In February last year, Leung Chung-yan, 27, had some potentially cancerous masses removed from her breasts. The kindergarten teacher did not have medical insurance to cover the operation and had to borrow money from her family to pay the bill.
Worried that she would have to undergo more operations - her aunt was losing a long battle with breast cancer - she decided she better save some money. Knowing little about investing, Leung met a friend, Cat Lau, who worked at Convoy Financial Services, an advisory firm.
Lau recommended Leung take out Standard Life's "Harvest 101 Investment Plan", an investment-linked assurance scheme, or ILAS. An ILAS is a complicated product with complex fees and charges. Instead of helping Leung to save money that she could easily access if she faced a medical emergency, the product locked up her money for 25 years.
If Leung tried to cash in her plan in the first year, she would have lost everything that she had paid. The penalty fell to 80 per cent of everything she had contributed in the first two years if she tried to access her money in the fourth year of the policy's term.
"Harvest 101 did the opposite of what I wanted. Instead of helping me have more money available to pay for a medical emergency, I had less money available," Leung says.
Convoy says the firm analysed Leung's needs. They say she said she wanted a retirement plan - not to save money for medical bills. They say Leung signed a document saying she wanted a plan to create "extra saving apart from MPF [Mandatory Provident Fund]".
Plans such as Harvest 101 are created by insurance firms and sold by banks and financial advisers, who receive fees from the insurers. It is a big business. The schemes generated HK$17 billion in new premium income in 2012, according to the Insurance Authority. They are a common source of grievances, accounting for about one quarter of Hongkongers' complaints about insurance, according to the authority.
Regulators are taking action. The HKMA, the Securities and Futures Commission, the Insurance Authority and the Hong Kong Federation of Insurers are changing the way ILAS plans may be sold. The changes will roll out in phases up to September.
Criticisms of ILAS focus on the high fees insurance firms pay those who sell the plans. The Hong Kong Monetary Authority says it is concerned about mis-selling of ILAS. Jeremy Hobbins, a Hong Kong businessman, went further.
He asserted the insurance firm bribed his adviser to sell him an ILAS, using selling fees as an inducement.
Hobbins sued his financial adviser, Clearwater, to recover the losses he suffered on an ILAS in a landmark case in 2011-2012. He said that his adviser did not act in his interests, and simply marketed the ILAS to him so it could reap about US$1 million in fees over eight years.
Hobbins lost his case but it forced regulators to think seriously about the issue of fees. He takes specific issue with the fact that advisers can claim up to two years of the contributions to a plan as a commission for making the sale. People who want to exit the plan early find their plans are worth much less than what they paid in, because so much money has already been paid to the adviser.
"The first two years' premiums are paid to the brokers [as a sales commission], often as a lump sum, within 14 days of the product being taken out. The cost of this is paid by the consumer in the form of early withdrawal penalties if they do not go full term. I believe this structure [ILAS] is fundamentally flawed and it lacks integrity," says Hobbins.
The HKMA this month will require bank staff selling ILAS products to make a full disclosure on the fees and commissions they receive. The SFC in May required those selling ILAS to disclose all their fees and charges in sales documents.
At the end of this month, the Hong Kong Federation of Insurers will ask consumers to sign a declaration form when buying an ILAS. The document will prompt consumers to ask their advisers how much of a commission they are making on an ILAS sale. Advisers will be obliged to disclose.
The document will also outline in clear language the risks of ILAS, including the long-term nature of the plans and the penalties for withdrawing early, which customers will have to sign.
"There will be a full-page document signed five times by the clients that details all the worst features of ILAS," says Glenn Turner, who recently resigned as chairman of the Independent Financial Advisers Association.
Those that sell an ILAS will have to make a post-sale telephone call to the consumer. The call will be on a recorded line. They will have to go over all the fees and risks of the ILAS they just sold, and ask the consumer whether or not they understand them.
If that sounds like a lot of regulation, that's because ILAS products are problematic. Many consumers regret buying them after they have committed to them. It can mean decades of regret, given the long-term nature of the schemes.
Leung, the kindergarten teacher, was advised to contribute HK$1,000 a month to the "Harvest 101" ILAS for the next 25 years, despite the fact that she was earning just HK$14,000 a month.
At the time she was sold the product, Leung had more than HK$40,000 of credit card debt, on which she was paying annual interest of around 45 per cent.
Convoy says Leung did not disclose her debt to the firm.
Leung says she did not understand what she was buying.
"I had no idea what I was taking out, but I trusted my friend … to make a good recommendation," says Leung.
Leung has asked Convoy to refund the HK$13,000 in premiums she has paid. She and her boyfriend, Lindell Lucy, are also campaigning against ILAS products on a blog. They have lodged complaints with Standard Life and regulators.
A Standard Life spokeswoman said: "We are investigating this case and will inform the policy owner and relevant regulatory bodies of our findings … We take all customer complaints very seriously."
Turner says banks, the main conduit for ILAS sales, are already steering away from the schemes, partly because of the new rules on fee disclosure. Hobbins says Hong Kong would be better off without the schemes.
"They [ILAS] serve to produce income for the insurance industry and their sales brokers, rather than serving the interests of consumers at large."