Saturday, August 26, 2017

102 - Over promise and under deliver

102 - Over promise
and under deliver

"Over promise and under deliver" or "Under promise and over deliver" are two famous age-old business adages that everyone must have heard of and as well experienced the real meanings personally.

Let us get into the first adage that is "Under promise and over deliver" as an example. If a business states a product will be dispatched in five working days and it is despatched in three working days instead, it has performed better than it promised to. Customers are delighted to receive their products earlier than expected and is likely to feel satisfied and likely buy more products from the company in future.

On the other hand, an example of "Over promise and under deliver" happening  situation could be a potential buyer is promised of extensive wide coverage of after sales warranty package. But after buying and facing a defect problem, he discovered the warranty package has many hidden strict Terms and Conditions (which wasn't explained in details properly by the seller to the buyer in the first place) and his claim is rejected.

Once the client is not happy with this failed warranty claim, he is most probably not going to buy any future products from this company again.

In our every daily lives, we encountered either one adage each time we have a "transaction" done with any person or a company.

One of the most prevalent of "Over promise and under deliver" happenings can be found especially in the insurance and investment industry. (My apology, I don't mean to say the people or the company from insurance and investment are dishonest, but it is usually the related agents and consultants that tends to misrepresent a colour picture of over promise returns that attract potential buyers/investors).

Personally I have my fair share of such over promise and under deliver encounters. Many years back, I was inside a bank enquiring something about my current account at the customer's service desk. When the teller or rather customer service assistant checked my account and discovered I had some money in it, she shared with me their latest insurance cum investment plan that promised higher returns over a period of 20 years that fixed deposit rates could not match.

Mind you, she even wrote down that amount of return on a piece of paper that is simply too enticing to say no. What she didn't know was that I had some experience in insurance industry before, so I innocently expressed I would buy the plan, but out of curiosity if such plan comes with a proper policy, she said yes. Then I further said that amount of return (after a period of 20 years) would be stated in the policy, she bravely said yes.

But when I said if after signing up and discovered the policy didn't state the amount of return as mentioned by her, how? This put her back nervously suddenly and she "pretended" that she will confirm with her superiors immediately.

Several minutes later, she came back (no longer confident anymore herself) and said that the amount would not be stated in the policy. Then how would I know I would be receiving that amount you mentioned earlier? I further asked her how did you get that amount of figure when the policy didn't even mention any amount of return?

At this point, she knew she has been "caught" selling me a product that in a very misleading way by someone with knowledge in insurance and investment. She then explained that the amount of return is based on the "projected" rate of return of investments over the years.

She further elaborated that normally the "projected" rate of return is based on three levels, i.e. low (about 2-3%), medium (about 4-5%) and high (6-8%) return. Then I asked which level is her "projected" rate of return for my case and guess what? Mine is on the "projected" rate return of the high side (6-8%).

See, she was daring enough to sell me a policy with a projected rate return of 6-8% over the next 20 years! If I have been a simple layman with no knowledge of insurance and investment, I would have been misled and bought the policy with high hopes only to know the real rate of return in 20 years time!

By then, when the so-called projected rate of return is not achievable, do you think I could still find her and seek any justice? She might even be no longer in this job or had moved to some where else!

There must be many naive people who bought such misleading plans from such misleading agents/consultants. I came across many such clients who were not aware that the policies they bought were based on projected rate of return of the high side over the next 20 years!

A few even claimed that their agents/consultants are their good and trusted friends and would not misled them. It was only when they found out from their policies that there were no such confirmed printed "promised" amount of figure that they realised that I was actually talking the truth.

Even up to this days, this kind of misleading selling ways are still in the market here and there. This year alone, I was approached several times by agents/consultants selling the same misleading ways during their companies' road shows at various shopping malls.

This brings us the questions of why are they selling this way?

One, agents/consultants are under pressure to sell to fulfil their required quotas or they will be out of job for failing to meet sales targets requirements. As such the pressure to sell in any ways by hook or crook tend to happen.

Two, the commission is roughly 20-30% over the next few years and is quiet attractive if one is able to sell many policies.

Three, many people tends not to understand the technical details of how insurance and investment work and are easily misled by those attractive "projected" rate of returns. So we all know the human nature of greed, the more  returns, the better.

There was even one agent who told me during a roadshow at a mall that such plan is offered for a limited time or whenever the quotas are taken up! I was advised not to miss such a good investment opportunity. When I asked him personally did he buy such plan for himself or any from his family, he could not answer truthfully from the way he responded to my unexpected question.

Many agents/consultants are not in this career for the long haul. Many are young graduates, most probably trying out this insurance/investment selling for the first time and will see how it goes from there. That is why most of us must have bought policies from previous agents/consultants only to discover months or years later they are no longer in the industry anymore.

So the next time you are approached by agents/consultants selling such insurance/investment plans anywhere, remember to be cautious especially over the overly promised return rate for the next many years. It is just a projected rate of return only.

As we all know, nothing is guaranteed when it comes to investment. There is always the element of risk involved.

Meantime, have a nice Merdeka celebration day!

A question from
Lucas Lee on August 4, 2017:

Please enlighten if there are any other food/ consumer counters worth investing at the moment.

My reply : I personally think many food/consumers stocks are facing compressing margin erosion pressure. Besides the stiff competitions from one another, the subdued economy has prompted many to shop thriftily as many companies are forced to raise their prices due to a weakening ringgit and rising raw materials.

Of course there are a few doing good exceptionally, but their share prices are not at attractive valuations to buy.

I am still searching for the next ..... Hup Seng Industries Berhad?