Bad advice given by the agent

Dear Mr.Tan,

I had read some of your articles about insurance and would like to seek your advice.

It is sad to learn that the current practices by insurance companies and their agents are not as ethical as what they claim in their mission statement or business code of ethics. It is also too late for my wife to realize that her entire CPF savings (ordinary and special) is now suffering heavy loss after being misled by an insurance agent in November 2007.

All along, ordinary people like my wife took insurance agent as professional and able to give reliable and accurate information. However, such trust was shattered after she was misled to loss-making investment-link policies. The way that he pushed the high risk bank-stock-link funds before the stock crash to unaware customer as low-risk investment still upset me today.

Although we complained about the agent's misrepresentation in Feb 2008 and got him admitting his 'ignorance' of the stock market, our request to annul the policies was rejected without clear explanation. His unethical use of national annuity scheme to scare my wife into putting her entire CPF savings in the dubious policies was also unanswered.

We contacted FIDREC but pulled out halfway due to stress and forlorn hope because my wife had already signed the Know Your Client Financial Needs Analysis Form which binds her to everything.

I have some questions below and I wonder you could offer your opinions.

1) Can stock-link-fund-selling agent ignore stock market warnings such as US housing credit crisis, US recession, banks' losses, etc? Isn't he a professional in his industry?

Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.

2) These funds follow STI intimately; can agent ignore STI's sliding from historical peak late Oct 2007 and sell the funds at highest prices? Isn't his financial advice guided by the "buy low sell high" principle? This goes against Income's claim that they care about client's interest and are social responsible.

Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.

3) Is it ethical to use annuity scheme to scare and influence client's decision, instead of sound financial judgment?

Reply: The agent should not use the national annuity scheme to scare the investor into making stock market investments.

4) The business law governing fund selling seems to be flawed. We only realized now that the Financial Needs Analysis Form, done casually, is holding the policy holder solely responsible. Isn't this document a likely signed blank check which could be rigged by unscrupulous agents?

Reply: The financial needs analysis should have been done properly and not casually.

5) Isn't there a mechanism to prevent such suicide-like buying of funds when all the indicators point to a looming stock crash? Can such crash prophets by George Solos, Warren Buffett and Jim Rogers be totally ignored and risks as high as such not mentioned to clients during the selling presentation?

Reply: It is difficult to know if the market will go up or down, at any point of time. One can only know with the benefit of hindsight. Your wife has made a long term investment. You should hold the investment for many years. It is likely to recover.

I made a personal investment myself around that time, and my investment is showing a big loss now. So, I was not aware that the market can be so bad. But I have to wait for it to recover.