To hear Senator Mar Roxas say it, the Securities and Exchange Commission is either sleeping on the job, sleeping with the enemy or both.
The problems of Legacy Consolidated Plans have resurrected old ghosts and painful lessons for hapless parents trying to prepare for the future. Issues hounding College Assurance Plans, PET Plans, Pryce Plans, Pacific Plans, TPG and many others raise serious question for students of financial planning.
Do we still trust the pre-need industry? Do we still trust regulators? How in the world can we steer clear of potholes that can endanger our precious savings?
There has been serious regulatory oversight, that’s pretty obvious. Only 5% of plan holder’s payments are placed in the trust fund? My children’s education is worth only 5% of what I paid? Where did the rest go?
What also caused my extreme dismay is that it took a Senate hearing for the SEC to start thinking about freezing Legacy owner Celso de los Angeles’ assets, which he says can reach P1 billion--almost enough to pay off all his plan holders. It’s been two days and the SEC still does not know that he has 30 companies they can run after.
“Where are your forensics teams? Where are their computers?” Senator Roxas asked in obvious frustration.
Legacy asked for voluntary dissolution in December. It is now February. I don’t like politicians much but he has a point.
Now, much as it is fashionable to point fingers, there are things we plan holders can do to safeguard our own money. Suppress the greed, learn how to do your own due diligence, educate yourself, make your own decisions.
Finding integrity among businessmen in this whirlwind world of business is an increasingly difficult thing to do. The government was supposed to help us with that.
SEC: sleeping with the enemy or sleeping on the job
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I think media has misinterpreted the 5% deposit to trust fund. They must have picked up only the first year payment.
In general, an average of 51% to 60% of total payments go to trust fund contribution for pre-need. That is the minimmum set by SEC although in the present economic environment, that may not be enough anymore.
You see, pre-need had its time during the 60s to 80s when these companies could collect premium and pool these money to invest in higher yielding instruments not available to individuals during those times. Now, its a different picture. Yoo can now invest in mutual funds for as low as an initial investment of 5k and earn an average of 10% over the long term.
Still, we should not blame pre-need firms for these fiascoes. Blame Ramos for deregulating tuition fee increase during his term. Blame the regulators for not acting proactively when these new laws came out. But i do agree. We might be staring at the deathbed of the pre-need industry. Unless they reinvent themselves to become a totally different branch of the financial services industry, we might be seeing the last breath of the industry.
Tigran, that was the figure that came out in the Senate hearing and House committee on banks hearing Monday and Tuesday, respectively. The SEC did not mention anything about 51 to 60 pct deposit in the trust fund after the first year. But if that were truly in the SEC's regulatory rules, I would still think bulk of the contributions should have been made in the early years of contribution so that time value of money could work hard to grow that trust fund, instead of waiting for the 5th or 6th or later years. Unfortunately, of course, much of the first year and second year contributions go to commissions and operating expenses, which is still a questionable way of doing things.
i'm just preparing for my child's education by the usual savings that require discipline...i already have a pension plan. my wife's making some money from her online selling business (while i make a few dollars a month thru blogging). we also invested a little amount in a hog raising project.
Tegran,
You said, " I think media has misinterpreted the 5% deposit to the trust fund. They must have picked up only the first year payment...... In general an average of 51% to 60 % of total payments go to trust fund... set by the SEC.."
Please explain further what happen to 95 percent of the initial investment ? What are the basis of Preneed Underwriter to charge Policy holders that much in the first year payment? It is somewhat a reverse of how a good business model should have charge underwriting fees.
Am I right to asurme that CAP
Tegran,
You said, " I think media has misinterpreted the 5% deposit to the trust fund. They must have picked up only the first year payment...... In general an average of 51% to 60 % of total payments go to trust fund... set by the SEC.."
Please explain further what happen to 95 percent of the initial investment ? What are the basis of Preneed Underwriter to charge Policy holders that much in the first year payment on CAP trust fund.
If the policy underwritten is for life insurance purposes, then I agree that almost all the first year payment is for the Agent and Underwriter's commission and concession, respectively. But I presumed they operate under the supervision and guidelines of the SEC, as investment company, thus I would also presumed that they should charge their commission or expenses similar to mutual fund companies' charges to investors.
For open-ended mutual fund charges are in the range of 1 to 5 percent.
Again, what happen to 40 to 49 percent part of what you said minimum amount set by the SEC? Where are they invested? (squandered?)
CAP, it being a trust fund must be invested with a target period of time so the custodian or trustees' fiduciary responsibility must be strictly adhered to.
Celso de los Angeles, et al. should be prosecuted and be punished severely if found guilty.
Yes, Tigran is right. Father Pre-need is dying, but before he dies, he needs to do his best to protect his assets and ensure that his Children Planholders get to divide among themselves whatever assets he has left. And Father Pre-need should be helped by his Brother/Grandfather Government who allowed him to do what he wanted to do. Or else, Father Pre-need will find himself in the Other Side excruciating in wretched agony in hell as the Children Planholders weep, scream and curse him all day long.....
Hi All,
Based on the Pre-Need code that has been pending in congress for over 2 years, pre-need companies are only required to invest 48% to 54% of premiums in a trust fund. What this means is that in order to double your money in 10 years, the trust fund will have to earn close to 15% per year for 10 consecutive years. Given that even hitting double digits consistently is a tall order for most people, having to do it, in effect, perpetually is impossible. Hence, I strongly believe that many pre-need companies, as they are set-up today, are ultimately doomed to failure. Masyadong unrealistic ang mga gusto nilang gawin. Of course, if you manage your finances well during the "good" years, you can keep going but as the current situation shows, many companies did not set aside enough to prepare for the rainy days that would inevitably come.
to paetechie:
can i ask more about the hog raising project...ive been told that there are these kinds of investments and it has quite a good return. I just don't know where I could find such investments. Could you point me to the proper one? thanks!
hi everyone,
i wish to know the status of platinum plans. thanks
Hi Salve/Leo,
Yes, the average trust fund contribution is between 48% to 54% as the minimum set by SEC. However, these products as designed actually require more than that so the benefits would be fully funded as they come due.
However, because of that SEC rule, most companies only put in the minimum rather than what the products require. Roll that over for several years and you have a catastrophe staring you in the face. Pre-need companies and probably even SSS and GSIS are mistakenly using the contributions of new members to pay off present obligations which is a wrong practice, akin to pyramiding schemes.
I really don't agree with the 5% coming from year 1 payment but that was how it was since the beginning. They needed to use the 95% for commission, overhead, marketing expenses, etc. The mistake here is that they followed the costing for life insurance products when pre-need is also a different one. In life insurance, you use probability factors etc. since you won't really know when client would die in the future whereas in pre-need you know when you'll be paying off your planholders.
i think its about time that they re-think how to run this industry. it's a pity because i believe most of these troubles are due to mismanagement and poor understanding of the product features itself.
you know guys... if it's me running my own bank..... i'll just offer a very long term time deposit.... say a 15 year time deposit that gives interest of 7-8% annually for the next 15 years compounding.... it's lock-up for 15 years and can be withdrawn only on the 15th year.....
the nice thing about my plan? no agents.... just the bank and the client.... it's something like the zero coupon bond....
now consider this.... how is this plan different from the pre-need educational plan?
ok ako na nga sasagot.....
according to what i saw on tv... they say the trust fund have to generate around 15-16% of interest to be able to cover... but they used only a little more than half of the annual contribution of the plan holder.....
but with my long term time deposit..... although the interest rate is ~8%/annum... but the full contributed amount of the depositor is utilized...compound this over 15 years... pwede na ... di ba?
pag meron na ako bank.... and nag offer ako nito.... kukuha ba kayo?
One thing puzzles me with regards to this pre-need mess. How come that the frenzied efforts to prosecute Celso de los Angeles of Legacy was not applied to CAP and Pacific. Are there different laws that apply to them or are they above the law? There are about 800,000 CAP planholders that are still waiting for justice. Sadly, no one speaks for them now except perhaps Sen. Mar Roxas, the proponent of the Pre-Need Code that remains unacted in Congress.
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