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  • Dec 20, 2014
  • Updated: 8:54am

Investment-linked insurance schemes a trap for unwary investors

Activist group wants to ban investment-linked assurance schemes amid concerns about high fees, poor performance and dubious sales tactics

PUBLISHED : Monday, 30 September, 2013, 12:00am
UPDATED : Monday, 30 September, 2013, 4:00am

It started with a referral from a friend. For Connie Choi Shuk-mei, it ended in claims of fraud, a police investigation and the founding of Hong Kong's first anti-insurance-product activist group.

A client of AXA Swiss Privilege, Choi invested in an investment-linked assurance scheme (ILAS) and is now leading a campaign to ban the controversial product from Hong Kong after finding several like-minded individuals via media reports and the internet.

Typically, an ILAS allows an investor to enrol in a long-term savings plan, pay a regular premium and choose between a range of funds to invest in.

Such schemes have emerged as a lucrative instrument for banks and financial advisers. But buyers have become increasingly concerned about high fees, poor performance and misselling. Much of the concern centres on the fact that agents are typically paid a fee upfront for products that tie in investors for many years.

Choi, the managing director of Hong Kong-based Yee Cheong Pharmaceutical, which sells nutritional supplements, has opened several investment accounts with Swiss Privilege, a division of AXA Group.

Initially, she was very happy with their service. "I have a good memory of Swiss Privilege. A lot of golf events, fine dining, luxurious overseas travel, birthday celebrations at Mission Hills golf courses while the World Cup was going on," she says. "But when a problem appeared, there was no more Swiss Privilege, only AXA, which looks like a witch."

Choi claims her broker doctored the application forms by modifying a previously agreed payment structure and by forging a number of supporting documents. In late 2010, her agent recommended she take out an AXA Privilege Personal Portfolio policy. The agent no longer works for Swiss Privilege and has not returned phone calls and messages from the South China Morning Post.

Choi, 59, said she agreed to purchase a single, lump-sum policy worth US$51,000, to be invested into a range of mutual funds. Rather than fund the policy from her savings, the broker suggested Choi borrow the money against an existing policy she held at Swiss Privilege at an interest rate of 2.5 per cent.

At the time, that policy contained US$112,760.

Choi signed a blank account-opening document and handed it to the agent to complete.

Choi says that, at the recommendation of her broker, she also signed a series of blank forms, which she says she was told were switching forms so her money could be moved between different mutual funds later without her having to come back to the Swiss Privilege office to sign again. It was a decision she would later regret.

All seemed well until earlier this year when Choi broke her leg on holiday in Thailand. While recuperating from an operation, a friend and business partner suggested she move her accounts to Sun Hung Kai Financial where he had an account and was happy with the service.

After instructing Sun Hung Kai to analyse her accounts, Choi said she was shocked to hear they had lost about 50 per cent of their value.

Upon asking for a meeting with representatives of Swiss Privilege, she was presented with documents detailing her account activities. The documents have been shared with the Post.

Choi discovered that the account she had intended to invest US$51,000 into had been set up as a regular savings account with a monthly premium of US$8,500.

The US$51,000 she had borrowed covered only the first six months of premium payments. After that, additional loans were taken out at bi-monthly intervals to cover the ongoing premiums, with her original policy used as collateral.

At various times, money was taken out of her original policy and added to the second one.

The loan documents also indicate that starting in late 2011 money was flowing the other way, with money taken from her second policy to cover loan repayments from the first.

"How could a normal person agree to do this," Choi says in exasperation of the transfers.

After studying the loan transfer forms, she realised that they were the blank forms she had given to the broker, believing they would be used to move money between mutual funds within the one account.

In the 21/2 years between the establishment of her new account in late 2010 and her investigation earlier this year, Choi says she never received any correspondence from AXA or Swiss Privilege in relation to the loans or status of her account and was ignorant as to what was going on. She says all communication was handled by the agent.

Making a play on AXA's "redefining standards" marketing slogan, Choi says: "Redefining standard means not following standards. They do not follow the regulatory requirements, no proper sales procedure, no underwriting, no supervision and no management."

Citing the police investigation, AXA declined to comment on the actions of its consultant or on its oversight and operating procedures.

Included in the trove of documents collected from Swiss Privilege was the form Choi filled in where she first opened the account - the form Choi signed when blank and handed to her agent to fill in.

It lists Choi as the owner of two properties, one in Happy Valley and one in Shenzhen Mission Hills, and having an annual salary of HK$11.7 million. Choi says she rented her home and that her actual salary was less than one-tenth of the sum quoted.

Based on Choi's accusations, the broker may have needed to show a substantially higher salary to demonstrate that she could afford a policy costing US$102,000 in annual premiums.

Submitted alongside the application were two proof-of-address documents. Choi denies they are hers and says she was never asked to provide proof of address.

One is a letter from Banyan Tree Spa in Bangkok welcoming her to its worldwide membership programme. The Post confirmed with Banyan Tree that Choi has never been a member and the letter was never sent.

The second document is a management fee payment advice notice from Guardian Property Management for a car parking space in the Peninsula Centre in Tsim Sha Tsui. However, a search of the land registry shows that Choi has never owned the parking space and she denies ever renting it.

In both documents, Choi's name and address are out of alignment and in a different font from the bulk of the text.

Based on what she found, Choi complained to the police. Police confirmed that an investigation into the use of fraudulent documents was taking place, but said no arrests had been made.

Choi remains in discussions with AXA and Swiss Privilege about the state of her policies. It is not clear what the value of her accounts is.

A document dated May 20 appears to state that she owed US$29,505.61 in penalties, loan repayments and interest.

AXA has allowed her to surrender her two accounts and returned US$53,401.98; less than 40 per cent of the value of her single account in 2010.

Exasperated, Choi is seeking legal advice. "There is not even an apology. They just keep blinding themselves as if nothing had happened."



How much commission is your plan generating? For a regular contribution to an ILAS savings plan multiply the monthly or annual premium by the number of years the policy is taken out for by the commission payout of 4.2 per cent.

For example, a 20-year policy with a monthly premium of HK$10,000 would generate gross commission of 20 x 12 (months in the year) x 10,000 x 4.2 per cent. This equates to HK$100,800.

The lump sum portfolio bond commission is usually 6 to 8 per cent of the total amount invested. So an investment of HK$1 million would generate HK$60,000 to HK$80,000 in commission. Commission is split between the broker and his or her employer.


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This article is now closed to comments

Simon Berry
Good article.
The SFC should ban insurance linked investment products completely - they are always bad news for investors.
S Wong
I would like to know how Mr Benjamin Robertson, the report of this article, himself looks at this as he has been working for Noble Apex , a similar financial advisory firm as Swiss Privileged for 4 years. My friend works in Nobel Apex too, he said almost everyone has been promoting ILAS for the past 10 years. I think the problem is not the product itself but unethical selling of individual sales person and the direction of the top management. I really hope to see more neutral news reports on SCMP, able to show readers the good and bad side of the story, otherwise media will become a tool, just like how the political parties are manipulating some chinese newspaper nowadays.
Lindell Lucy
SCMP deserves praise for their outstanding work. There is much more to this story than what is reported. Connie was mis-sold four ILAS policies by multiple agents representing multiple companies, but SCMP only reported on the worst mis-selling case. If you knew all the details, you'd understand why ILAS deserves to be blamed. The high commissions lead to bad behavior by agents and brokers across the industry. Also, the individual agent referred to above seems not to have been the only person at fault. The wrongdoing, in my opinion, appears to have been at a policy level, involving upper level management. I believe there are many other Swiss Privilege clients who suffered the same fate as Connie. Connie's story is important because it potentially represents the tip of an iceberg.
Lindell Lucy
See my comment above to "rower" . This story has a lot to do with ILAS. No other products that I am aware of pay such an obscene commission, resulting in an irresistible temptation to **** clients. It's a zero-sum game. The more the agent earns, the more the client loses. And the client always loses.
An important point to note is that ILAS is a product designed for expats. The "insurance wrapper" allows them to evade capital gains and estate taxes in their home countries. This tax savings is supposed to offset the high fees, though in most cases, the fees eat up all the tax savings and more. Agents and brokers have no good justification for selling ILAS to Hong Kong citizens like Connie, who don't pay capital gains and estate taxes and have no need to evade them. If ILAS is a bad deal for expats, it's twice as bad for locals. Yet it appears that Swiss Privilege is selling ILAS almost exclusively to locals. I've seen Connie's ILAS documentation, and unbelievably, one of her policies say that it was recommended to her for tax purposes even though it offered her no tax savings. I assume this "recommendation" is a remnant from a time when the product was still being primarily marketed to expats.
SCMP is guilty of irresponsible journalism in blaming ILAS policies for what is a simple case of fraud and Connie Choi Shuk-mei is to blame for failing to exercise due diligence in the conduct of her financial affairs. Two sayings are relevant in this case: 'A fool and his money are soon parted' and 'Caveat emptor'.
So what has this got to do with ILAS? This could have been any product/service. She was lied to and the broker/adviser forged documents, this has nothing to do with the actual product she bought but it seems that ILAS is a suitable scapegoat and means the story gets into the newspapers.
She should get the policy onto the advisers for forging documents and lying to her about how her money was invested but do not go blaming the actual product for this.
Lai Yan Cheong
Dear Rachel,
It may not be the product to be blamed, but it is certainly those evil intermediary's wrong and evil doing to be blamed for. The entire industry is too corrupted. Btw, I believe there are problem on the product too.
Reading the article again, I do not see anything that can be blamed on ILAS. This was outright fraud involving forged documents. This could have been any product, but ILAS is an easy scapegoat, especially when markets go down and clients want someone to blame.
If fraud is involved, get the police involved.
Lindell Lucy
To rachel.hong.9828 and other commenters who don't see the connection with ILAS, I suggest you reread the first paragraph of this article. Connie's case ended in "the founding of Hong Kong's first anti-insurance-product activist group." More specifically, an anti-ILAS activist group. SCMP also published this article on Monday in conjunction with two other articles about ILAS. One was entitled "Insurance Product Faces Gloomy Future" and another was entitled "Insurance Activist Lai Yan-cheong: Sales Tactics Are Wrong". I suggest you read those as well.
Lindell Lucy
rachel.hong.9828, judging by your familiarity with ILAS and your eagerness to overlook inconvenient facts, I assume you work in the insurance industry selling ILAS. If I'm right, please tell me which company you work for and which products you sell. Tell me whether you sell these products to Hong Kong citizens, and if you do, please explain why you are selling a "tax wrapper" to people who don't have any taxes to evade. Why not just sell them pure fund investments? Even if you are selling ILAS to expats, in most cases, the outrageous fees eat up all the tax savings and more, which means the product is fundamentally a ripoff that benefits no one except the people selling it. I've written extensively about the problems with ILAS at TheRapeOfHongKong(dot)com if you are interested in learning more. I doubt you are though. You seem to be more interested in justifying your income.
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