of investing in unit trusts and investment-linked polices (ilps)

Of investing in Unit Trusts and Investment-Linked Policies (ILP) 1

Of Investing in Unit Trusts and Investment-Linked Policies (ILPs)


Disclaimer This documents aim is not a criticism of financial advisors per se, but rather the structure of Singapores

financial advisory industry, which is mainly commission based. This leads to advice being meted out to

clients, which more often than not, is not to their benefit. I do not blame them.

If you are a financial advisor, kindly highlight to me any errors, if any, in this document so I can correct

them. You are also more then welcome to present your point of view to me.

If you are an investor in Unit Trusts or insured with and Insurance-Linked-Plan (ILP), I hope the info

presented here will be of use to you. This group of people after reading (either briefly or thoroughly), usually

will have the following 2 outcomes:

a) Let things remain status quo because: a. They have no time to go through these things (even after 6 months later). b. These are too complicated to understand (yet one is willing to buy/invest in these

instruments in the first place).

b) Take action and contact his/her financial advisor for clarifications, and probably have to make some tough decisions.

Regrettably from my experience, the majority will fall into the former group, thinking the consequences have

little impact on them.

Lastly, comments and suggestions can be emailed to [email protected].


Introduction At some point in our lives, we are bound to come across Financial Planners, Bankers etc., who preach to us

the importance of investing. Their advice on the importance of investing is sound, but more often than not,

their processes arent.

I shall cite 2 investment vehicles that are often recommended by those in the industry:

1) Unit Trust (a.k.a. Mutual Fund in the US)

2) Investment-Linked (Insurance) Policy

Unit Trust is a structure where funds are pooled together by retail investors, and the fund manager has

discretion on how to invest those funds. Some examples of well-known companies that offer this type of Unit

Trust products are Aberdeen, Schroders, Fidelity and so on. A retail investor like you and me can buy these

funds easily from the funds distributors like Fundsupermart.com or from our local banks (DBS, UOB etc.).

There are probably hundreds of such Unit Trusts available and every fund usually has specific regions or

asset classes they invest in. So for example if an investor wants to invest in the US stock market, he or she

can buy Unit Trusts that invests solely in US Stocks.

Moving on to Investment-Linked Policies (ILPs), they are life insurance policies where a portion of the

premiums paid (monthly or annually) goes into buying Unit Trusts managed by the insurance companies

own Fund Management Arm. So the companies, which manage these funds will be Prudential, Manulife etc.

Reasons often cited to buy Unit Trusts and ILPs For Unit Trusts and ILP funds, their aim is to attract investors to invest their money with them. Often in

the funds promotional materials, they will use terms like Risk Management, Generate Long Term Capital

Growth, and give their macro take on the market, talk about interest rates, GDP growth and so on. The

idea is they used these jargons to sound more sophisticated, hoping to portray a more professional image

to prospective investors.

There are hundreds of such funds to choose from, how does an individual who knows nothing about

investment choose which funds to buy?

Enter the helpers in the form of Financial Planners, who can provide advice on which Unit Trusts or ILP

funds to invest in. The planners may have a team of Analysts where their job scope comprises, but not

limited to the following:

1) Determine which funds are managed by capable Fund Managers. They might do so by looking at the funds past performance, interviews with the Fund Managers, etc. They will shortlist a set of

recommended funds which are updated as and when necessary.


2) Pick which sector will do well in the near/far future. For example many years ago, I often hear Planners buying into China and India funds as they are poised to outperform.

3) Advice clients on what to do during financial crises, which asset classes to switch to, etc.

In summary, there is a team of analysts who work five days a week to help you decide which are the funds

can buy one.

Professional Advice at a cost The structure I highlighted in the previous section enables the professionals to charge fees on 2 levels:

1) Unit Trust/Fund level, where the fund charges a fee annually known as Management Fee, which is based as a percentage (1%-2% usually) of the Net Asset Value of the fund. This fee goes into paying

for the Fund Managers salaries. This fee is then summed up with other operating expenses, make

up the total expense of the fund. These are the 1st layer of fees.

2) When you invest in a Unit Trust or ILP Fund, you have to do it through Financial Advisors or from Fund Distributors like fundsupermart.com. A Sales Charge is levied every time a investment is

made. This Sales Charge is a percentage of the investment amount. In addition, the Financial

Advisor or Fund Distributor may charge an Annual Management Fee which is levied every

quarter. This Annual Management Fee is calculated as a percentage of the value of your total

investment portfolio. Some naming variations of this fee are Wrap Fee or Platform Fee. These 2

types of charges make up the 2nd layer of fees.

Fund Factsheet Example (1st layer of fees) I will be using the Fund Factsheets of a Unit Trust Aberdeen Global Opportunities Fund and an ILP Fund,

Prudentials Prulink Global Equity Fund to illustrate where one can find out these charges. Also, if you

read the Fund Factsheet of Prulink Global Equity Fund, you realize it invests 100% in the Aberdeen

Global Opportunities Fund. What this means is that Prudential takes 100% of after-sales charge value of

their clients investment, and invests in another Unit Trust, slapping a 1.5% Continuing Investment

Charge (a.k.a. 2nd layer of Annual Management Fee) in the process.


Figure 1 Fund Factsheet of Aberdeen Global Opportunities Fund (Feb 2015)

Figure 2 Fund Factsheet of Prulink Global Equity Fund (Jan 2015)

In case you are wondering what the annotation for the 1.5% p.a. is, here it is:


Figure 3 Prulink Global Equity Fund Factsheet annotation

The maximum sales charge chargeable is up to 5% as shown in Figure 3. For this ILP Fund, the maximum

chargeable Annual Management Fee can go up to 2%! They charge this annual management fee just by

helping you buy the Aberdeen Global Opportunities Fund!

Lastly I shall clarify other jargons found in a typical Fund Factsheet.

NAV (Net Asset Value)

To the layman, one can think of the NAV of a fund as the price which the investors buy/sell the units at. It is

just like the Stock Price of a stock. However, unlike a conventional stock, the price can only be determined

only at the end of the day. It reflects the underlying value of the assets of the fund. So when costs are

incurred, say to pay the Fund Managers salary, the NAV of the fund will drop accordingly to reflect this

expense. Hence, the expenses of the fund (Funds management fees and other related costs which makes up

the 1st layer of fees) are already reflected in the funds NAV.

Bid-to-Bid / Bid-Bid / NAV-NAV

The above is used to reflect the change in the NAV of the fund. For example a fund initial NAV of $1 rises

100% to $2. The Bid-Bid performance would be 100%

Offer to Bid/ Offer-Bid

This takes into account the sales charge incurred if one invests in the fund. Using the earlier example, the

Offer-Bid performance would be approximately 95% for a 5% sales charge levied, even though the NAV

increases 100% from $1 to $2. This sales charge is one of the 2nd layer of fees, levied by the funds distributor,

Financial Advisor or Insurance companies which you buy the fund from. The offer-bid performance does not

take into account the Annual Management Fee, which the fund distributor/insurance companies/financial

advisory firms may charge.

Unit Trust example (2nd layer of fees) I shall illustrate how the 2nd layer of fees works using an example. Fund Distributors and Financial Advisory

firms charge these fees. The example assumes an investor makes a $1,000 investment into a particular Unit

Trust that has a Net Asset Value (NAV) of $1 at the beginning of the year, and remains at that value for the

rest of the year.


Transaction Description Transaction Amount Transacted Units Portfolio Value

Investment Outlay $1,000 - -

3.21% Sales Charge levied -$32.10 - -

Actual invested amount $967.90 967.90 $967.90

Annual Management Fee levied during 1st quarter

(1% annually, 0.25% quarterly) -$2.42 -2.42 $965.48

2nd quarter Annual Management Fee levied -$2.41 -2.41 $963.07

3rd quarter Annual Management Fee levied -$2.41 -2.41 $960.66

4th quarter Annual Management Fee levied -$2.40 -2.40 $958.26

Total $958.26 958.26 $958.26

Table 1 Fees payable example

To briefly explain the example shown in the table 1 above, the sales charge is levied first before the

remaining amount is used to actually invest in the fund. 3.21% (3% + 7% GST) is a typically amount charged

by Financial Advisors. According to most Funds Prospectus, the distributors can charge up to 5%.

The Annual Management Fee is slightly more complex. Every quarter, the amount payable is calculated as a

percentage (0.25% in the example) of the average daily valuation of the portfolio. The amount is then settled

by automated selling of your existing units held, at whatever NAV of the fund is at, at the day the selling is

done. If you hold a portfolio of several funds, the system will sell the units of the best performing fund in

your portfolio.

To sum up this example, an investor would have incurred a loss of around 4% in the first year,

and continuing bleeding around 1% annually for the subsequent years even if the funds NAV

remains unchanged.


Investment-Linked Policies (ILPs)

Investment Portion I shall briefly explain how ILPs work using Prudentials Prulink Protection Plus as an example.

Every time a premium paid, a portion will be allocated to buy units in the funds of the policyholders choice.

A typical allocation table given in the Benefit Illustration (BI) is shown below:

However, what is not known to most people, the actual allocation actually looks like this:

Year%%

%%allocation%to%investment%

according%to%BI%

Actual%allocation%to%investment%

1% 20%%% 10.3%%%

2% 50%%% 38.8%%%

3% 78%%% 65.2%%%

4@9% 100%% 85.9%%Table 2 Comparison of actual investment allocation compared to those illustrated in Prudential Prulink

Protection Plus ILP

Why the discrepancy? Lets use an annual premium of $3000 for a 26-year-old male as an example. 20% of

$3000, which is $600 is supposed to be used for investment.

However, $90 out of this $600 is used to pay the sales and annual charges. Then, a further $201 is used to

pay for insurance cost. The remaining amount of around $308 left is then used to invest.

In case you are wondering where the rest of the 80% ($2400) goes to, I cant think of any other areas other

than commission to the insurance firm (or advisor). This example is illustrated more in detail in the

following table:

Figure 4 Prudential Prulink Protetion Plus investment allocation as illustrated in Product Summary


Age%Premium%

Paid%

(1)% (1a)% (1b)% (1c)% (2)%

Allocation%to%"buy"%units%

Fees%

Insurance%Costs%

Actual%amt%invested%

Actual%%%allocation%to%buy%units% Commission%

Sales%charge%(5%)%

Annual%charge%

Total%Fees%

26% $3,000%% $600%% $30%% $60%% $90%% $201.16%% $308.84%% 10.3%% $2,400.0%%

27% $3,000%% $1,500%% $75%% $60%% $135%% $201.16%% $1,163.84%% 38.8%% $1,500.0%%

28% $3,000%% $2,340%% $117%% $60%% $177%% $205.66%% $1,957.34%% 65.2%% $660.0%%

29% $3,000%% $3,000%% $150%% $60%% $210%% $211.67%% $2,578.33%% 85.9%% $0.0%%Table 3 Prudential Prulink Protection ILP detailed premium allocation

*Premium = (1a) + (1b) + (1c) + (2)

Appendix C shows the extended version of this table.

Also extracted from Product Summary, the $60 annual charge and 5% sales charge levied by selling units

from existing holdings are stated explicitly:

I salute those Financial Advisors selling ILPs if they explained the above details to their clients. But I highly

doubt they do.

Figure 5 Sales and Annual charge as illustrated in Prudential ILP Product summary


Insurance Portion Two 30-year-old males, Alan and Bernard wishes to have insurance coverage of $200,000 for Death, Total

Permanent Disability (TPD) and Critical Illness (CI). Alan wants the coverage to last until age 65, whereas

Bernard might or might not want to continue beyond age 65.

Alan bought a term insurance, AXA Life Term Protector + TPD +CI Riders, with annual premiums of $872.

He will pay this amount annually until the policy terminates at age 65.

Bernard bought a Prudential ILP, Prulink Assurance Account. The insurance portion of his premiums is

illustrated in the following table, together with Alans premium:

Age% Bernards%Insurance%Cost% Alans%Premium%30% $290.23%% $877%%31% $298.24%% $877%%32% $304.24%% $877%%33% $316.25%% $877%%34% $320.26%% $877%%35% $334.27%% $877%%36% $358.29%% $877%%37% $396.32%% $877%%38% $442.35%% $877%%39% $500.40%% $877%%40% $564.45%% $877%%41% $630.50%% $877%%42% $704.56%% $877%%43% $780.62%% $877%%44% $868.69%% $877%%45% $952.76%% $877%%46% $1,044.84%% $877%%47% $1,146.92%% $877%%48% $1,259.01%% $877%%49% $1,399.12%% $877%%50% $1,589.27%% $877%%51% $1,807.44%% $877%%52% $2,059.65%% $877%%53% $2,339.87%% $877%%54% $2,652.12%% $877%%55% $2,978.38%% $877%%56% $3,338.67%% $877%%57% $3,724.98%% $877%%58% $4,145.31%% $877%%59% $4,697.76%% $877%%


60% $5,264.21%% $877%%61% $5,862.69%% $877%%62% $6,491.19%% $877%%63% $7,165.73%% $877%%64% $7,878.30%% $877%%65% $8,692.95%% $877%%

Total& $83,600.83& $31,572&Table 4 Bernard's insurance cost vs Alan's Premium

Note that the insurance cost Bernard pays is just part of the total premiums (say $3000 annually) he has to

pay. Towards the end, as the insurance cost balloons, he has to start selling his investments to pay for it.

That is how ILP works. Even if Bernard wants to continue coverage beyond age 65, I dont think he can

afford it (unless he is willing to wipe out his entire investment to pay for it).

On the other hand, Alan is quite happy paying $877 annually for coverage until age 65.

Why buy ILPs then when it is much more expensive to cover beyond age 65? Is it because of the attractive

investment returns? The last section of this document aims to debunk this fact.

Real ILP Case Study Ill highlight a real life case study in this section, using a real Benefit Illustration (BI) as shown below.

Figure 6 Real Life ILP Benefit Illustration


The BI assumes a cash value at the start of policy year 9 to be $14,712. Annual premiums need to be paid for another 36 times, from the start of policy year 9 to the start of year 44. Thereafter, at the end of policy year 44, the cash value would range from $199,000 to $610,000, for returns of 4% and 8% respectively.

Now if we can attempt a finance calculation (easily achieved using Excel PMT formula) to find out what is

the required annual investment outlay to obtain future cash values of $199,000 and $610,000 at 4% and 8%

returns respectively:

$199,000: Invest $1717.71 annually at 4% rate of return

$610,000: Invest $1856.16 annually at 8% rate of return

So what the above values mean is that, on average every year, around $3000 (or ~60% of total premiums)

goes to insurance costs, fees and charges, while only approximately $1800 is being invested at the indicated

growth rate!

For those who are already covered by ILPs at the moment, but plan to terminate it before the insurance

costs balloons. Think about this: What if between now and the day you terminate you ILP, you are diagnose

with some medical condition (e.g. high blood pressure)? You will be left with the following options:

1. Be stuck with your current ILP and pay the exorbitant insurance cost in later years. 2. Terminate and take up a cheaper insurance, but with pre-existing conditions (e.g. Stroke) excluded. 3. Terminate the ILP cover when costs start to balloon and be left with no cover.

So to those Financial Advisors who preached the low cost of ILPs in early years, saying one can terminate

the ILP in later years, they are asking you to take a gamble, and what is the reward for this gamble? Highly

likely to be mediocre returns on your investment returns, as the last section will show.

Impact of Fees on Performance

Sales Charge and Annual Management Fee I shall now examine the long-term impact of Sales Charge and Annual Management Fee (2nd layer of fees),

using the following assumptions:

Sed quis libero Dolor Sit Amet

Sales Charge 3.21%

Annual Management Fee (levied annually

instead of quarterly) 1%

Monthly investment outlay $600

Investment Period 14 years 7 months

Fund NAV compounded growth rate 8.45%

Table 5 Assumptions for fictitious fund


Also, I assume the funds NAV increases linearly from $1 to $3.39 over the 175-month period, or a

compounded annual growth rate (CAGR) of 8.45%.

Figure 7 Effect of Annual Management Fees and Sales Charge on portfolio value over a 175-month period


Fees description Portfolio Value Difference Annual average of

total fees paid

No Sales Charge or Annual Fees $205,716 - -

3.21% front-end Sales Charge $199,112 $6,603 $453

3.21% front-end Sales Charge + 1% Annual Fees levied

on portfolio value $182,610 $16,432 $1,126

Table 6 Fees paid over 175-month period

From this example, it is evident the Annual Management Fees levied on the total portfolios value is the

scary one, despite it being only 1% (can go up to 2% from the Prulink fund example).

As mentioned in the previous section, the Financial Advisory Firms justify these fees by proclaiming,

through their extensive research, they know which funds can outperform over time, when is a good time to

buy/sell these funds, etc.

The next section will illustrate CPF-IS Unit Trusts and ILP Funds as a whole, which is not that fantastic

either, even without the 2nd layer of fees being levied.


CPF-IS Unit Trusts and ILP Funds Performance In this section, the past 9-year performance of CPF-IS Unit Trusts and ILP Funds are examined.

Funds always benchmark their performance against an index or mixture of indices, and the goal is to

outperform them. Some examples of indices are:

1. MSCI World Total Return, which represents the global stock/equity market. 2. Straits Times Index, which is a representation of Singapores stock/equity market.

Data in this section is obtained from the Investment Management Association of Singapore (IMAS,

http://www.imas.org.sg/index.php/resources/report). Being CPF-IS approved, these funds are deemed to be

safer to invest in by our (Singapore) government.

Every quarter, IMAS releases performance reports on the entire universe of CPF-IS Unit Trusts and ILP

Funds available in Singapore. To compare their performance with indices like the MSCI Total World Index, I

could only go as far back as Dec 2005 as performance data on the indices are not available in their reports

before this date.

First, the annual performances of the respective funds/indices are presented (except during 31st Dec 2005

31st Dec 2007 which is a 2-year performance instead). Since the MSCI World index is a representation of

global equities, I shall only look at Unit Trust / ILP Funds invested purely in Equities only. Note that the

performance is before 2nd layer of fees charged.

%%

Indices/Funds&Annual&Performance&in&SGD&

Dec$05$$Dec$07$

Dec&07Dec&08&

Dec&08&&Dec&09&

Dec&09&$&DecE10&

Dec&10&Dec&11&

Dec&11&&Dec&12&

Dec&12&DecE13&

Dec&13&DecE14&

MSCI%World%TR%USD% 14.43%% @40.28%% 27.45%% 2.50%% @3.86%% 9.78%% 31.65%% 10.73%%Singapore%Straits%Times%CR% 51.96%% @49.17%% 64.49%% 10.09%% @17.04%% 19.68%% 0.01%% 6.24%%CPF%IS%Unit%Trust%(Equity)% 37.00%% @47.21%% 48.50%% 6.83%% @13.10%% 12.60%% 14.00%% 9.28%%

CPF%IS%ILP%(Equity)% 39.03%% @47.78%% 47.95%% 4.96%% @15.39%% 11.95%% 14.82%% 7.68%%Table 7 Performance figures of Indices and CPF-IS Unit Trust (Equity) and ILP (Equity).

Source: www.imas.org.sg/index.php/resources/report


Figure 8 9-year Cummulative Performance of Indices and CPF-IS Unit Trust (Equity) and ILP (Equity).

% 9*year$cumulative$returns$Singapore%Straits%Times%CR% 147.55%$50%%STI,%50%%MSCI%World% 142.46%%CPF%IS%Unit%Trust%(Equity)% 139.86%%MSCI%World%TR%USD% 137.36%%CPF%IS%ILP%(Equity)% 132.03%%

Table 8 9-year Cummulative Performance of Indices and CPF-IS Unit Trust (Equity) and ILP (Equity).

The figure and table above illustrate the cumulative 9-year performance of Equity Unit Trusts and ILP Funds. I also included the performance of a portfolio with initial 50% invested in STI and 50% in the MSCI World TR. The following conclusions can be drawn from the 9-year cumulative performance data:

1) The returns of the universe of Unit Trust and ILP Funds trail those of the STI and a portfolio of 50% of STI and 50% of MSCI World TR, before taking into account Front-end Sales Charge and Annual Management Fees (2nd layer of fees).

2) If either Front-end Sales Charge or the Annual Fees (or both) are taken into account, these Unit Trusts and ILP funds definitely lose out to both indices stated above.

3) ILP funds performance is worse than that of the Unit Trust funds. This might be due to either their higher expense ratios or plain lousy fund managers (who still get paid by the way), or both.

One of AXA ILPs product summaries (AXA GoldenSaver) lists their ILP Funds and their relative performance to their benchmarks (which I included my own annotations):


From the AXA ILP Funds List, only 7 out of 18 funds outperformed their respective benchmarks, and 2 out of those 7 are loss-making. And this is before fees and charges by the insurer. To conclude this section, for those advisors who are selling these investment products (ILPs or Unit Trusts), this is what they are actually telling you, in my view: The universe of equity funds/unit trusts in Singapore underperformed the MSCI World Index Long Term and Straits Times Index for the past 9 years, but if you pay me fees, Ill try to pick the good ones that can beat the index in the next 10-20 years. Ill try, no guarantee, you just have to trust that I can do it. Ill still collect the fees from you during this 10-20 years nonetheless...


Index Funds and ETFs I have shown that the professionally managed fund failed to beat indices returns like the MSCI World and STI. This is a fact mentioned by renowned investor Warren Buffet as well, who cites these Frictional Costs are the reason these funds fail to beat the indices long-term. If it is so difficult to beat the index, why not just invest in the index and match its performance instead of trying to beat it? Unknown to many, we can invest in index (or indices). This is done through index funds or Exchange-Traded Funds (ETFs). The former is like mutual fund, only that it is passively managed and hence have very low expense ratio. Similarly, the latter aims to replicate the performance of indices they track and are traded on stock exchanges.

Security Name Fund Size Stock Exchange Currency Expense Ratio

SPDR STI ETF SGD 348 million Singapore SGD 0.30%

Vanguard FTSE All-World UCITS ETF USD 747 million London USD 0.25%

Aberdeen Global Opportunities Fund SGD 302 million SG Unit Trust SGD 1.75%

The table above shows 2 ETFs that an investor could possibly use to make up a portfolio of 50% Singapore

stocks and 50% International Stocks. Shown for comparison purpose, the Unit Trust used in the earlier

example is presented as well. Note the Unit Trust incurs approximately SGD 5 million annually (~1.75% of

SGD 302 million) in operating expense, compared to about SGD 1 million for the SPDR STI ETF. No doubt a

majority of the Unit Trusts expense goes into funding the fund managers salaries.

To give an idea how easy it is to invest in the index, it takes just 17 mouse clicks upon logging into POSB

iBanking to setup an automated monthly investment plan to invest in Nikko AM STI ETF. Time required:

less than 2 minutes.

Conclusion Unit Trust and ILP Funds by themselves do not outperform a simple All-World index in the long run, when

the relevant fund fees are taken into account.

Enter the Helpers who are the Financial Advisors who proclaim they can solve this problem by picking the

crme de la crme of these funds, and they do so by charging an additional layer of recurring fees. Investors

pay these fees when they invest in these Unit Trusts or ILP Funds, solely on this promise. Most will never

know how their investments will turn out until 10 20 years later (provided they track their own returns,

which 99% of investors probably dont).

Alternatively, one can just pay no one and invests in low cost ETFs, and the result will more than likely turn

out satisfactory in the long run.


Appendix A- AIA Family First Protect (ILP) Extracted from Product Summary for AIA Family First Protect Version 3.2

Sales charge

This is levied in the form of bid-offer spread of 5%. Bid and offer prices are prices that you sell and buy your

units at. The bid price is 5% lower than the offer price according to the product summary. Just think of it as

buy high sell low.

If there were no bid-offer spread is 0%, you would have bought $200 worth of units at a price of $0.95, or 210

units.

Other Fees

a) $5 per month is levied by selling the required number of units at the lower bid price. Using the above example, of the 200 units bought, 5.2 units would be sold at $0.95 to fulfill this $5 policy fee.


b) To pay for the insurance charge, units are similarly sold at bid price to pay for it.

Summary

%% Amount% Price% Units%Investment%Outlay% ($200.00)% $1.00%% 200.000%%Policy%Fee% $5.00%% $0.95%% (5.263)%Total% %% %% 194.737%%Units%valuation% $185.00$$ (194.737%units%@%$0.95)%

From the summary table above, before any price fluctuations of the fund, one would have already incur a

total charge of $15, which makes up of 5% sales charge and $5 policy charge, every month.


Appendix B- Aviva Global Savings (ILP)

ILP Fees payable Example (Aviva Global Savings) Extracted from Product Summary Aviva Global Savings Account (ver 5.60). There is no bid-offer spread for

its funds (i.e. sales charge), but it has something more deadly in the form of initial administration fees and

investment management fees.

In the example illustrated in the Product Summary, the fund price is assumed to remain constant for the

entire 8 years. The units bought over the 8 years are segregated into Initial Units and Accumulation

Units. The former are units acquired during the first 18 months and the latter are units acquired during

the remaining period.

The reason for the segregation into Initial Units (IU) and Accumulation Units (AU) is to levy to ongoing

quarterly wrap fees of 1.5% (1.12%+0.38%) on the IU, and 0.38% on the AU. This level of creativity in their

fee structure required me to do up an elaborate spreadsheet to find out the impact of these fees.


Using the illustration in the product summary of $450 monthly premiums over 8 years, with no fluctuation

in fund price, I obtained the following figures:

Total%Investment%Outlay% $43,200%Total%Valuation% $37,874%%Total%fees%paid% $5,326%or%$55.48%monthly%

Even with no fluctuation of the fund price, one would already suffer a 12% drawdown in the portfolio over

the course of 8 years.

The spreadsheet of this calculation can be found in the following pages, and one has to see to believe how

complex it is. I am quite certain no advisor would have worked it out like that to show his/her client when

selling this product.


Appendix C- Prulink Protection Plus (ILP)

of investing in unit trusts and investment-linked polices (ilps)

Documents