RA's on Carte Blanche

[louisp]

Hi,

I have lost some respect for Carte Blanche!! They aired a totally one-sided, misinformed documentary on Retirement Annuities and the Life Insurance Industry.

Let me start by first admitting to a few facts which are causing a stir in the market.

1.) Traditional Old Retirement Annuities are relatively expensively priced.
2.) You have very limited options available during the lifetime of your investment.
3.) Life insurance companies do make money from your money.

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I feel Carte Blanche were unable to show all relevant facts at hand, and chose clever media keywords to slate the life insurance industry.

1.) Upfront commission is in fact the biggest component of costs incurred on most RA contracts.
2.) These upfront costs are recouped over the whole term of the contract.

These upfront costs are thus similar to a loan. If you stop your contract, someone needs to pay that loan off. This would then be what they call, early surrender penalties.

Another thing to remember is that newer generation products are priced much lower and alot more transparent. The reason for this, is that it is now very possible to show exactly where your money goes. Mainly due to technology improvements of the modern era.

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Let me just state again, there are products with exorbitant charges, and I believe that hardship cases should be treated differently, but misinforming the public and causing people not to invest, is in my view, a bigger crime.


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Ps. I obviously have a bit more insight into the workings of the life insurance industry, if you want some questions answered, post them here!!!

 

[FireFLi]

Question; What happens to your RA if you die?

 

[alchamy]

Quite honestly I have never been a fan of Carte Blanche, I find most of their reports incredibly biased and generally based on false facts. In fact I have not watched it for several years as a result. (with the exception of pieces related to Telkom etc)

 

[craigsa]

Sorry but i for one do not trust the insurance / assurance companies one bit. They are money hungry thieves and their profits are an indication of how they are ripping off the SA public.

I think that that black guy (not sure of his name) is doing a fantastic job.

 

[louisp]

Question; What happens to your RA if you die?

Well, generally, you would have a death claim value, which would either be your fund value (excluding costs) or a sum assured. This value would then be paid to any dependant as seen fit by the trustees

 

[Dolby]

I don't even understand fully what a RA is ....

Weren't they talking of the AMOUNT of the penalties, rather than the penalties themselves?

My father had a small RA, which was passed to my brother and myself when he passed away. Though, I *think* you had to reinvest it or something. I get a tiny sum every January till the capital amount is gone.

 

[dbnnet]

...and causing people not to invest, is in my view, a bigger crime.

Well I think that "Once Bitten, Twice Shy" holds in this case.
The onus is going to be solely on the Insurance Industry to prove that they have changed.
So far we are not seeing this.....rather, it is blatant arrogance and denial

 

[louisp]

Sorry but i for one do not trust the insurance / assurance companies one bit. They are money hungry thieves and their profits are an indication of how they are ripping off the SA public.

I think that that black guy (not sure of his name) is doing a fantastic job.[/craigsa]

Aye Craigsa,

The Life Industry is a very big industry and there are plenty of people around who would try to defraud and steal. BUt I fail to believe that the companies in essence are gunning their clients.

in Fact as dbnnet states:

Well I think that "Once Bitten, Twice Shy" holds in this case.

The industry needs to be very aware of their clients needs and wants, or else they will simply turn elsewhere.

With regards to the PFA rulings. I have read through most of the rulings, they are absolutely absurd. The rulings are clearly made with a socialistic approach and with no understanding of financial and economic principles.

I can understand why the PFA is the people's hero: he gives client money which they are not due. If someone gave me more money than what I am entitled to, he would be my hero too.

 

[craigsa]

I hear you mate , but its like tha bnking sector , they are raping us.

 

[scatlett]

I work in the Life Assurance industry. Trust me, the Life Assurance companies do charge huge fees which are often hidden.

To respond to your points above:

1) Yes, upfront commission is largely to blame - however, it is the product provider that facilitates this process. The client has initially no idea that this loan account has been created against the policy an that the loan will be recouped.

2) The upfront costs are recouped over the life of the policy - even if that policy has only been in force for a short time. This is unfair. Why must the client pay huge costs if the policy only existed for 6 months.

3) RA's are one thing, but what about Endowments? The life assurances companies charge HUGE penalties if you cancel and endownment, all of which is basically profit.

4) The life assurance industry make TONS of money off you that you are not even aware of because they hide their costs. For example, you take out an endowment/RA and are told that you are charge an annual fee of 2%. This Endowment/RA will then invest your money in some fund, usually with the asset management division of the same company. That fund then charges 6% annually as costs, but these costs are not shown to the client - no they are just removed from the fund and the client sees a smaller return than usuall.

5) No other industry knows how to 'fudge' figures of investment returns like the insurance industry.

6) The life companies encourage churning. It is so obvious that this is the case - this is why we have 'new' products being launched every year.

I think the point is, that Life companies have tried to self regulate over time and it is quite clear that this is not working. The goverment/regulates have seen this and are now taking action.

Louisp - are you a broker?

 

[neio]

The commision that's paid to the brokers gets paid within the first 18 months of the policy or whatever being issued.
The the broker comes to you and say, 'wow lookee here, this policy I sold you is actually crap, here take this one and cancel that one' Then they just wait for the money to come back in.

 

[ant1b0dy]

I think louisp must be a middleman...

 

[scatlett]

The commision that's paid to the brokers gets paid within the first 18 months of the policy or whatever being issued.
The the broker comes to you and say, 'wow lookee here, this policy I sold you is actually crap, here take this one and cancel that one' Then they just wait for the money to come back in.

This is EXACTLY what happens. If you are a broker and can create a client base of 200 idiots. You can resell them the same product over and over every two years and you will only have to worry about what colour your next porshe is going to be. Its called 'churning'.

The life assurance industry faciliates this by creating 'new' products every year that are even better than before. I work in the industry as a software programmer and every year I take a 'new' product and have to map it to what it really is.

For example, I might take a new product called 'super duper neva before seen product' and map it into a disability product for our software's calculations. This is because it is a disability product, but with a new name and some fancy wording created to confuse you. We have had disability products in SA for over 50 years - why come out with new product every year?

 

[Dolby]

A friend of mine recently started working at ABSA brokers, and wants me to get a policy of some sort. The problem is I'm so anti-ABSA at the moment!

When my father passed away a few years back, he left a trust which can only be taken over by me in a few years time (age 28). Until then, ABSA control everything on the investments and trust.

Now to get a SIMPLE BALANCE from them is impossible. I tried for weeks and weeks, and spent hundreds of rands on phone calls all around the country. I phoned various people in various departments and branches in both Johannesburg and Pretoria - to no avail. I even posted on hellopeter which didn't help either.

The best they can tell me is, 'we've invested at a fixed interest rate to prevent against the market' They cannot (will not!) tell me what the initial amount was, the fixed interested, or the amount to be recieved at the end of the period. They refuse to help with anything - as I don't have a Platinum account. Everyone is the wrong person, or they cannot access, or they need additional approval ....

I think when I get control, I'm going to someone like Momentum or Alex forbes.

 

[louisp]

Hehe,

nope, I'm no broker. I will die of hunger if I had to make money from selling policies!!

But the points raised are all valid.

That is why the new products explicitly show the client ALL costs. And also offers the client the option of refusing to pay ANY commisison to his broker. In fact, if NO commission was paid to the broker at all, the PFA would not have been as busy as he is currently.

Insurance companies would NEVER promote churning, it is the brokers who promote it as they can then earn commission all over again.

 

[neio]

Personally I've had too many bad experiences with brokers. They want to start selling me stuff and I ask them how much is the comm going to be.
Then I give them the run-around and after 2-3 weeks tell them 'no thanks, I'm putting all my extra cash into my home loan'. My ROI with property is much better than with a broker and it's a physical asset that is on my name, I can do with it whatever I want and dont pay a penalty if I want to sell it before it's been paid off.

 

[louisp]

Yup, paying of debt, especially long term debt is a very good move. Simply but, paying of debt is almost equal to an investment for the loan rate on your debt.

 

[craigsa]

not the broker's fault i think its the insurance companies

 

[scatlett]

Insurance companies would NEVER promote churning, it is the brokers who promote it as they can then earn commission all over again.

You are naieve (spelling?). They do. Why would they come out with new products every year?

 

[scatlett]

neio - the only time that you need to take out an RA is if you are working for yourself and need to save for retirement or you feel that the company (if a salaried employee) who is managing your pension/provident is not good.

The only advantage with an RA is the tax benefits (tax free lump sum of 'no of years x R4500). So the longer you are in it the more you save in tax. Also you can claim back you retirement saving contributions to a max of 15% your annualised pensionable salaray (which includes contributions to provident/pension funds).

IMHO - putting all your extra cash into your bond is the best thing - its what I do. No financial instrument can give you a guaranteed, after-tax return of 11% - like paying into your bond can.