HK$5.2m payout - at age 99

DBS failed to conduct a risk assessment and offered millions - but the wait will be a long one

PUBLISHED : Monday, 24 June, 2013, 12:00am
UPDATED : Monday, 24 June, 2013, 4:43am

In our "mystery shopper" series, our correspondent goes undercover to local banks, to assess the quality of their financial advice.

This week our reporter visited DBS. As with last week's mystery shopping exercise, she posed as a 37-year-old expatriate mother of two who wanted to invest money for a pension, with HK$10,000 a month to invest and a medium attitude to risk.

Risk assessment/financial needs analysis: The bank carried out no financial needs analysis or risk assessment. It did not even ask how old our mystery shopper was.

Investments offered: when the shopper first walked into the bank and said she was interested in taking out a pension plan, she was offered a three-month deposit account.

The shopper stressed that she wanted a long-term investment plan and was then taken to see an adviser.

The adviser suggested an Aviva Enricher Savings Insurance Plan, which combines a life insurance policy with a guaranteed savings plan.

The adviser said if a person paid in HK$106,000 a year for the first five years, they would receive a guaranteed "annual cash coupon" of HK$12,000 a year for 59 years, plus other non-guaranteed interest and dividends.

The brochure suggests that, at maturity, the policy would be worth HK$5.26 million, but the small print says this is only the case if all cash coupons and dividends are left with Aviva and the policy matures when the holder is 99 years old.

The adviser then offered a similar policy from Manulife.

The shopper said she was not interested in either policy, and she was just looking to set money aside on a regular basis for retirement.

The adviser said that, if the shopper wanted advice on investments, they would have to go to a different room, as the current room could only be used for insurance sales.

The adviser and shopper moved next door, and now the adviser suggested Aviva's Global Investment-Linked Plan, which he said could be taken out for between eight and 25 years.

The plan is basically an investment-linked assurance scheme enabling a client to invest in a range of mutual funds. The adviser said it was an investment plan and not a specific retirement product. The shopper was then shown another version of the same type of plan offered by Manulife.

Disclosure: The adviser said the Aviva Enricher Savings Insurance Plan had no charges and that he would not earn any commission for selling the plan. He added that DBS would earn some commission for the sale, but he did not know what that was.

For Aviva's Global Investment-Linked Plan, the adviser warned that the shopper would have to pay premiums for at least 18 months to cover charges. The adviser also said that, during the first 18 months, the shopper would pay HK$10,800 in charges, the equivalent of 6 per cent a year, with fund management charges of up to 2 per cent a year levied on top of this.

The adviser said again that DBS would earn commission on the sale, but would not specify how much commission.

The whole process took just under 40 minutes.

Verdict of mystery shopper: our correspondent was surprised that the adviser was presenting financial plans without carrying out any risk assessment or needs analysis.

She thought the products the adviser presented were difficult to understand and not well explained. She also found it odd that the bank offered insurance packages before proposing an investment plan.

The process showed that banks may be adhering to the letter of the rules, if not necessarily the spirit. For example, bank advisers are supposed to do a financial needs assessment and risk profile of a client before they sell them an investment.

The DBS adviser did not do this in this case, but the bank says the "conversation was largely an information inquiry and no product recommendation was provided".

In other words, the adviser did not recommend an investment, so no needs analysis or risk assessment was required.

This is technically true, but then why did the adviser go through the strange step of changing rooms when the discussion switched from insurance to investments?

IFA verdict: Glenn Turner, a former chairman of the Independent Financial Advisers Association, said DBS should have asked about the shopper's financial needs. "Doing no needs analysis is bad practice," he said.

He also noted that the adviser focused on insurance instruments, which tend to pay higher fees and are less tightly regulated than investment plans. "Both products you are offered are really insurance products [and] the Aviva product is complex," he said.

DBS response: A DBS spokesman reiterated that the information shown to our correspondent was not a sales pitch.

The only aim was to give "a brief idea of how different types of products work", he said.

"As a bank requirement, we have established procedures mandating our staff to conduct detailed financial analysis of a customer before any product recommendation is made to him or her," he said.

The bank conceded, however, that the sales staff concerned should have explained the process more explicitly during the meeting to avoid any misunderstanding.