Advice from Personal Financial Adviser?

Few days ago, I went to a foreign bank to have a fixed deposit placement as they were offering an attractive risk-free rate as compared with other banks in Malaysia then.

When I requested for a queuing number, the bank staff gave me a number to see a Personal Financial Adviser.  I wondered why and would like to see what is the catch.

It was very crowded then and my number was finally called after 20 minutes of waiting.  A beautiful young lady greeted me politely and inquired how she could help me.  I said I would like to place a sum with their fixed deposit promotion rate.  She further asked me whether I had any investment.  I replied I did my own stock investment.  Then, she advised me that there was another way which could help me to get higher rate of return on my idle funds.  She recommended me to put RM12,000 a year into an endowment plan which it would invest 75% in insurance and 25% in unit trust.  In return, I would get RM2,250 a year guaranteed cash return from year 2 to year 6 plus unrealized gain on unit trust investment and the cash return would increase in every 5 years interval.  She further explained that the endowment would invest in balanced fund which it had a good total return of 300% in the past two years.  The total premium payment period would be 10 years.  If you were me, would you accept this "deal"?

It sounds like every year of RM2,250 guaranteed cash return is a good deal between year 2 and year 6.  However, if you further analyze, a total six years of premium paid will be RM72,000.  With five years total cash return of RM11,250, the total rate of return is 15.6%.  If you simply divide this rate with five years, it translate into 3.1% per year return.  Since the FD promotion rate I got from the bank then was 4% per annum, you tell me whether it is a good deal or not.  I enlightened the adviser on this and she replied that I was yet to consider unit trust return.  She seems like wanted to convince me that the return of unit trust was guaranteed but I did not buy her idea as I know what unit trust investment is all about.  If the said unit trust return is so attractive and guaranteed, why she bother to work as an adviser and sell this product to me while she could invest what all she had and enjoy her life.

Now, can you see the catch?  Yes, you will be easily misled by fraction of information provided by the so-called "adviser" if you do not know anything about investment and rate of return.  How to equip yourself?  The only way is to learn as much as you can before you act.  There is no age limitation on learning but your own willingness to learn.  Even now, I am still learning.  I read books, articles and discuss in forum to sharpen my skills.  So, learn hard and play hard is part of your success factor.  Keep it up, everyone.