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