Monday, May 19, 2008

Understanding the Benefit Illustration

Someone posted a comment in http://www.theonlinecitizen.com/ as follows,

"Mr. Tan suggested that the public should look at the Effect of Deduction and Distribution Cost" in the Benefit Illustration. What is the point of these information, when consumers do not understand what they mean?"

I agree with this comment.

The regulator required the financial institution to disclose these key information. The financial institutions found a way to provide these information buried in 10 pages or more, of other details. The consumers are lost.

The financial advisers have the responsibility to explain the relevant points to the consumer. I suspect that they will skip these sensitive areas. Even if the consumer ask, the adviser could find a way to confuse the consumer and side-track this issue.

I suggest that the regulaor should carry out a survey (say with 50 consumers who have recently bought a life insurance product) and ask the following questions:

1. Have you been told about the Effect of Deduction and the Distribution Cost?
2. Did the adviser explain these terms to you clearly, before you buy the product?
3. Now that you are aware about these items, do you feel that you have made the correct decision in buying the product?

4 comments:

David said...

Maybe they should ask the agent how much commission they get out of the premium paid for the first few years. But will they (agent) tell it in writing so that they won't dare to lie? If this is not legally or contractually required, of course they can say anything and get away with it, right? After all what is the "value" of verbal explanation or guarantee, and furthermore from agents?

zhummmeng said...
This comment has been removed by the author.
wilfred.ling said...

Dear Mr. Tan,

What is your view of a fee-based financial advice? Would this solve the seemingly conflict of interest for a commission-based financial adviser?

Wilfred Ling (an IFA)
http://articles.wilfredling.com

Tan Kin Lian said...

Dear Wilfred Ling,

I support the fee based approach to financial planning. I think that it is the right way.

A general practitioner charges $20 for 10 mins of consultation. If the financial adviser is willing to charge $50 for 30 mins of consultation, it should be acceptable to the public.

To make it feasible for the financial planner, we must have people willing to make appointment and wait to be seen by the adviser. This allows the adviser to handle an average of say 10 cases a day.

If you like to work on this model, I shall be happy to assist and recommend you.

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