Reply: What clients are not told about ILPs

Editor
Business Times

I refer to the article entitled “What clients are not told about ILPs” by Genevieve Cua (BT, 12 April).

The article does a good job of highlighting a serious problem: Funds in Singapore cost too much. More than any other insurer, NTUC Income has been fighting this problem with its low-cost funds.

The article concludes with Mr Ben Fok of IPAC saying, “…if you can avoid investing in ILPs, don’t invest. Insurance is for protection, just go for a Unit Trust".

I hold a different view.

In choosing the right investment plan, the investor should consider the following:

- the risk profile of the fund
- the distribution charges
- the fund management fees
- the charges for the insurance protection (in the case of an investment-linked plan)

Many investment plans (ie unit trusts or ILPs) have high distribution charges and fund management fees which are not properly disclosed to the investor. The advisers earn a large share of these fees, and are required to disclose this fact. In spite of it, many layman continue to be confused.

There is an independent comparision of these charges in the website, www.askdrmoney.com.

NTUC Income keeps our charges at a competitive level, so that most of the returns are given back to our investors. Our charges for our ILP funds are generally lower than the unit trusts.

Our fund management fee is about 1% per annum. This fee for most similar funds, including unit trusts, is 1.5% to 2% per annum. Some financial advisers charge a separate level of advisory fee which is additional to the fund management fees at the unit trust level.

Our distribution charges are generally lower than for similar products. Our spread is 3.5%, compared to 5% for similar funds. During our sales promotion, we give a bonus units of up to 2%, which reduces the spread to 1.5%.

Our distribution charge for a regular saving plan is about one third of the cost of similar ILP offered by other insurance plans.

Our total expense ratio is among the lowest for all funds and unit trusts in the market. As the expense ratio is an annual charge, it has the most significant impact in determining the net return to the investor, for a similar risk profile of the investments.

The insurance protection embedded in our ILP plan is offered free of charge. It is funded by the margin in our modest charges.

We provide a low-cost term assurance plan to be bought separately as a rider. The premium is extremely low, and is kept level for the duration of the rider. The cost does not increase with age.

We advise long-term investors to select our combined fund, which is a large, well diversified fund of $3,800 million. It is invested in 900 good quality equity and bond invesments. It is managed by 9 top fund managers around the world. It has earned an attractive return for our investors during the past three years. The fees are among the lowest, ie 1% per annum.

We educate consumers to make the right choice. We invite them to visit our educational website, www.knowyourinsurance.com.sg

Tan Kin Lian
Chief Executive Officer
NTUC Income