Saturday, November 17, 2012

Bad advice from financial adviser




A financial adviser said, "Investment-linked policies are not design to benefit insurers or agents, as reported by Tan Kin Lian, but is an option for those willing to take higher risks (hoping for higher return, so you have to decide yourself".

Here is my reply to his comment. 

For those who wish to invest in shares, buy the STI ETF, which is an index fund. The fee charges is only 0.3% per annum. If the shares earn 6% per annum (my estimate for the future), you get 5.7%. If you buy a ILP, the insurance company and the agent takes away 4% from what you earn. So, the gross of 6% becomes 2%. 

If you earn 2% per annum (on ILP) over 30 years, compare to 5.7% p.a. on the index fund, the difference at the end of 30 years is 40% (after allowing for the cost of the life insurance protection). You get 40% less from the ILP. 

If the accumulated savings is $500,000, the ILP pays you $300,000. The $200,000 goes to make the agent and the insurance company rich and the consumer poor. 

I do not know why the financial adviser, who was supposed to look after the interest of the client, can advise the client  to invest in such a bad financial product, i.e. ILP?

The financial adviser can continue to give misleading and bad advice, but I will continue to point out their mis-statements. Consumers, beware!

7 comments:

zhummmeng said...

This adviser is showing his ignorance and incompetence in ILPs or investment. He doesn't even have the tikam tikam knowledge on ILPs. he should be disallowed by MAS from advising. The industry is full of them; their knowledge is so shocking why MAS still allows them. Is it because their insurance companies are forcing them to sell and pushing their ILP funds? There are companies which even made ILP sales production a condition for quota and to qualify for their incentive overseas trip. This is very dangerous.I pity their customers. They should consult 3rd party to review and sue the agents. Yet despite their incompetence many who were fearful in the past of ILPs push ILPs for the sake of the incentive trip. MAS should be informed of this unethical practice . How can these insurance salesmen help their clients to accumulate wealth? The only outcome I bet is losses .Many are like the the 'adviser' mentioned in the post. MAS must stop allowing salesmen to push ILP or unit trust as products for commission. MAS should raise the standard for advising on investment to at least diploma level in finance or asset management.These salesmen are screwing up their customers' future and retirement. Can whole life , endowment or endwoment disguised as retirement products help consumers retire? Yes!!! with only a 1/4 of the desired life style and same time work behind fast food counter or kitchen or toilet.

Soodo said...

Dear Mr Tan
I think the attraction of the ILP is that the buyer does not have to "take personal responsibility of the investment results." The lack of transparency gives some degree of emotional protection.

In the case of the STI ETF, the buyer has to take personal responsibility. When to buy, when to sell. Also the 'worries" that come with an asset whose value is publicly available everyday. And whose value fluctuates everyday.

Your arguments are valid and logical. But fails to address the "Mind/emotions" of the investor.

I invest (actually trade) in the STI ETF myself. I see the daily price fluctuations as an opportunity to earn an even higher rate of return than just 6% per annum. This current price correction is an opportunity for me to buy back the STI ETF I sold earlier at higher prices. It's a matter of training our mind & emotions to enjoy the price volatility and to see it as an opportunity.

Kin Lian Tan said...

Soo, when you invest in the STI ETF, you should invest for the long term. Do not bother about monitoring the shares; do not worry about moving in and moving out.
The STI ETF is not for trading. If you want to trade, go for any company that has high volume, and not STI ETF.

Soodo said...

Dear Mr Tan
Thank you for your kind advice. I will certainly take it to heart and re-evaluate my approach. My holding period is usually multi-months between buy & sell signals.

I like to trade the "market risk" but not the "company specific risk." That's why I like the diversification offered by STI ETF versus a company share. But certainly agree that a few of the 30 constituent companies in the ST Index could be act as proxy for STI ETF for trading purposes.

PS:
You ever wonder why Singapore does not "employ" the investment genius of Warren Buffet by simply buying shares in Berkshire Hathaway?
Just think of the cost savings in overheads at Temasek and GIC!!!

boonchin.ng said...

Dear Mr. Tan,

Is the mentioned STI ETF referring to iShares MSCI Singapore Index Fund and SPDR Straits Times Index ETF?

Thanks!

Kin Lian Tan said...

Boon Chin, Attend the talk organised by Fisca, www.fisca.sg

Antonia Johnston said...

This is such a profound analysis on investment. Clearly, it is better to invest your money in index fund, which will give you a better return compared to ILP. With ILP, the company you have invested in is the one that gets richer, not you.

China Ream

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