INVESTORS used to baulk at having to pay fees such as sales charges or one-off financial advisory fees even before their investments started making money.
Last month, GYC Financial Advisory launched the Everest Investment Portfolio, which allows investors to start an investment portfolio of at least $50,000 without having to pay a single cent upfront in fees.
GYC is not charging an advisory fee or the typical upfront sales charge for any of the unit trusts in the Everest portfolio.
This is in contrast to other financial institutions, which charge sales fees of up to 5 per cent when buying into unit trusts.
A one-time advisory fee usually ranges from a lump sum to 1-2 per cent of the investment amount, while an annual wrap fee to provide ongoing advice is 0.75-1.5 per cent.
But there are other charges. A performance fee of 20 per cent of investment gains or profit is imposed at the end of 12 months if the gains exceed the 'hurdle' rate of 2 per cent.
For instance, if the net returns are 10 per cent in one year, GYC is entitled to 20 per cent of profit or 2 per cent, while the investor pockets 8 per cent. If the net gain is 1.8 per cent, the performance fee is not levied for that year.
Instead of an annual wrap fee, Everest levies a monthly administrative fee of 0.125 per cent, which works out to 1.5 per cent annually.
Those who need to withdraw their investment sums may do so any time, but an exit penalty or 'realisation' fee is payable.
If you redeem the amount partially or fully during the first two years, a fee of 3 per cent of the withdrawn amount in the first 12 months and 2 per cent for the next 12 months will be deducted from your account.
No 'realisation' fee is applicable from the third year.
Other funds that typically impose an upfront sales charge do not have an exit penalty. Nor do they have a performance fee.
An exception is the Alpha equity fund from APS Asset Management, which levies a 25 per cent performance fee if the return tops 6 per cent.
What financial advisers say
Mr Leong Sze Hian, the president of the Society of Financial Service Professionals, believes that although no fee is levied upfront, investors will end up being slapped with higher costs in the long run compared with other investment portfolios offered elsewhere. 'I've never seen such a high cost structure,' he says.
Another financial expert, who declined to be named, says Everest's 'hurdle' rate of 2 per cent is too low, which makes it easily achievable.
This means that GYC is likely to collect a performance fee of 20 per cent of investment gains every year.
Mr Goh Yang Chye, the managing director of GYC Financial Advisory, says that with Everest, customers have no upfront risk when they entrust money for management. He says investment portfolios should be judged by their performance, and cost is a secondary concern limited only to how much it erodes returns.
Whole life plan with innovative features
What it is
LAUNCHED in January, Vivolife is a whole life plan that covers death, permanent total disability and critical illness. It comes with some innovative features that are an industry first.
One of them is the minimum protection value in the first 15 years.
This is how it works: If death, critical illness and/or permanent total disability should occur in the first 15 years of coverage, the benefit payable is the higher of the sum assured plus bonuses, or 125 per cent of the original sum assured.
This is higher than what other plans can offer in the first 15 years.
Vivolife also offers a unique unemployment waiver. This means that if the policyholder is retrenched and remains involuntarily unemployed for a continuous period of three months, premiums on his policy will be waived for up to a maximum of six months.
This waiver can be exercised only once.
Vivolife can also be converted to an immediate annuity after age 60, based on the enhanced surrender value of the policy.
An additional 5 per cent on the surrender value will be given at the time of conversion.
What financial advisers say
Mr Apelles Poh, a financial planner with Professional Investment Advisory Services, says the retrenchment benefit is a creative way to tide clients through tough times.
Mr Patrick Lim, the associate director of financial advisory firm PromiseLand, likes the innovative features of the plan but highlights that the option to convert the policy to an annuity at age 60 does not seem to be guaranteed.
This is because the disclaimer says that it is contingent on the availability of the annuity at the point of conversion.
Update of Shield hospitalisation cover
What it is
THE new Assist rider for the Incomeshield hospitalisation and surgical plan was launched on Nov 16 for new and current policyholders of the plan.
First, to recap what a rider is and what it covers: All Shield hospitalisation plans include a 'deductible' portion - the first layer of charges that the policyholder has to bear. Depending on the type of plan, the deductible amount typically ranges from $2,000 to $3,000.
The plans must also have a co-insurance feature, which means the policyholder shares part of the cost of the bill, usually 10 per cent over and above the deductible.
For example, if an A-class ward bill is $10,000, the policyholder bears the first $3,000 as the deductible and $700 as co-insurance (10 per cent of the remaining $7,000). The insurer pays the remaining $6,300.
Insurers offer riders, payable with a cash premium, which waive the deductible and/or co-insurance.
In the case of Income's new Assist rider, it covers the deductible but it will not completely cover the co-insurance portion of the bill.
Instead, the insured will bear the co-payment portion, which is 10 per cent of the claimable amount, subject to a maximum cap of $1,500 (for Plan C) to $3,000 (for Plan P).
Let's assume you incur a $1,000 hospital bill. With an Assist rider, you are liable for $100 (10 per cent of $1,000) only. If the bill is $100,000, your exposure is capped at $3,000, not $10,000.
Before the Assist rider, the older Incomeshield Plus rider fully covered both the deductible and co-insurance portions of the claimable amount.
Policyholders who bought the Plus rider can opt to stay with the cover, but will face higher premiums, which were revised up from the start of this year by about 53 per cent.
It is believed that the Assist rider has come about because Incomeshield medical claims have been rising. With lower premiums and greater shared responsibility on the part of the customer, the new rider is an attempt to ensure that Income will be able to offer the hospitalisation cover over the long run.
Income chief executive Tan Suee Chieh explains that the Assist rider offers policyholders lower premiums and greater savings in the long term, compared with 'full' riders that cover both the co-insurance and deductibles.
'The premium for the Assist rider is about half of that for 'full' riders offered in the market, which can translate into substantial savings for the policyholder,' he says.
He adds that the experience in other countries has shown that, when the co-payment element is not included in health insurance plans, there tends to be over-servicing and over-consumption of health services.
This is not in the best interest of policyholders as health-care costs will escalate and insurers will end up having to raise premiums regularly.
What financial advisers say
For current Incomeshield policyholders who have bought the Plus rider, Mr Patrick Lim, the associate director of financial advisory firm PromiseLand, suggests that the decision to switch to the Assist rider should be put off as long as possible.
This is particularly so for those who can afford to pay the higher premiums and are afflicted with medical conditions, since the Plus rider offers a higher benefit of covering both the deductible and co-payments fully.
Providend's head of risk management and special projects, Mr Eddy Cheong, believes that though the premium for the Plus rider has increased by about 50 to 85 per cent, it is worth keeping.
'That is because the old premium was very affordable to begin with and, even after the hike, it is still one of the lowest in the market,' he said.
However, policyholders might want to switch to Assist when the premiums become unaffordable, either because they have reached higher age bands or because of periodic repricing of premiums on the part of Income, says Mr Lim.
