Hong Kong has long had the reputation of being a haven for cowboys out to make a fast buck. The gullibility of their victims often seems at odds with the territory's international reputation for financial astuteness. When it comes to their own money, many territory investors consistently display more dollars than sense. Some recent cases reveal a disturbing pattern both on the part of the adviser and the advised. It would appear that many suspend their normal critical faculties when it comes to making a decision that could tie-up their assets for decades. Whether this is a tribute to the sales skill of the adviser or the gullibility of the advised is open to debate. But the problems have arisen with depressing regularity with a particular range of products and sales methods. Typically they are long-term, investment-linked insurance products sold by the territory's army of financial advisers. Alternatively, they are pension plans with dubious tax advantages in a liberal tax regime of Hong Kong. Often the problems do not begin to emerge until two or three years after the product has been sold. This is when the investor's circumstances change because they might need the money or are deciding to leave the territory. It is at this stage that they often discover, to their horror, the real costs of their decision. High set-up costs and commission payments generally consume most of first year's premium payments. For those repatriating or emigrating there arise a host of additional questions concerning the currency in which the product is denominated or the tax laws of the host country. In the right circum-stances, many of these long-term savings products can offer good value if held for the full term. Of course, had these questions been sorted out at the beginning then later problems might not have arisen. But a depressing number of otherwise astute individuals seem to fall prey to the same blandishments. To their credit, the recent reforms by the Life Insurance Council and the Securities and Futures Commission should go part of the way to addressing some of the problems. Two key policy moves by the LIC will indeed offer the investor greater protections. The cooling off provisions on long-term life policies that were introduced last week will give an investor up to three weeks to change his or her mind about what they are buying. It is intended to lessen the chance of the pressurised 'hot sell' and give investor a chance to have second thoughts about purchases. Information about their right to 'think again' should be clearly displayed on the policy documentation and evident before they sign. The second key measure in the new disclosure regime will be the reform of the way illustrations showing future returns can be used. Those susceptible to the hard-sell would fall easy prey to sales pitches involving graphs soaring up into stratospheric heights bringing with them the promises or easy riches. The new formula being worked out should control what growth assumptions can be made and provide a more realistic projection of future returns. But for the cost-conscious investor, the illustrations also will help the investor to understand the full impact of charges on future returns. They will be able to see at what stage in the term of the product that their premiums stop paying the providing company and adviser and start working for the investor. This can have a welcomingly sobering effect on the investment decision-making process. Ultimately the industry and its regulators can only do so much to help the inves-tor. The onus is on investors to help themselves in fully understanding what they are buying and the length of their commitment. If it all seems too good to be true, then it probably is.
