Hidden Secrets Revealed - How Your Banker Is Trapping You!

Want to know more on how much your banker really earns? Why does every banker always seem to recommend the similar products when you walk into a bank? Is it true that the product is really good for you, or good for their pockets? Let’s take a look into how your banker earns their revenue for the banks!

Fundsupermart Nov 04, 2016 4369

In 2015, there were a total of 1,052,670 new policies incepted, of which 12% are contributed by bank representatives1, 2. This number equates to about 126,320 policies sold by bankers which includes endowments and life protection. It is quite an impressive number, especially if all the policies are recommended appropriately based on their client’s financial needs. However, when you take a look at FIDReC's 2015 Annual Report (Financial Industry Disputes Resolution Centre), the statistics being shown are quite disturbing.

Table 1: Complaints by Financial Institution (FI) Categories2

Complaints
Banks and Finance Co.
Life Insurers
General Insurers
Capital Markets Services Licensees
Licensed FAs and Insurance Intermediaries
Market Conduct
137
133
2
7
43
FI Practice / Policies
112
173
194
6
0
Service Standards
50
25
7
14
0

Table 1 above shows that banks and life Insurers (and by extension, agents), form the bulk of the complaints lodged with FIDReC in 2015. Market Conduct includes inappropriate advice, misrepresentation, and disclosure issues. On the column for FI Practices/Policies, that would include disputes on liability. Based on the number of complaints against Banks and Finance Companies, 1 in every 500 people are affected by either one of the 3 major issues as shown on table.

At Insurance@FSM, we do not see it as just a statistic. We see it as a family or loved one being affected and having their dreams dashed for the benefit of another. Now imagine this, if that 1 in 500 person happens to be your mother or your grandparents, suddenly that number is no longer just a statistic to you. The most appropriate way to prevent such things from happening is by being transparent with the commissions being earned.

In our earlier article, “To Your Insurance Agent, You Are Just a $4,000 Cash Cow”, we have revealed how commissions are structured for the agencies and would not be covered in this article. However, bankers are measured and compensated differently from their agency peers. There is also a growing trend for insurance companies to sign massive exclusive distribution deals with banks, which is touched upon in our article “Bank’s Big Upfront Payment from Exclusive Distribution, Are You Worse Off?”.

Table 2: It's a TRAP! How a Banker Earns Commission3?

Plan
Premiums
Tenure
Revenue Points
Plan A

$20,000 x 5 years

= $100,000 total premium

15 Years

$20,000 x 30%

= 6,000

Plan B

$20,000 x 5 years

= $100,000 total premium

10 Years

$20,000 x 25%

= 5,000

Plan C

$500 per month

= $6,000 APE

25 Years

$6,000 x 80%

= 4,800

Plan D

$500 per month

= $6,000 APE

20 Years

$6,000 x 65%

= 4,200

Plan E

$100 per month

= $1,200 APE

15 Years

$1,200 x 45%

= 540

*APE = Annual Premium Equivalent

A typical retail banker may need to achieve a target of 30,000 to 50,000 revenue points a month3 (see "3 Secrets Your Banker Doesn’t Want You to Know") where their targets will be reset each month. As bankers are essentially remunerated on their sales volume, they may receive 5% - 20% of the revenue earned as commissions.

From table 2, our smart readers will be able to deduce why most bankers would pitch larger and longer duration plans to you when you walk into a bank. The longer the tenure (the premium duration you need to pay for the policy), the more revenue points your banker will be getting for themselves.

Proper consultation or advisory takes time, to understand and construct solutions to benefit clients (see "Would You Ever Try Bungee Jumping… Without a Rope?"). Bankers simply do not have the luxury of time, which leads to a higher likelihood of product pushing to the detriment of clients. So you can imagine the sweet smile on your banker's face disappearing when you finally decide to go ahead with a $100 per month savings plan (Plan E in table 2).

Although there are now measures in place, such as the balanced scorecard to help shift a banker's key performance indicator off the sales target. Ultimately, as the frontline sales force of the banks, their fate and duration on the "hot seat" will be influenced by the numbers they bring in. The issue will always be there as long as a banker's interests are misaligned with their customers.

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*Please check with our advisory team if the product you want is available on Insurance@FSM

We at Insurance@FSM, are here to walk with our customers through their life's journey. Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and customize investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan, you can contact our advisers at advisory@fundsupermart.com.


1Source: http://www.mas.gov.sg/~/media/resource/data_room/insurance_stat/2015/Insurance%20Statistics%202015_PDF.pdf

2Source: http://www.lia.org.sg/node/108590

3Source: http://www.straitstimes.com/business/thinking-of-buying-insurance-from-a-bank


Interested to learn more? Check out these articles:

Bank's Big Upfront Payment from Exclusive Distribution, Are You Worse Off?

To Your Insurance Agent, You Are Just a $4,000 Cash Cow!

Would You Ever Try Bungee Jumping... Without a Rope?

3 Secrets Your Banker Doesn't Want You to Know

Key Considerations When Buying an Insurance

Why Insurance



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