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SCMP Reporter

FORMER consultants for Collingwood Investment, the financial services group under investigation by the Securities and Futures Commission (SFC), are planning to sue the firm.

    Three former consultants, recruited from Britain, have sought legal advice and are preparing a group action for breach of contract.

 The latest blow to the beleaguered financial adviser comes as the SFC probes the firm's sales methods.

  Past and current staff members are being called into the SFC's Edinburgh Tower offices in Central to be questioned under oath about the group's sales of investment-linked insurance products.

  The probe, under way since late summer, trawled back over policies sold by the firm in the past four years.

  It is also believed to be focusing on whether the company sold Hong Kong investors unauthorised policies.

  In a surprise move, former employees of the firm volunteered to speak to the SFC about their experience with the firm.

  Some of the former consultants contacted the Sunday Morning Post after inquiry details were revealed.

  They refused to be named because they had received threats of legal action from Collingwood if they made statements that the company considered defamatory.

   A former consultant said: 'I am concerned about the way Collingwood pursued their business.'   The former consultants are disputing payment of thousands of dollars in salary and expenses with the company.

  Consultants were recruited from Britain, where advertisements in trade papers promised potential annual wage and commission income of more than GBP100,000 (about HK$1.2 million).

  The firm is one of Hong Kong's best-known financial advisers and the recruits were promised big pay packages and prospects of working with an established, stable team of advisers.

  But, according to the staff, turnover was high. Between 45 and 50 of those who joined in the past 12 months quit. Recruits were provided with a flat, the rent for which was deducted from their pay, and a three-day induction course on selling investment products in Hong Kong.

  An adviser said he was given newspaper clippings - going back to 1992 - and encouraged to contact certain people featured in the articles to sell the company's products to them.

  Others obtained internal office directories which were used to call management and staff in firms and government offices.

  Financial advisers are generally paid through either a fee, by the client, or commission, paid by the firm whose products they sell.

  A client should be able to expect that a firm offering independent advice will provide the most suitable product on offer in the market for a client's needs.

  This compares to an agent for a life insurance firm, selling its products.

  Commission levels paid on a product for either an agent or adviser vary per product, but typically, the longer the term - or length of policy - the higher the amount paid.

  For example, the commission paid on a 25-year insurance-based savings product would be most of the first year's premiums and part of the second year's premiums.

  According to an internal document, Collingwood encouraged advisers to sell 'core' products by offering them higher commissions.

  Insurance firms pay 'commission over-riders' - or higher incentives - to advisers who can guarantee a high level of business.

  Consultants who joined the firm were upgraded on selling 25 products to 25 new clients for commission payments of at least $400,000.

  They were generally given between two and six months to achieve the feat.

  To encourage them to sell from the 'core list' the new recruits were offered an extra 20 per cent commission.

  Another former consultant said: 'I have always tried to offer the best advice regardless of what paid the best commission.

  'But I found that certain products were liked by the company and I was encouraged to use them.'   The products typically provide life cover but are primarily long-term investments in which part of the premium is invested directly by the insurance firm into equity, property or fixed securities.

  The policies can offer competitive returns if held for their full term, which can range from 10 to 25 years.

  But high up-front costs, including the adviser's commission, mean early surrender penalties can be harsh.

  Collingwood advisers were also encouraged to sell an investment concept called an 'open-ended offshore investment account'.

  According to former consultants, investors were told that after a 13-month 'earnings period' they could use the product like a savings account by making withdrawals.

  It takes 13 months to pay the commission on a 25-year product.

  These products can be good value for a client comfortable with a long-term policy.

   For a client with short-term horizons these products can be potentially disastrous because early termination can trigger hefty penalties or surrender values on the contracts that amount to just a fraction of what has been paid in premiums.

  Insurance agents like long-term products because they pay more commission and agents sometimes sell them even if they might not be best suited to a customer's needs, such as selling long-term products to people who are about to retire.

  No one was available for comment at either the firm's London or Hong Kong offices to answer the former employee's statements.

  But London-based managing director Grant Wettle broadly welcomed the SFC's tougher approach against poor selling practices.

  Earlier this year Mr Wettle sold a 51 per cent stake in the group to Old Mutual International, a South African life insurance and unit trust company.

  The firm is the biggest in South Africa and has about US$35 billion under management.

  The company employs about 70 people and has representatives in the Middle East and Asia and an administrative office in London.



Former staffers prepare to sue