Tuesday, November 06, 2012

Beware of this type of financial trap

Ms. Kim (not her real name) is a foreigner who come to Singapore to teach in our local university. She save a large part of her monthly salary to be used for her husband to start a business in a few years time in her home country. She was approached for an independent financial adviser who recommends to her an investment plan.

Being trained in financial matters, she asked carefully about the charges from the investment plan. She was told that the charges are less than 1%, which was acceptable to her. She received a monthly statement that showed the monthly savings, the modest charges, and the investment units purchased from her savings. It looked quite satisfactory.

She bought the investment plan because of the attractive bonus given to her upfront, which was subject to certain conditions - which she found to be acceptable.

After 18 months, the monthly statement started to show the charges to be 4% of the monthly savings. She was shocked. She approached the financial institution and was horrified to learn the following:

a) She had bought an investment-linked policy that have high distribution cost.
b) The 4% monthly charge would apply for 20 years, taking away a large part of her future gains and giving a poor return on her savings
c) If she terminate the plan now, she would have to pay a penalty that took away almost half of her accumulated savings, giving her a loss of about $50,000.
d) The page that was supposed to contain the charges was deliberately removed by the financial adviser. She could not prove this fact, and had signed a statement "I am aware about the terms and conditions of the policy".
e) The 18 month delay in applying the high charges was a deliberate design of the policy to get her to commit a lot amount of savings before discovering the nature of the contract.

Ms. Kim complained to the insurance company - which pushed the responsibility to the financial advisory firm. The firm investigated her complaint and said that she could not provide the evidence of being misrepresented.

She was very sore and felt cheated by "the system". She never imagined that she could be cheated in this manner in Singapore. Her faith in the integrity in Singapore was badly shaken by this event.

The insurance company and the financial advisory firm is still offering this investment product to the public. A few other high net worth individuals have been caught by the same trap.





10 comments:

zhummmeng said...

She should lodge with MAS. She maybe savvy in finance but that does not mean she knows about the mechanics of the product if no full disclosure was made by the adviser.
She should complain to MAS to let MAS know that there is no such thing as informed decision. The adviser and the company should be made accountable for whatever wrongs the adviser committed.
There are at least 5 companies pushing this product. They are scams. The lemon law should apply to this products if there is no full explanation and disclosure. This constitutes the defects.

Terence Soon said...

The product sounds incredibly horrible. How can any investment possibly charge 4% of the monthly savings?? U annualise that amount, and you might as well just leave your money under your pillow it gives better returns..

I've never heard of such a product. But by right, after she signs the policy, the company is required to send her via mail the whole policy document for her to keep. This should contain every single page of the application form as well as the BI. Perhaps you should get her to double check the document? Because if the agent hid it from her and that page is not signed, then in order to push the case through, he/she would have to forge Ms. Kim's signature!

This amounts to fraud and is a jail offence. If Ms. Kim is very sure that she did not see nor sign the page, she should take out the BI and check if that is indeed her own signature. She could send it for forensic investigation to check if the signature was forged. It will cost her a bit though, but certainly not the $50k that she'll otherwise lose.

If she is able to prove that forgery was involved, then she can sue the agent and claim damages from him/her, The fella will probably go bankrupt and go jail haha. But if indeed she signed it, then there's nothing she can do.

Jeremy Ow said...

If one is looking at getting insurance, buy more term insurance, medical and hospitalisation coverage insurance rather than whole life and investment link insurance. The high distribution cost of whole life and investment link insurance do not make such products attractive for providing adequate insurance for the amount of insurance premiums paid.

If one is looking at investment returns, regularly investing in a diversified indexed ETF such as STI ETF or low cost unit trust from fundsupermart (for the not so financial savvy and more conservative investor), and bonds and equities (for the more financial savvy investor) may be better than buying savings/ endowment plan from banks or insurance companies. Any savings or endowment plans that come with insurance component will make such products less attractive for their investment returns. If one is looking at solely investment returns and not getting any insurance, why consider such savings/ endowment plans which will take away part of the premiums to pay for insurance such that it decreases the investment returns one is looking for?

Do not confuse insurance with investment. Buy insurance policies solely for insurance protection for the stated duration of insurance protection in the policy and do not expect to earn any much returns from the policies because it will not provide any high returns (and in some cases no returns at all or even a slight loss) upon maturity of the policy.

Term insurance is always a much cheaper alternative to whole life or investment link policies to include in one's insurance portfolio if one is looking at insurance coverage. I am not saying one should not buy whole life or investment link policies. Just make sure one consider very carefully the various options available and not be too impulsive to believe everything any financial adviser say.

sgcynic said...

Name the insurance company and advisory firm. Simply provide the facts that their plan is designed and structured as it is. We consumers will form our informed opinion about the companies.

Unethical, contemptuous.

sam said...

Yes, please kindly disclose and blacklist the insurance company and the financial advisory firm and its agent name.

Unknown said...

This is outright cheating by the Financial Adviser. It's true nowaday we need to be concerned more with "Return OF our money" than "Return ON our money". Some investment wipe out 100% of your money faster than you receive 10% return.

zhummmeng said...

The commission for this product is very high. This explains why it is popular with insurance salesmen/FAs. The higher the commission the more daring they are to stoop to anything unethical in order to push the product.
In today ST LIA reported the industry sale of protection product went up despite the slow economy and the president attributed it to demand for protection. In the past reports the word 'protection' was never mentioned and so was the word 'demand' Why are they suddenly used? The answer is obvious, it is to create a false impression that consumers are conscious of the need for protection and therefore bought more protection. This is twisting facts. Remember we all know insurance is NOT bought but SOLD. So how could there be a demand? More correctly insurance was dumped on the consumers so that the insurance could make a commission. Also why protection? Wholelife and definitely not term was pushed because they carry the highest commission and this group of regular premium products accounts for the industry's production.However it was twisted that consumers DEMAND more PROTECTION and therefore it is a good sign that protection gap is closing and hopefully to convince MAS NOT to ban commission in the FAIR review.
Do you all notice the industry CEOs are singing a different tune from the past. Their theme is protection and helping the poor. Is it true? If they are sincere about what they sing they should start with the salesmen and the way they approach the clients' needs.Ban product pushing and force every salesman to comply with section 27.
I doubt the industry will change its wayward way without MAS banning the commission and demolish the multi tiered compensation plan, ie get rid of the managers/sales directors.
MAS should protect the consumers and to protect is to lower the product cost, increase the coverage and the return.

poboxfor said...

Yes, can we know the company and the product name?
We'll definitely keep an eye on it as use it for our reference if similar products appear in the market.

Kin Lian Tan said...

Not able to tell you the company or product name - as they are ready to sue for defamation.
Also, if other products have similar features, you should avoid them.
If you want to know what product to buy, attend the FISCA talk on investments.

Puspanathan61 said...

With regard to zhummeng's comment about lemon law. this is what I found in wikipedia.
A similar "Lemon Law" was passed in Singapore parliament on March 9, 2012 to strengthen consumer protection in Singapore. The Lemon Law applies to all goods (including consumables and perishables) but it does not apply to services.

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