Financial Planning Central » Others

Insurer Facing Manpower Drain Retaliates

Tiang Chuan — Wed, 18 Aug 2010 05:22:42 +0000

Facing the problem of dwindling agent force, a major insurer has rolled out its own version of red carpet in a bid to stop the agent exodus and even recruit agents from other companies. This follows a previous article that highlighted this issue of agents jumping ship. According to The Straits Times, benefits include:

– sign-on bonus of up to 135% of previous years income
- Up to 125% of previous year’s income paid over 3 years
- ‘Golden handcuffs’ of millions of dollars
- $2000 referral fee for introducing new agents
- $10,000 to agency manager if new agent stays and performs

Such high incentives come with stings attached – in the form of sales targets.

The issue of private bankers playing ‘musical chairs’ has been reported extensively in the media. Now, insurance advisers are also joining in. I have written about the issue of sales targets and other constrains money managers face in the article What Your Money Don’t Want You To Know.

With poaching spree taking place so extensively, consumers would probably be the one to loose out.

Empty Vessels Makes The Most Noise

Tiang Chuan — Sun, 11 Jul 2010 08:01:59 +0000

The 11th July 2010 edition of The Sunday Times reported an interesting case of a couple who misled a Dutch writer. The article, The ‘millionaire’ Couple Who Couldn’t Pay Up, listed the extravagant lifestyle Ms A.J Hameedah and her husband Mr S. Thomas enjoyed and exaggerate claims made. Details of the charges and their stay at the Burji Al Arab, the only 7 star hotel in the world in Dubai, were shown. Claims like the governments acceptance of Mr S. Thomas’s ‘ideas on how to revive the economy’ in 2001 and him having mentors like Mr Rajaratnam and Mr Lee Kuan Yew were made. In actual fact, they were living in a Pasir Ris HDB flat and they have been harassed by loan sharks who splashed paint on their door. There were many credit related lawsuits against them and their company starting from 1999 till last year.

Reading this article reminds me of the numerous scammers and dishonest practitioners out there. All of them have a common trial – they were loud and made exaggerated claims. I had the opportunity to talk to a practitioner who had worked with a well know ‘couch’. His verdict of this man – Some people can only talk… I have seen him giving a preview talk for one of his seminars. He gave a totally inappropriate promise of giving a 5% return that the then popular preference shares can give. I’m from the industry and know what he was referring to; he was talking about a particular Investment-Linked-Plan. This man is into forex trading courses now.

The successful millionaires I have met were nothing like those I have wrote about in this post. They were humble and down-to-earth, wearing 3 for $10 T-shirts and signing documents with Pilot pens when less successful people serving them would be wearing designer labels and writing with Mont Blancs.

The next time you meet someone with making exaggerated claims, remember – empty vessels makes the most noise.

Windfall For Jumping Ship

Tiang Chuan — Sat, 10 Jul 2010 04:27:31 +0000

The good times are back! And it has spread to the life industry; in the form of firms dangling top dollars to lure top performers. The Straits Times article – Windfall for jumping ship, published on 10th July 2010 highlighted this phenomenon.

According to the article, “total compensation package could range from a few hundred thousand dollars to $1 million on top of usual commissions”. And “to sweeten the deal, the insurer will pay a portion of about 30% of the compensation package as an upfront cash incentive when the agent joins the firm”. These are to compensate the agents for losing the renewal commissions on the old policies when they jump ship. Of course there are no free lunches in this world. The package is tied to a sales quota.

The article also pointed out the risk of policy churning. Policy churning is the surrendering of an old policy and using the proceeds to buy a new policy to generate commissions for the agent. The policy holder would suffer financial or underwriting consequences. Under pressure to meet sales quotas, the agent may be tempted to take and easy way out and resort to churning. Superior products or ease of servicing are common excuses to churn. To the non-discerning, these may sound like legitimate reasons to switch policies.

Money is not the only draw. Administrative changes at a large insurer have became a push factor. The prospect of being taken over by a bitter rival was too much to bear.

Going for better remuneration is not wrong. Afterall, employees in many trades change employers in search of better compensation. It should not be expected of anyone to work for free. Everyone has a family to support. However, the financial advisory business is quite unlike other occupations in that there are plenty of personal relationships involved. Personal information like financial status, health status, family relationships and dreams are divulged. Salary is derived from the client, be it in the form of commissions or fees. Thus, it is not difficult to understand that clients have stronger feeling when the adviser change their firm. The decision to change firm for better compensation must be balanced with the interest of the client. This is easier said than done.

Beware Of The Agent Knocking At Your Door

Tiang Chuan — Wed, 07 Jul 2010 15:51:47 +0000

A major life insurance company in Singapore has embarked on on aggressive drive to increase their private integrated shield plan market share. They are now knocking door to door asking if you have upgraded your shield plan. While the one that knocked on my door was courteous and not pushy. I cannot say the same to the one my colleague’s client met.

The agent claimed he was from CPF Board. After getting to know that my colleague’s client was on the NTUC integrated shield plan, the agent claim that the old plan will not be affected and got my colleague’s client to sign the forms. My colleague only got to know that his client has switched integrated shield plans when he received a termination notice from the insurer.

By unknowing changing his shield plan, the client faces the risk of getting excluded on any pre-existing illness that may be covered under the old plan. From what the agent was doing, I would doubt the health declarations were done properly and in violation of the Principle of Utmost Good Faith.

Be careful of what the person knocking at your door say. Check with your adviser when in doubt.

Victim of Phone Scam

Tiang Chuan — Sun, 04 Jul 2010 13:34:26 +0000

My friend’s (Winnie, not her real name) father was a victim of an overseas phone scam about 6 months ago. The scammers started by calling the victims and claiming that the are among 12 people in the world who had been drawn to be the lucky winners in a lucky draw. To claim the prize money, they have to pay some admin fees.

Winnie’s father sent some money and went to Winnie for more money as they had joint accounts. On discovering her father’s intentions to send more money, Winnie transfered the money to her other private accounts. The scammer even had the cheek to call Winnie’s father and questioned Winnie’s intentions by refusing to hand the money and blocking his way to a fortune, right in the presence of the family! Her father got angry refuse to talk to Winnie and even complained to their relatives that Winnie had cheated him of his savings.

Even thought Winnie made a police report, there was no response from the police for 3 months. The response after 3 months was to ask for information which was provided when the report was first made.

Till today, Winnie’s father still refuses to talk to them.

It Comes From Within

Tiang Chuan — Mon, 28 Jun 2010 03:52:11 +0000

If you have been approached by an Independent Financial Adviser (IFA) before, you would probably been told that IFAs can offer products from many providers and put client’s interest first. There is a fact and an opinion in the statement. The fact is that IFAs does have access to many different products from different providers while putting client’s interest is an opinion. Having access to different does not mean the IFA will put the client’s interest first and source for the best deal. The adviser might take advantage of the situation and opt for the products with the best commission structure instead!

In an Straits Times article on 26th June 2010, Excuse me, are you an independent adviser?, the issue of volume bonus was raised by Lorna Tan. Volume bonus are extra bonus for hitting certain sales quota or renewals. Volume bonus may be paid in advance for the commitment to deliver certain amount of sales in a stipulated time. Volume bonus can sway the firm and the adviser to push certain products.

A ‘fee-only’ advisory firm was quoted as treating its independent status seriously by rebating commission. The question to ask is whether ALL commissions are rebated. While a ‘fee only’ model may be a good idea, it does not remove the chances of unethical conduct totally. As the income is derived from fees, an unethical adviser may try to position the client into a fee paying setup when a commission-based solution may be more suitable.

Different advisory models have its pros and cons. Some models are inherently handicapped by the range of possible solutions while others may be abused by the adviser. At the end of the day, the honesty of the adviser plays a key role in the journey to one’s financial goals.

Horror Story – Bank tries to sell 10 year structured deposit to a 90 year old

Tiang Chuan — Wed, 09 Jun 2010 02:51:25 +0000

A 90 year old went to the bank to renew her fixed deposit. Upon seeing her savings, the bank tries to sell her a 10 year structured deposit.

The lady did not take up the offer and went home to consult her family.

How a RM mis-sell endowment

Bank Executive Jailed Trying To Meet Sales Targets

High Lapse Rate After ‘Free’ 1st Year Cover

The Rich Don’t Deserve To Get Conned

Tiang Chuan — Wed, 09 Jun 2010 02:51:12 +0000

There has been push for the Mass Affluent and High-Networth-Individuals (HNWI) market by many financial institutions. This is a logically move looking from the business volume and margin angle. However, this trend does not necessarily benefit the mass affluent or the HNWIs.

When it comes to the mass market, 1 or 2 wrong advice could spell financial disaster for the consumer. Generally, they do not posses the financial ability to get too many products or in high amounts. It’s a totally different story for the HNWI market. Possessing the financial muscle to obtain a great variety of products in much more substantial amounts, they are the lucrative targets.

Bad advice, even out right con jobs, are prevalent in the HNWI markets. Taking advantage of the regulations and making the clients sign all sorts of disclaimers, many financial institutions protect themselves legally. They make themselves seem legally right, but are they morally right?

A bigger capacity for making financial mistakes do not make it a right to take advantage of them. HNWIs , just like everyone, have the right to proper advice.

Financial Advisers Held Hostage

Tiang Chuan — Wed, 07 Apr 2010 13:31:13 +0000

The term Financial Adviser (FA) refers to the corporation and the individual providing the advice is called Financial Adviser Representative (FAR). There are 2 kinds of FA – Licensed and Exempted. Licensed FAs are required to hold the Financial Advisers (FA) license under the Financial Advisers Act (FAA). Exempted FAs are insurance companies, finance companies, brokers, banks and holders of capital markets services license are are exempted from holding a FA license. FARs representing a Licensed FA must hold a representative license and are directly licensed by MAS. The license is renewable every 3 years. The Exempt FAR is not directly licensed by MAS (although there have been talk of having them licensed under a central database, I have not heard of any concrete developments).

In the wake of the Lehman mis-selling saga, the time and effort needed to obtain a FAR license has increased significantly. Perhaps this was a move to eradicate churners and unethical advisers. No matter what the real intentions behind the move are, ethical advisers have been affected as well.

When a licensed FAR move from 1 company to another, a new license application is required. Questions relating to legal offense, compliance and financial status and others have to be answered again. Feedbacks from the previous firm might be sought-after as well.

1 company have have taken advantage of the tightened regulations to control the FARs, threatening to terminate the FARs if they were to resign. With a termination record, it will be an uphill battle to get a new license with another firm. The only way out is to join an Exempt FA.

Choosing which FA to join is an important decision. It does not only affect the FAR but the clients as well. A troubled FAR would not be able to plan for the client whole-heartedly. Big FAs does not necessarily mean it is a good company. The opposite is true for small FAs.

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Getting Legal Threats For Trying To Expose Scams

Tiang Chuan — Sat, 21 Nov 2009 03:23:51 +0000

With the explosion of user generated contents like blogs and forums in the development of Web 2.0, many consumers will search the web before buying something. This has not gone un-noticed by service and product providers. Some have tried to get positive reviews by giving rewards, be it by cash or in kind. In the United States, bloggers have to make ‘clear and conspicuous’ disclosures if they have been rewarded in any way. The Media Development Authority (MDA) is also looking at stricter disclosure rules.

On the flip side, some bloggers have been threatened with lawsuits for giving negative comments. In a report on the 19th Oct ‘09 edition of The Straits Times – Food bloggers face legal heat over reviews, some food bloggers have been threatened with legal suits for posting poor reviews.

Providers certainly have the right to correct a defamation, but don’t consumers have the right to voice their displeasure? The difficulty is in determining who is right and who is wrong.

Due to the high legal cost, many of those who are threatened with legal suits end up removing their comments. Those who have the financial backing would be in a better position to take up the legal challenge. Scammers in Singapore have taken advantage of this to suppress those without the financial muscle to take to the courts. When faced with a mighty opponent, usually a big newspaper publisher, scammers would think twice about engaging them in court.

I have personally seen a legal threat from a scammer issued to a friend. Without the financial resources, my friend have to take down the postings.

The next time you search the web for information on some investment schemes, do not assume that all is well when you do not find negative information. For such truths may have been removed, ironically through the system that is supposed to embody ‘the Truth, the whole Truth and nothing but the Truth’…