First National Bank, which claims in a major advertising campaign to be building a better bank, is quietly misleading its clients.
A few weeks ago Personal Finance revealed that in closing down its current incentive programme on its credit card and opening an AiRwards scheme, FNB was attempting to get you to agree to switch into the new scheme at a significant financial loss for each point exchanged.
Now First National Bank, its broker company, First Bowring, and life assurer Metropolitan Life, in an attempt to sell life assurance investments to FNB clients, have again provided extremely limited information on which to make a decision.
Like the promotional material on its AiRwards programme the "First Rate" endowment policy marketing material is misleading and does not spell out the full consequences or costs to you of investing in the 10-year product.
The product is structured in such a way that Metropolitan Life can skim off any amount it wants from your savings for expenses and profits, and there will be nothing you can do about it. Metlife refuses to give details of the cost structure.
The response from Alec Grant, First National Bank's general manager in charge of group communications, is that it has no say in the cost structures. It is merely paid a commission for selling the product.
Although the investment performance of Metropolitan Life has been good in recent years, future performance cannot be guaranteed and the cost structure could make it meaningless.
After Personal Finance received a number of contradictory explanations on costs, from various people at Metropolitan Life, actuary Andrew Birrell said that Metlife set an allocation amount (how much of you money will be invested after costs have been deducted) at the start of the contract and this was revised on annual basis depending on the cost experience of the company over the previous year.
He claims that by having a variable cost structure the client benefits as adjustments can be made in your favour.
He would, however, not disclose how much of your premium would be invested in your favour for the first year or how much will be charged in annual management fees. He claims this would give Metlife's competitors an advantage.
Apart from the costs there are a number of other problems with the product and its marketing by FNB. These include:
* An unsubstantiated claim that "you are assured of a substantial return after your investment period".
Birrell says there are no guarantees on investment return. He says it is a smoothed bonus type policy and not directly linked to market performance. (This is neither disclosed nor explained in the FNB marketing material);
* It is suggested you could cover major purchases such as a motor vehicle or education with the policy. This is misleading, as even at the highest offered premium of R150 a month, escalating the premium at 20 percent a year you are unlikely to be able to meet the cost of any high ticket item or pay for your children's education. You need to save significantly more;
* The 10-year contract period. It is preferable to take out a policy with an investment period of five years as you can never foretell the future. If you surrender the product before the 10 years are up, you could lose all or part of your investment;
* Escalation clauses: You are offered four escalation options to "beat inflation." This does not guarantee that your investment will perform better than inflation. All this means is that by escalating the premiums on your policy your payments will maintain the same or a larger value than inflation.
Sonia Pollnow, FNB's marketing manager, suggests a 15 percent premium increase in one of her promotional letters. The effect of this on your finances could be significant. Salary inflation (the average rate at which salaries are currently increasing) is about nine percent. So for example if you are earning R4 000 a month and you decide to pay a premium of R100 a month, this premium is 2,5 percent of your income. However, after 10 years it would be 3,7 percent of your income and, if you opted for the 20 percent premium escalation, 5,5 percent of your income would go in premiums by the final year.
* Promotional documents claim that you do not need a medical examination. As there is no life assurance cover included and it is purely an investment product this is misleading. No pure investment product requires a health check; and
* It is implied there is no taxation on the product. However 30 percent tax is paid on your behalf by the life company on the interest and net rental income growth of the policy. It is not a "tax free endowment". Because the tax has been paid on your behalf the capital in your hands is not taxed when the policy matures.
FNB's Grant says: "We agree that the direct marketing emphasised the advantages of this savings vehicle but we are satisfied that the product holds its own against products of a similar nature and that the claims made in the covering letter can be substantiated."
In his written response he did not however substantiate any of the claims made in the marketing material apart from saying the FNB had decided to sell the policy because of Metlife's investment performance track record and its standing as a reputable insurance company.