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Horror Story – How A Bank Milked $700K In Commission From $1.8M Investment

Written By: Tiang Chuan on June 1, 2010 No Comment

Simon (not his real name), wanted to invest USD2 million. Seeing that the market is volatile, Keith (not his real name), Simon’s private banker from bank B, suggested a Regular Savings Plan (RSP) to ride out the volatility. The RSP time frame is 3 years. So USD1.8m went into a USD50,000 per month RSP plan for a total of USD1.8m over 3 years. The remaining USD200,000 went into a Dual Currency Deposit (DCD).

3 years have passed, Simon wanted to liquidate the portfolio. He got back USD500,000 from his RSP. What happened?

Keith had placed Simon into a USD50,000 per month 25 years regular premium Investment-Linked-Plan (ILP). As this was a 25 year ILP, there was a hefty early termination penalty of 50% of the market value. The market value was also negatively impacted by the equity market.

How was the bank and Keith affected?

The bank earned a commission of USD700,000 from the ILP, of which USD210,000 went to Keith. By now, Keith have left bank B and joined bank H.

From USD1.8m, Simon is left with USD500,000.

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