Friday, September 23, 2011

Distribution cost

A consumer came to see me about her investment. She wanted to invest her salary for retirement. A financial adviser sold her an investment plan. Later, she learned that it was a life insurance policy. She did not realise that the benefit illustration contained a number called "distribution cost". This was defined to be the expenses of the insurance company.

As the monthly savings is large, the distribution cost amounted to $40,000. The financial adviser did not explain that this amount is taken from her savings to pay commission and expenses of the company. The consumer realised it after contributing for 18 months (as the charge is only shown after 18 months). By that time, it was too late for her to stop the policy. Even if she terminated the policy, there is a surrender charge that takes away the balance of the distribution cost. It was a big shock to her - to lose so much of her savings - representing her hard earned saving for 18 months!

Many people bought a life insurance policy without knowing what the distribution cost really is. To learn about it, they should attend the FISCA talk on life insurance. Be aware, so that you do not lose so much money.

6 comments:

  1. Instead of the seller pushing various forms (to disclaim liability) for the buyer to sign.

    Why not have a form, where the buyer states what he wants the investment product to do. And then the onus is upon the seller to design or match a financial product to meet the buyer's requirements.

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  2. The financial advisor sold her an investment plan that results in her losing money? Or the financial advisor lied to her and sold her an insurance policy instead? Either way, is this fraud?

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  3. The financial adviser deliberately took away the page showing the charges and told the consumers verbally that the charges were quite modest. It was a deliberate lie and amounts to cheating. The consumer has been under emotional stress for the past months, and has not come to terms with the loss.

    Here complaint to MAS and the financial adviser firm has been taxing and did not yield any results. It is very sad to see people cheated in this manner - in Singapore!

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  4. MAS is a spectator watching and enjoying the people being eaten up by the lions in the arena.
    They are drinking wine, eating grapes and steak while watching.This is entertainment.

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  5. This is a massive con game. It is unconscionable. There is no way that a financial adviser can add value to the client that justify the value of $40,000 in fees that are taken away from the hard earned savings.

    MAS should realize this. They allow this type of life insurance policy to be sold based on "disclosure to the client". But it is easy for a dishonest financial adviser to distract and mislead the client with many pages of confusing information and detract from the most important fact - do you wish to give away $40,000 of your savings for a long term contract that does not really add any value to you?

    Some dishonest financial advisers are adopting deceptive means and even deliberately hiding essential information to get the consumer to sign on blank forms to give away their rights.

    When the consumer complaints about being cheated, they are not given a fair hearing. It seem that the practice of cheating is so rampant, and the dishonest players are so well protected, that they can continue to carry out their cheating activities with impunity.

    This sadly is the state of affairs in the financial sector in Singapore.

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  6. The inculcation of good values must start from the top. At the pinnacle of Singapore society.

    It's no point teaching school children to have good values when it is not practised by adults in leadership positions.

    40 years ago I was a school child.
    Morning after morning, I recited our National Pledge. I believed and supported those values in our National Pledge.

    40 years later, I have been told that it was just an "aspiration". That Singaporeans are no good and needed "spurs".

    Fool me once, shame on you.
    Fool me twice shame on me.

    So dear leaders.
    Don't talk to me about values.
    Show me by your actions.

    Can this be done?
    Yes.
    Mr Tan Kin Lian has done this during the mini-bond crisis.
    If Mr Tan talks values, I will listen with an open mind and heart. Mr Tan has earned the right to talk and preach values to me and my family.

    Until I see some real action.
    Whatever "koyok" you are selling.
    I ain't buying.

    Respectfully yours
    A seriously pissed off citizen.

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