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?