Hang Seng Bank
Established in 1933 as a money-changing shop in Hong Kong, Hang Seng Bank is the second largest bank in Hong Kong. The bank is majority owned by the HSBC Group through The Hongkong and Shanghai Banking Corporation and is a Hang Seng Index constituent stock.
Hang Seng's flexible offers
The bank offered good advice but, like others, its first sales pitch was for an unsuitable insurance instrument
As part of a continuing series to test the quality of financial advice being offered by banks, the South China Morning Post put eight banks through their paces.
This week our reporter visits Hang Seng Bank. As in previous rounds, she poses as a 37-year-old expatriate mother of two who wants to invest HK$10,000 a month into a pension.
In the following, we describe the mystery shopper's experiences, and get an assessment of how the bank fared from the perspective of an independent financial adviser.
Financial needs analysis/risk assessment: On entering the bank, the mystery shopper is introduced to an adviser, who asks how long the shopper will live in Hong Kong and how much she wants to save each month.
The shopper answers that she wants to save HK$10,000 a month.
The adviser asks if the shopper can afford this amount, because she is a housewife with no apparent income.
Then the shopper is introduced to a second adviser who asks her to fill in a risk-profile questionnaire, which regulators require before anyone can take out an investment.
The questionnaire is 10 pages long - longer and more detailed than the other forms seen at previous banks in this mystery shopper series.
The adviser says it is hard for her to advise the shopper because she is not a Hang Seng Bank customer, and she does not know much about the shopper's finances. She does not ask what other pension savings the shopper may have or for how long she wants to invest.
Investments offered: The first instrument the adviser recommends is a 10-year plan from the bank's in-house insurance arm. This involves a commitment to pay about HK$120,000 a year for five years. After 10 years, the shopper will have a guaranteed lump sum of HK$608,760, with a final payout of HK$721,864 if the non-guaranteed part of the saving plan performs as expected.
The adviser suggests the shopper opt for the five-year plan because she does not know how long she will be in Hong Kong, but she stresses several times that the shopper will get out less than she will have paid in if she wants to cash in the policy within 10 years. She explains that, even if the shopper wants to cash in the plan after nine years, she will still lose about HK$100,000.
She also talks the shopper through the life insurance part of the policy.
The shopper asks about investment policies and is taken to see another adviser.
The second adviser says the bank has a wide range of instruments, including equity funds, index-linked funds, bond funds and structured products. She proposes that the shopper look at an index-linked fund, an equity fund and a balanced fund, and explains in detail how each of these works and where the assets will be invested. She then presents the details of the Hang Seng Index Fund, BlackRock Pacific Equity Fund and Invesco Asia Balanced Fund.
Fee disclosure: The adviser says the insurance plan does not have any charges. She says the Hang Seng Index Fund has a subscription fee of 1 per cent and no early redemption charges.
The BlackRock Pacific Equity Fund has a 2 per cent subscription fee and an annual management charge of 1.5 per cent. There are no early redemption charges.
The Invesco Asia Balanced fund has a 2.5 per cent subscription fee and a 1.25 per cent annual management charge.
The adviser says she receives no commission on the sale of any of the instruments.
Verdict of mystery shopper: The shopper was impressed with the investment advice but was disappointed that, yet again, the first instrument offered was insurance. Insurance sales are highly profitable for banks and each institution in this mystery shopping series has been quick to propose the product.
As it was, the insurance product was totally unsuited to the shopper's needs. She wanted to save for 20 to 30 years not just five. The returns of the plan were not exciting given the steep cash commitments and the inflexibility of the scheme.
It also concerned the mystery shopper that, as with previous exercises, the adviser said the life insurance plan did not involve any charges. All insurance plans involve compensation for the bank, otherwise they would not sell them.
Why banks don't have to be more transparent about this remuneration is perhaps an issue for the regulators.
Hang Seng's financial needs analysis and risk assessment were better than those carried out by the other banks reviewed so far, but the advisers still failed to ask key questions.
But the bank scored points for offering mutual funds including a low-cost tracker fund. It would have been even more impressive if the bank offered its Hang Seng exchange-traded fund, which does the same job as the tracker fund but for less cost.
Otherwise the choice of investments was good. The funds offered flexibility and invested in equities, which suited the shopper's risk profile and investment horizon, and the charges were reasonable.
IFA verdict: Glenn Turner, a former chairman of the Independent Financial Advisers Association, said: "As long as it's co-mingled properly, the tracker is inexpensive and flexible. It is the most interesting product of the ones offered by the various banks as long as the Hang Seng goes in the right direction."
He adds that the adviser should have talked about diversification.
Hang Seng's response: A Hang Seng spokeswoman said that, in line with regulatory requirements, the bank's branches were divided into zones, with one zone for general banking and another for investment advice and sales.
This explained why the shopper was shuttled to different zones and advisers, and why she was not asked to complete a risk-profile questionnaire right away. The spokeswoman said this also explained why the first adviser put forward insurance.
"The first adviser you spoke to works for general banking and is therefore only permitted to provide customers with information on non-investment wealth management products," she said.
After the shopper made clear she wanted an investment, not insurance, she was taken to another zone, handed a questionnaire, and then offered fairly straightforward investment options, she added.