Outsmart 3 Unethical Financial Adviser Tactics

Have you ever had any bad experience or felt that you were being cheated or “betrayed” by an insurance agent? If yes, you are definitely not alone, I’m sure that in every industry there will always be some black sheep around making a mess of things. Most of the time, this group of unscrupulous agents would not think twice about giving poor financial advice for their own benefits at the expense of their clients. These clients could suffer monetary loses, unknowingly or even knowingly. Clients could possibly face severe consequences in the future, exclusions, loading, non-standard cover. Despite tighter controls and counter measures being enforced by the Monetary Authority of Singapore (MAS), these unethical behaviors will still co-exist with us like parasites. The reasons are because:

1) Such offences are easily undetected as clients are not familiar with the steps, processes and the product terms. They rely mostly on the integrity and the trustworthiness of their agent to advise them.

2) Issues that will eventually surface, might happen in the far future. By then, the client may not remember what was being told to them initially and agents usually insist that they have done their due diligence, and clients understood the terms when they signed.

Although many of these unethical behaviors have tarnished the reputation of the insurance industry, I would like to stress that they are the outliers of the industry, and a proper financial consulting is still an important part of life. There are in fact, still many passionate, and professional agents, who put client’s needs first around us. We would just need to learn how to identify red flags, recognize and trust our gut feel, in order to find the right consultant. Below are some of the things you can take note of, when you meet with your adviser,

1) Health Declaration(s)

Health declaration(s) are usually a necessary and important requirement when applying for insurance coverage. It is the most crucial part in the application process. The outcome of an application is the main result of Health Declarations. An application may be rejected or underwritten with further clarification needed on existing conditions. There have been cases where, the existing agent, for fear of not being able to close the sale declared a clean slate of health in the application form for the applicant (client), even when the client mentioned that they have conditions, or they may have breezed through quickly without client declaring accurately. The consequences could be serious as the insured might not be able to make the appropriate insurance claims in future when needed, due to non-disclosure, and pre-existing conditions. It’s like buying a parachute that won’t open.

A professional agent will work with you and ensure you disclose all necessary information that is required by the insurer to avoid potential future conflicts and ensure the fairest policy application. Hence, be very thorough when going through the health declaration process and double-check before you sign on the application form.

2) Insurance Churning

Churning is a downright unethical. This is a process where insurance agents unnecessarily propose that clients replace their existing life policies, with another policy with “good justification”, but usually have an agenda to earn additional commission, clock quota, with no clear benefits for the clients. This usually comes at a cost. Unless the new insurance policy brings additional benefit, at a lower or a similar cost, compared to the existing policy, there is no reason why clients should terminate or switch their old policy and/or replace it. Insurance purchased at a younger age generally have a lower insurance cost. The only person who could stand to benefit from such a transaction is the insurance agent who is earning the commission by selling the policy. Unless strong grounds for switching or replacement are present, an ethical agent SHOULD NOT ask you to do so. This is especially so, for private medical insurance. Switching insurance to a new health insurance cover, may void you of cover for conditions that have surfaced and unaware of.

There is also a possible risk when an agent recommends their potential customers to replace their existing health coverage with a new policy knowing that any newly surfaced medical conditions won't be covered by the new policy, setting them for a potential financial catastrophe down the road.

A professional agent will always try to help you fortify and expand your walls from your existing building blocks rather than tearing them apart and asking you to rebuild them again. Hence, beware when an agent tells you that they have a much better policy that can replace your existing policy, think twice about the detriment(s) of doing so.

3) Incomplete Financial Planning Process

Proper financial planning is usually a lengthy process that cannot be done in a hush, especially without any preparation. It has to take into consideration many aspects of a client’s life, financial information like, your cash flow, your current and potential life stages ahead, your short and long-term commitments, any existing portfolio to build upon, your career potential and etc. A detailed analysis needs to be done, and after understanding the client’s needs and portfolio, propose the best suitable solution for the client. Usually, this will take 2 appointments (unless you have a whole day to spend with your consultant).

However, many “unethical agents” provide “shortcut” methods and are only interested in your income and your available cash flow. They will try to justify to you the need to max out all your available cash flow to get one or two plan(s) from them.

The need for insurance protection, and the benefits of growing your money for retirement will always seem limitless. So how much is enough? I come across a young individual, who took up endowment and retirement plans using more than 50% of her gross monthly income of $2500. Over the years her expenses increased much more than her salary could. Eventually her priorities changed, and she needed more on insurance coverage. Due to limited budget, she ended up having to make monetary losses from her savings and retirement policies by reducing the sum assured, to lower premiums. This is an example of poor financial planning done by a financial adviser.

Back to the question, how much is enough? As a general guide, I would advise an individual to set aside ~10-20% and work towards a holistic financial planning solution depending on their needs and priorities. One might need to allocate additional ~5-10% for their children if their cash flow allows.

What can you do to avoid being in this situation?

As I have mentioned earlier, financial planning is still an important process in our life as it will lead us to our financial goals and providing us with a layer of safety net in financial security. As the famous quote says, “If we fail to plan, we plan to fail.” We need to add another line, “But who we plan with can be of a deciding factor in our life”. I would strongly encourage everyone to engage a financial consultant who is a believer in the full fact find process, and who is able to provide a proper and detailed financial planning solution with you. Do your research, search them on social media sites, ask around, good planners usually are attached to good agencies/organizations that emphasize ethical practices. Do a quick search on their website, glance through their vision and motto. You will do this when searching for a good doctor to seek treatment from, why is your financial health any different?

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