Simplicity is key to long-term rewards

PUBLISHED : Sunday, 12 December, 2004, 12:00am
UPDATED : Sunday, 12 December, 2004, 12:00am

Consider that seven of the 10 largest insurance providers in Hong Kong were duped out of a minimum of $80 million in upfront commission fees this summer and it is easy to understand why Carlos Sabugueiro is feeling good.

As regional director of the largest insurance provider in Hong Kong, Asian Zurich International, his firm managed to sidestep the mess thanks to what he says are robust internal controls.

The other savings-plan providers were a little too eager, even willing to overlook the quality of the new business they were receiving, says Mr Sabugueiro, adding that even the insurance regulator said it was up to the industry to clean up its own house by reassessing internal standards.

These days investors are especially concerned about commission fees and other charges. Mr Sabugueiro says the best way for clients to find out what they are paying is to demand the product salesman spell it out. As a first step, ask the agent to produce an easy-to-understand flow chart that illustrates how the fee structure works.

'Go to an independent adviser and ask for an illustration,' he says. 'If you cannot understand it, don't invest in it.'

He says the credo of only investing in what you understand should be applied to all types of investments. If you are not sure what a hedge fund does or how it operates, for example, put your money into something simpler.

The type of investment products offered by insurance companies in Hong Kong is generally limited to savings plans. These are products that can be used for either short-term investment goals such as saving for a wedding, to the longer-term goals such as retirement.

When shopping around, Mr Sabugueiro says it is a good idea to keep some simple rules in mind: make sure the savings plan is designed with tax advantages in mind, has the right risk profile, and is provided by reputable backer.

Zurich offers the Vista savings plan, which ranks as the best selling fund of its type in offshore jurisdictions. The product offers 80 different fund choices and the option to save in five foreign currencies.

Many savings plans now offer waver of premium insurance - a way of guarding against an inability to work due to illness.

Those who plan to relocate abroad should ensure their savings plan is portable to other countries, Mr Sabugueiro says.