A friend, who used to work for a multinational life insurance company operating around the Asean countries told me that the company made a lot of profit on their investment linked products.
There is a 5% spread between the bid and offer price of the units, They agents sell large volume of the product when the stock market was doing well. The customers were not aware about the spread.
When the unit prices went above the spread, the agent advised the customers to sell their units to take profit. When the market came down, the agents advised them to re-invest and they earned the commission again. The insurance company and the agent shared the 5% spread.
If the market does not come down, the agent will convince the customers to reinvest anyway, and incur the spread again. The agent and the insurance company made their commission and profits on the "churning".
If the market does not recover and goes down, the policyholder will be taking a big loss on the invested amount. They have to suffer the loss on the spread, on the churning and on the market.
Many investors had approached me about the losses of 20% to 50% on their unit trust that is being held over 5 to 10 years. I wonder if the losses were due to the factors described above? It is sad that many consumers are so naive, and were taken for a ride by the so called "financial advisers".
There is a 5% spread between the bid and offer price of the units, They agents sell large volume of the product when the stock market was doing well. The customers were not aware about the spread.
When the unit prices went above the spread, the agent advised the customers to sell their units to take profit. When the market came down, the agents advised them to re-invest and they earned the commission again. The insurance company and the agent shared the 5% spread.
If the market does not come down, the agent will convince the customers to reinvest anyway, and incur the spread again. The agent and the insurance company made their commission and profits on the "churning".
If the market does not recover and goes down, the policyholder will be taking a big loss on the invested amount. They have to suffer the loss on the spread, on the churning and on the market.
Many investors had approached me about the losses of 20% to 50% on their unit trust that is being held over 5 to 10 years. I wonder if the losses were due to the factors described above? It is sad that many consumers are so naive, and were taken for a ride by the so called "financial advisers".
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