Bank of China
Bank of China is one of the big four state-owned commercial banks of the People's Republic of China – the other three are Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China. Bank of China was founded in 1912 to replace the Government Bank of Imperial China, and is the oldest bank in China. From its establishment until 1942, it issued banknotes on behalf of the Government of the Republic of China along with the "Big Four" banks of the period: the Central Bank of China, Farmers Bank of China and Bank of Communications. Although it initially functioned as the Chinese central bank, in 1928 the Central Bank of China replaced it in that role. Subsequently, BOC became a purely commercial bank.
A split decision for the Bank of China
Marks are lost on advice relating to insurance but recommendations on investment get the thumbs-up
As part of a series to test the quality of the financial advice being given by Hong Kong's banks, the South China Morning Post carried out a mystery shopping exercise at eight institutions. This week our reporter, who poses as a 37-year-old expat mother of two who wants to invest HK$10,000 a month into a pension, visits Bank of China.
Risk assessment/financial needs analysis: Staff did no financial needs analysis or risk assessment. In fairness to Bank of China, the mystery shopper did not have an account with Bank of China, and the bank said it would only sell insurance and investments to those who did.
The adviser said he was happy to talk about the bank's offerings, but that the shopper would have to open an account before she could sign up to any plan.
The adviser then gave the shopper a copy of a questionnaire designed to test a client's risk appetite. It consisted of 10 questions, covering education level, previous investment experience, attitude to volatility, current investment holdings and level of disposable income for investing.
Investments offered: The adviser first presented the so-called Glorious Life Saving Insurance Plan. This plan involved a payment of just over HK$10,000 a month for 10 years. He said that, after 20 years, it would have a cash value of HK$2.2 million. If the shopper left the money in the plan until she was 60, it would be worth HK$2.5 million, of which HK$1.73 million would be guaranteed. The policy included life insurance.
The shopper responded that she was looking for an investment - that is, for something that did not involve insurance. The adviser said he could not discuss investments and left to find a second adviser, who suggested Bank of China's Monthly Stocks Savings Plan. Here, the shopper would have to invest at least HK$1,000 a month. But the plan was flexible: she could invest in 20 to 30 blue-chip stocks.
The adviser also suggested the bank's Fund Investment Service, through which the shopper could invest in a range of funds that targeted multiple assets in many markets.
She suggested that, as the shopper was investing for the long term, that balanced funds or equity funds would probably suit best. She recommended looking at a range of funds on the group's website, to get a sense of their risk and to look at their past performance.
The adviser also suggested that the shopper look at their Monthly Fund Savings Plan, for which the bank had a promotion.
Fee disclosure: The first adviser said the Glorious Life Savings Insurance Plan has no charges and that he would not earn commission for selling the plan, as he only received a year-end bonus. While it is true that the product does not have an annual charge in the way an investment fund does, it was misleading to suggest that there were no charges.
The plan included a life insurance element, for which premiums would be deducted from monthly contributions. The total cash value of the policy would be just HK$347 at the end of the first year, despite the fact that HK$115,364 was paid in. This would rise to HK$44,305 by the end of year two, after which HK$230,728 would have been contributed, suggesting some pretty hefty upfront charges.
As of today, the Monetary Authority requires bank staff to make full disclosure on all forms of compensation they and their bank make on the sale of insurance-linked investment plans. If this adviser was asked about the charges on the Glorious Life Savings Insurance Plan he would have to make more disclosure.
The second adviser said the fees on the Monthly Fund Savings Plan would vary according to funds picked, but that the upfront fee would not be more than 5 per cent of the amount invested. On top of this the shopper would have to pay annual fund management fees. She was told that the management fees on equity funds were more expensive than bond funds.
For the Monthly Stock Savings Plan, the upfront charge is 0.25 per cent of the amount invested, with no ongoing fee.
Verdict of mystery shopper: Our shopper's opinion was split in two. When the first adviser discussed insurance instruments, the shopper was disappointed by the advice and the level of disclosure on matters such as fees.
However, when the discussion moved to investments with the second adviser, the shopper was happy with her experience. The second adviser proposed plans that were flexible and which fitted the shopper's needs. The Monthly Stock Savings Plan was low-fee and the adviser also explained the plan well.
The risk-profile questionnaire was more thorough than some of the other banks' questionnaires, but still somewhat superficial.
IFA verdict: Glenn Turner, former chairman of the Independent Financial Advisers Association, gave a thumbs-up to the Monthly Stock Savings Plan. He said that investing in mutual funds through the Monthly Funds Savings Plan is a much cheaper approach than the insurance-wrapped plans routinely offered at banks, which are stacked with fees.
But he said the advisers should have asked more questions about the shopper's retirement provision, and that they should have also asked the shopper about her husband's retirement plans to see how her provision fits in with his.
Bank of China response: "The bank always lays great emphasis on understanding each customer's financial situation, investment experience and investment objectives when we provide investment services to customers. As we do not have the details of the visit, we are, therefore, unable to verify and respond specifically to the findings."