Understanding the incentives behind actions is one of the most powerful insights we can glean when we assess investment products being sold to us.

And this is true across the world but particularly acute in places like Singapore and Hong Kong, where the incentives to “product push” to consumers are extremely strong.

As the late, great Charlie Munger once said, “Show me the incentive and I will show you the outcome”.

Behaviours, people, and whole organisations are driven by incentives, for better or for worse. Unfortunately, that shapes the financial landscape for the everyday investor in Asia.

Think about the “personal wealth manager” who approaches you when you step into a bank here in Singapore to deal with something completely unrelated to investing. What are they likely to sell you? An investment-linked policy (ILP).

Why? Because it’s the best product for your particular risk profile and needs? No. Because it pays the most to the selling agent and the bank.

Avoiding – and being aware of – high-fee traps is actually one of the most crucial components to building long-term wealth when you invest. Because there is massive opportunity cost involved with having a few hundred thousand dollars locked up in an ILP, hedge fund, structured note etc.

And it’s something I cover in detail in my latest YouTube video, which you can find below. At the end of the day, we need to understand the incentives when we are sold to and also grasp the cost of an investment.

Having worked in investment management and private wealth for 15 years, I’ve seen the whole gamut of financial garbage that is sold to people – from the mass market right through to High-Net-Worth Individuals (HNWIs).

And poor investment products don’t discriminate by income or wealth. So, when you are pitched that next “market-beating” investment, be cynical. Relentlessly question the incentives.

Because avoiding that next high-fee trap could be just as important as sticking to your long-term plan and staying invested.

There’s been a lot of talk in recent weeks about the revival of the HSBC Revolution credit card and an amazing 8 mile per dollar (8mpd) rate – capped at $1,200 of spend per month.

However, when we see headline rates like these (similar to investing propositions!), we need to question what comes with it.

And there are some big caveats with this rate. Now, the normal HSBC Revolution earns you 4 miles per dollar on $1,000 of online and contactless spend per calendar month across Dining, Shopping, Transport, and Travel.

That’s certainly useful but this new 8mpd rate on $1,200 of monthly spend is only applicable to HSBC Everyday Global Account (EGA) holders who have the HSBC Revolution card. And what do you need to do to have that rate?

You need to have an average daily balance (ADB) of $50,000 in the HSBC EGA to get it. The base interest on this account? As good as your SRS so 0.05% p.a.

Yes, there is some bonus interest but it’s only applicable for three calendar months so it’s not an evergreen feature.

In other words, there is opportunity cost putting your $50,000 of cash into the account. Added to that is the fact that for KrisFlyer, HSBC’s conversion rate also isn’t as good so it works out to be 3.33mpd for regular cardholders and 6.67mpd for those who meet the EGA requirements. 

While it’s nice to think the 8mpd is a “free lunch”, it’s always digging further and working out whether it’s worth your time and effort. I suspect for many, it won’t be.  

Check out my latest YouTube video! Subscribe and follow along as I share a weekly tip on my Tim Talks Money channel.