Dear Mr. Tan,
I was previously an insurance agent and a salaried agency supervisor with two different insurance companies. From my experience, I have learned to be less than enthusiastic about the so-called prestige of the MDRT (Million Dollar Round Table). In fact, I might even have been sceptical.
The MDRT measures an insurance agent by the first year commission earned on new policies sold. It equates equates more commission earned to being more successful and prestigious. As a sales motivation, , it drives the agents to earn higher incomes. However, it may also tempt many agents into dubious practices in pursuit of qualification for membership.
I feel that to the ultimate consumer, the insurance client, buying a policy from an agent who makes $30,000 p.a. is no different from buying from an agent who makes $300,000 p.a., as long as it's a suitable policy. Just a suggestion. I hope that you may like comment on the MDRT in your blog.
REPLY
You have already made the point well. I have no further comments.
If you have employed salesmanship as an approach to selling life insurance and to attain those MDRT or COT or TOT qualifications, chances are very high that you have committed fraud, unethical or malpractices especailly when these qualifications depend on how much commission you earned in the year.
ReplyDeleteIn US the true blue financial practitioners don't look at these awards as measures of success. They are ashamed in fact.Like wise in Singapore there are FA companies which NEVER encourage this and they never look upon them as yardsticks of success.
Why? The answer is very obvious. If you use MDRT, TOT or any incentives as measures or targets which are based on commissions you are encouraging and abetting in the commission of crimes like fraud, churning, twisting, lies ,unethical and host of other malpractices.The agents will willfully ignore the cleints' needs but will stoop to anything for their own interest.
I have no respect for these people because these insurance agents likely have committed many malpractices and cheating against their clients.
Bearing these marks in their name card only testify that they have been unethical and unscrupulous insurance salesmen and women at the best and at the worse they are cheats and down right despicable people.
The next time if you see an insurance agents or financial consultants having those marks or logos my advice is not to trust them. There is proof of dishonesty and unethicalness.
If it's a suitable policy for the client, maybe it is more unlikely to be sold by a $300K pa agent, right?
ReplyDeleteAfter all, the logic is that unsuitable policies for client carries higher commission for agents and hence better and faster chances for MDRT.
It's like saying it is OK to invest in structured deposits, speculate in stocks or gamble if it is good.
Companies are proud of their agents achieving these qualifications because it means these agents also brought in a lot of profitable business for the companies. Why are these high commission business considered profitable? These products are usually rip off products like whole life and endowment which offer a steady source of income and investment capital for the companies.The premium paid by buyers is more than enough to pay high commission to their agents. This also explains the companies' focus on high annual premium income products than single premium because single premium products have low or no income.
ReplyDeleteTherefore these MDRT and cot qualifications are unashamedly used by the companies as benchmarks for their salesmen to hit.You can see the conspiracy to dump the products on unwary consumers. The agents are trained to cook up lies and imaginations to get the consumers to buy. Yes to buy and all other reasons are imaginary .
The insurance agents are pushed to push wholelife products. Incentives are dangled under the greedy agents' nose,like oversea trips and cash rewards to make them forget about conscience and ethics,like a doped animal let loose to prowl the street looking for preys.
You can imagine what type of people are those agents with these marks.
I admire the writer of this post for his courage to get out of this
industry. I hope the writer will champion the cause to see fair dealing comes to consumers.
I'm not a financial planner as of now but have worked in a branch of a financial institution for 6 months. I'm leaving my comment here so that the people reading this blog may see things from another perspective.
ReplyDeleteThere are 10 MDRTs qualifiers in my branch and they have one thing in common. They rely heavily on referrals. Now, if they were to be unscrupulous in money making, do you think their clients would refer people to them? Word of mouth is a powerful tool. It can work for you and it can work against you.
MDRT may also be seen as the financial planner's ability to give you solid advice because he's not desperate for your money. In my opinion, whether you're earning 10k or 109k (The amount to qualify for MDRT 2009) per annum, you may still be liable to dishonest acts. Looking at things in this manner, you can be a lousy liar who does not make money or a damn good one that makes good money. What about competence? Does it mean that more he earns the more competent he is or the less he earns the more competent he is? What I'm trying to say is that we can't really set a standard for all these things.
So, if someone recommends to you a financial planner, be open about it and hear what he or she has to say. Be open about it. If you're comfortable with him after meeting up with him, and he takes the trouble to explain to you what you want to know and the rationale of him recommending you the products, consider engaging his services. A good financial planner is like a family doctor that should be treated with respect.
If a financial planner has served his clients well, don't you think he's deserving of a holiday? If he serves his clients well, he's deserving of every cent he makes out from his clients.
I personally believe in whole life plans especially if it's bought when a person is young. I'm 27 this year and if I would need to be insured of 100k by buying a single premium policy, I'll need to pay 25k upfront. Correct me if I'm wrong, an average joe would likely be paying for his car or house and will not be able to come up with a lump sum of 25k.
On the other hand, if I were to pay a monthly regular premium for a whole like policy insured for 100k, I'll only need to fork out $150/mth till the age of 65. Which is more attainable for the average joe? Of course insurance companies would focus on regular premiums because it's more suited for the mass markets.
I would have paid up 68k by the age of 65 and what i would definitely get in return for death benefit is 100k. When calculated together with the non guaranteed portion of 3.75% (which is usually given), it adds up to 180k. Now tell me, which bank in Singapore offers such an interest rate?
To me, taking up a whole life plan is a win-win situation. If you love the people around you, you would not touch the money in the policy at all as you’d like to leave them with something when you pass on.
If you need the money for your own retirement purposes because no one is meeting your retirement needs, you may do so and at a good rate. For my case, after putting aside 68k, my surrender value is 55k. Add that up with the projected invested return of 3.75% (usually given), I’ll be getting 103k for my retirement. Once again, is any bank offering such a rate at the moment?
In order for the insurance industry to make sense, 3 parties must benefit, namely the company, the financial planner and the client. If it's not beneficial, tell me, who would want to set up an insurance company, who would want to be a financial planner and who would want to buy any policies at all?
I believe in most of the products that's being produced by the industry. It's a matter of giving the right advice to the prospective clients given the circumstances (i.e. age, income, health, exiting policies owned).
Well said and it simple explained the fact. Try not to go to a dentist, ie, don't buy any life insurance or even buy a CB policy to fan off insurance adviser. Btw, the commission for term life is far better even though premiums are little. Ask the IFAs, banks and credit cards. Best is to buy Lottery. $2.
DeleteLet me address the issues you raised from bottom up.
ReplyDeleteFirst, the 3.75% you kept mentioning is NOT guaranteed and you need to keep for 30 years.
Secondly, 3.75 is a LOUSY return if you consider inflation and real growth. Bank rate is NOT the benchmark but inflation is and to make money work HARDER the return must be at least 6-8% (3-4% excess return).
If financial planners or insurance agents are in the business to make a lot MONEY they should get OUT. This business is about helping people with thier finances and get paid well for helping them and NOT stealing the customers' finances and pay themselves. That is what MDRT, COT, TOT qualifiers are doing ans selling the most expensive products like wholelife to earn high commission to qualify for those awards at THE EXPENSE OF THE CUSTOMERS.
Having referrals does NOT you are good and qualified. First the people who refer business are SATISFIED with the agents and it doesn't mean these people know anything about what they bought and that they have the ability or competence to evaluate what they bought could meet their needs and and also it doesn't tell the competence of the adviser. Just like you , you have no idea what you want. You mentioned whole life and what do you know about whole life.Can Whole life leave a alot of money to the people you love?.
For $150 you are willing to set a aside can get you more than a million (2 mill). Is a million enough for your family or $100K enough? How do you express your love. The greedy financial planner will tell you $100K is enough.
As you said the ideal situation is win-win-win. The truth is win-win-lose. The customers are suckers. In this blog you can read of many malpractices suffered by consumers... Whole life products are SCAMs. They benefit the agents and the companies.
Watch and listen to what Suze Orman
says about wholelife insurance.
Watch this video
http://www.youtube.com/watch?v=6vnN9liFWaE
Dear Kelvin,
ReplyDeleteYou are not paying less for your policy when you buy it at a younger age. It just means that the premium (mortality cost) is averaged over a longer period (i.e. the period when you are young), when the cost of coverage is low.
For example, there is no difference in the mortality cost of a client who is 40 years old, whether he buys the policy when he was 20, 25, 30 or 35. He's just as likely to die as anybody insured by the company, when he reaches that age.
As for investment returns, I am of the opinion that 3.75% is very poor for any kind of investment (that is if you consider your policy to be an investment). But to each his own.
Agents get good referrals because the customers are generally not aware that they have been fleeced. In addition, many policies sold in the boom years have done relatively well thus masking the high cost of such policies. In a more normalised environment, it can only mean poorer returns to the consumer.
So what is guaranteed above the fixed deposits you get from banks? I mentioned the non guaranteed portion of 3.75% because of how competitive the insurance industry is and companies will be careful to keep above a certain amount so that people will still buy policies from them. It can be more than 3.75% or slightly lesser, in the long run people still stand to gain. Even with fixed deposits, the banks are interested in only lump sums and can't be bothered with hundred dollars a month that some can only afford.
ReplyDeleteSo what is a good return? In every investment they always say something like past performances are not indications of how well the investment will perform in the future. What it's trying to say is that if you lose money, that's your problem.
When investing in higher investment that are of higher risks, people may be drawn into thinking about it everyday. They may spend a lot of time monitoring when it can be used to spend quality time with the people they love.
People generally want to live a better life and I've got no problems with that. I don't see why a MDRT qualifier and being a good financial planner with integrity cannot go hand in hand. There are people who are left to die because they cannot afford the fees for surgery or medical bills. So should all doctors and surgeons take a huge pay cut or leave their designations? They should concentrate on saving lives and don't think too much about drawing a high salary don't you think so?
There's this lady in my branch who is a Life Time MDRT Qualifier (After being MDRT Qualifier for 10 consecutive years) and she's now going to make use of her wealth to set up a charitable organization. Half a glass of water can be seen as half empty or half full. You can say that she's simply atoning her sins for the money she's cheated from other people. I've come to realize that there're some people who simply cannot stand people from being rich.
It would be good for you to share with us how I can can get 2 million by setting aside $150/mth. Because I'll tell that to all the people in my branch so that they will never need to endure any of the social stigma they are going through by being financial planners.
If you are so sure about making 2 million with me putting aside $150/mth, why not like that, you teach me how to do that and we split half-half. On top of that I refer people to you and you pay me referral commission?
If you're talking about term plans to be covered for a million, I'll need to pay $84.00/mth at the age of 27. However, at the age of 65, I'll need to fork out 2k/mth to be covered for a million. That is also provided that I'm faithful in contributing my premium every month and I'm able to fork out 2k/mth at the age of 65. The policy becomes of no value the moment I stop paying. If the policy lapse due to non payment of premiums, it may become more expensive due to the change of my age and health conditions.
I'm never in favour of the idea of buy term invest the rest, simply because there's no cash value. That's not to say that term insurance is not useful at all. You may be placed overseas due to your work requirements or going into a career that generally involves high risks for a good 20 years This is where term insurance comes handy. Paying less for more coverage for a limited period of time.
I see whole life plans as a diversification of people's investment portfolio that don't require them to think too much about it at all. At over $100, it's affordable. The video is a one off thing and nobody in their right mind will pay for such a product. 14k per annum for 500k is simply ridiculous.
I agree, an interest rate of 3.75% does not beat inflation based on the channel news asia article. http://www.channelnewsasia.com/stories/singaporelocalnews/view/330959/1/.html That is why insurance companies come up with Investment Linked Policies.
Yes, in most cases, there will be high charges in the first few years but if you're there to stay, you will gain from it because after the first few years, you'll be getting $105 for every $100 you put in. If you find the mortality charges to be high, you may choose to transfer it to your children if you want to or reduce the sum insured so that most of your money will go into investment. Then again, you'll have to bear the risk for doing investment but it's pretty alright in the long run because you'll be doing dollar cost averaging and have time on your side to wait out.
There are a lot of people out there who are not investment savvy and to them, an endowment or whole life plan is a form of discipline or forced savings. It's something that will get them better returns at the end of the day as compared to putting the money in the bank and they do not need to think to much about it.
In regards to mortality charges, some insurance companies actually allow you to choose whether you want it level or incremental. Doing my own calculations, it's actually cheaper to go incremental. If I die early, the policy is more value for money!
I'm sad to say and agree that there's a lot of bad financial planners/advisors/consultants out there who gives poor advice. To me, it's about appropriateness.
But if you're telling that if an advisor recommends you a whole life policy and because of that you see him as someone with no integrity and out to get your money, I beg to differ. I'm a person who believes in most of the products that's being produced. If everybody stands to gain at the end of the day, I've got no problems with that at all.
Kelvin,
ReplyDeletelawyers don't get paid as much as insurance agents for filling forms. Any decent and honest financial planners cannot find any justification to use whole life and endowment products to address clients' needs in the most efficient and effective ways. There are host of other better products to use to save the clients cost and yet give the best outcome. We are talking about the average people out there who are not "filthy rich" who can splurge on anything to please their agent friends even though they don't NEED any insurance.The average people have LIMITED MEANS and there every cent must be properly allocated. For them it is either to meet this or that and no luxury of both.In financial planning sense it means every need is met at the expense of another.Therefore , priority is key to successfully meet a client's needs AT A POINT IN TIME ONLY.
An honest and good financial planner will look for the BEST solutions for the client and whole life products fail miserably.
This argument about "every one has different needs" is flawed to support your contention for WL.
Whole life has 3 functions,; protection, saving and for legacy or for old age.They fail in all of them. Term insurance performs far much better coupled with a regular investing plan.
wow! 109k is an obscene amount of commission if only the first year that is counted. if an insurance agent wants to be both in MDRT and giving good value to his customers simultaneously, he needs to sell close to a million worth of first year term premium!
ReplyDeletebut how many agents in MDRT precisely does that? probably close to none.
Term plans have no cash value and whole life does. If you're sure that you're able to pay the premiums all the way till the day you die so that you can leave the money for the people you want to, go ahead.
ReplyDeleteAs I've mentioned earlier, I've got to pay $2k/mth a month to be covered for a million dollars at the age of 65. It becomes more expensive when the policy lapse or you become uninsurable given your current circumstances. Some insurance companies cover to 99 years, but how much premium would I have to pay to be covered to that age? Remember, it becomes of no value the moment I stop paying.
As ]'ve mentioned, buying a whole life in your 20s til you're 65 is only over $100/mth and it's still affordable. I stop paying my premiums at 65, fold my arms, and watch it incur interest. Why not buy a Whole Life and invest the rest?
People have different opinions in regards to what's best for them. But I believe that there'll be a good number of people who will choose to buy a whole life after you've explained clearly to them down to the very last detail what are the pros and cons between term and whole life. There are people who are risk averse.
For people who are investment savvy, or who think they are, they may buy the idea of buy term and invest the rest. I sincerely hope that they're investment goes well so that they're policy will not lapse.
I think I've made my point very clear. To each of his own. I rest my case.
Hi Kelvin,
ReplyDeleteYou have made a number of interesting points. Allow me to add to the discussion here.
There are a number of different ways to look at insurance. For you, it is a legacy to be left behind for your family when you are gone. For some of us, insurance is something to protect the family for a period of time until the need for such protection has passed (i.e. the children are grown up, retirement savings are sufficient, no need to have a continuing income from salary).
Mr Tan has spent considerable effort to discuss the separation between insurance and investment needs. There are a lot of resources on this blog (and at his website) where the pros and cons of various types of insurance policies are discussed. I would recommend that you spend some time to read through them. The articles are not to discrimate or to rail against life insurance sellers. In all fairness some of them sound hard hitting at times, but they aim to educate, not to insult.
There has been a number of references to 3.75% p.a., and how well it compares against what the banks provide. That is only partially true. If you look at true risk-free rates, there are the CPF returns, which are 2.6% (OA) and 4% (SA). There are SG government bonds, which are at 3-4%. These rates of return are fully backed by the Singapore government.
For a bit more risk, blue chip counters such as SingTel, SPH, Kep Corp, SingPost and SIA on SGX pay about 4-6% dividends, with room for capital growth. Further down the road, you have the REITs which pay 5-10% dividends, albeit with exposure to their own economic cycles. Other instruments include Unit trusts specialising in China, India, Korea who are investing in their long-term macroeconomic trends - that in 20 years these countries will be much better off than where they are today.
For the timeframe you are committing to your life insurance policy (and I must add with the same discipline) I believe there are many options out there where you can earn 3.75% non-guranteed returns with a lot more upside built in. If that is your magic number, you can put it into CPF-SA and get 4%. Even with the proposed floating interest rates the final return will be close to 4%.
You have also said
[/quote]
> It would be good for you to share with us how I can can get 2 million by setting aside $150/mt
[/unquote]
I think zhummmeng meant cost of paying for a term policy.
You have also said
[/quote]
If you're talking about term plans to be covered for a million, I'll need to pay $84.00/mth at the age of 27. However, at the age of 65, I'll need to fork out 2k/mth to be covered for a million. That is also provided that I'm faithful in contributing my premium every month and I'm able to fork out 2k/mth at the age of 65. The policy becomes of no value the moment I stop paying. If the policy lapse due to non payment of premiums, it may become more expensive due to the change of my age and health conditions.
[/unquote]
With all due respect I think you have misunderstood the way term policies are structured. From Mr Tan's website's FAQ, a 300k term policy (death and TPD), level term for 30 years which will take you to around 65 years old will cost you around 700 p.a. (throughout the 30 year term). Decreasing term costs half of that. If you want to tag on critical illness coverage, the cost is about 300 SGD p.a. per $100k. These days the term policies guarantee renewability as long as you pay the premiums regularly.
A 100k term policy covering death, CI and TPD running from 27 to 65, will probably cost around 400-500 p.a. These costs are what we know as "mortality costs" and are non-recoverable. The insurance company collects these from all their policies, and will pay them out to people who actually die. If you consider your whole life policy, the costs are the same - the insurance company will deduct the mortality costs from your premiums and invest the remaining sum to give you your 3.75% non-guaranteed return.
This is not the case where you pay them 150/month, they give you 3.75% p.a. on the 150/month and cover you for $100k on death, TPD and CI for "free". It is not free. The net invested amount is less than the monthly payment after deducting the cost to insure you. And when you take into account high front-end costs, unfair distribution of returns etc, have you wondered why your policy takes 13/14/15 years to "break-even"? The problem we have is that the whole life products dangles a few "carrots" to mask people's perception of them
- you get back your premium (implying that the coverage is free)
- you get some return (implying that there is upside)
- you are guaranteed coverage (implying that there is safety)
All these are not true, and you will be better served putting your time to try to understand these products more.
On a last note, something for you to consider. If you are paying 150/month for a whole life, an equivalent term policy will leave you with 1300 to invest with. A normal unit trust, with 2% upfront fee (buy thru POEMS or fundsupermart) returning a net 5% p.a. will leave you with 152k in total at age of 65. If the return is 7% p.a. the final sum is 253k.
You have mentioned that you are 27. At your age you have the opportunity to make the right decisions on how you want to be insured and invested. I belive everyone have their destiny in their own hands. There are better returns to be had - you just have to do a bit more to find it. Insurance should be what they are - for protection and nothing else.
Kelvin,
ReplyDeletefrom your posting it is obvious that you got mixed up about the purpose of insurance.It is primarily a risk management tool and the rest is incidental. The question you need to ask is, is the product able to address my needs efficiently and effectively. Remember, You have limited resources. Proper allocation is a necessary.
For example take you as a case study.
At 27, i assume you are married with 3 dependents, a wife(housewife) and a twin.You are the sole bread winner. You earn $3500.After your expenses you can spare $150 for insurance and others. At this juncture you are tight financially. This is a fuzzy snapshot of you.
Your likely concerns:
1. dependent income replacement.
You might need $500K
Buy a $500K 20 year guaranteed renewal term for $20 a month
2. For critical illness you need $150K 20 year guaranteed renewable term for $40 monthly
3. For disability income till 65 years old with $2500 monthly payout, premium is $40 monthly.
Total risk management expense is $100.
Remainder $50 can be set aside, saved in FD or money market to build up your emergency fund of 3 months of living expenses.
Let me ask, if your profile is as above do you feel secured and have peace of mind?.What if any of the above happens do you feel assured that there is ENOUGH money
coming to cushion the impact?
What if you have above needs and you decided to listen to the glib tongue insurance agent to buy a $100K whole life? Will you not be walking about with a time bomb ticking away?. You will probably be praying day and night that nothing of that happens.
Do you think the agent is ethical, competent, have your interest at heart, honest when he or she knows that you have those needs?
Can the WL take care all of your needs? You still worry that after 20 years you have no cash value or you worry that your family is in financial dire straits and your wife may have to join the employment market?
This is financial planning and it drives your committment and discipline and not the products.
Kelvin, i hope you understand why I despise those mDRT, cot or tot qualifiers. I have known many and heard of many who NEVER have their clients' interest at heart, whether they are honest or not or competent.
A good financial adviser is one who is qualified ,competent and honest and lacking any one of these makes them dangerous.
Kelvin believes totally in what was taught to him.
ReplyDeleteMaybe he should seriously read thru Mr Tan's FAQ on insurance and investing to get a more balanced view.
Those marks or logos on the name card of some insurance agents are marks of scammers. They are testimonials of how much money they have ripped off from their clients. You believe they have helped a lot of consumers?You believe they have helped their clients manage their finances?
ReplyDeleteDon't kid me. It is a big joke.If you have seen those who have qualified and how they conduct themselves with their customers you just can't believe they have fanciful titles and that they are financial experts..They look more like toilet supervisors.
I must admit they have glib tongue and willing to say ANYTHING, stoop to anything, to make a SALE and not advice.
At the best they are super dupers and at the worse they are cheats and liars who will fleece their trusting friends and clients and even loved ones of their money.
Fortunately they make up 1% of the world's best cheats and scammers.