Some good friends of ours, who also happen to be neighbors, have a long-time cook/housekeeper that they have employed for some 15+ years. They first hired their cook, C, in Hong Kong, and later they moved to Manila, and C moved with them. C, who grew up in Leyte, has worked abroad for many years, and in the mid-1990′s was convinced enough about the wisdom of purchasing an educational plan for her only child to ensure his college education. Over the next couple of years, C faithfully made her payments and fully paid some PHP30,000+ into the educational plan. She was assured that the college expenses of her young son would be taken care off when he reached the appropriate age (and a simple calculation of a modest 8% annualized return compounded would suggest likely benefits of some PHP100,000 worth after 16 years). The plan that she bought was offered by Scholarship Plan Philippines, Inc. That company has now apparently “closed shop” according to the news reports and it is not at all clear what C can, if anything, recover from her investment. C is an honest, hard-working citizen who has little knowledge of the intricacies of the finance world and certainly limited access to legal advice. She is precisely the type of person that is going to be the most hurt, and in my opinion, the least deserving, of the damage and fall-out that will most likely occur as a result of all the pre-need disasters in our midst at the moment. That there are tens or even hundreds of thousands of C’s out there really upsets me no end. I have heard similar stories throughout the country and from folks working in Europe and North America as well. So here is a post on educational plans, what they were, a very SUMMARIZED version of what has happened, and if you happen to know someone like C, how you should go about filing a complaint. Oh, and in case you don’t read all the way down, if it were up to me, the punishment I would recommend for responsible individuals that have taken people’s hard earned money, making promises nearly impossible to keep, and who fraudulently use and lose those funds, affecting millions of students across the archipelago, I would not hesitate to fry them alive in a specially designed human fry-o-later. Sounds harsh, I know, but that’s only me, or is it?
Background (Hyper truncated version)
Educational plans are essentially savings/investment accounts where you put money in, the money is invested in financial and other securities within government guidelines, and your money is supposed to grow over the years and eventually gets paid out to cover a beneficiaries school tuition and expenses. Many decades ago, companies sold them confidently believing that they could meet their future obligations, because for the most part, they were in some cases (dumbly) counting on a law that limited tuition increases at schools to say 10% per annum. That law, not surprisingly, was eventually removed, I gather, and as such, tuition expenses at many schools started to skyrocket to cover increasing costs. So the whole “payout” side of the plans suddenly got a lot more expensive than the companies had planned when they sold them. One can say a major assumption of the scheme gave way, but I would say it was PLAIN STUPID to assume that tuition increases could remain “controlled” for so long…
On the other hand, companies also claim that the money that was paid in and invested yielded far lower returns than they had projected, so the double whammy of increased tuition costs, and lower returns, meant they couldn’t meet their promises. This is a very simplified explanation, but the essence of the issue at hand. Forget that many companies paid out huge commissions to agents, or to cover administrative expenses, etc. so that in some cases out of PHP30,000 that a customer paid in, maybe only PHP15,000-20,000 actually went into the “trust fund” that had to grow to pay off the future tuition fees. And I will state now that NOT ALL educational plan companies have failed, many have managed to survive, but there are also many less reputable (now) companies that have or will collapse or claim bankruptcy and tens of thousands of folks will be affected. And don’t get me started on companies that set up dummy companies, related banks, odd money schemes etc. that clearly were NOT being totally on the up and up about their dealings financially. At the simplest take, there isn’t enough funds to meet the promised obligations. My own assistant/driver bought CAP 12+ years ago for his newborn daughter against my counsel, as he was convinced that a large company couldn’t go bad. He is now facing a 98% loss, having been refunded just 2% so far. And the opportunity lost over those dozen years! In that timeframe, a properly run educational fund invested in what I would call “low-risk” investments, has yielded me some 8-9% per annum on average, or nearly treble his initial investment by now… I also have peers who bought CAP plans to the tune of millions, only to see it evaporate into thin air in recent years…
So who is to blame?
Certainly not the simple customer who didn’t really completely understand what they were getting into. They gave money, they expected to receive tuition payments at a later date. They weren’t watching the performance of stock markets, treasury bills, government securities, currencies, or tuition laws. The blame must FALL SQUARELY on the folks who set up these pre-need companies and took people’s money without sufficient capital to support their businesses, who relied on untenable financial assumptions, laws, etc. AND who conducted their business FRAUDULENTLY and were unable to pull the plug and conserve their clients assets so that they are able to reimburse plan holders to the maximum possible level. I have to agree with a lot of the press and editorial opinion that the APPROPRIATE REGULATORY AGENCIES that were supposed to oversee these companies are also partially to blame. I know you don’t like to hear the “I told you so” comment, but I and many others were already wary of pre-need companies more than 10 years ago, so it isn’t unreasonable to think that the regulatory agencies should have had their chance to nip this in the bud… And as a pre-cursor to doom, when CAP went into trouble several years ago, don’t you think SERIOUS SCRUTINY should have been applied to all other companies engaged in a similar businesses??? And this doesn’t just affect educational plans, but retirement or pension plans, and get this… DEATH PLANS. If I had a death plan gone bad, how would I bury a deceased planholder?
So now what?
Are we as individual citizens, and collectively as a nation, so NUMB to all of this crap going on in our midst? Forget individual scandals, what I mean is the simple difference between RIGHT and WRONG. And of holding people accountable for their actions? Good grief, if we CANNOT isolate the guilty parties, prove that they did WRONG and SUFFER CONSEQUENCES, then what is to stop this from happening again and again and again until we have not an ounce of trust and pride in our citizens and nation as a whole? THIS IS SO WRONG. And I felt this way about the PIPC Scam which affected more well-to-do people as well (and my opinions/views on that SCAM turned out to be pretty darn accurate). And I feel even more strongly about protecting and recovering the funds of folks with more modest means. So C was at our doorstep last week, near tears, and of course I asked her to gather the necessary documentation and I consulted a lawyer to seek some advice. At the time C approached me, there weren’t the Senate hearings and lots of coverage we have experienced in the past week. There was an Inquirer article that said, and I quote, “The SEC urged planholders of these bankrupt companies to file on or before March 31 this year their sworn complaint with the non-traditional securities and instruments department of the commission.”
Don’t let these folks get away with this. If you are a planholder or know of someone in the same boat as C, please go out of your way to file a complaint with the SEC. I know a lot of you think nothing will happen and that it is all hopeless, but if you are apathetic about this, unable to stand up for your rights or help others do so, then you will be victims again and again of schemes such as these. DO NOT LET THEM OFF THE HOOK SO EASILY. A complaint is just the first step of letting the SEC know that you are one of the folks who have paid in funds and who are expecting to get as much of it back as possible. Thankfully, a lawyer friend drafted out the two page complaint that has now been notarized and hopefully filed by C at the SEC. It is a relatively simple document so there is no reason to feel shame or embarrassment (unlike the PIPC investors, 90%+ of whom never filed a complaint and licked their wounds quietly) about executing a complaint and getting it to the SEC by the end of March. If you know of someone or are yourself a victim of specifically Scholarship Plan Philippines, Inc., and want to file a complaint, leave a comment here and perhaps I can clean up the complaint (removing names) so you have a draft template to use… but check with a lawyer first to be sure. Press reports suggest there are still some funds in the accounts of SPP, Inc., so hopefully, planholders will be able to recover even a fraction of their investments. I certainly hope they do. I actually understand why folks were burned at the stake at some point in human history. :(