Saturday, July 14, 2007

Adviser gave misleading information

My friend and I visited an insurance booth at an exhibition. The insurance adviser promoted "buy term and invest the difference" (Good!).

They have good marketing materials. The adviser showed the performance of the different funds, and how they fit into the different risk profile. (Good!)

My friend asked about the cost of the funds. The brochure showed an upfront cost of 3% and an annual fee of slightly less than 1%. (Good!)

My friend asked, "What about the distribution cost?" The adviser pretended to be ignorant, and pointed to the investing cost shown in the brochure (ie 3% and 1%).

I asked, "what percentage of the regular premium is allocated for investment?"

The adviser reluctantly brought up another thick booklet (also nicely printed), turned to a page. It showed that 20% was invested in the first year, and other percentages were invested the next few years. The total deduction is more than 150% for the initial years. It is a costly product.

Lesson: It is quite sad that insurance companies design costly products and train their advisers to hide the fact. Indeed, the adviser give a misleading impression and show only part of the total cost.

Who is the blame? The insurance company? The adviser? The marketing system? The regulators?


Anonymous said...

As I have been saying insurance agents are like that. They are salespeople. Selling is about manipulation; tell you what you like to hear and suppress what you cannot hear. No transparency, no full disclosure and worse of most the time misselling and misrepresentation.
That is nothing wrong with high cost if you can justify it.Full disclosure
of charges and detail what you would do for the client. There are products that inherently carry high cost.
It is safer to go to an IFA because
the adviser can pick one that is the best of the lot.
If you have been aggrieved by an insurance agent seek legal counsel and institute legal suit. This is to send a strong signal to the profession to rid it of the incompetent and unscrupulous salemen.

Anonymous said...

The blame falls on the company, the regulator and the adviser.
The company for designing a high cost and bad products; for poor training of its salespersons.
The regulator for the wishy washy attitude;not hash on the insurance agents; low entry requirement.
The insurance agents for their greed, unethical, dishonesty, and the incompetence.
Marketing helps to perpetrate all the above.

Anonymous said...

Why not make it compulsory to disclose the distribution costs, and let the market forces set price?

Anonymous said...

Yes, the consumers determine the price. Supply and demand forces set the equilibrium . But unfortunately, in this business there is an imperfect market ie. the sellers and buyers are not in one place.
However, a little closer being perfect the IFAs can provide the plateform. The IFAs select the best products in terms of cost and benefits, to address clients' needs as best as they can. This the order of the day.

Anonymous said...

The companies don't care or want to know how the insurance agents sell, solicit, tout, peddle, promote or whatever means the agents use . The companies are interested in the sales
only so long the companies are not questioned by the regulatory body.
The companies are to be blamed, not because of its costly products but on its attitude towards the agents.
The agents on the hand are out to make as much money as they can.They have a free rein. They are mercenaries. Clients's interest is the last thing on their mind.
Where is MAS?

Anonymous said...

IFAs: Aren't IFAs already around? Regulators have to enforce that critical information be disclosed to drive up the market efficiency.

Distribution costs:

As far as I know, unit trusts do not charge any distribution costs (excluding sale charges, i.e. the bid-offer spread).

Why is it so? Is it already factored into the sale charges (which are typically around 5% and less than 2.5% for non-online and online purchases)?

Khiat Han Hwee Adrian said...

Its unfortunate if the adviser is indeed trying to hide the advisory charges.

However, from the experience, we are not sure if the adviser had actually completed his presentation. He might wish to explain it at the later stage of the presentation.

If a proper presentation is given from the Benefit Illustration, it is unlikely that the charges can be skipped so easily.

Anonymous said...

I never even knew what are distribution costs when I bought my life insurance policy a few years ago.

The distribution costs should be made explicit in the application forms.

Anonymous said...

The insurance agents don't know how to explain to you and if they do know they will not tell you. They will try as best to suppress this and distract
you to other features which are advantageous to them. All traditional life insurance products carry high distribution cost especially those with cash value. Remember you pay their commissions. It is better to buy on line. That is a portal which provides the service.

Thomas Phua's Blog said...

Lots of things can be done online today.

Maybe one day, AIA, GE, Prduential, Income, and all other insurers should sell everything online and all product will have low cost.

All admin also online.

Maybe if this is the trend, it will be a bad choice to work in insurance companies.No need so many workers, everything processed online.

Who needs to work? Everything is online. Nobody need to handle claims, just go online and wait for payout?

Anonymous said...

In order to give affordable or deep discounted insurance products go online. Operate it like a pharmacy.
With a prescription from a fee based financial planner customers can buy as recommended in the prescription .
This can get rid of quack insurance agents or advisers. The customer is free to go any where or portal to buy.

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