“Dear Wilfred, sometime ago I invested in an investment Product J from a bank. Recently, I was notified that Product J will be close down due to poor performance and small fund size. I was offered free switching. Today my private banker emailed me a single premium endowment product K which I attached for your reference. – Regards Q”

Dear Q,

Fund managers are notorious for closing down poor performing funds. Besides poor profitability due to small fund size, they like to close down poor performing funds so as the eliminate their lousy track record. By doing this, only the better performing funds remain to be offered to the public. Investors who are ignorant of this practice would think that the fund manager had a good track record but in reality poor performing funds have been eliminated from their product offering. This is called “survivorship bias.”

You need to ask whether your free switching is limited only to unit trust or to any kind of product. If it is the latter, you should insist your banker to rebate all the commission including overriding and allowance due to the switch from Product J to Product K. Free switching means all cost associated with the purchase of the new product. For single premium endowment, the cost of the purchase is known as Total Distribution Cost (TDC) and it is disclosed in your benefit illustration. This TDC includes commission to the adviser, overriding commission to the manager, allowance to the company’s rental and the cost of underwriting.

Wilfred