Many new life insurance products introduced in the Singapore market recently provide a poor deal for customers. It is difficult for the customer to calculate the yield on their savings, as the new products offer cash payback at certain intervals.
The products offer a poorer yield compared to the traditional products (which already provided a low yield). To get the cash payback, the policyholder has to pay an additional premium that is at least 10% more than the payback. For example, if the cash payback is $2,000 a year, the policyholder has to pay an additional premium of at least $2,200 and get the cash payback only the second year only (i.e. no payback in the first year).
Does it make sense for you to save an additional $2,200 a year to get back $2,000? It does not, but the insurance agent is trained to tell you that this is a policy that gives you cash back!
There are other products that require you to pay premium for a certain number of years and pay back the benefit over a few years later. It is quite complicated to calculate the yield, but the yield is quite low (from the few examples that I have seen).
The only way to know if you are getting a fair deal is to look at the "effect of deduction" and the "distribution cost" shown in the benefit illustration. Although it come is many pages and is hidden among a lot of other distracting information, you can ask for these figures to be shown to you, as they are mandatory. You should also read my book, Practical Guide on Financial Planning to learn how to interpret these figures and to get the benchmark on what are the fair figures.
Tan Kin Lian
Wednesday, June 23, 2010
FISCA talk on Financial Planning - 26 June, 3 to 6 pm
FISCA is organising a talk on financial planning as follows:
Title: Financial Planning - A Practical Guide
Time: 3 to 6 pm
Venue: SMU School of Business
Date: 26 June 2010
Speaker: Tan Kin Lian
This is a repeat of the same talk that wsa held in May and was attended by a full house.
Register for the talk: register.
FISCA
Title: Financial Planning - A Practical Guide
Time: 3 to 6 pm
Venue: SMU School of Business
Date: 26 June 2010
Speaker: Tan Kin Lian
This is a repeat of the same talk that wsa held in May and was attended by a full house.
Register for the talk: register.
FISCA
Buying stocks
Buying stocks is like buying a used car. You have to spend time and attention to make sure that you buy the right stock and pay the right price. Read this article. Do not listen to tips from friends or ask for their advice.
My observation
If you are not sure which stock to buy, buy the STI ETF. It is invested in the shares of the 30 largest companies listed in the SGX. It has low transaction and annual management fee. You can mitigate the risks of investing in this ETF by following the principles explained in Practical Guide on Financial Planning.
Another alternative is to invest in a life insurance policy, provided that you are able to find a product that offers a low "effect of deduction" as explained in that book.
My observation
If you are not sure which stock to buy, buy the STI ETF. It is invested in the shares of the 30 largest companies listed in the SGX. It has low transaction and annual management fee. You can mitigate the risks of investing in this ETF by following the principles explained in Practical Guide on Financial Planning.
Another alternative is to invest in a life insurance policy, provided that you are able to find a product that offers a low "effect of deduction" as explained in that book.
Filial piety
Here are some letters from readers about the TV ad created by the Government agency to promote filial piety in Singapore.
Lesson on tolerance
http://www.straitstimes.com/STForum/Story/STIStory_544831.html
Ad does not convey correct values
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544665.html
TV ad on filial piety was effective
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544664.html
Favour elderly parents whom we owe so much
http://www.straitstimes.com/STForum/Story/STIStory_544833.html
Filial piety not a simple matter
http://www.straitstimes.com/STForum/Story/STIStory_544832.html
Lesson on tolerance
http://www.straitstimes.com/STForum/Story/STIStory_544831.html
Ad does not convey correct values
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544665.html
TV ad on filial piety was effective
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544664.html
Favour elderly parents whom we owe so much
http://www.straitstimes.com/STForum/Story/STIStory_544833.html
Filial piety not a simple matter
http://www.straitstimes.com/STForum/Story/STIStory_544832.html
Lifestyle in Dubai
Dubai has an attractive residential development called the Dubai Marina. It must have more than 100 high class apartment blocks, with excellent restaurants, shopping, recreational, sports and other facilities. It now has a Metro station which can bring the residents to the places of work in the financial and business districts along Sheik Zayed Road. There are many large shopping malls along the Metro line. This locality is quite attractive for expatriates.
There are also many new, top end residential apartment blocks located near the offices, for people who prefer to live close to the office.
The modern lifestyle in Dubai can be quite attractive. Most people are put off by the hot climate, but I found that the hot summer was quite bearable for short stays outside. Most of the time, the people are in air conditioned office, homes and cars. The other seasons are pleasant. The Metro trains and shopping malls in Dubai are not as crowded as Singapore.
Tan Kin Lian
There are also many new, top end residential apartment blocks located near the offices, for people who prefer to live close to the office.
The modern lifestyle in Dubai can be quite attractive. Most people are put off by the hot climate, but I found that the hot summer was quite bearable for short stays outside. Most of the time, the people are in air conditioned office, homes and cars. The other seasons are pleasant. The Metro trains and shopping malls in Dubai are not as crowded as Singapore.
Tan Kin Lian
Transport in Dubai
I spoke to several taxi drivers during my trip around Dubai yesterday to try out the Dubai Metro and visit Dubai Mall. They came from overseas, but have been living in Dubai for many years.
It is quite easy to get a taxi in Dubai as there is adequate supply. The fare is slightly more expensive than Singapore but is fixed for all taxis and is based on distance. There is no surcharge for time and location. It fare system is easy for commuters and taxi drivers.
The taxis provide a useful link for the first and last legs of the journey, with the main part of the journey being the Metro trains.
There are bus services that provide this connection for the local people who are familiar with the bus systems. However, the bus systems is still not well developed in Dubai.
Tan Kin Lian
It is quite easy to get a taxi in Dubai as there is adequate supply. The fare is slightly more expensive than Singapore but is fixed for all taxis and is based on distance. There is no surcharge for time and location. It fare system is easy for commuters and taxi drivers.
The taxis provide a useful link for the first and last legs of the journey, with the main part of the journey being the Metro trains.
There are bus services that provide this connection for the local people who are familiar with the bus systems. However, the bus systems is still not well developed in Dubai.
Tan Kin Lian
Replace a NRIC
Someone complained that $100 is too much to pay for a replacement of NRIC. Apart from this fee, they have to go through a lot of trouble, including visiting the crowded SIR office near Lavendar station.
The NRIC office said that $100 is the cost of replacing a NRIC. Is this so? There are many organisations that issue membership card with photograph. They do not charge $100 for a replacement card.
Most people take care of their NRIC and do not lose it due to carelessness. Many organisations ask for NRIC to record visitors. For it to be used often, it is quite easy for it to be misplaced.
I hope that the NRIC office should consider that $100 is a lot of money for students and low income earners. They should avoid levying excessively high charges.
Tan Kin Lian
The NRIC office said that $100 is the cost of replacing a NRIC. Is this so? There are many organisations that issue membership card with photograph. They do not charge $100 for a replacement card.
Most people take care of their NRIC and do not lose it due to carelessness. Many organisations ask for NRIC to record visitors. For it to be used often, it is quite easy for it to be misplaced.
I hope that the NRIC office should consider that $100 is a lot of money for students and low income earners. They should avoid levying excessively high charges.
Tan Kin Lian
Easy Tangram
Vera, 3 year old, tries the Easy Tangram on iPhone. She is making the shape of a camel.
Dubai in summer
I am now in Dubai. The outside temperature at noon is 40 degree C. I left the Dubai Metro to take a taxi back to my hotel in this temperature. Although it was hot, it was bearable. As the air is dry, it was not uncomfortable, unlike the humid climate in Singapore. Dubai is in a temperate region. It is hot in summer, but quite pleasant in the other seasons.
Weekend Car
Dear Mr Tan,
In March, my husband drove his weekend car on a weekday to run our errants. In the evening, my pet dog passed away. We forgot to apply for a e-day licence due to arrangement for cremention of my pet. The next day, my husband remembered and went down personally to LTA to seek their assistance for the oversight. To our surprise, we received a fine of $500 for this omission 3 months later !
I tried to appeal to LTA, as this was not an "intentional cheating" and had reported it the following day. However, they refused to waive the fine of $500!
This "e-system" was implemented in January to convenient people with weekend cars. However, it is also a "TRAP" if we forgot to apply for the e-day licence. Just imagine a fine of $500 for a first time offence, imposed on an honest owner who reported the oversight!
EL
In March, my husband drove his weekend car on a weekday to run our errants. In the evening, my pet dog passed away. We forgot to apply for a e-day licence due to arrangement for cremention of my pet. The next day, my husband remembered and went down personally to LTA to seek their assistance for the oversight. To our surprise, we received a fine of $500 for this omission 3 months later !
I tried to appeal to LTA, as this was not an "intentional cheating" and had reported it the following day. However, they refused to waive the fine of $500!
This "e-system" was implemented in January to convenient people with weekend cars. However, it is also a "TRAP" if we forgot to apply for the e-day licence. Just imagine a fine of $500 for a first time offence, imposed on an honest owner who reported the oversight!
EL
SCMP: UK will scrap its Financial Services Authority
22 Jun 2010
With Britain deciding to scrap its super-regulator - the Financial Services Authority (FSA) - after 12 years, it is a perfect opportunity for our officials to use the British reform plan as a reference for Hong Kong's way forward.
The FSA, which covers everything from banks, brokers, listed companies and asset management firms, was said to be too big to handle the financial crisis effectively. It is to be replaced by a Prudential Regulatory Authority under the central bank to govern the financial strength of all institutions, while also setting up a consumer protection and markets agency.
Hong Kong's problem is the exact opposite of Britain's. While Britain has one regulator that has become too big to move, we have too many regulators for different sectors.
Our banks are regulated by the Hong Kong Monetary Authority, brokers by the Securities and Futures Commission, insurance companies by the Office of the Commissioner of Insurance and pension funds by the Mandatory Provident Fund Schemes Authority. Oh yes, and don't forget the SFC and the Hong Kong stock exchange share responsibility for the regulation of listed companies.
The British reform plan, to be implemented in two years, is similar to Australia's model, which has one watchdog for the financial strength of institutions and another to regulate the conduct of individual salespersons. This "twin-peak" model is favoured by the SFC but not by the HKMA.
White Collar has always said the main problem with a fragmented regulatory structure is inconsistency. In the Lehman Brothers minibonds fiasco, customers who bought the products from banks got 60 per cent to 70 per cent of their money back, while those who bought them from brokers got 100 per cent.
When customers buy investment products from banks, the transactions are recorded on audio tapes. This does not happen when buying from insurance agents.
From January next year, customers over 65 years of age will have to wait two days before banks execute orders to buy structured products for them. Meanwhile, this HKMA regulation does not apply to people buying the same products from brokers.
Some of the smallest independent financial advisers who have been told by the SFC to stop selling fund products are likely to switch to offering insurance- or fund-based investment-linked products, taking them off the securities watchdog's radar screens.
The current Hong Kong regulatory model is very outdated because the boundaries between the various arms of the finance sector have become blurred.
The banks are selling everything from securities and funds to insurance policies while insurance agents are also selling investment-linked products. On top of that, neither the bank nor the insurance sales people are subject to SFC regulations. Investors can easily become victims of such a fragmented model.
In the United States and Britain, customer protection has been a priority of their reform plans. In Hong Kong, however, we may have many regulators but we do not have a customer protection agency.
When the FSA was set up in 1998, the Hong Kong government was asked if it would be following suit, only to be told to "wait and see".
We have waited for 12 years and now the FSA is going to be scrapped. In the meantime our government has done nothing. How much longer should we wait for reform?
With Britain deciding to scrap its super-regulator - the Financial Services Authority (FSA) - after 12 years, it is a perfect opportunity for our officials to use the British reform plan as a reference for Hong Kong's way forward.
The FSA, which covers everything from banks, brokers, listed companies and asset management firms, was said to be too big to handle the financial crisis effectively. It is to be replaced by a Prudential Regulatory Authority under the central bank to govern the financial strength of all institutions, while also setting up a consumer protection and markets agency.
Hong Kong's problem is the exact opposite of Britain's. While Britain has one regulator that has become too big to move, we have too many regulators for different sectors.
Our banks are regulated by the Hong Kong Monetary Authority, brokers by the Securities and Futures Commission, insurance companies by the Office of the Commissioner of Insurance and pension funds by the Mandatory Provident Fund Schemes Authority. Oh yes, and don't forget the SFC and the Hong Kong stock exchange share responsibility for the regulation of listed companies.
The British reform plan, to be implemented in two years, is similar to Australia's model, which has one watchdog for the financial strength of institutions and another to regulate the conduct of individual salespersons. This "twin-peak" model is favoured by the SFC but not by the HKMA.
White Collar has always said the main problem with a fragmented regulatory structure is inconsistency. In the Lehman Brothers minibonds fiasco, customers who bought the products from banks got 60 per cent to 70 per cent of their money back, while those who bought them from brokers got 100 per cent.
When customers buy investment products from banks, the transactions are recorded on audio tapes. This does not happen when buying from insurance agents.
From January next year, customers over 65 years of age will have to wait two days before banks execute orders to buy structured products for them. Meanwhile, this HKMA regulation does not apply to people buying the same products from brokers.
Some of the smallest independent financial advisers who have been told by the SFC to stop selling fund products are likely to switch to offering insurance- or fund-based investment-linked products, taking them off the securities watchdog's radar screens.
The current Hong Kong regulatory model is very outdated because the boundaries between the various arms of the finance sector have become blurred.
The banks are selling everything from securities and funds to insurance policies while insurance agents are also selling investment-linked products. On top of that, neither the bank nor the insurance sales people are subject to SFC regulations. Investors can easily become victims of such a fragmented model.
In the United States and Britain, customer protection has been a priority of their reform plans. In Hong Kong, however, we may have many regulators but we do not have a customer protection agency.
When the FSA was set up in 1998, the Hong Kong government was asked if it would be following suit, only to be told to "wait and see".
We have waited for 12 years and now the FSA is going to be scrapped. In the meantime our government has done nothing. How much longer should we wait for reform?
ILP fund
Dear Mr Tan,
I am currently reading up on Unit Trusts and ILPs. Are all ILPs invested in Unit Trusts?
REPLY
An ILP operates like a unit trust. The insurance company put the ILP premium into a fund and invest the fund in shares, bonds, unit trusts and other assts. The ILP fund is divided into units. The price of each unit of the ILP fund is calculated daily based on the underlying value of the assets, divided by the number of units. Hence, the ILP fund is managed like a unit trust. Usually, the insurance company managed the investments of the ILP fund using their inhouse fund managers, but they may also outsource the investing to external fund managers.
I am currently reading up on Unit Trusts and ILPs. Are all ILPs invested in Unit Trusts?
REPLY
An ILP operates like a unit trust. The insurance company put the ILP premium into a fund and invest the fund in shares, bonds, unit trusts and other assts. The ILP fund is divided into units. The price of each unit of the ILP fund is calculated daily based on the underlying value of the assets, divided by the number of units. Hence, the ILP fund is managed like a unit trust. Usually, the insurance company managed the investments of the ILP fund using their inhouse fund managers, but they may also outsource the investing to external fund managers.
2 millionth visitor - 7 winners
7 readers sent to me their screen shots showing that they are the 2 milionth visitors. They sent their replies within 5 minutes. I am acknowledging all 7 as the winners. They are asked to send to me their mailing address and their choice of books. Congratulations to all 7 winners.
Tan Kin Lian
Tan Kin Lian
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