A financial adviser told me that he sells regular premium unit trust with a front end load of 3%. There is no no additional charge that takes away 6 to 18 months of the savings (unlike a regular premuim investment-linked plan from a life insurance company).
If the monthly saving is $100, the charge is only $3. The adviser earns a commission of only $3.
Due to the low commission, he is not able to spend time to visit the client. He speaks to them over the telephone and sends the form by mail. He receives the completed form by mail.
He advises his client to invest their Central Provident Fund savings, from the ordinary and special account, into unit trust.
It is advisable to invest in a unit trust, if the annual expense ratio is less than 1.5%. It is better, if the fund has an expense ratio of 1% or less.
Dr Money has some low cost funds listed in his href="http://www.askdrmoney.com/Unit_Trusts_and_Funds.htm">website. I shall ask him to cover some of the low cost unit trust.
When you buy a ILP, ask about the additional charge. Alternatively, you can ask if 100% of the regular premium is "allocated" for investment. If the allocation is less than 100%, the difference is the additional charge (which may be deducted over many years).
So you see how much distribution cost is charged to the clients if they buy ID2 plans from Income. No wonder Income agents are so keen to sell Ideal ID2 telling you the benefits of dollar cost averaging and load of other craps. If you happen to be at TM there is a group of agents who are giving discount of up to 3 months' premium willingly if you buy the regular ILP saving plan.It must be very lucrative and the commission must be high that they can give away so much discount and promising high returns. It's too good to be true.
ReplyDeleteThere is the problem of an imperfect market that agents can take advantage of. Where is the integrity and ethics we hear about insurance agents. It is like hit and run business.
UOB GrowthPath 2030 and 2040 funds have expense ratio of 1.2% (as of Dec 2006) but are not on the list. I wonder if they are ok too.
ReplyDeleteThe problem is customers are not financially savvy and poorly
ReplyDeleteinformed that they become easy victims of insurance agents. The uncles and the aunties and old people are easy preys.The agents' motive is to sell them something to make a commission without caring whether the products meet their needs. The modus operandi of these insurance agents is enticing these types of customers with high return or with some guarantees. The customers are never told of the risks or lock in period or high charges.
Often the misdeeds of insurance agents are found out too late.Damages are already done. Imagine it is discovered after 20 years.eg. wrong plan, underinsured or losses or short changed.
Public education is badly needed.
I had bought an ID2 plan with a regular premium of $100 since last year Oct 06. It will be coming 11 months old. If ID7 plan bought directly from Biz Centre offer no/low distribution cost, it is advisable that i terminate this ID2 plan now and go for product such as ID7 now ?
ReplyDeleteStopping now will leave you at least 50% poorer. The company will deduct whatever money that is due because commission was already paid out to the agent 11 months ago. Are you prepared to lose this amount? Since you cannot escape this you might as well continue until you break even and that is about 3 years from now if you are lucky otherwise wait for 5 years. By then you might get back what you invested. Good luck and that is what you need now.
ReplyDeleteThe Financial Adviser may put this Regular Premium UT under a Wrap account. The charges range from 1% to 1.5% of your existing portfolio.
ReplyDeleteWhen your portfolio increases to $10,000, say after 5 yrs, he and the company gets $100 for that year. and keep getting as long you are under the Wrap account.
Either from FA or IA, there are charges involved. Its a matter of when it will be charged.
Unless you DIY under the Internet platform or the Financial Adviser decides to do a Charity, you will be free from these charges.
Financial Advisers need an income for a proper living. They cannot be giving free advices and the consumers buy from internet after getting the advices.