I do not encourage my clients to terminate investment-linked policies (ILPs) although I am never an advocate of investment-linked policies. I have never sold any regular premium investment linked policy before. However, I can incorporate the ILPs into the core portfolio.
As a fee-based financial planner, I do not need my clients to purchase the investments through me. If they already have existing investment-linked policies, I just need them to supply me with the transaction details. I will advise them which funds to select. However, they still need to transact on their own.
Over the years, I have found AIA to provide an excellent portal which its policyholders can download the transaction details into a Microsoft Word document. I then import to Excel, create a pivot table and then key into a software. AIA had a major IT revamp recently. I hope the feature with the ability to download the full transaction details of its investment-linked policies is still available.
Another company is Prudential which provides annual statements with full transaction details. But Prudential has a few shortfalls. One problem is that the transaction details are in hardcopies and PDFs (downloadable from the website). It is not as simple as just copy and paste the PDF to Excel due to formatting issue. Second problem is that Prudential only retain two annual statements in their portal. This is no good. If there was a fund switch, a new statement is generated flushing the first statement out of the system. This was exactly what happened to one my client after I told him to do a fund switch. My client then requested for the statement that got ‘flushed’ out but was turned down by customer service. How can this be? I thought regulation requires all documents to be kept for at least 5 years! Obviously the customer service was trying to pull a fast one. Very often, I have to rely on physical copies by using an Optical Character Recognition (OCR) software to import Prudential’s hardcopies statements to Excel. But this manner of import generates a lot of errors and I have to spend a lot of time looking for errors.
There are some insurers that do not seem to provide the full transaction details. Although they do give a summarised transactions for the year but that is insufficient for my investment tracking. From my experience, HSBC, AXA Life and Great Eastern do not provide the full transaction details. Great Eastern has a wonderful portal but the full transactions details are not available on the website.
Selecting funds in investment-linked policies
I find constructing a proper portfolio using investment-linked policies to be very difficult. This is mainly because the number of fund choices is too limited. However, there could be individual funds that are good. If the investment-linked policy is part of a larger portfolio, the issue of limited fund choices is not that big.
For example I have a client whose investment with an existing investment-linked policy is about 5% of the overall portfolio (bought from other advisers before me); 56% are invested in Exchange Traded Funds (ETFs) on his own; and the rest in unit trusts through me.
The fund in the investment-linked policy is a single country fund which I had advised him to switch to. Since this is only 5% of the overall portfolio, it is not a big issue to invest in such high risk fund. It must be noted that the purpose of this investment-linked policy is no longer for protection. When it was initially bought, my client – like many others – bought for the purpose of protection and investments. Now the purpose is for investment since the policy cannot provide a long-term protection.
Below is a chart showing the time-weighted average returns. The blue colour shows the performance of a Prudential investment-linked policy fund consisting of 5% of the overall portfolio. The red line was the performance of the remaining 95%. The black line shows the combined returns. Since 2009, it was a bull market. Thus, the ILP fund which invests in a high risk single country fund helped to ‘uplift’ the entire portfolio. Past performance is not indicative of future performance.
Like this article? Subscribe to my newsletter below for more.