Reforms on insurance-linked investment products bring shake-up

Primary school teacher Jayne Ellis wanted an investment product that she could exit at any time. In June, Ellis complained to the South China Morning Post when she found out her savings were actually locked into several multi-year contracts, called investment-linked assurance schemes (ILAS).

Originally wanting to invest for one year and then review her account performance, Ellis said she had lodged a complaint with her advisory firm alleging she was mis-sold the products by her financial adviser. The 49-year-old now regrets not reading the product literature more closely.

Had Ellis known to wait until after January 1 next year, she would likely have a less stressful experience. New rules banning upfront commissions on products like the ones she has will have a major impact on how life insurance companies and agents operate, say analysts and senior industry executives.

They argue that commissions and product fees will drop and clients will not need to lock up so much of their money for the lifetime of the policy. This sounds like a good deal for consumers but the products will be less lucrative for agents as commission payments will be drip-fed to brokerage firms over many years.

The regulators wanted to "house clean" the insurance industry after years of complaints about mis-sales and bad practice, said Glenn Turner, a former chairman of the Independent Financial Advisers Association.

The ban will hit a cut-throat insurance savings plan industry that took in HK$19 billion in new premiums last year through products marketed to both expatriate and local investors. Such products combine life insurance, investment and estate planning structures and allow investors to spread small sums of money between different mutual funds.