Why Do People Get Tricked In Joining Investment Scams?

It’s all over the news, and it’s really sad to see people fall and become victims of empty promises aimed to rob them of their hard earned money.

“They deserve it, those GREEDY people!”

That’s what I often read in Facebook groups and forums. Well, really? Are they really just Greedy?

Let’s explore the different types of people that become victims of these types of transactions.

Victims of an Investment Scam

1. People who wish to be taken out of poverty as soon as they can.

I remembered a story from one of my clients regarding the scandal of Aman Futures that happened during 2012.

During the height of one of the most controversial investment scam in the history of the Philippines, farmers started to sell their farms to invest in Aman futures – expecting hefty profits from the company.

The hype increased as members parade their newly bought SUVs in the provincial roads.

What’s sad in this story?

Those farmers sold everything they had for a hope that it will be “the one investment” that will lift them up from poverty.

We already know how this tragedy ended up.

2. People running for the quick buck

Few years ago, I started exploring the world of Forex trading. The promise and potential was so great that I thought I could buy a 3 Million Peso condo unit in a year of trading with an investment of P5,000.00.

I didn’t expect that I would burn my P5,000 in just 1 week of trading. Burned as in nawala lahat!

Well, I thought that I can get back the lost money by investing another P5,000.00. After a week, I lost it again.

Just to be clear, Forex trading is not a scam. But the behaviour on how I dealt with the investment is somehow the same with people who are going after the fast and easy money.

As the famous investment mantra says “The higher the potential returns, the higher the risk.”

Investment scams offer a tremendous amount of return in a short time frame. No doubt that the risk is equally high as well.

3. People with good intention to do business but fell in the wrong organization.

There are some who are just there in good faith, trying to make an honest income, but for an unfortunate reason, was involved in a questionable organization.

The best way to get away from this is to do our due diligence. It’s best to check out the collection of articles  below to help you detect whether the company you’re trying to deal with is legit or not.

It won’t hurt to spend time checking out which company you’ll involve yourself in before putting that much effort in trying to build your business.

4. People who wish to ride the scam parade and benefit from it

These people already knew clearly what they are diving into, they knew that one way or another, they are involving themselves in an investment scam. They proceed anyway.

Well, in fact, these people try to ride the scam parade with the aim to get out with as much they can.

How can we avoid being a victim?

In most cases, being aware of how scams operate would help us get away from the headache of being a victim.

In some instances, even though some people are aware, they’ll dig in anyway. That’s a risk they have voluntarily taken.

How to spot a scam? You may refer to the following articles.

1. How to spot investment scams by Rappler.com
2. How to Avoid Scams by Edmund Lao
3. How you can detect an investment scam by Abs-CbnNews.com

Why Invest in a Single Premium VUL (SPVUL) instead of Mutual Funds or UITF

You have at least P500,000.00 in your bank deposit account and are planning to invest it in an investment that would help you make your money work for you. You were brought to several options, and you have ended up choosing between a Single Premium VUL, a Mutual Fund, or a UITF.

Now, you’re confused.

First off, the listed options are all pooled funds managed by professionals called fund managers. In investing in either of the three, you will be asked whether you’ll want to invest your money in an Equity Fund, a Bond Fund, or a Balanced Fund.

They are the same in almost all aspects. Their difference lies on the structural aspect. Single Premium VULs are offered by insurance companies, thus, are regulated by the Insurance Commission (IC).

Unit Investment Trust Fund, popularly referred to as UITF, are offered by banks and managed by their trust department. The regulatory body is the Bangko Sentral ng Pilipinas (BSP).

Mutual Funds, on the other hand, are managed by Investment Companies and are regulated by the Securities and Exchange Commission (SEC).

I know, stating those differences doesn’t bring up any clarity in your decision making. Now, let’s talk about benefits.

mf vs. spvul

Benefits of investing in Single Premium VULs over Mutual Funds and UITF.

The truth is, there’s really not much difference between a mutual fund and UITF in terms of benefit. For discussion purposes we’ll just compare Mutual Funds and Single Premium VULs.

Allow me to use Sun Life’s Maxilink One as a sample for Single Premium VUL, and Sun Life’s Prosperity Fund for Mutual Fund.

Here’s the situation. You have P500,000.00 to invest in a 10 year time frame. You are inclined to investing in an Equity Fund, you’re just not quite sure whether to choose a Mutual Fund (or UITF) or a Single Premium VUL.

Now, you decided to look at the numbers.

Let’s assume that in both funds, the average annual rate of return is 10%. Both funds, Mutual Fund and Single Premium VUL, uses a backend fee system of 5%, diminishing by 1% yearly (If investment is redeemed in the first year, charge is 5%, if on second year, 4%, and so on and so forth. Redemption of investment after the 5th year no longer have a redemption charge.)

Investing in Mutual Funds

Year Fund Values
1 550,000
2 605,000
3 665,500
4 732,050
5 805,255
6 885,781
7 974,359
8 1,071,794
9 1,178,974
10 1,296,871

Projected fund value of the mutual fund investment after 10 years is P1,296,871. Mutual Funds are very flexible that you can withdraw your investment anytime without being bounded by holding period. However, there are sanctions for early redemption.

Investing in Single Premium VUL

Year Charges Fund Values
1 266 548,615
2 168 602,146
3 137 660,995
4 102 725,608
5 61 796,537
6 18 874,399
7 959,872
8 1,053,700
9 1,156,700
10 1,289,986

At year 10, the projected Fund Value for a Single Premium VUL is P1,289,986.00. The difference of P6,885.23 to the fund value of Mutual Fund is attributable to the insurance charges for the Single Premium VUL. Investment benefits are identical for Mutual Funds and Single Premium VUL.

Looking at the projected 10 year fund value, you might be concluding that it’s best to invest in mutual funds because it’s higher than Single Premium VUL by P6,885.23.

Benefits of a Single Premium VUL over Mutual Funds, UITF, Bank Deposits, and Real Estate Investments

It is an insurance product. Thus, the minuscule difference of P6,885.23 is really very immaterial compared to the benefits it could provide to the investor (or beneficiaries of investors).

I. Minimum Death Benefit. The death benefit for a Single Premium VUL is then higher of 125% of Single Premium or the Fund Value. In our illustration, it is the higher of P625,000 (P500,000 x 125%) or the current Fund Value of the investment.

This means that in the event a policyholder (investor of a Single Premium VUL) dies while the fund value of his investment is lower than P625,000, his beneficiaries will still receive the minimum death benefit of P625,000.

Say the fund value of the invested P500,000 at the time of death is P400,000 (market declined significantly), the beneficiaries will still be receiving the GUARANTEED minimum death benefit of P625,000 (as long as no withdrawal was made in the fund).

Or lets say the fund value at the time of death is P800,000 (market rises significantly), the beneficiaries will be receiving P800,000, which is higher compared to the minimum death benefit.

In case of a Mutual Fund or UITF, the people left behind will receive only the fund value, regardless if it is higher or lower the the amount invested.

II. Liquidity upon death. While all other assets (investments including Mutual Funds, Stocks, Cash Deposits, and Real Estate) will be frozen by BIR until the appropriate taxes are paid, investment in a Single Premium VUL are readily available to your loved ones. The reason behind this is that Single Premium VUL is still an insurance product.

If you have defined an irrevocable beneficiary, your investment becomes tax exempt (tax-free).

The Bottom Line and Final Recommendation

On a more holistic financial planning perspective, I am recommending a Single Premium VUL over investing in Mutual Funds and UITF. It is a great tool to use in planning your Estate while having the ability to enjoy your investments while the investor is still alive, contrary to other insurance products wherein the benefit focuses upon death, including a Regular Pay VUL in it’s infancy years.

The only barrier to entry in using a Single Pay VUL is its price point – you’ll be needing a much higher initial investment compared to a Mutual Fund wherein you could start with just P5,000.

Here is my recommendation. If you have the funds and are thinking to invest in a managed fund, then go for a Single Premium VUL. Period. (Well, unless perhaps you are already FULLY INSURED)

**You can request for a Single Premium VUL Quotation here for FREE!