Wednesday, October 31, 2012

An honest view from a financial planner



Hi Mr. Tan,
 
I sold this policy to one of my good friends just a few short months back, and I went to re-download the BI from my company’s portal.
 
Honestly, I thought that I was doing my friend a good deed, because he approached me and told me that he wanted to buy insurance while he was young and the premium is cheap. He was looking at investments, and since he was still young and inexperienced with trading equities and bonds/ETF’s, I suggested that he buy this ILP which keeps the mortality charge constant for the whole duration of the policy. 
 
I really thought I was giving my friend a good deal. I calculated the mortality charge for him, and it would remain slightly less than $9 per month all the way until the policy expires when he reaches 60. After inspection of the BI, I realised that a similar term policy with bonds/ETFs investments would do far better. 
 
I told him that the ILP would take about 7-10 years to break even, so he cannot terminate the policy beforehand. I was taught this by my manager. While this holds true, it is only a half truth. If you look at the 5% return column, he would only break even from the 21st year onwards!! The fault lies in the fact that we chose a high life coverage for him, whereby less premium would go into investment of units. However, looking at it from a macro perspective, no matter what kind of coverage we choose and how we mix and match the numbers, an ILP will never beat returns had you invest by yourself. The effect of deductions in this case is horrendous.
 
Although my friend is not paying a large sum of money ($110/mth), and is willing to do this to support me, I think that I’m shortchanging him. And I’m very disappointed because I thought I was doing the right thing and it turns out that the company is eating a lot more money from him that I could ever imagine..
 
Mr. Tan, agents are trained to sell, and trained in the manners of product knowledge. But we are not trained in the financial knowledge and how to boost our clients returns. I feel that the companies should upgrade our knowledge regarding increasing wealth for our clients the ethical way.

The CMFAS papers are structured in a way to boost the insurance companies’ profits. While the companies and agents keep saying that we are helping our clients; we are only boosting the company’s profits. I know this is the same for the banking industry as well, and that consumer interests are always placed below the company’s bottom line. While this probably can never change due to human greed, however I hope that FISCA is able to work with MAS to help the lay people generate more wealth the ethical way.
 
I am more than willing to join the MAS to stamp out such practices, but I am a nobody. I hope that more things can be done for the finance industry in Singapore. I am getting disillusioned with the financial products sales line, and I don’t suppose I will be in sales for very much longer. However, I want to help as many people as possible know the industry better and for them to know better ways to boost their returns.

    Derrick (not his real name)

 

8 comments:

yujuan said...

Is this for real?
Derrick must belong to the most minority of the minority of insurance salesman, who is that ethical in conscience.
Practically all agents are rascals.
Talking of Insurance Companies who are rascals too, there is a very prestigious Insurer who once sent an offer to clients to take up a certain policy, and at the bottom of the letter, followed our CPF's way of opting in with something like,
"If we do not receive your opting out notice by (a certain date), we assume you are taking up our offer." Never mind if you are out of country and have not read your mail in time, you are assumed to take up their offer. That's how unethical this very active on the scene Insurance Company is.
Really stressful living in Singapore, so many sharks cruising round us, always have to be on diligent mode to protect our pockets.

zhummmeng said...

I am glad you have come to your senses and because of your values and conscience you realise that it is not right. This is great . But there are still many insurance salesmen who no qualm fleecing your clients, their friends and relatives for the commission and knowing full well that this product and many other products rip them off . Currently the insurance salesmen out there don't have the conscience like you have . These unconscientious agents have no qualms even ripping their best friends and relatives for the commission. They won't live happily and they can't bring it to hell to spend it there too..
Remember, before recommending the products make sure you have a done the due diligence to see if they help with the protection and saving.
All the regular premium ILPs including the ntuc vivolink( which tries to be different but no different) are ripped off products. MAS also realised that and projections are now 4% and 8%. and not 5% and 9%..It is still misleading because agents can still bluff their customers.
In my early posting I mentioned the biggest risk is unknowingly or unwittingly engage a salesman in financial consultants' clothing , no different from hiring a wolf to take care of your chickens. It is disastrous from the start.

Micky Neo said...

Everybody started off being nobody
Family from a casual "hi"
Big business from a thought
and ACT on it.
Take the plunge and get wet, could be fun.

anonymous said...

It's too late for MAS to do anything drastic. From the letter from IFPAS, circulated to all 18,000 financial representatives, it seemed that everything will continue as per status quo.

Just a lot of thunder and end up light drizzle.

Unfortunately, this may be used by the insurers and agents will to tell the Singapore that whatever their doing is "approved" and "endorsed" by MAS.

Following this FAIR non-issue, I see more people in 2013 joining the insurers and banks selling more toxic products to unsuspecting consumers.

Thank you MAS!

zhummmeng said...

More professionals like the engineers will join the life insurance industry to get rich quick.As insurance agents they are protected and defended by their CEOs or VPs.
I remember a case when exposed by Sunday Times reporter, Magdelene, that a 60s old woman was sold a regular ILP which would break even when she is in her 80s old and the senior VP of this local company came out to defend the salesman that his or her recommendation was suitable, it was rather shocking.
So what does it tell you? Who has the real power? They the regulator or the insurance companies and their army of salesmen. Don't break our rice bowl warns the insurance body to MAS.We are doing fine; we are earning and living comfortably don't rock our boat.

Jeremy Ow said...

Well, for people who know better how insurance and financial products work and what to look out for when selecting any insurance and financial products, we can help to alert our friends and family when we know of anyone who is contemplating buying any insurance or financial products. Everyone has their unique needs and objectives when it comes to buying any insurance and financial products. Our responsibility is to help our friends and family members come to a more informed choice when they make their choice of what type of insurance or financial products to take up. By providing more information to our friends and family, hopefully it can allow them to be more objective and careful when they are making their financial decisions and not to believe totally what the insurance or bank representatives say as they will always face a conflict of interest when they are trying to sell any products to their clients (being profit driven versus being financially ethical).

Terence Soon said...

Banks are luring young grads into a 'banking' job via the Personal Banking Associate position, where they end up selling insurance, and sometimes ILPs. Insurance agent under another name. Same toxic assets.

RMs and private bankers selling even more toxic assets, as evident by minibonds and all the unit trusts linked to Fannie Mae and Freddie Mac. Still doing the same things today, only under different IB underwriters.

MAS is trying to do something, but it needs to step up its efforts. I agree with the anonymous poster above me, and I think that MAS gotta curb the recruitment of such agents/PBAs also. By setting such high quotas, esp for the bancassurance fellas, ethics and morals are thrown out the window in order to keep your rice bowl. It's a very sad fate for all of them. Poison your fellow citizens with rubbish, or lose your job.

anonymous said...

Additional information on why MAS will keep status quo:

1. LIA survey results on 03 Aug 2012 showed protection gap has narrowed to only 3.7x (or $242,500) in the last five years, as compared to 7.6x in the same survey done in 2006. This showed that the current sales force is effective and efficient in closing the protection gap. Going by current growth, the protection gap issue will be completely closed within 5 years. So there is no need for more changes except for a little more education and T&Cs.

2. A majority of the FAIR Review Panel consists of people who's career or income are dependent on the commissions brought in by the commissioned advisors/agents. Go check the list yourself on LIA website. So how can you expect an independent assessment when half the team has vested interest to keep the current status?

3. Singapore's economy is slowing down with more layoffs expected. Government need a channel or industry to absorb all these people from all walks of life. If the commission-based structure is closed down, you also close the channel to give people a chance to earn a living. It will also result in massive reduction of advisors, who played a major role in the retail sector of Singapore by buying more goods and services like cars, property, travels, fine dining,etc. Without these rich advisors, Singapore's economy will suffer yet another blow.

4. There are many rich and affluent people who have benefited from the commission-based structure. They are also influential. MAS does not have the might or power to go against such people.


So while many of you fancy the novel idea of removing the commission structure and go fee-based, I said that it is all noise and predict that commission-based selling is here to stay for good.

Just for thoughts.

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