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investment linked assurance schemes ILAS (SALES PRACTICES ( Information…

- - - - to invest in shortterm money markets instruments in order to provide stable income with minimal capital risk
    - - open-ended
      - unit offer price remains constant (e.g. HKD1,000);
      - interest credited to the account as units purchased;
      - participation in short-term investment instruments.
    - - the safest, the most stable;
      - higher return than bank deposits;
      - asset liquidity.
    - - interest rate may fluctuate;
      - relatively low return.
  - - - Bond Fund
        
        to provide stable income with minimal capital risk
        
        investing in bond market;
        being equivalent to a diversified bond portfolio;
        debt securities issued by governments or large corporations; and
        some may invest in higher yield junk bonds.
        
        PLUS: higher return than money market fund;
        fund managers can trade and take advantage of interest
        rate movements; and
        usually can cover inflation.
        
        MINUS" risk of rising interest rate; and credit risk of issuer.
      - Equity fund
        
        to achieve higher long-term capital appreciation
        
        investing in equity market;
        more suitable for long-term investment; and being equivalent to a diversified shares portfolio.
        
        higher management fee may be charged; higher risk than bond funds; and
        risk of company failure.
      - Index fund
        
        to mirror specific index performance
        
        passive management;
        automatic investment decisions; limited number of transactions; and may also be tied to non-equity indices
        
        PLSU:
        easy to understand;
        lower management fee;
        less risky than index futures; and hedging available
        
        MINUS:
        cannot capitalise on market movements; only track market performance;
        cannot outperform market; and unwelcome during a bear market.
      - Warrant fund
        
        to achieve exceptional high return
        
        investing mainly in warrants;
        and leverage through the use of warrants.
        
        PLUS: possible high return
        
        MINUS: extremely high risk
      - Global fund
        
        to invest in stocks or bonds throughout the world
        
        international investment
        
        PLUS diversification; and
        capture overseas investment opportunities.
        
        MINUS currency, political risks;
        complicated custodian arrangement; differences in accounting procedures; and lesser degree of public information.
      - Regional/country fund
        
        to invest in a specific region or country
        
        typically closed-end funds, could as well be open-ended funds
        
        PLUS: potentially high growth; and capture the opportunity of a region.
        
        MINUS: high risk; low liquidity; and lack of diversification.
      - Specialty fund
        
        to invest in a specific industry/sector and capitalise on the return potential
        
        concentration in one particular industry; and high risk, high return.
        
        PLUS: potentially high growth;
        full utilisation of fund manager’s knowledge on the particular industry
        capture the opportunity of an industry.
        
        MINUS: higher risk potential;
        lack of diversification; and low liquidit
      - Income fund
        
        to generate current income rather than to achieve growth
        
        dividends from preferred stocks; and coupon payments from bonds.
        
        -PLUS: regular income; medium risk; and good liquidity.
        -MINUS: relatively low capital appreciation
      - balanced fund
        
        to achieve both income and capital appreciation and to avoid excessive risk
        
        investing in a combination of stocks and bonds; emphasising the growth potential of stocks; relative stability of income from bonds; and mid-way between bond and growth fund.
        
        PLUS: balanced risk and return; and diversification.
        MINUS: medium return; and
        may not fully capitalise on a bull market.
      - Growth fund
        
        to achieve maximum capital appreciation rather than a flow of dividends
        
        investing in growth stocks; and
        may invest in smaller, lesser known companies out of mainstream market which fund managers believe possess dynamic potential.
        
        PLUS: higher growth rate; and
        full utilisation of fund manager’s expertise.
        
        MINUS:some fund managers may adopt highly aggressive/ speculative strategy;
        extremely high risk; and
        no consistent income/dividend fl
      - Guaranteed funds
        
        to be neutral to negative market performance with a guarantee on the principal/return
        
        guaranteed amount will be paid upon maturity
        
        PLSU: no risk of principal
        
        MINUS: application of high guarantee fee; minimum investment period applicable; special conditions may apply; and relatively lower return.
      - Fund of funds
        (Unit Portfolio Management Funds)
        
        to carry out diversified professional management
        
        investing in other mutual funds
        
        PLUS: diverstifacation
        
        MINUS" higher management fee may be incurred
- - - - “Updated Requirements Relating to the Sale of Investment Linked Assurance Scheme (“ILAS”) to Enhance Customer Protection” (2013
      - for compliance by Life Insurance Council (LIC) member companies (Member Companies)
        and insurance intermediaries that sell ILAS products, w
      - in line with Guideline on Underwriting Class C Business (GL15) issued by the Insurance Authority
      - “Initiative on Financial Needs Analysis” 2015
    - - imposed on all its authorised institutions a mandatory requirement for audio-recording of the sales process of ILAS products
      - provide prospective clients with Important Facts Statements
    - - “Regulations for Insurance Brokers Engaged in Advising on Linked Long Term Insurance or Arranging or Negotiating Policies of Linked Long Term Insurance”
      - “Code of Conduct for Insurance Brokers Conducting Investment Linked Business”
      - ‘Guidance Note on Product Recommendation for Long Term Insurance Business (Including Linked Long Term Insurance)’, a
      - ‘Guidance Note on Conducting Investment Linked Business
      - "Membership Regulations"
        
        A. Misconduct
        
        B. Membership
        
        C. Code of Conduct
    - - (i) the suitability assessment of prospective ILAS customers has been carried out before recommendation of an ILAS product;
      - (ii) the product features, charges and fees, the product and investment risks have been clearly explained to the prospective customer before fulfilment;
      - (iii) all necessary product and marketing documents have been provided to the prospective customer before fulfilment; and
      - (iv) the sales process for the purchase of an ILAS product has been done in the correct order, with a financial needs analysis (FNA) and a risk profile questionnaire (RPQ) at the heart of the process. The insurance intermediary must also strictly follow the proper sales process as set out in clause 12.2 of and in the Appendix to the IA’s GL15 (please refer to section 5.2.7), particularly in relation to the comparison of different insurance options.
  - - - personal particulars (name, date of birth, marital status,
      - occupation, education level, etc.);
      - financial outgoings (monthly living expenses, rent/mortgage
      - redemption, etc.);
      - disposable assets (savings, stock/securities/bonds, etc.);
      - liabilities (mortgage loan, debts, etc.); and
      - family commitments (number of dependants, education funds,
      - etc.).
      - Intermediaries should take into account the customers’ total protection needs, total disposable assets, financial outgoings and liabilities, as well as his/her willingness and ability to pay premium (and the duration of payment)
  - - - investment objectives;
      - risk tolerance; and
      - financial circumstances.
      - preferred investment horizon;
  - - - Member Companies are allowed to adopt point-of-sale audio recording (PSAR)
        
        PSAR must be conducted in the office of the Member Company.
        
        An employee of the Member Company must attend, manage and witness the whole PSAR process.
- - - - only financial institutions authorised by the Hong Kong Monetary Authority
      - igher rates of return than demand deposit as a trade-off for lower liquidity
      - Early uplift of term or fixed deposit is subject to heavy penalty.
      - TErm vs demand deposits
    - - short-term (typically maturing in less than 1 year), highly liquid, low-risk debt instruments issued by governments, banks and large non-financial corporations.
      - Government Bills;
        
        Short-term Certificates of Deposit; and
        
        Commercial Papers.
  - - - Supra-nationals Bonds
      - Government Bonds
      - Government Agency Securities
      - Municipal Bonds
      - Corporate Bonds