, 2014)

“Tarr worked for Royal Alliance Associates, a brokerage firm owned by insurer American International Group Inc. (AIG) She encouraged hundreds of departing AT&T employees to roll over their retirement money into the kind of risky high-commission investments that Wall Street’s self-regulatory agency warns against on its website.

Tarr and her business partner reaped hundreds of thousands of dollars a year in commissions and trips to the Bahamas and Florida resorts. Not all of her clients fared as well, and 37 of them have filed complaints against her, according to Financial Industry Regulatory Authority records”.

“While retirees can generally leave their savings in 401(k) plans, financial firms entice them with cold calls, Internet ads, storefront signs and cash incentives to switch to IRAs.”

“The complaint alleges breach of fiduciary duty, fraud and failure to supervise its brokers, leading to more than $1 million in damages. The former employees were placed “in totally unsuitable investments” that were “designed to maximize the commissions and fees” paid to the company and the brokers, according to the lawsuit.”

New research slams active management, are fee cuts the answer? (International Adviser – June 17, 2014)

“New research by the Pensions Institute at London’s Cass Business School demonstrates that 99% of fund managers are unable to beat the benchmark and, of the 1% that do, luck cannot be ruled out as the reason.”

Vanguard unveils three exchange-traded funds in Hong Kong (International Adviser – June 9, 2014)

Give new insurance regulator power to examine pay and products (SCMP – June 2, 2014)

“While some agents may mislead customers so as to earn more in commissions, another reason some use questionable selling tactics is the pressure from their employers to meet a quota.

Many salespeople are forced to lean on their parents, relatives and friends to buy policies that may be unsuitable, so that they can keep their jobs.

Some retirees end up buying investment-linked policies with 25-year terms to save the jobs of their children working in the insurance industry.

If the new regulator wants to stop mis-selling, it must have the power to check whether insurance companies and banks exert undue pressure on their salespeople and to properly regulate sales methods.”

Investors may sue insurers over fund fiasco (SCMP – May 30, 2004)

“Outraged professionals allege two British firms provided misleading marketing material

Dozens of Hong Kong investors are considering legal action against two prestigious British insurance companies, alleging they sent out misleading marketing material.

The investors, understood to include wealthy bankers, lawyers, accountants and other members of the professional elite, are outraged at the deteriorating quality of their investments after they poured money into a class of offshore guaranteed funds distributed by Scottish Mutual International (SMI) and Clerical Medical International (CMI).

Two weeks ago, the Sunday Morning Post revealed that hundreds of Hong Kong people could stand to lose huge amounts of money through what they thought were fail-safe investments.

Stephen Peaker, a lawyer with law firm Oldham, Li & Nie, says it has been ‘contacted by a number of investors who have raised issues in relation to their investments with CMI and SMI’.

Due to weak stock markets in recent years, investors who retire early from underperforming policies could face withdrawal charges of more than 40 per cent. In cases where borrowed money was used to boost the investment, they could lose their entire investment and still end up owing money.

One furious Hong Kong investor who bought into both SMI and CMI with-profits funds called for collective action. ‘I believe all disgruntled investors should join together in an association for the defence of our rights and force CMI and SMI to disclose details of their investments. We have been totally misled based on their literature and very old historical records.'”

Fund Losses Spark Fury (The Standard – Nov. 1, 2004)

“There is never a shortage of bad investments _ or people eager to sell them to you. From Internet come-ons to “boiler rooms” in Bangkok, investors are bombarded with a steady stream of supposedly low-risk, high-return deals.

What is not so common is an investment scheme making similar claims marketed by one of the United Kingdom’s biggest financial institutions carrying what many investors took to be the implicit approval of reputable banks on three continents.

More than 7,000 Hong Kong investors, many of them affluent professionals and small businessmen, invested in one such product, the Offshore With Profits (OWP) funds sold by Clerical Medical Insurance (CMI), a subsidiary of Halifax-Bank of Scotland, one of the UK’s biggest mortgage lenders. Hong Kong was the place where a significant amount of sales for a fund that totalled about US$3.5 billion at its peak _ it is now about half that size _ took place with investors here typically investing more than US$100,000 each.

Although CMI says it does not have complete data, available information suggests that Hong Kong investors alone put more than US$700 million in the funds. Most now wish they had not. That is especially true of those who borrowed up to three times their initial investment to buy extra shares in the fund, only to see its asset value dive. At stake is whether or not they were misled by the sales pitch _ and whether Hong Kong regulators will conduct a thorough investigation into what is shaping up as one of the biggest losses in Hong Kong fund history.

Investors in the funds who sought to cut their losses after markets fell paid stiff fees. On top of an exit fee of up to 9 per cent they also paid an early redemption fee that ranged as high as 25 per cent _ a fee that CMI had said in its promotional materials would be imposed “only occasionally” without setting out how it would be calculated or how high the fee might go.

At the same time, many banks began calling their loans, forcing investors in effect to pour even more of their own capital into an investment that had already gone badly awry.

Meanwhile, Hong Kong regulators refuse to say whether or not they are investigating CMI. For its part, CMI in September said that it would stop marketing funds in Hong Kong. ”

Repeating History after Ignoring It (Asia Sentinel – July 29, 2009)

“be forewarned that  the impact of the Lehman mini-bonds saga could have been minimized, if not prevented, if the SFC had acted decisively three years ago in a similar case involving Clerical Medical Insurance, a unit of Halifax Bank of Scotland. But from its inception, the SFC has been a largely toothless watchdog, occasionally gumming on some luckless small offenders and largely leaving the heavyweights alone.”

“Just as with Lehman, the CMI case  involved gross mis-selling of financial investment products – larger in scale in dollar terms but less well known.

The SFC could have  punished the wrongdoers to send out the right message, restructured the regulatory landscape to prevent any similar episodes and seized the opportunity to demonstrate its seriousness in dealing with misconduct of financial institutions.

No, thank you. The SFC did none of the above. What it eventually did – investigate the case but take no action – was to splash out television advertisements to forewarn investors to be alert and ask the right questions when making investment decisions, without tackling the core of the problem. The timing was critical: had the SFC taken the right measures then, it would have been between 2005-2006 when the Lehman minibonds were flowing into the Hong Kong market.”

“Potential investors were encouraged to gear up to three times their own investment to maximize gains, given the supposedly good track records of these funds. These investors later said their advisers, motivated by extra commissions, only emphasized the upside but never forewarned them of the potential downside risks involved with gearing. ”

“these investors found themselves stuck with huge losses and some are still pursuing lawsuits today to fight their cause.”

“both cases featured gross mis-selling with commission-driven sales staff allegedly more eager to secure signatures than to explain in detail the complexity of the financial products, if they understood them at all, on the table.”

“the reality is the public placed trust in the regulators to have the house in order with little or hopefully no room for any propensity to mislead potential investors, rich or poor alike. The regulators of today’s ever increasingly complex financial markets are also expected to have an iron grip on the conduct of its players and act swiftly to correct any disequilibrium.”

“one may question if the frontline sales staff of financial products, including professional independent financial advisers, are properly qualified. After all, much like doctors and surgeons whom we count upon for life or death, the men on the street rely on these financial intermediaries for their financial well-being – the Lehman case in particular has thrown this issue into the spotlight given the highly complex financial instruments involved.

Regulators and related supervisory trade bodies in Hong Kong will be quick to point out the Continuing Professional Development (CPD) program, found in several professional industries as a well managed way to update its members and also renew licenses.

Sounds good? But what good can there be if the IFAs (with a considerable number of non-Chinese speaking Western expatriates) cannot understand a word in some of these Cantonese-only classes? This was the situation faced by some insurance professionals and IFAs, according to sources, and all they need is to find ways to kill time and mark their attendance at the end of the courses to gain the necessary credits.

‘They do not even check if you are fluent in the language in which the course is given,’ said a practicing insurance broker. ‘Most attendants just sit in the venue for 2 hours playing games on their mobile phones, or by catching up with sleep. The quality of the speakers, most of the time staff of law firms eager to advertise their firm’s name and they work free of charge, as I understand, is poor to very poor.'”

Walking the talk – a profile of Continental Group (International Adviser – May 26, 2014)

“As the head of one of the United Arab Emirates’ largest insurance brokerages, Ashok Sardana isn’t afraid of controversy.

At International Adviser’s inaugural intermediary CEO roundtable in November last year,Sardana made a call for life industry staple – the 25-year savings plan, to be scrapped on the basis that “99% of clients will not see through the 25 years” and that they are only sold because of the rewards to the life company and adviser.

Six months on, when IA pushed him on whether he is still in favour of scrapping one of the most popular products within the UAE market, Sardana is even more fervent saying he “will shout from the rooftops” that these products should be banned.

“How does a client know, after 25 years, that a company will still be there? Not to say they won’t, but these are not products which are suitable for most clients – in 99% of cases the clients will not see completion of the plan. These policies are only good for the adviser and the life company,” he says.

“These products should have health warnings like cigarette packets which say – ‘this product is not good for your financial wellbeing’.”

Sardana suggests instead that clients should be offered shorter-term savings plans, as the client is always able to purchase a new one after it has completed.

Insurers back rules on investment linked policies (SCMP – May 22, 2014)

“Local insurers support the Securities and Futures Commission and other government measures to crack down on reckless or negligent sales of insurance products in a bid to enhance investor protection, according to industry players.

The Office of the Commissioner of Insurance is consulting with the insurance industry to prepare guidelines to crack down on misleading selling in the insurance sector.”

SFC to step up oversight of investment-linked insurance (SCMP – May 21, 2014)

“Hong Kong regulators are set to tighten regulation of insurance companies that created controversial investment-linked insurance life policies after scandals and high profile probes forced watchdogs to close loopholes that leave hapless investors at the mercy of unscrupulous high-pressure sales tactics, a senior government source told the South China Morning Postyesterday.

All insurance companies that create investment-linked insurance policies would need to sign a confirmation form by the end of July with the Securities and Futures Commission stating they have internal controls in place to ensure the products are fair to investors, according to the SFC circular seen by the Post.

The circular contains 14 new general principles to “remind product providers of their duty to consider investors’ interests as part of the product-design process.” Insurers must have internal committees to approve new products which in turn must have proper risk management in place. Fees should also be set at a fair and appropriate level. Failure to comply would lead to a ban in offering such products.

“It would be subjective on how to determine products that are unfair to investors. But it is common sense that if an insurance product that requires a policyholder to contribute for more than 10 years but then the policy would not pay back a penny to the investor, this is simply not fair to the investor,” the source said.

The SFC circular comes one week before lawmakers debate details of a bill that would set up an Insurance Authority next year as part of major reform of the insurance sector.”

Future of Portfolio Bonds Is Unclear (International Adviser – May 8, 2014)

“Hong Kong’s insurance and securities industry regulators are reported to be considering whether to introduce new restrictions on the sale of ‘open architecture’ investment products, including so-called ‘personal portfolio bonds’ (PPBs), market sources there say.

The rumoured plans to find a way to introduce new controls on open architecture products were under discussion before Sin Chung-kai, a lawmaker who was instrumental in drafting Hong Kong’s current investment legislation, went public last month with the view that the current regulation is not sufficient.”

“The confusion is also taking place at a time of some rather intense local hostility to the general idea of ILAS products, in the wake of a number of highly publicised product failures and mis-selling scandals.”

UK IFAs may face QROPS advice confusion (International Adviser – April 9, 2014)

“Under the rules governing the way UK advisers are allowed to advertise themselves, those wishing to call themselves ‘independent’ financial advisers, or true IFAs, are obliged to offer their clients a choice of investment options from the full range of market options available.

If they cannot, they must call themselves ‘restricted’, and explain clearly to their clients which areas they may and may not advise on.”

“It is thought that QROPS, introduced in 2006, have remained an unregulated product until now because they were aimed at the offshore market, but some observers say this lack of regulation is one reason that many individuals are being sold QROPS that are not well suited to their needs.”

“‘This is about the interaction of tax, visas, pensions, regulatory concerns, currency, etc.  Advisers have to deliver advice and guide clients, yet if you look at all the training manuals and courses and examinations, there is no semblance of guidance or training in place [said Geraint Davies].'”

Single premium boosts sales at RL360˚ (International Adviser – April 25, 2014)

“This comes despite RL360° shifting its focus away from the highly competitive and less profitable single premium market to the higher margin regular premium section of the offshore bond market…Hall said…’Royal London 360° has always ensured that any business we write is at a minimum profit threshold, and the margins in the single premium market in the UK are now so fiercely low that we’d prefer to walk away from the business…In contrast, the international regular premium market, with our products such as Quantum and Paragon, can deliver far more attractive profit margins.'”

“The offshore bond provider said the largest share of its regular premium business came from the Far East, followed by the Middle East.”

First quarter new premium sales rise 24% for Singapore life companies (International Adviser – May 6, 2014)

“The industry body said annual premium products were the key drivers for the growth, but that sales of single premium products also fared well…”

Standard Life annuity sales fall by half, international inflows up (International Adviser – April 30, 2014)

“Standard Life said the business in Hong Kong was ranked third in the savings and investment market and is the ‘market leader in the broker and IFA segment’, as at 31 December 2013.”

Standard Life Hong Kong chief Halliday exits the company (International Adviser – Jan. 13, 2014)

My Dog, America’s Top Financial Planner (CBS MoneyWatch – May 13, 2009)

“Financial planners, peddling an award that is offered without any legitimate selection process, are misleading the public.”

“there are more than a hundred financial credentials that can be obtained in a matter of a few days, or even a few hours, in Las Vegas.”

Lipper Fund Awards — Step right up, Everyone’s a winner! (National Post – April 4, 2008)

“Lipper’s web site is selling fund companies award trophies so they can “order as many replica trophies as they need, to display in offices around the world.” In addition, you can order a trophy for “awards not catered for at an Awards evening.” So even if you’re such a sad-sack fund company that you couldn’t muster up a single win in the 113 categories, there may yet be hope for you. You can order a large Lipper trophy for just $155, a medium one for $119 or a small one for just $95. Manufacturers of index funds or ETFs need not apply.”

Let SFC regulate investment-linked insurance policies (SCMP – April 21, 2014)

“The Hong Kong government will finally push ahead with the long-awaited establishment of an Insurance Authority next year, but the reform has not gone far enough to solve the problem of investment-linked assurance schemes (ILAS).

To protect the interest of policyholders, the ultimate solution should be to move these products under the regulation of the Securities and Futures Commission instead of the Insurance Authority.”

Scope seen for tighter regulation of insurance-linked investments (SCMP – April 21, 2014)

“Regulation of the financial sector in Hong Kong does not properly protect retail investors and should be tightened, said a former lawmaker who oversaw the drafting of the relevant legislation more than a decade ago.

Sin Chung-kai, who was chairman of the legislative committee responsible for the Securities and Futures Bill, published in late 2000 and enacted in 2003, says the city’s two-tier system of regulation has created gaps, leaving the potential for unlicensed products to be sold undetected.

Many unlicensed funds are marketed directly to retail investors by firms that take advantage of a two-tier regulatory structure that gives investors different types of protection depending upon which regulator oversees their adviser and investment account.

Hong Kong’s rules assign supervision of certain investment products, known as investment-linked assurance schemes (ILAS), to self-regulated insurance bodies with limited authority, rather than the Securities and Futures Commission, which has search and seizure powers.

This means the SFC’s safeguards governing the sale of unlicensed funds to ordinary retail investors do not apply to savers using an ILAS account, known as a portfolio bond.

HK$7.4 billion was invested in single premiums, including portfolio bonds, in 2012, according to the Insurance Commissioner. Many investors were unknowingly exposed to the risk of near total loss without any regulatory defence to help them claw their cash back.

One such example is the spectacular collapse last year of Australian fund house LM Investment Management, which had a reported A$3 billion (HK$21.7 billion) in assets before its implosion.

Its flagship Managed Performance Fund is now valued at 5 cents on the dollar. The firm is under investigation as Australian authorities work out what happened.

LM products were sold in Hong Kong via ILAS vehicles, exempting them from the regulatory scrutiny they would otherwise have received if they were marketed to ordinary investors.

SFC rules require Hong Kong resident investors to sign a form and prove they have HK$8 million in liquid assets before buying such a fund. These rules do not apply to portfolio bonds.”

“Since the financial crisis, more than 80 unlicensed funds marketed via ILAS products have been suspended. Affected are fund houses including LM, Glanmore, Frontier Investments, Castlestone and Capricorn, as well as student accommodation funds from Brandeaux, and Mansion.

In several cases, investors said they were not told the funds were unlicensed prior to sale, a breach of insurance regulations.”

“LM’s collapse is especially pertinent, as its funds were marketed as low-risk and sold to savers approaching retirement. The Managed Performance Fund paid 9 per cent commission to advisers and started delaying payouts to clients from 2009 – four years before its collapse – advisers and LM founder Peter Drake said.

The firm’s generous commissions, roughly three times the industry average for similar products, encouraged financial planners to promote the fund, advisers said.”

“In many cases, the advisers disappeared the moment LM failed, Smith said.

Hong Kong’s rules put the responsibility for completing due diligence checks on such products squarely on the advisory firm. This assumes each firm has the capabilities to do the legwork needed to review an unlicensed fund.”

“‘After 13 years, it is time the government should review,’ Sin said.”

Six top tips for avoiding financial disaster when investing in a fund (SCMP – April 21, 2014)

3. What commission rate is the fund house paying your adviser? Not all fund houses pay commission. If the fund house does pay commission, is it a market rate – that is, less than 3 per cent – and are there similar funds available that don’t pay commissions? If your adviser refuses to tell you, get a new adviser.

4. Don’t lie on the application form. If the adviser is recommending a fund, don’t sign a form saying buying it was your idea. In principle, lying is a bad idea, and it’s certainly not a good sign if you are being asked to lie when investing your own money. If you sign such a form, an adviser can deny responsibility if something goes wrong. If you are being asked to lie, get a new adviser.

5. How is your adviser remunerated? Is it through commission, ongoing management fees or a fixed charge, and does the fee structure align your interests with your adviser’s? If they are not in alignment, get a new adviser.”

Insurance oversight body moves step closer (SCMP – April 17, 2014)

“The government will proceed with the long-awaited insurance regulatory reform by submitting a bill at the end of this month to set up an independent Insurance Authority in 2015, a move that would tighten regulation over the 80,000 insurance sales people in the city.

The reform, to be debated by lawmakers before a possible vote next year, is seen as badly needed given the many complaints against sales people in relation to investment-linked policies in recent years. The 80,000 do not need to apply for licences and are only required register with their own industry bodies, a self-regulation model that would go extinct if the Insurance Authority is set up.”

“[Au] said the government and the SFC would also discuss regulations on investment-linked insurance products as these are investment fund products that are not regulated by the SFC.”

Sales Commando II: The Closer (International Adviser – April 15, 2014)

“If you can recognise how your prospect thinks, you will be able to tailor your pitch to press all the right buttons. Plus, when the prospect comes back with objections, you will be so much more effective at stopping the objection monster in its tracks.”

Want to be a Sales Commando? A Former deVere Adviser Explains How (International Adviser – April 10, 2014)

“Self styled ‘sales guru’ and former Royal Marine Doug Tucker has written a book aimed at the advisory market, giving tips and advice on how to generate the highest possible number of sales.”

Quotes from the book:

“As professional persuaders, the words we use are our ammunition. Obviously, a sales commando should only ever use the best ammunition and never waste a shot. Using the correct dialogue, with perfect delivery, is critical if you want to hit your targets.”

“Create a mental picture of each objection as a small monster being born and figuratively popping out of the client’s mouth. The minute you pay attention to the fledgling monster you will be feeding it with energy, because this little monster thrives on encouragement. The more you acknowledge its presence, the more it will grow and grow.”

Many advisers failing to disclose fees: FCA (International Adviser – April 7, 2014)

“Almost 60% of firms are failing to give clients clear, upfront information on how much their financial advice will cost, according to a report from the FCA.

[Sam Instone said,] ‘For years, banks and wealth managers have often been more interested in shareholder return than clients, meaning that sometimes they act mostly to make money for themselves.’

‘I think RDR is fine, it is the wealth managers who are the problem. It is early days for the review and given its wide objectives I think it is doing a good job.'”

Mainland tourists buy 16pc of life insurance sold in Hong Kong (SCMP – April 7, 2014)

“Mainland tourists’ share of new life insurance sold in the city grew to 16 per cent last year from 13 per cent in 2012, 9 per cent in 2011 and 4 per cent in 2010…

…’many mainlanders are buying the policies during short trips here,’ Chan said.

‘It would be a problem if the agents or the bank staff do not get the time to fully disclose the risks or product features to them. Some mainland tourists could complain in future [if things go wrong].’

Some insurance companies have been hiring new migrants from the mainland to pitch the products to visitors.”

QROPS industry reels from Budget pension changes (International Adviser – March 24, 2014)

“UK death taxes, currently at 55% and often cited as key reason to use a QROPS, are to be reduced, possibly even scrapped altogether.”

No Upfront Fees Mean No Sales for Indian Funds (Wall Street Journal – Feb. 25, 2010)

“Researchers have long known that the way people are asked to pay for something plays a big role in whether they buy it. India’s mutual-fund industry is a case study in how big that impact can be.

Last summer, Indian regulators changed the way investors pay for the mutual funds they buy, forcing sellers of the funds to better disclose these sales charges. The result: Sales of Indian stock funds have nearly stopped, in a dramatic slowdown in what was one of the world’s fastest-growing fund markets…

…the Securities and Exchange Board of India has said funds could no longer charge “entry loads,” the upfront fees paid by investors when they bought funds. These were primarily used to pay a commission to the brokers, insurance agents, financial planners and bank employees who sell the funds. SEBI wants financial intermediaries to get their commissions directly from investors.

The move is designed to make it clear to investors that they are paying a commission and let them know who gets the money. ‘The move was driven by a single objective—investor protection,’ said K.N. Vaidyanathan, executive director of SEBI…

The drop-off in sales is no surprise to researchers who have shown in experiments that people tend to view out-of-pocket costs as losses, while the equivalent amounts deducted over time are instead perceived as opportunity costs or foregone gains. The psychological pain of paying an upfront, out-of-pocket expense is intense; on the other hand, a fee paid incrementally over time feels like only a slight reduction in the rate of reward…

The big winners from the switch in India are fixed-deposit accounts and whole-life insurance products, which charge commissions under the old system. “The whole business is shifting away from mutual funds to insurance,” said U.K. Sinha, chairman and managing director of UTI Asset Management, India’s fourth-largest mutual fund firm in terms of assets…

The [Association of Mutual Funds] is also lobbying the government to force the insurance industry to be forced to make the same switch.

‘The regulation is going to stay here, so we have to relook at the entire structure of the industry,’ said A. Balasubramanian… ‘We have to go through an unlearning curve and then a learning curve.'”

FCA ‘considering action on exit penalties’ in inquiry into savers trapped in unfair pension policies (The Telegraph – April 2, 2014)

“Action on exit penalties that severely reduce the value of pensions will be considered as part of an inquiry into old investments, the head of the City regulator has confirmed.

Martin Wheatley, chief executive of the Financial Conduct Authority, has refused to rule out an intervention on these “lock–in” fees, as disclosed in The Daily Telegraph last Friday.”

Savers locked into ‘rip-off’ pensions and investments may be free to exit, regulators will say (The Telegraph – March 27, 2014)

“Savers locked into rip-off pensions and investments could be given a free exit or moved to better deals, regulators will say next week.

The City watchdog is planning an inquiry into 30 million policies sold by insurance companies from the Seventies to the turn of the Millennium, The Telegraph can disclose.

The review, to begin this summer, will include pensions, endowments, investment bonds and life insurance sold by doorstep salesmen who were often spurred on by large commissions.

The Financial Conduct Authority is concerned that insurers are now “exploiting” loyal policyholders, who are “not given the same priority as new customers” and instead face high fees and substandard service.

The intervention marks a victory for The Telegraph’s long-running campaign for action over rip-off charges, particularly on pensions that severely reduce retirement funds over time.”

FCA to Investigate Long Term “Exploitation” of Consumers (International Adviser – March 28, 2014)

“An inquiry, due to begin in August, may allow long-term savers, deemed to be locked into rip off pensions and investments to be given a free exit from their scheme, or moved on to a better deal….

‘The inquiry is the right thing for the FCA to do, [Sam Instone] said, ‘However, financial advisers around the world probably do not need to worry as most of them are not regulated by the FCA…

…global life insurance companies…do not have such regulatory requirements and will continue to sell these types of products until they are no longer legally able to.'”

Radio Discussion about ILAS with Jasper Moiseiwitsch from SCMP (Money for Nothing, RTHK – March 5, 2014)

“The SCMP’s Jasper Moiseiwitsch takes a look at the controversy surrounding investment-linked assurance schemes (ILASs). The investment products authorized for sale in Hong Kong have come under fire for being expensive and hard to understand.” [To listen, click on the headphones icon at the bottom of the page next to 8:20 am.]

DeVere pays £70k to Strategic Growth Fund investor (March 10, 2014, – International Adviser)

“In a statement, Nigel Green, founder and chief executive of deVere, said: ‘I would like to make it clear that it was our investigation into a legitimate client complaint and our subsequent conversations with the client that led to a mistake being rectified; it was not as a result of the involvement of a newspaper, as has been suggested.'”

Victory for Expat Retiree as This Is Money Gets His Pot Restored (Feb 28, 2014 – This Is Money)

“An expat who saw the money in his pension pot plunge by almost £80,000 after receiving bad investment advice has got it back thanks to the intervention of This is Money.

The reader, who did not want to be named, is 59 and lives near Alicante, Spain. He saw his savings plummet from £89,000 to just £20,000 after taking out an offshore drawdown plan on the advice of the deVere Group in June 2010.

Some 80 per cent of his pension pot was invested on the recommendation of a deVere adviser into a single fund, called the Strategic Growth Fund, which was suspended last February after a long period of poor performance that prompted a flurry of investors to try to pull out.”

‘Publish at Your Peril’ Warns Financial Giant deVere Group (July 26, 2012 – This Is Money)

“It quickly became clear that deVere wanted to stop your story being told. But behind the scenes, the Belgian watchdog opened an investigation. And deVere approached you with an offer. You accepted a large payment and thanked me, saying that my involvement was ‘key to bringing deVere to the table’. DeVere insisted you sign a secrecy agreement, which I am guessing makes no admission of liability.

The Belgians were also tightlipped, saying their investigations were strictly confidential. But they did confirm that deVere’s licence covered only insurance.

I told deVere that Financial Mail would report all this. Back came more emails, this time from Martin Byrne, a lawyer working for deVere and an expert in ‘reputation management’.

Byrne delivered a long lecture on my duties as a journalist, mixed with threats to sue me.

It’s Their Plan for Your Money, So Assume Deception (Feb.  26, 2014 – Japan Times)

“The first thing to understand about the term IFA is that, unlike other abbreviations you may see printed on a business card after a person’s name, it is no guarantee of any level of expertise, competence or integrity. No rigorous examination or demanding course of study is required for a person to become an IFA, nor does it denote affiliation to a professional body with a stringent code of ethics.”…

“The practice of paying advisers a large, undisclosed upfront commission creates a huge conflict of interest. Many IFAs work on a 100-percent commission basis, and the so-called advice they give is often more like a sales pitch delivered in the guise of guidance to a trusting and sometimes naive client. Rather than IFA, the abbreviation ICS — “incentivized, commission-earning salesperson” —would be a far more honest descriptor. After the commission is paid up front, there is little incentive for the adviser to maintain any kind of relationship with the client at all, except perhaps in the hope of selling the client another financial product.”…

“ILAS plans are some of the least efficient expat investment plans out there, yet because of the high commission payments paid to advisers, they are one of the most commonly sold. Unfortunately, there are industries in the world whose enterprise is based upon exploiting the ignorant.”

Tokyo-Based ILAS Victims Organizing Legal Action Against Generali International (Feb. 2014) – See this petition and this one. Also sign them!

Ex-clients Quizzed in Probe of DeVere (Dec. 31, 2013 – SCMP)

“The CIB regulates deVere and all its client-facing representatives must be licensed by the CIB. The use of unlicensed representatives is a breach of the Insurance Companies Ordinance, punishable by a fine of up to HK$1 million and two years’ imprisonment.

DeVere has obtained injunctions on two former employees to prevent them talking about the company. None of the material in this article comes from those former employees.

DeVere has been without a chief executive in Hong Kong since September last year and the CIB has declined to license any new front-line staff to sell insurance while it has been without one.

The latest regulatory developments come weeks after deVere announced the acquisition of Precision Group Asia, a Hong Kong-based insurance broker regulated by the Professional Insurance Brokers Association (PIBA). Like the CIB, PIBA is a self-regulatory industry body accountable to its members.

The November 8 deal was followed a week later by the purchase of financial advisory firm GWM Hong Kong, which it plans to relaunch as Acuma, the brand name of a deVere-owned entity based in the Middle East. GWM Hong Kong is CIB regulated.

Three people who worked at deVere without CIB licensing – David Hubbard, Jason Ryder and Matthew Bond – who the firm says did not have client-facing roles and so needed no licence, have moved to Precision Group Asia. They now appear on the PIBA website as licensed representatives.”

Contraversial Investment-Linked Assurance Schemes Poised to Make a Comeback (Dec. 6, 2013 – SCMP)

“A controversial class of investment products may soon become widely available again after most banks in Hong Kong stopped selling them when tough restrictions on their sale were introduced this year.

Two of the city’s Big Four banks are said to be reviewing their policies on the sale of investment-linked assurance schemes (ILAS), with a view to promoting them more actively in one case and resuming their sale in the other.”

“The HKMA was quite negative on the sale of ILAS at banks after receiving so many complaints,” said a banker who had held private talks with the regulator. “They asked the banks why they were promoting ILAS to their customers instead of unit trusts, which are much simpler in structure and can also provide a return [that is better than that offered by straight deposits] to the investors.”

Bankers said major players in the city used to be aggressive in selling ILAS, especially HSBC, which both creates and distributes such products.”

Call Made to Ban 25 Year Savings Policies (Nov. 28, 2013 – International Adviser)

“Explaining his position, Sardana said the reason these policies are currently being sold is not because they offer value to the client given “99% of the clients will not see through the 25 years”, but because of the “current remuneration”.”

Insurers Look to Diversification in Sales Push (Nov. 19, 2013 – SCMP)

“A decision by Zurich Insurance to stop selling life insurance products in Hong Kong through agents from the end of this year has raised the prospect of a major shift in the city’s HK$755 billion life assurance market.”

DeVere Faces Down Bad Practice Claims (Oct. 24, 2013 – SCMP)

“One of the biggest financial advisory firms to expatriates in Hong Kong, controlling US$9 billion in assets worldwide, is facing down accusations of mis-selling and bad practice from former clients and employees, an investigation by the South China Morning Post has revealed.

DeVere, which describes itself as the world’s biggest financial consultancy, has been disciplined seven times by its regulator in the past eight years for breaches of industry rules.”

CEO’s Stake Risked Conflict of Interest (Oct. 24, 2013 – SCMP)

“One of the complications of the deVere business model is its global chief executive, Nigel Green.

Green has owned several subsidiary businesses that profit from the sales generated by deVere’s global team of 450 advisers.”

HKFI Campaign Counter Attacks on ILAS (Oct. 2, 2013 – International Adviser)

“In an email to its members late last month, the HKFI outlined plans for a widespread media campaign, across television, print and the internet, which it said would reinforce the ‘strengths and benefits of ILAS products’.”

“The entire ecosystem of the agent model is wrong,” [Lai Yan-cheong] said. “It is too easy to be licensed. That is why you have so many of them on the street.

“He advocates making it harder to get licensed. Aiming to lead by example, he is now applying for a licence for his own brokerage. “I will focus on selling low-fee products,” he said. “You can still make good clean money.”

“Another member of the group, 29-year-old Lindell Lucy, has been campaigning on behalf of his girlfriend for compensation from Convoy Financial Services. He claims Convoy’s broker mis-sold his girlfriend a series of insurance policies.

Lucy wants commission-based products banned in Hong Kong, as has been done in Australia and Britain, and the introduction of an investor’s licence.”I believe individuals shouldn’t be allowed to invest in any expensive, complex, or volatile financial products unless they have proven they can do it safely just like they have to pass an exam to get a driver’s licence,” he said. “This is a very reasonable idea that would only be opposed by greedy b******s who have made a career out of swindling people.”

The group has now begun lobbying the government and regulators. Their message to the industry: watch out.”

Investment-Linked Insurance Schemes a Trap for Unwary Investors (Sept. 30, 2013 – SCMP)

“It started with a referral from a friend. For Connie Choi Shuk-mei, it ended in claims of fraud, a police investigation and the founding of Hong Kong’s first anti-insurance-product activist group.

A client of AXA Swiss Privilege, Choi invested in an investment-linked assurance scheme (ILAS) and is now leading a campaign to ban the controversial product from Hong Kong after finding several like-minded individuals via media reports and the internet.”

“AXA has allowed her to surrender her two accounts and returned US$53,401.98; less than 40 per cent of the value of her single account in 2010.

Exasperated, Choi is seeking legal advice. “There is not even an apology. They just keep blinding themselves as if nothing had happened.”

“THE BROKER’S CUT

How much commission is your plan generating? For a regular contribution to an ILAS savings plan multiply the monthly or annual premium by the number of years the policy is taken out for by the commission payout of 4.2 per cent.

For example, a 20-year policy with a monthly premium of HK$10,000 would generate gross commission of 20 x 12 (months in the year) x 10,000 x 4.2 per cent. This equates to HK$100,800.

The lump sum portfolio bond commission is usually 6 to 8 per cent of the total amount invested. So an investment of HK$1 million would generate HK$60,000 to HK$80,000 in commission. Commission is split between the broker and his or her employer.”

Insurance Product Faces Gloomy Future (Sept. 30, 2013 – SCMP) 

“It is hard to be a vendor of insurance-linked investment funds these days, as regulators come under pressure to outlaw sales of such products that are worth HK$17 billion a year.

Also known as investment-linked assurance schemes (ILAS), these products are on the ropes, with big banks such as Citi, Hang Seng Bank, Bank of China and DBS no longer selling them and other banks reviewing their sales.

Meanwhile, regulators are piling on rules governing how they are sold amid scores of consumer complaints about high fees, poor performance and mis-selling.

At stake is a business based on one of the most profitable instruments sold to the public by banks and financial advisers and one that accounted for about 23 per cent of the city’s life insurance business last year, according to the Insurance Authority.”

“Banks and advisers make more money selling insurance products than they would selling straight investments or savings plans because the latter would fall under the direct supervision of the SFC and HKMA, which would be a lot stricter on fees….

[ILAS] largely exists thanks to the regulatory arbitrage it enjoys with other investment products.

If ILAS and other insurance products are as toughly regulated as other instruments, banks and other vendors would have few incentives to sell them.

And that is the existential issue facing ILAS that insurance executives such as Halliday now need to address.”

HK Consumer Body Finds ‘Array of Fees’ and ‘Variances’ in ILAS Products (Sept. 17, 2013 – International Adviser)

“A new report by Hong Kong’s Consumer Council has found that those considering investing in investment-linked assurance schemes (ILAS) are faced with “a plethora of fees and charges” as well as “substantial” variations in the levels of these charges.”

SFC Rejects Head Accusation (Aug. 24, 2013 – SCMP)

“Lucy, and others, believe the current arrangements lead to mis-selling and ILAS products should come under the tighter ambit of the SFC. The SFC however maintains a somewhat legalistic stance in arguing that given the way the ordinance is worded they are insurance products. This does not go down well with Lucy, who in his e-mail says: “With all due respect, the SFC needs to pull its head out of its a**. Does putting an insurance wrapper around securities magically transform them into something other than securities?” Stephen Tisdall, senior director for intermediaries licensing and conduct at the SFC, replies: “I am relieved to be able to advise you that the SFC’s head is not located in the particular part of its anatomy to which you referred.” But he then goes on to reiterate the SFC’s position, suggesting perhaps that Lucy’s initial observation on this is not so wide of the mark.”

ILAS Changes Given Thumbs Down By Hong Kong Advisers (International Adviser – August 23)

Insurers Pull Back from Disclosure Policy as Commissioner Defers Issue (SCMP – August 15)

“‘The whole issue is a shambles and the industry is a laughing stock,’ says Rick Adkinson, managing director of Private Capital.”

“They pay high commissions to those selling the products, causing complaints that sellers have commission in mind, not the investor’s best interests.

The issue came to a head in a high-profile case in Hong Kong’s Court of First Instance. Jeremy Hobbins, an investor, sued his financial adviser, Clearwater, and the vendor of ILAS products, Royal Skandia Life Assurance.”

“…the insurance industry and the brokers who sell the product (such as financial advisers) remain concerned that they could be exposed to another anti-bribery action unless firms establish clear rules for disclosure of commission income.

‘The client needs to know that they [insurance brokers and financial advisers] are receiving commission,’ Chan Kin-por, a Legco member who represents the insurance industry, says. ‘We are lucky the ICAC [Independent Commission Against Corruption] has not taken action. But the law has always been there.'”

The Necessity to Sell 101s (The IFA on Duty – August 8)

“There is a big who-ha in Hong Kong in which an individual claimed to have been mis-sold an ILP. Her boyfriend made the case into quite sensational news recently. This may have prompted the Hong Kong authority to publish a consumer guide to ILP. In Hong Kong, the ILP is called ILAS.”

HK’s New Investor Education Center Publishes Guide to ILAS Products, Regulations (International Adviser – August 7)

“The online publication of the guide comes in the wake of negative publicity about the mis-selling of ILAS products, and as some major sellers of them, such as Hong Kong’s banks, have, as reported, begun to turn away from them, following the introduction of more onerous compliance rules and commission disclosure requirements. ILAS industry executives counter that the negative coverage is causing some investors to miss out on products that would be ideally-suited to their needs.”

Zurich International Halts Marketing Retail Products in UK (International Adviser – August 6)

Poor Advice at Wing Lung Fails to Address Needs (SCMP – August 5)

“Of the eight banks visited, seven pitched an insurance plan first. The shopper was shown investment products only when she asked about them, and then only half the banks surveyed were willing to discuss straight investments.

This reflects the fact that insurance plans are more profitable to banks than straight investments such as mutual funds, and certainly more than exchange-traded funds or single stocks or bonds.

The mystery shopping also revealed a trend for banks to sell whole-of-life insurance before they sell investment-linked assurance schemes, as ILAS plans are getting a lot of regulatory scrutiny these days.

Generally the banks seemed focused on the cost pressures of their business. They tended to recommend the high-profit products, and they cut out the time-consuming steps to financial advice.

For example, banks are supposed to know their client before selling a product. But none did a financial needs analysis, less than half administered a risk-profile questionnaire, and advisers typically failed to find out about basic issues like the shopper’s financial situation.”

Hong Kong Banks Shun ILAS as Tighter Rules Impact (International Adviser – August 5)

“Local sources estimate that up to three-quarters of high street banks in Hong Kong have either slowed sales or are no longer offering ILAS products to retail investors, but rather are offering whole of life insurance products on which the compliance requirements are less stringent.”

HMRC Refuses to Explain Hong Kong QROPS De-Listing (International Adviser – August 2)

“One piece of correspondence from a Hong Kong based QROPS trustee, seen by International Adviser, suggests schemes were told by HMRC that it had decided Hong Kong’s pensions regulations are insufficient to qualify schemes based there as QROPS.”

Nearly All Hong Kong QROPS De-Listed (International Adviser – August 1)

Hong Kong Tightens Controls Over Sales of ILAS Products (Mondaq – July 24, 2013)

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

“What began as an arguably unnecessary savings product sold to a 27-year-old kindergarten teacher last year has become a growing public relations nightmare for one of Hong Kong’s largest advisory firms, after the teacher’s boyfriend decided to get involved.”

Things You Must Know About Investment-Linked Assurance Schemes (July 3, 2013)

“Many financial brokerage firms, which are engaged in selling Hong Kong’s Investment-linked Assurance Schemes (ILAS) in the Mainland, are misleading clients, to the extent of cheating them…Some unscrupulous brokerage people will persuade clients to set up an investment account for 25 years, on a false claim that the investment account needs only two to five years of contribution. Taking advantage of the attractive first-year bonus (up to 125%) allocation provided usually by insurance companies as an enticement, they will induce their clients to make as big a contribution as possible, without giving consideration to the sustained investment affordability of their clients.” [NOTE: This article is written by a player in the industry and contains some blatantly false statements, but I’ve posted it here because it acknowledges that the entire industry is corrupt.]

Regulations on Insurance Sales Still Need Authority (July 2, 2013 – SCMP)

“The SFC has declared it is not responsible for how the products are sold except to vet advertising materials. These products are so complicated that investors are reliant on the salespersons to explain them.

The HKMA now covers about 25,000 bank staff who sell investment products, including ILASs, and with regard to these staff, the authority has shown its teeth on mis-selling.

However, about 45,000 insurance salespeople are not regulated by the HKMA, the SFC or the Office of the Commissioner of Insurance. Anyone who wants to be an insurance agent only needs to register with the Insurance Agents Registration Board, which is not a statutory regulator but a self-regulatory body.

Unlike Britain, Australia and Singapore, whose insurance sectors are monitored by independent regulators, Hong Kong’s is overseen by the government’s Office of the Commissioner of Insurance, which has no power to control agents.

The government is planning to present proposals to lawmakers on Friday before a formal submission is made in November to set up an independent Insurance Authority in 2015, which will license and regulate all 70,000 insurance salespersons, including those who work for banks or insurance companies. Before that happens, many insurance agents continue not to be licensed.

Some insurers say these types of policies represent about 30 to 40 per cent of all sales and they sell particularly well when the stock markets are buoyant.

This showed many policyholders consider these products serious investments, even though they are not regulated by the SFC.

This, again, shows this city urgently needs an insurance authority.”

Banks Cutting Back on Controversial ILAS Sales (SCMP – June 24, 2013)

“Citibank said it would suspend sales of the products and Bank of East Asia and Fubon Bank, which are still selling the products, said they would be reviewing their sale.”

“DBS…suspended selling ILAS products last month.”

“Bank of China stopped selling ILAS products this year and the Bank of Communications did so from the fourth quarter of last year.

Hang Seng Bank, Wing Lung Bank and Shanghai Commercial Bank stopped their sale in 2008.”

“Hong Kong has dished out its first punishment for mis-selling the controversial products known as investment-linked assurance schemes (ILAS).

The Hong Kong Monetary Authority suspended Sit Wai-hong – a former front-line employee of HSBC who now works at China Citic Bank International – for three years from the register under the Banking Ordinance, meaning Sit is not allowed to sell investment products until June 18, 2016.”

SCMP Undercover Investigation of Investment Advice (Weekly, From June 17, 2013 to the Present)

“To get a sense of the quality of financial advice offered at banks, the South China Morning Post sent a correspondent to visit eight banks. We look at the amount of time bank staff spent getting to know the customer’s needs, the quality of investments suggested, how transparent they were about fees, and whether they propose investments that fit a client’s budget.”

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

“‘The first two years’ premiums are paid to the brokers [as a sales commission], often as a lump sum, within 14 days of the product being taken out. The cost of this is paid by the consumer in the form of early withdrawal penalties if they do not go full term. I believe this structure [ILAS] is fundamentally flawed and it lacks integrity,’ says Hobbins.”

“Hobbins says Hong Kong would be better off without the schemes.

‘They [ILAS] serve to produce income for the insurance industry and their sales brokers, rather than serving the interests of consumers at large.'”

Is Commission Disclosure a Step Towards Retail Distribution Review in Hong Kong? (International Adviser – May 9, 2013)

“The burning question though seems to be whether this is a precursor to Hong Kong adopting a model similar to those in Australia or the UK where commission is completely banned.”

Commission Disclosure Law Hits Hong Kong (International Adviser – May 7, 2013)

“‘This is sudden and could potentially have a drastic impact on insurance sales for Q3 this year as not a great deal of notice has been awarded to advisers to shift their pricing/remuneration models,’ said Sajjan.”

New Rules and Increased Regulatory Focus for ILAS (Deacons – May 2013)

“there has been increased awareness of the possibility of regulatory arbitrage by financial advisers who offer investment funds and asset allocation advice to their clients through ILAS, without the additional regulatory obligations that apply to an SFC-licensed adviser if it were to offer or advise on the same investment funds directly.”

Hong Kong Monetary Authority’s Circular on New ILAS Regulations (HKMA – April 22, 2013)

“…ILAS products may not be easily understood by customers, and may not be properly
disclosed and explained to customers during the selling process. Indeed in the course of its
supervision, the Hong Kong Monetary Authority (HKMA) has identified issues that need to
be addressed in the sale of ILAS products…”

New Insurance Rule Far From Transparent on Fee Disclosure (SCMP – March 25, 2013)

“Insurance firms package the schemes with big fees partly so they can pay the agents and brokers a big commission. It’s a strong incentive to sell a plan, but it invites questions about whether a sales person has a customer’s needs fully in mind with the sale.”

“Hong Kong is behind other markets with regards to commission disclosure. Britain has banned financial advisers from taking commission income for the investments products they recommend to clients.”

3 Strong Reasons to Buy Direct Funds Instead of the “101 Plans” (FundSuperMart.com – March 12, 2013)

Tales from the Dark Side: Unscrupulous Advisers and Their Crooked Companies (SCMP – January 28, 2013)

“Once they got down to business, the aim was to sell customers an investment-linked assurance scheme (ILAS), due to the big selling commissions.”

“The commission paid on an ILAS varies according to the sum clients put in each month, so advisers were taught to play on people’s vanity to get them to commit as much as possible.”

The Pitfalls of Investing in ILAS (SCMP – December 17, 2012)

“Most problematically, people tend to only find out about their problems with ILAS long after they sign a contract committing to the plan, because ILAS can be very difficult to understand, particularly the tricky matter of fees.

“I used to be a senior performance analyst and even I found it difficult to work out what the fees were,” Mathew Bate, of fee-based independent financial adviser Private Capital, says of ILAS.”

“…the insurance sector is self-regulated. It is up to the industry to ensure people stick to the rules, and to punish rule breakers…This system of self-regulation stands in stark contrast to how the sale of other investments – such as mutual funds, stocks or bonds – are sold in Hong Kong…insurance firms police themselves, even on the sale of high-profit products such as ILAS.”

Partial to Impartiality (SCMP – November 19, 2012)

“…Britain will ban advisers from receiving commission for recommending investment products by the end of this year. Australia, too, is planning to widen its clampdown on commission to all financial products, while Singapore has just launched an industry review of the financial-advisory sector aimed at raising fees transparency.”

Out of Commission (SCMP – August 15, 2012)

“The good news is that there is one firm in Hong Kong, ipac, that mostly rejects this kind of commission model, charging instead for advice as a percentage of assets managed. The bad news is that ipac’s Hong Kong office is going out of business, and it’s virtually the only one of its kind in the city.”

“Meanwhile, Hong Kong’s financial advisory industry embraces its habit of seeking money from product providers for selling products instead of getting paid by clients for unbiased advice.”

ILAS Are Not ‘Investments’, So Commissions Are Unregulated (April 16, 2012 – SCMP)

“This is a much discussed – and highly sensitive – topic among financial advisers. They make a lot of money on the sale of ILAS and not everyone is keen to upset this business with lots of disclosure about selling commissions.

Others say that ILAS selling practices are giving the financial advisory industry a bad name, and the commission issue needs to be addressed.”

ILAS and Alack (April 16, 2012 – SCMP)

“The plans make heavy use of bonuses, staggered fees, deferred fees and hidden fees to make the key issue of ‘what is the total fee?’ extremely hard to pin down.

Different fees can apply to different stages of the plan, and there are other moving targets, such as insurance charges, or the penalties for early withdrawal from the plan.

There are, simply, a lot of fees to track and a lot of different scenarios in which different costs and/or bonuses might kick in.

The product providers do not do themselves any favours with their liberal use of jargon in the marketing information.

HSBC’s WealthInvest plan, for example, makes reference to ‘monthiversary’, ‘premium reduction factor’, ‘early encashment charge’, ‘account value’, and so on.

It’s a lot to try to understand, particularly as the plans can lock in investors for up to 30 years, requiring potentially large, regular contributions. The product could easily be the most important and permanent investment a person makes in their lifetime.

Given what’s at stake, are banks sufficiently clear about the fees attached to ILAS, and their impact on returns? Given my recent experiences, this mystery shopper says no.”

You’re IN for the Long Haul (April 16, 2012 – SCMP)

“The products are offered by the major insurers, such as Friends Provident, Generali International, Aviva, Zurich International Life and Royal Skandia, as well as the large consumer banks. They are sold by banks, financial advisers and insurance brokers. Like many insurance products, clients typically sign up for long periods – as long as 30 years – and commit to regular premium payments. Early withdrawal, or failure to make a premium payment, can involve steep penalties. The product is not always labelled as an ILAS; it is sometimes referred to by other names, such as unit-linked life insurance, offshore pension, or just a pension.”

Insurance Authority Plan Opposed by 95% of HK Agents (SCMP – March 29, 2012)

“Nearly all life insurance agents in Hong Kong oppose government plans to set up an independent insurance authority, a survey shows.” [Proof of how thoroughly corrupt the industry is. They fear being held accountable for their sins.]

HK Commissioner’s Letter Reignites Commission Issue (International Adviser – March 5, 2012)

Cost in the Mists of Time (SCMP – February 27, 2012)

“The schemes are common. One adviser estimates that about 75 per cent of investment products sold to individual investors in Hong Kong come under the ILAS umbrella.”

“Peter Hatz, a director of One Axcess, an online trading platform, estimates that only 7 per cent of ILAS products are held to maturity.

Furthermore, the fact that an adviser gets paid his commission in one, large, upfront payment means the adviser has little incentive to stay with the client after the sale.

‘Earning an upfront commission and selling someone a product with a 25-year term, then earning no further income for the next 25 years, means there is no incentive to maintain the relationship,” says Hatz. “The structure is fundamentally flawed.'”

ILAS: A Few Facts Worth Knowing (February 27, 2012 – SCMP)

“How is this plan better than a brokerage account and exchange-traded funds (ETFs)?

Ask them why they are not recommending ETFs within a brokerage account – which can be multiple times less expensive than these plans, and offer increased flexibility as there is no long-term contract. In regards to fund selection, some brokerages provide access to stock exchanges around the world. ”

You’re Only Assured of More Risk (SCMP – Sept 19, 2011)

“If sold for the wrong reasons, Investment-Linked Assurance Schemes (ILAS) can lead to consumers losing a lot of money down a black hole. The danger of buying an ILAS, warns Smith, is that it won’t match an individual’s investment requirements or their need for adequate insurance or disability cover. He says while ILAS can result in a waste of hard-earned wealth, the companies responsible for providing them are brimming with happiness.”

“Strangely, the SFC doesn’t regard units in ILAS as securities, and states: ‘If, as is normally the case, an insurer places a percentage of the premium payments received into such funds, these investments are for the account of the insurer itself – the policyholder has no interest in them whatsoever.’…In theory, an insurance company could gamble with a consumer’s money. ”

“For every broker in Hong Kong, Smith suspects there are 20 agents whose sole aim is to sell long-term ILAS products with expensive premiums, and negligible protection.”

“As insurers are not required to disclose Policy charges and commission, policyholders have no way of knowing how much they’re paying in total. However, Smith says they need to know that it’s common practice for the insurer to pay three times the annual premium (on longer-term ILAS) to an agent or broker as a sign-up fee.”

“Policyholders are reluctant to cut their losses and close their ILAS accounts until the penny finally drops – it will never be recovered simply by keeping the policy open. So it’s better to kiss goodbye to money that will never be recovered, than to go on throwing good money after bad. ‘I encourage policyholders sceptical about cutting their losses to do the maths,’ he says.”

“The magnitude of up-front fees may attract the churn of agents out for a quick buck. But she says this is more prevalent with ILAS used as long-term savings plans because the commissions are a lot higher. Pan also concedes that while ILAS do offer investment choices, they are considerably more expensive. ‘That’s why for normal investors a pure investment platform is a more suitable option.'”

Just How Fair Are Your Fees? (SCMP – August 29, 2011)

“…US$12,000 is paid out to the adviser in an upfront fee for selling one product…

‘I don’t think anyone looking to save US$2,000 a month would consider paying an adviser US$12,000 up front, but that’s what effectively happens when you sign up. There is no question where that US$12,000 comes from – out of your initial contributions,’ Noto says.”

Beware the Mis-Sellers (SCMP – June 20, 2011)

“One Hong Kong-based financial adviser, who asked not to be named because he fears he would lose access to providers’ savings products, said it was usual to be offered 10 per cent of the value of a client’s regular savings plan as a commission. So an adviser who signs you up to a savings plan where you commit to save HK$1 million over 25 years could be earning a tenth of your total investment – or HK$100,000 – upfront as commission.”

Guided by Greed (The Standard – July 4, 2005)

“… most so-called independent financial advisers, or IFAs, are just brokers with a vested interest in touting plans that pay them maximum commission for minimum effort…the most glaring proof of Hong Kong’s backwardness in the personal financial products area is the depressingly predictable way that IFAs foist long-term contractual savings plans on their clients. Notorious for high management fees, punishing early-exit penalties and colossal commissions, these plans have all but disappeared from most advanced jurisdictions – including Britain, the place Hong Kong traditionally has turned to for regulatory inspiration. The weapon of choice for advisers is the contractual savings plan – the most profitable of products for life insurance companies and a generator of huge commissions for advisers…One adviser told him a plan was so flexible that after 18 months, he could withdraw his money. “Just like a bank account?” he asked. “Yes,” she replied, without breathing a word about the high cost of early redemption. While contractual savings plans are all but dead in Britain, they are the product most often recommended by salespeople in Hong Kong. Mr IFA says they make no sense: “Why pay surrender charges to access your own money? In such circumstances, you simply have to ask who’s benefiting from such arrangements, because it certainly isn’t you.” He adds: “A good adviser will develop a truly flexible plan that should be suitable for years to come, but which can be changed at a moment’s notice without undue effort or expense.” Eagerness to maximize commissions also seems to be behind another trend in financial advice – encouraging investors to borrow extra money to invest. This is called leveraging or gearing, and it adds greatly to the investor’s risk. As an example, Mr IFA cites “with-profit” funds, where the investor is paid out of the fund’s earnings. Such products have been available in Hong Kong for years, and advisers used to dismiss them as boring. “But as soon as it was discovered that with-profit funds could be geared and be capable of generating up to 21 percent commission, they suddenly became the greatest investment ever.” Mr IFA says Hong Kong is years behind Britain and Australia in terms of regulation. “The regulatory framework is almost non-existent and thus heavily weighted in favour of the salesperson.” In better-supervised markets, expensive, restrictive products like the ones major insurers tend to sell in Hong Kong have been phased out or radically redesigned, he says. In Britain, tighter rules have created a market for good products from discount brokers, fund supermarkets and online share dealers. But there is little incentive to offer them in Hong Kong. “Why spend a fortune advertising the virtues of a cost-effective, transparent product when brokers can easily hide the charges on high-paying products?” Investment products sold on commission generally underperform the market because of the drag from the commission and the hefty fees paid to the investment managers. With most contractual plans, management charges continue to be assessed at the same rate even if the investor reduces or suspends his contribution. Says Mr IFA: “An already expensive plan suddenly becomes extortionate and unlikely to ever produce a positive return for the investor.” As charges usually apply up front, the threat of a pullout by the client is of scant concern to the investment manager. “In fact, investment managers prefer plans to be stopped early,” says Mr IFA. “The last thing they want is to have to administer a savings plan for 20 years.” Advisers, many of them expatriates, don’t worry much either about clients who withdraw. “Hong Kong is an excellent place to come for a few years, earn a small fortune selling high-premium, long-term plans and depart, leaving clients to fend for themselves.” All too often, what clients are left with is not just a poorly performing investment, but a disastrous one. Take Susan Field, who last year sued financial intermediary Barber Asia after she lost nearly HK$3 million – almost all her savings – in a high-risk leveraged scheme…But Mr IFA is not surprised that a woman like Field, who runs her own marketing and communications business, can be fooled. After all, “financial principles are not taught in school or university,” he says. Even financial sophisticates get taken. One leading accountant says he could walk up Des Voeux Road Central almost any day of the week and bump into half a dozen senior figures in the financial community who sank money into the CSA Absolute Return Fund, a hedge “fund of funds” whose founder awaits trial on allegations that he faked its underlying assets. A lot of dodgy investment plans are sold to members of the legal profession too. “They are too embarrassed to come out and say ‘I’ve been done’,” admits a senior lawyer.”

Avoid ILAS if You Are Not Ready for Long-Term Commitment (Consumer Council – January 15, 2004)

“In 2003, the [Consumer] Council received altogether 478 consumer complaints concerning insurance, of which 104 were policies with investment or savings elements [ILAS]. The majority of these complaints were due to early surrender.”

“In a survey conducted by the [Consumer] Council, nearly one-third (11/36) of the insurance companies involved claimed they were unable to breakdown the charges in detail or clearly explain the calculation of the surrender values of the policy, on grounds that it was too complicated.”

Introduction of ILAS Illustration Document (SFC – October 1996)

“Deborah Glass, SFC’s Senior Director of Investment Products, said: “The problems usually did not surface for several years until the investor sought to cash in the policy, and found that the early surrender penalties and charges had rendered the value of the policy negligible.”

“The basic problem identified was that investors were not fully aware of the long term nature of the product, the extent of their contractual commitment, and its effect on surrender values,” she added.”

Hong Kong Investor Education Centre – Understanding ILAS

“…when you subscribe to an ILAS, you are only entering into an insurance contract with the insurance company. You should also note that, even if the ILAS has an underlying investment option, you – the policy holder – do not have ownership of the invested assets. Such assets are kept and owned by the insurance company which offers the ILAS. In case the insurance company becomes insolvent, you will only have a contractual claim and may lose the entire value of your investment.”

Zurich International and Friends Provident… Should You Invest With Them? [AndrewHallam.com – Do Not Miss the Hundreds of Shocking Comments on this Article]

“In the world of investment products, low fees are good for investors. High fees are good for commission hungry salespeople.

Too many people buying insurance-linked investment products through Friends Provident and Zurich International don’t fully understand them. And based on telephone conversations I have had with Zurich and Friends Provident representatives, not all of their salespeople have a firm grip on the products either. They do understand one thing, however: these products offer fat commissions.”

Ethical Business Congress

“Very specific market conditions in mainland China allow for unqualified, and unethical financial service providers, to market Unit Linked Life Insurance products to expatriates here and in many other developing and loosely regulated markets.

Though the China Insurance Regulatory Commission CIRC does prohibit the sales of all foreign insurance products, the offshore investment industry has remained careful to only target foreign nationals living in China. Therefore, they are able to avoid any form of oversight into their business practices.”

The Truth About Offshore Pensions

“…hopefully now you understand why I said what I did above about anyone actually volunteering to buy one of these if they understood it properly. I believe for all of the regulation that has been imposed on this industry in recent years regulators would do better to regulate the products and not the advisers because if such products were outlawed then they couldn’t be sold. I also almost forgot to mention that the reason expats are normally offered one of these plans and not one like the below is because these plans pay lots and lots of commission, upfront and in a lump sum…”

Australia Is Not Alone In Banning Commissions in Financial Services (Oct 2012)

“A number of countries including the United Kingdom, India, Norway, Finland, Denmark and the Netherlands have banned commissions paid to advisers.”

UK Financial Services Authority Fact Sheet on Commission Ban

“Advice has never been free. You may not have realised but if you received financial advice before our changes came in you probably paid ‘commission’ to your adviser. This generally came from the company providing the product paying your adviser a percentage of the sum you invested.
Instead of you paying commission on new investments your financial adviser now has to be clear about the cost of advice and together you will agree how you will pay for it.
This way you know exactly what you are paying and that the advice you receive is not influenced by how much your adviser could earn from your investment.”

Australian Government’s Website for the Future of Financial Advice Reforms

“These important reforms will improve the trust and confidence of Australian retail investors in the financial planning sector. They are designed to tackle conflicts of interest that have threatened the quality of financial advice that has been provided to Australian investors.”