Friday, January 25, 2013

Bad to allow advisers to sell investment-linked policies

It is dangerous to allow "financial advisers" to sell investment-linked policies and earn high upfront commission. 

There is a real risk of consumers being badly advised about the risks of investing, such as:

a) the projected return on the funds are often exaggerated, e.g. a gross return of 8% when a more likely return is 6%
b) the net return to the consumer is much lower than the gross return, e.g. a deduction of 4%, and this is "hidden" from the consumer
c) the assertion that the insurance company and the adviser has the ability to pick better stocks to improve the return on equities.
d) the false belief that they can improve their return through advice on switching and market timing

Many consumers have bought investment-linked policies on the above mistaken notions. Stock brokers are not allowed to give these type of advice, but it seemed to be quite rampant with the financial advisers.

In many cases, the advisers were not aware of the pitfalls. Being new to the game and inexperienced, they were taught the above marketing points by their trainers, and they pass the message to their family and friends, quite naively.

Even the reduced commission rates recommended by the FAIR Panel are too high and the risk of mis-selling remains, especially with the investment-linked policies.

I do not wish to imply that all financial advisers fall into this mold, but I suspect that many do. To a knowledgeable person, it just does not make sense for consumers to be bearing a high upfront cost where the adviser does not really give any value.


zhummmeng said...

One glaring fact is the insurance agents or whatever their title is are NOT qualified and competent in investment.
What do they know about investment? With a tikam tikam cert in ILPs how much do they know?
Before it is too late MAS must nip it in the bud before these agents ruin the lives of many consumers.
EG..check the CPF balances of members since 2001....these members are still reeling from losses. Many members cannot retire today because the insurance agents gambled them away.

Terence Soon said...

zhummmeng, then what do you suggest the MAS can do to stop agents from selling investment and retirement products? Which other distribution channels can sell these products? Banks? It'd be the same thing all over again.

zhummmeng said...

Terrance soon,
they must have investment knowledge and advisory skills . They must have CFA, CFP or Master in Applied finance or a bachelor in finance and MOST IMPORTANTLY they must follow certain rules or steps to construct the portfolio that is unigue to the clients' circumstances.
The tikam tikam certs from SCI are rubbish and these certs only good to make salesmen of ILP funds.
In short , MAS must make a must minimum standard of qualifications to advise on investment.

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