Last Updated on 31, March 2014
Not everybody going to like this blog posting but as usual, it is only my opinion. I know of a number of financial advisers who will write financial planning reports for their prospect. I have seen some of these fake reports. Here are my observations of these fake reports:
1. The prospect did not even read it. It is quite amazing when I asked the client whether did he or she read the report. The answer is almost a NO. They did not read it at all. Why? Clients are not stupid. Somehow, sub-consciously they probably felt it was not worth the read.
2. The report looks really nice in terms of layout, fonts and design. Very professional indeed.
3. However, a closer look at the content shows that 2/3 of the reports are just re-reporting the facts which the client have already given. Usually it comes with very nice graphs, pie-charts, etc. But these are just re-reporting the facts provided by the client given to the adviser. So actually these graphs and pie-charts contain no new information.
4. There are usually very few analysis involved. If there is, it is usually wrong. The most common mistake is not to take into account of time value for money. This can significantly skewed some of the analysis to sell an expensive product. For example, if time value of money is not included, a person would appear to require a larger insurance coverage compared to another one which take into account time value for money.
5. For insurance policies, these reports just take the face value of the insurance rather than add in any bonuses already declared (for par policies). Again, if the bonuses were not included, the client may appear to require more insurance (which benefits the adviser selling the insurance).
6. Moreover, many older policies tend to make nominations that are not recognized such as nominating father and mother. Other times nominating father/mother is recognized (under the Co-operative Act) but client isn’t aware that it no longer forms part of his estate. These tiny details need to be analysed but it is often missed out in the financial report.
7. When comes to retirement planning, such a report often calculate the required amount to save regularly and the planner will recommend an ILP to achieve that. Actually this is a wrong way of doing because everyone is already saving some money for retirement such as putting money regularly through CPF contributions and SRS. The amount of money saved for CPF and SRS is already a form of forced saving. But the planner will not mention this because he or she wants to sell an ILP. For example, if the amount required to save every month is $1000 to achieve the retirement goal, than an regular ILP will produce $12,000 of gross commission (about 1 years worth). However, if one would to take account of the existing contribution to CPF and SRS, there is actually no need to sell a regular ILP. Why? Let’s say the CPF Contribution (based on $4500 salary) is 4500 x (20% + 14.5%) = $1552.50 monthly. Out of which, the entire CPF-OA contribution is used for mortgage servicing and about 1/3 is available for Medisave/Special Account which works out to be $1552.50 x 1/3 = $517. As you can see, there is already half of the required saving done through CPF. Also, many people would have a SRS account which they put in as $11,475 per year. You can use SRS for investment but not regular ILP. In total, this hypothetical client is saving $517 + 11475/12 = $1478 every month. The adviser can sell a unit trust for the SRS but the commission for the first year is 3% upfront + 1% wrap fee = 0.04 * 11475 = $459. As it can be seen, the adviser has an incentive to push for a $12,000 commission paying ILP compared with a lousy $459 unit trust.
8. Estate planning is one of the worst sections for these fake reports. Most of the time, this section is completely missing. If there is anything in this section is to ask the client to buy a 3G plan as part of “legacy” planning. Goodness, it is really the ultimate quack doctor prescribing voodoo medicine to their patients.
All the fake reports I’ve seen are auto generated by software. I know some of these software companies selling their software. Most of standalone softwares need to be installed on notebooks while others are web-based in which the adviser subscribes to the web-site and upload the clients’ data to the portal to generate a report. How do you know it is software generated? You can see it is software generated by all the mistakes made above. Also, if the fonts and design are so nice, either the adviser spent 99% of his time doing the design or it was one of the design template by the software.
For all cases, Fake Financial Planners generating these Fake Reports will never charge a fee for doing report. This makes sense after all the Fake Report is worth nothing. In fact, the Fake Financial Planner hopes to impress the client to sell them a $12,000 commission-paying product.
Of course, I have a disclaimer. Not all Fake Report are made to sell an expensive product. I’ve seen such a report written by a financial adviser. Although the adviser is an ethical person but the report made all the mistakes above.
This article also appeared in IM$avvy / CPF Board website: www.cpf.gov.sg
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