This morning I open my email box to receive a message posted to me from my website enquiry page: “Hi Wilfred, I would like to tell you to stop your bullshit. Shut ya trap.. IFA is purely scams! u disgusting freak”

It was from an anonymous person although little did he or she realized that all enquiry submission records the IP address and timestamp. The IP address (which in this case was SingNet Proxy server) together with the exact timestamp is able to uniquely identify the subscriber details (I was an Engineer who build a firewall you know!) But that’s not my point. In reality I actually agree with this anonymous person. Huh?

I joined the IFA industry instead of tied-agent or banking channel because of its independence. As an IFA, one can recommend many products and therefore not ‘biased.’ After a few years and meeting so many clients served by other fellow IFAs, frankly speaking I am quite disgusted with how IFAs are abusing the trust their clients placed on them. Here are some common cases of how IFAs ‘cheat’ their customers:

1. The most famous one these days is to recommend a pure investment type regular premium investment-linked policy. These do not come with protection element but only investments. Many IFAs these days like to recommend these pure investment ILPs because the gross commission is very high. It can go as high as more than the first year premium. So a $1000 per month ILP, the gross commission can potentially exceed $12,000. But after the first year, the commission drops drastically. The irony is that these IFAs can recommend RSP on unit trust. However, the first year commission for unit trust is only 3-4% (sales charge + wrap fee). Although the ILP’s long term return could be similar as that of the unit trust, the client actually forego his liquidity for the next two decades because of the hefty surrender penalty for ILPs. Unit trusts have no surrender penalty.
2. Some IFA advocate ‘buy term and invest the rest.’ Some clients upon being psycho by mass media and other people’s blog about the advantages of ‘buy term and invest the rest’ ask their IFAs to recommend this strategy. The IFAs knowing the client’s ignorance recommends an ILP (those with high protection one) which is essentially consists of an escalating insurance element with the remaining premium invested in funds. But what the client does not know is that the ILP attracts super high commission and it takes a very long time to breakeven due to the initial low allocation rate.
3. I have come across numerous instances of IFAs who caused their clients to lose their insurability permanently. For those with pre-existing conditions, there is currently only 1 shield product that provides guarantee cover for future new illnesses but this is on the condition that the client has never been declined or postponed for other insurance policy. Many IFAs would just anyhow recommend policy causing their client to be declined. As a result, they cannot get any cover anymore.

There is also a misconception on what the first alphabet ‘I’ really meant for the phrase ‘Independent Financial Adviser’. After some analysis on the legal definition, I am convinced that the word “Independent” is only referring to investment products defined under the Financial Advisers Act which are life insurance policies and securities defined under Security & Futures Act. But a closer look at what this means is that it will not apply for anything that falls outside the definition which are: Land banking products, mortgage brokerage, taxes planning, estate planning, children’s education planning and retirement planning.  In fact, even for insurance planning and investment planning it does not fall within the Financial Advisers Act if there is completely no mentioning about life insurance and securities products. Goodness, it seems everything also not regulated!

What does it really mean for the man-in-the-street?

It just means that the three letter alphabet “IFA” is a ‘bullshit.’

So how like that?  Many tied-insurance agents like to say that it is the adviser who is most important and not which company the adviser works for. They say this to counter the claim that IFA is better.

I agree with this thinking except that it is also important how the adviser is paid. If the adviser is paid by the client to provide unbiased advice, than the choice of the adviser is of primary importance and that the firm is secondary (provided the firm does not object the adviser from receiving remuneration directly from the client).

On the other hand if the adviser only earns purely from commissions selling products, than his company is of primary concern because at the end of the day he will just push the company’s product to earn a living.