Saturday, February 28, 2009

Choose your financial product carefully

Dear Mr Tan,
I have been curious about the development of banking industry and insurance industry for the past decade. Since the two industries evolve and expand their line of business, I can see the overlapping of the products offered by the two industries. I can choose an insurance company or a bank if I want to buy investment fund, securities bond or even insurance.

What are the main differences between these two industries? Maybe in terms of operational aspect, insurance companies tend to stick with agent-based customer management. However, I don't see much different in terms of investment product offering.

What do you think the competitive edge for both banks and insurance companies, in terms of service diversity, service level, financial power, reliability?
REPLY
It is more important for you to know if the product is designed to give good value to the customers. Unfortunately, many financial institutions design products to have big profit margin for their institutions, often at the expense of the customer. They pay high commission to their agents and distributors. The customer gets a poor deal, after deducing the expenses and profit margins.

It is better for the customer to invest directly in stocks and bonds, especially in low cost, diversified funds. Read my views in www.tankinlian.com/faq
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zhummmeng said...

What you see today is because these institutions have not been regulated enough resulting in them doing whatever they like.
The products are designed without the customers in mind; the advisory process if there is , loaded against the customers, eg like caveat emptor.
Self regulation is good if the market is disciplined because it offers flexibility. Unfortunately the FIs have taken it as 'doing anything you like so long you make money". Where does the money come from? Of course it is from the consumers. But is the interest of the consumers factored into the equation? Their money , yes but not their interest and financial well being.
As the CEO of HKMA said that the industry is not to serve the interest of the bankers, to make the RMs rich so that they can drive posh car and live in condos NOR to help the insurance agents to qualify for mdrt, cot or tot BUT to help consumers meet their financial needs and to achieve financial independence.
Unfortunately, leaving the insurance companies and the banks to do whatever they like is BIG mistake.
The results tell. Today the consumers are grossly under insured and unable to retire.
Why?
The products are dubious, expensive, low return and give poor protection.
The insurance agents and the RMs poorly trained, unqualified, all are salesmen and product pushers although they have fanciful titles, they dump and push products to benefit themselves.
The regulator, if it exists, is always on vacations, bochap although there are existing laws but for show and not enforced and as a result the FIs ,the RMs and the insurance agents are free to fleece the poor unwary, ignorant and unsavvy consumers.
The system, making up of them, is heavily loaded against the consumers.
What are the solutions?
1. no more product pushing
2. needs of the consumers must be examined first before the reccomendation of the product. This is to be made a must approach.
The intermediary is also to be responsible for the result.
3. to raise the standard of entry, all existing agents required to be re-certified' to pass new stringent exams of at least diploma level or tertiary level, new level of financial advisory skills
3. To avoid conflict of interest commission must be replaced by a more equitable system of remuneration, like fee.This is to follow other countries and UK FSA is implementing it soon.
4. The product should be simple, plain vanilla and should give certain acceptable return and protection at a low cost.If risk is needed to achieve higher return it must be disclosed to the buyer.
5. The intermedairies must be audited frequently to ensure compliance.
6. The regulator must enforce and MUST BE SEEN to enforce like punishment, fines and jail.
Sure, the market will be affected but no more fiasco or debacles or financial dramas.

February 28, 2009 6:22 PM

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