Jun 29, 2015

Why Ultron Should Have Used Endowment Plans to Destroy the World.

A typical sales pitch by a insurance sales person.

"Sir, do you know what is the interest rate in your bank?"


"What if there is a saving plan, that can give you 4% a year, provides free insurance and even help you pay for your savings when you are sick! Will you be interested?"

"Wow! Sounds like a good deal! Where do I sign!?!"

Let us assume that an investment analyst picks up the same product and he has to present to his boss on the product. How will he present it?

Analyst, "Sir, This product has a guaranteed loss of 10%-100% of capital over a 20 out of 21 years period and has the potential to make 4% a year."

Boss, "What kind of lousy product is this? If I am risking 100%, I will want at least 100% return on my investment! Why are you wasting my time!"

One product and 2 very different presentation, reflecting the difference in the perception between a man on the streets and an investment professional.

Investment Returns from a sample endowment plan

I get extremely irritated when financial consultant presents an endowment plan as an alternative form of bank savings : Safe, better interest, free insurance.

It is so far away from the truth.

My definition of a safe saving plan is one that will not lead to any capital loss unless a catastrophic event occurs such as a financial crisis, a zombie apocalypse or Ultron and his clones overrun the country.

When a product which will lead to a highly probable loss of capital, it should be called an investment plan and in the case of an endowment, it is a guaranteed loss of capital for the first 20 years. In my opinion, it should be reclassified as a derivative whereby 100% loss of capital is much more probable than the average stock and property.

And Warren Buffet calls derivatives a weapon of mass destruction.

Ultron should have converted the bank deposits of all humankind into an endowment plan rather than trying to drop a city from a few thousand feet from the air. He could have earned a nice commission too.

So, the next time a financial consultant tries to impress you how "safe" their saving plan is, please correct their vocabulary by sharing with them that it is actually a high risk investment plan rather a low risk saving plan.  

It is one thing that consumers buy into a product knowing the full risk and returns of products. It is another thing when they are hoodwinked into buying a misrepresented product.


  1. Very well put.
    We should always be skeptical when the financial adviser is not sitting in the same boat with you. What is their interest to recommend an endowment plan? Their own income in form of commission, but they do not care how much money that earns you in the future.
    That's why the only valid financial adviser is one that is solely paid from a cut of the profits his advice earns you in the future. No upfront fees, no commissions, just plain percentage share in profits.
    Are there any financial advisers like that in Singapore?

    1. Hi Tacomob, the evolution of the financial industry takes time and the fee structure is also governed by industry norm and regulations. For example, the regulator has just approved the sale of ETF through certain licensed advisors a month ago and everybody is still figuring out the fee structure and the liabilities and regulatory problems. As of now, there are advisors that charge a % of the AUM managed and there is a few advisors and hedge funds that serve only high net worth individuals based on profit sharing only.


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