It is dangerous to allow "financial advisers" to sell investment-linked policies and earn high upfront commission.
There is a real risk of consumers being badly advised about the risks of investing, such as:
a) the projected return on the funds are often exaggerated, e.g. a gross return of 8% when a more likely return is 6%
b) the net return to the consumer is much lower than the gross return, e.g. a deduction of 4%, and this is "hidden" from the consumer
c) the assertion that the insurance company and the adviser has the ability to pick better stocks to improve the return on equities.
d) the false belief that they can improve their return through advice on switching and market timing
Many consumers have bought investment-linked policies on the above mistaken notions. Stock brokers are not allowed to give these type of advice, but it seemed to be quite rampant with the financial advisers.
In many cases, the advisers were not aware of the pitfalls. Being new to the game and inexperienced, they were taught the above marketing points by their trainers, and they pass the message to their family and friends, quite naively.
Even the reduced commission rates recommended by the FAIR Panel are too high and the risk of mis-selling remains, especially with the investment-linked policies.
I do not wish to imply that all financial advisers fall into this mold, but I suspect that many do. To a knowledgeable person, it just does not make sense for consumers to be bearing a high upfront cost where the adviser does not really give any value.
There is a real risk of consumers being badly advised about the risks of investing, such as:
a) the projected return on the funds are often exaggerated, e.g. a gross return of 8% when a more likely return is 6%
b) the net return to the consumer is much lower than the gross return, e.g. a deduction of 4%, and this is "hidden" from the consumer
c) the assertion that the insurance company and the adviser has the ability to pick better stocks to improve the return on equities.
d) the false belief that they can improve their return through advice on switching and market timing
Many consumers have bought investment-linked policies on the above mistaken notions. Stock brokers are not allowed to give these type of advice, but it seemed to be quite rampant with the financial advisers.
In many cases, the advisers were not aware of the pitfalls. Being new to the game and inexperienced, they were taught the above marketing points by their trainers, and they pass the message to their family and friends, quite naively.
Even the reduced commission rates recommended by the FAIR Panel are too high and the risk of mis-selling remains, especially with the investment-linked policies.
I do not wish to imply that all financial advisers fall into this mold, but I suspect that many do. To a knowledgeable person, it just does not make sense for consumers to be bearing a high upfront cost where the adviser does not really give any value.
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