ILAS are not 'investments', so commissions are unregulated

When people come across investment-linked assurance schemes (ILAS) at the banks, they probably see an investment, a sort of super-scheme offering access to dozens of mutual funds.

In the eyes of regulators, however, ILAS are insurance products. They are created by insurance companies and invariably have an insurance component, even if it's not the main item discussed by the adviser.

This is an important distinction.

Because it is not an investment product, the selling of ILAS is not regulated by the Securities and Futures Commission (SFC). The job falls to the Insurance Authority, which monitors the insurance sector in partnership with industry bodies. It's kind of a self-regulating system.

The SFC requires agents to disclose all income earned from the sale of an investment, such as brokerage charges or selling commissions. In other words, if an investor asks an adviser about the commission (direct or indirect) he or she earns from the sale of an investment - for example, a mutual fund - the adviser must disclose every penny of such income.

That is not the case for ILAS.

'There is currently no requirement for agents to disclose to policyholders their fee income from insurance companies, whether the insurance products procured be ILAS or otherwise,' says Hilda Chow, speaking on behalf of the Insurance Authority.