Tuesday, June 30, 2009
Administration of Justice (1)
Singapore has built a strong reputation for observing the rule of law and having a fair and efficient administration of justice. It has won high international recognition for a transparency, consistency and justice in handling of commercial affairs.
Under the rule of law, all parties can look towards the law to be applied in a consistent and fair manner, as it is written, and that the law can be interpreted in the right spirit, to serve justice and fairness to all parties.
In the saga involving the Lehman Minibonds and other credit linked notes, the letter of the law are clearly spelled in the Securities and Futures Act and the Financial Advisers Act. These law requires the financial institutions to make proper disclosure about the financial product and imposes a duty on financial advisers to give appropriate advice to consumers.
I could not find any part of these law that define that people should be treated differently according to their "vulnerability", standard of education or age or other factors.
I do not quarrel with the generous decision of the financial institutions to give full compensation to the "vulnerable" investors. I also accept that it is within their prerogative to take the commercial approach to reject the complaints from the "non-vulnerable" investors.
However, I believe that the aggrieved investors, being ordinary people, have the right to expect justice to be administered according to the rule of law, especially from the following parties:
a) The regulator, who has the duty to investigate and prosecute any party that is found to have breached the law
b) The judges, who have the duty to decide in accordance to the letter and spirit of the law. This duty also falls on the Financial Industry Dispute Resolution Center (FIDReC).
I hope that FIDReC will adjudicate according to the law, and not principles of “vulnerability” as this is not stated in the law.
I believe that the investors and the distributors have to share the blame equally for the disastrous mistake. It would be most unfair, if FIDReC were to rule that the investors are fully responsible and that the distributors are not culpable (as they have failed in their duty to give proper advice to the investors).
Although the distributors have asked the investors to sign a disclaimer, this does not absolve the distributors from their legal duty under the Financial Advisers Act. I hope that FIDREC will take a similar view, in the interest of justice.
Tan Kin Lian
Under the rule of law, all parties can look towards the law to be applied in a consistent and fair manner, as it is written, and that the law can be interpreted in the right spirit, to serve justice and fairness to all parties.
In the saga involving the Lehman Minibonds and other credit linked notes, the letter of the law are clearly spelled in the Securities and Futures Act and the Financial Advisers Act. These law requires the financial institutions to make proper disclosure about the financial product and imposes a duty on financial advisers to give appropriate advice to consumers.
I could not find any part of these law that define that people should be treated differently according to their "vulnerability", standard of education or age or other factors.
I do not quarrel with the generous decision of the financial institutions to give full compensation to the "vulnerable" investors. I also accept that it is within their prerogative to take the commercial approach to reject the complaints from the "non-vulnerable" investors.
However, I believe that the aggrieved investors, being ordinary people, have the right to expect justice to be administered according to the rule of law, especially from the following parties:
a) The regulator, who has the duty to investigate and prosecute any party that is found to have breached the law
b) The judges, who have the duty to decide in accordance to the letter and spirit of the law. This duty also falls on the Financial Industry Dispute Resolution Center (FIDReC).
I hope that FIDReC will adjudicate according to the law, and not principles of “vulnerability” as this is not stated in the law.
I believe that the investors and the distributors have to share the blame equally for the disastrous mistake. It would be most unfair, if FIDReC were to rule that the investors are fully responsible and that the distributors are not culpable (as they have failed in their duty to give proper advice to the investors).
Although the distributors have asked the investors to sign a disclaimer, this does not absolve the distributors from their legal duty under the Financial Advisers Act. I hope that FIDREC will take a similar view, in the interest of justice.
Tan Kin Lian
Brain Workout in The New Paper (weekend)
Dear Mr. Tan
I like the Brain Workout that appear in The New Paper every weekend. But, I am not able to find the book in the major bookstores. Where can I buy them?
REPLY
You can buy them from this website. You pay the same price as in the bookstore. There is no additional charge for postage delivery in Singapore. Enjoy the puzzles.
You can try the online version of the puzzles here, for free.
The Standard:Banks, SFC meet to thrash out Lehman deal
30 June 2009
Representatives of 16 Lehman Brothers products distributor banks yesterday met with the Securities and Futures Commission in a bid to thrash out a settlement, sources said.
But no agreement was reached as yesterday's meeting was only of a "touch base" nature.
Bank of China (Hong Kong) (2388), the largest distributor of Lehman minibonds, was among the group to present the banks' proposal for settlement, according to sources.
Lenders were supporting BOCHK's proposal to offer an average of 60 percent of the principal invested as settlement and about 70 percent to those aged 65 or above.
Banks are also willing to repay the difference if collateral were sold at a higher price in the future, sources said.
However, some lenders also expressed their concern that the sum to be repaid was much higher when compared with penalties according to rules.
According to an SFC ordinance, if a bank is penalized for failing to reach a settlement, the total penalty would only be three times the commission earned.
As the total industry commission for distributing Lehman Brothers products was about HK$300 million, banks would only need to pay about HK$900 million and this is much less than that BOCHK's proposal, they said.
A spokesman for the SFC declined to comment, while one banker source said he hopes there may be breakthrough soon, saying: "Hopefully common ground can be reached in coming days."
Other sources said there might be a chance the banking group and the SFC could reach a compromise as Martin Wheatley, the SFC's chief executive, said last Tuesday the Sun Hung Kai Investment method "was not the only model" for resolution.
As the Lehman-related products sold were worth about HK$12 billion, a settlement at 60 percent would mean distributor lenders as a whole would pay out about HK$5 billion.
Representatives of 16 Lehman Brothers products distributor banks yesterday met with the Securities and Futures Commission in a bid to thrash out a settlement, sources said.
But no agreement was reached as yesterday's meeting was only of a "touch base" nature.
Bank of China (Hong Kong) (2388), the largest distributor of Lehman minibonds, was among the group to present the banks' proposal for settlement, according to sources.
Lenders were supporting BOCHK's proposal to offer an average of 60 percent of the principal invested as settlement and about 70 percent to those aged 65 or above.
Banks are also willing to repay the difference if collateral were sold at a higher price in the future, sources said.
However, some lenders also expressed their concern that the sum to be repaid was much higher when compared with penalties according to rules.
According to an SFC ordinance, if a bank is penalized for failing to reach a settlement, the total penalty would only be three times the commission earned.
As the total industry commission for distributing Lehman Brothers products was about HK$300 million, banks would only need to pay about HK$900 million and this is much less than that BOCHK's proposal, they said.
A spokesman for the SFC declined to comment, while one banker source said he hopes there may be breakthrough soon, saying: "Hopefully common ground can be reached in coming days."
Other sources said there might be a chance the banking group and the SFC could reach a compromise as Martin Wheatley, the SFC's chief executive, said last Tuesday the Sun Hung Kai Investment method "was not the only model" for resolution.
As the Lehman-related products sold were worth about HK$12 billion, a settlement at 60 percent would mean distributor lenders as a whole would pay out about HK$5 billion.
Monday, June 29, 2009
Rally in Hong Lim Park
Dear Mr. Tan,
Can you please organise another rally in Hong Lim Park (Speaker's Corner), so that the investors who were rejected by the FI or FIDREC can express their feelings? Many investors will like to attend. It has been too long since the last rally.
REPLY
If there is sufficent investors who are willing to attend, I will organise the gathering on a Saturday or Sunday in August at 5 p.m.. I also like some of the investors to speak and express their feelings. If you are interested to attend or speak, please complete this survey.
Can you please organise another rally in Hong Lim Park (Speaker's Corner), so that the investors who were rejected by the FI or FIDREC can express their feelings? Many investors will like to attend. It has been too long since the last rally.
REPLY
If there is sufficent investors who are willing to attend, I will organise the gathering on a Saturday or Sunday in August at 5 p.m.. I also like some of the investors to speak and express their feelings. If you are interested to attend or speak, please complete this survey.
Sunday, June 28, 2009
Excessive credit card charges
A year ago, I received a letter from my credit card company, informing me that the charge for a late payment is $X and for insufficient funds is $Y. I remember that the amounts are quite high, i.e. more than$40. They are excessive.
I called the credit card company and cancelled the credit card. I feel strongly that any charge should be fair and not excessive. The credit card company cannot make profit by over-charging customers. Already, they are making profit from the credit card fees and the transaction fee for each payment.
I hope that the regulator and the consumer association should take up this matter. I feel that business practices in Singapore is becoming very bad, and that consumers are being taken for a ride.
Tan Kin Lian
I called the credit card company and cancelled the credit card. I feel strongly that any charge should be fair and not excessive. The credit card company cannot make profit by over-charging customers. Already, they are making profit from the credit card fees and the transaction fee for each payment.
I hope that the regulator and the consumer association should take up this matter. I feel that business practices in Singapore is becoming very bad, and that consumers are being taken for a ride.
Tan Kin Lian
NTUC Income AGM, May 2009
At the AGM of NTUC Income held in May 2009, I raised a few questions on the cut in bonus and increase in premium rates on motor insurance. The answers provided by the management are shown in the attached document.
Saturday, June 27, 2009
Tweak ATMs to do away with cheques
This letter was printed in Straits Times Forum Page. Do you agree with the suggestion? Give your views here.
Editor
Forum Page
Straits Times
MANY people are familiar with the use of automated teller machines (ATMs) to withdraw cash or transfer funds to another account.
The transfer funds facility can be used to pay a third party, in place of writing a cheque. If this is widely promoted and used, it will reduce the number of cheques that have to be mailed and cleared through the banking system, and improve efficiency of companies.
There is a drawback in the existing transfer funds facility that needs to be addressed. DBS and POSB ATMs do not allow the transferor to enter a reference number to notify the payee about the party making the transfer. I am not sure if other banks' ATMs have a similar restriction.
I suggest that the ATM system be modified to allow a reference number to be entered in making a fund transfer. This number can be entirely numeric, as the ATM does not have the facility to enter letters.
If this facility is provided, many companies will actively encourage their customers to pay by bank transfer via the ATM, instead of writing a cheque. It will benefit all parties involved in the transaction and reduce the cost of making a payment.
I also suggest that the banks provide a facility for the account owner to ask for fund transfer transactions to be downloaded daily for processing. This will suit companies that do not wish to give full access to their employees to view other transactions in the bank account.
I hope the Association of Banks in Singapore or the Monetary Authority of Singapore will take up this suggestion.
Tan Kin Lian
Editor
Forum Page
Straits Times
MANY people are familiar with the use of automated teller machines (ATMs) to withdraw cash or transfer funds to another account.
The transfer funds facility can be used to pay a third party, in place of writing a cheque. If this is widely promoted and used, it will reduce the number of cheques that have to be mailed and cleared through the banking system, and improve efficiency of companies.
There is a drawback in the existing transfer funds facility that needs to be addressed. DBS and POSB ATMs do not allow the transferor to enter a reference number to notify the payee about the party making the transfer. I am not sure if other banks' ATMs have a similar restriction.
I suggest that the ATM system be modified to allow a reference number to be entered in making a fund transfer. This number can be entirely numeric, as the ATM does not have the facility to enter letters.
If this facility is provided, many companies will actively encourage their customers to pay by bank transfer via the ATM, instead of writing a cheque. It will benefit all parties involved in the transaction and reduce the cost of making a payment.
I also suggest that the banks provide a facility for the account owner to ask for fund transfer transactions to be downloaded daily for processing. This will suit companies that do not wish to give full access to their employees to view other transactions in the bank account.
I hope the Association of Banks in Singapore or the Monetary Authority of Singapore will take up this suggestion.
Tan Kin Lian
Comments in my blog
I like those posting comments in my blog to sign off with their real name or a pen name. This makes it easier for toher readers to refer to their posting by name. Do not post anonymous comments.
Insurance company has a duty to render a clear statement on ILP
Hi Mr Tan,
I'm writing regarding a recent blog post "Full refund of premium under ILP". I was surprised and envious when I read this.
For the past 6 months, I have been pursuing X for two ILPs I bought a few years ago. I wanted to track my investments and insurance, but was not given the full disclosure of fees involved.
The total contribution I make every month goes to 1) policy charges, 2) mortality charges, 3) insurance, and 4) investment funds. The fees and charges were not disclosed to me explicitly. I learned about these fees only very recently when I started to track my investments. I realised that the numbers cannot balance month to month. Then I read the policy booklets in detailed, and learned of all the extra charges.
X was also not able to give me the number of fund units that I buy every month, after the deductions of the charges. Hence I am unable to track the performance of my investment. I tried to contact them several times. But every time I'm told this is
not possible.
The company sends a yearly statement on the "Average" no. of units I have, and I'm told that is the only best info they can provide me. Unfortunately, it is not clear how many units are deducted for charges, and how many are added. I've spent many nights on Excel spreadsheets, running the statements, the info they provide, and the amount deducted from my bank. I tried to balance the numbers to the current units I hold, to no avail.
I get a lot of pressure from X and my financial advisor. They told me I'm being unreasonable when I ask for the funds' units every month, and that no insurance or fund companies can give me this information. I cannot imagine being stuck with these two policies for the next 36 years, not knowing where my money is going every month.
I am considering bringing my case to MAS and FIDREC. Is my request for more transparent information an unreasonable one?
REPLY
I support your idea to bring up this matter with MAS and FIDREC.
The insurance company owes a duty to the policyholder to provide details of the charges and a clear statement of how the money is being invested. No policyholder, regardless of how well educated, will know what is happening, unless a clear statement is rendered each month. It is not possible to know at the end of the year from a consolidated statement.
Many insurance companies fail to provide a clear statement, and in the process the policyholder is unaware about the high charges that are being deducted. This is an unacceptable practice, from the consumer's point of view. This shabby practice cannot be condoned.
All the best in lodging your complaint.
I'm writing regarding a recent blog post "Full refund of premium under ILP". I was surprised and envious when I read this.
For the past 6 months, I have been pursuing X for two ILPs I bought a few years ago. I wanted to track my investments and insurance, but was not given the full disclosure of fees involved.
The total contribution I make every month goes to 1) policy charges, 2) mortality charges, 3) insurance, and 4) investment funds. The fees and charges were not disclosed to me explicitly. I learned about these fees only very recently when I started to track my investments. I realised that the numbers cannot balance month to month. Then I read the policy booklets in detailed, and learned of all the extra charges.
X was also not able to give me the number of fund units that I buy every month, after the deductions of the charges. Hence I am unable to track the performance of my investment. I tried to contact them several times. But every time I'm told this is
not possible.
The company sends a yearly statement on the "Average" no. of units I have, and I'm told that is the only best info they can provide me. Unfortunately, it is not clear how many units are deducted for charges, and how many are added. I've spent many nights on Excel spreadsheets, running the statements, the info they provide, and the amount deducted from my bank. I tried to balance the numbers to the current units I hold, to no avail.
I get a lot of pressure from X and my financial advisor. They told me I'm being unreasonable when I ask for the funds' units every month, and that no insurance or fund companies can give me this information. I cannot imagine being stuck with these two policies for the next 36 years, not knowing where my money is going every month.
I am considering bringing my case to MAS and FIDREC. Is my request for more transparent information an unreasonable one?
REPLY
I support your idea to bring up this matter with MAS and FIDREC.
The insurance company owes a duty to the policyholder to provide details of the charges and a clear statement of how the money is being invested. No policyholder, regardless of how well educated, will know what is happening, unless a clear statement is rendered each month. It is not possible to know at the end of the year from a consolidated statement.
Many insurance companies fail to provide a clear statement, and in the process the policyholder is unaware about the high charges that are being deducted. This is an unacceptable practice, from the consumer's point of view. This shabby practice cannot be condoned.
All the best in lodging your complaint.
Friday, June 26, 2009
Only 20% received offer
Dear Mr. Tan
508 million was invested in minibonds. but Mr. Goh revealed offers made to victims from the distributors totalled 100 million, or 20%. Is it a joke of the century or what when Mr. Goh bragged about "2/3 receiving compensation?
ST: Lehman saga: Two thirds get payment offer
June 27, 2009
One in four who had mis-selling complaints fully compensated
By Francis Chan
MORE than two-thirds of the investors in Singapore who complained of mis-selling after losing money from the collapse of US investment bank Lehman Brothers, have been offered compensation.
Out of 5,350 cases dealt with by financial institutions that sold the Lehman-linked structured products, a quarter saw investors receiving full compensation, said Senior Minister Goh Chok Tong yesterday.
The latest updates came from the Monetary Authority of Singapore (MAS).
Mr Goh, who is also MAS chairman, was speaking at The Association of Banks of Singapore's (ABS) annual dinner.
He said the financial institutions that distributed the failed structured products have generally reviewed investor complaints in accordance with MAS recommendations that they should not take an overly legalistic approach.
Three banks and one finance company told MAS that as at last month, settlements worth $105 million - on a no-admission-of-liability basis - had been offered to more than 3,600 investors of Lehman-linked notes.
Of the 5,350 cases dealt with and decided on by the financial institutions, 67 per cent had seen settlements offered, while investors in 25 per cent of the cases decided were fully compensated.
Ten financial institutions sold over $660 million worth of Lehman-linked investments to more than 10,000 investors, who bought Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
Mr Goh said MAS had recently consulted the public on proposed regulatory enhancements to cover the sale and marketing of structured products to retail investors.
'Broadly, the findings from MAS' policy review and investigations show that financial institutions will need fundamental changes in both business models and mindsets to win back the trust and confidence of consumers. This is true not only in Singapore, but across the globe.'
Mr Goh said that MAS had completed its probe into the sale of the structured notes and would release its findings soon.
Investors caught up in the fiasco have been looking forward to the the findings for months, most with mixed feelings.
'If the investigation process is conducted properly and without prejudice, I am hopeful that the findings will be in our favour,' said one investor who did not want to be named.
'My case is still in adjucation, so I do hope to hear favourable findings,' said another Minibonds investor whose complaint is being dealt with by the Financial Industry Disputes Resolution Centre.
'But all they need to do is tell us the truth, and I am sure most, if not all, cases should receive full compensation.'
MAS recently set out in its Fair Dealing Guidelines the roles and responsibilities of boards and senior management in driving some fundamental changes needed for good customer outcomes.
Mr Goh said MAS will fine-tune its approach to supervision of the market conduct of financial institutions, including greater probing of boards and senior management on the steps they are taking to embed fair dealing outcomes in all their processes, from product approval to staff incentive structures.
franchan@sph.com.sg
One in four who had mis-selling complaints fully compensated
By Francis Chan
MORE than two-thirds of the investors in Singapore who complained of mis-selling after losing money from the collapse of US investment bank Lehman Brothers, have been offered compensation.
Out of 5,350 cases dealt with by financial institutions that sold the Lehman-linked structured products, a quarter saw investors receiving full compensation, said Senior Minister Goh Chok Tong yesterday.
The latest updates came from the Monetary Authority of Singapore (MAS).
Mr Goh, who is also MAS chairman, was speaking at The Association of Banks of Singapore's (ABS) annual dinner.
He said the financial institutions that distributed the failed structured products have generally reviewed investor complaints in accordance with MAS recommendations that they should not take an overly legalistic approach.
Three banks and one finance company told MAS that as at last month, settlements worth $105 million - on a no-admission-of-liability basis - had been offered to more than 3,600 investors of Lehman-linked notes.
Of the 5,350 cases dealt with and decided on by the financial institutions, 67 per cent had seen settlements offered, while investors in 25 per cent of the cases decided were fully compensated.
Ten financial institutions sold over $660 million worth of Lehman-linked investments to more than 10,000 investors, who bought Lehman Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
Mr Goh said MAS had recently consulted the public on proposed regulatory enhancements to cover the sale and marketing of structured products to retail investors.
'Broadly, the findings from MAS' policy review and investigations show that financial institutions will need fundamental changes in both business models and mindsets to win back the trust and confidence of consumers. This is true not only in Singapore, but across the globe.'
Mr Goh said that MAS had completed its probe into the sale of the structured notes and would release its findings soon.
Investors caught up in the fiasco have been looking forward to the the findings for months, most with mixed feelings.
'If the investigation process is conducted properly and without prejudice, I am hopeful that the findings will be in our favour,' said one investor who did not want to be named.
'My case is still in adjucation, so I do hope to hear favourable findings,' said another Minibonds investor whose complaint is being dealt with by the Financial Industry Disputes Resolution Centre.
'But all they need to do is tell us the truth, and I am sure most, if not all, cases should receive full compensation.'
MAS recently set out in its Fair Dealing Guidelines the roles and responsibilities of boards and senior management in driving some fundamental changes needed for good customer outcomes.
Mr Goh said MAS will fine-tune its approach to supervision of the market conduct of financial institutions, including greater probing of boards and senior management on the steps they are taking to embed fair dealing outcomes in all their processes, from product approval to staff incentive structures.
franchan@sph.com.sg
GST records adds to cost of doing business
The owner of a small business told me that the keeping of tax invoices to support GST has added to his cost of doing business. He has to keep separate records for the purpose of GST, which is additional to the records for preparing his accounting statements.
Do you agree with this view? If you are runnning a business that needs to comply with GST or have any friends in this situation, please share your views here.
Do you agree with this view? If you are runnning a business that needs to comply with GST or have any friends in this situation, please share your views here.
Health care reform in the USA
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHgrHkW_rbLI
This may take the form of a national cooperative, owned by the policyholders. It has to be national-based, rather than state-based, so that it can have an efficient size.
The Obama Administration wants to offer a government-backed insurance program to compete with private insurance. The aim is to extend coverage to all Americans and bring down cost.
This may take the form of a national cooperative, owned by the policyholders. It has to be national-based, rather than state-based, so that it can have an efficient size.
Another proposal is to remove the restriction on using cost-effectiveness studies to pick which drugs and medical devices Medicare funds for the elderly and disabled. Supporters like evidence-based research to be used to make decisions to figure out what strategies work, then have incentives to use the best possible -- not only lowest cost, but most effective -- treatment protocol. This would result in significant savings.
The opponents argues along with other Republican opponents that such comparative effectiveness research would be use to ration care.
The final bill being discussed in Congress will include some kind of nonprofit entity to compete with private insurers, whether a co-op or government- run program. This will encourage competition and private insurers may not make as much money as they’re making currently.
Tan Kin Lian
Quality of life in Ipoh
Hi Mr Tan,
I went to Ipoh yesterday to visit the cave temples. I enjoyed myself very much there. Things are so cheap and with the limestone hills as a backdrop and low storied buildings, there is such a huge expanse of sky over you.
Here you really feel that there are other ways to live other the life I know, and it can be so pleasant and enjoyable.
From Jusco I tried to take a cab to the bus terminal. The taxi driver wanted to overcharge me so I decided to walk back. I thought it would be good to see the hills grow dark as night fell.
Unfortunately as night fell, I lost my bearings. Luckily, I was picked up by a retired police officer who delivered me to the bus terminalI treated him to a meal. He told me that he retired at 40 and is now a used car dealer. He is doing very well, enough to play an expensive game of polo on horseback every month.
I envied him. He took pride in his job as a police officer and is enjoying his life. I do not think such a quality of life is achieveable in Singapore. It echoed the taxi driver in Penang who said, "Singapore is a place where you make money and get out". He had worked in Singapore as a SBS driver.
I'm thinking of buying a place in Ipoh in the future!
REPLY
Thank you for telling me about your visit to Ipoh (which I last visited 35 years ago). I will be visiting Penang, Ipoh and Kedah next month. My friend in Kedah will take me around.
I agree with your views about the nice pace of life in Ipoh. But many people in Ipoh seemed to take a different view, as they leave this town to work in Singapore and Kuala Lumpur.
I went to Ipoh yesterday to visit the cave temples. I enjoyed myself very much there. Things are so cheap and with the limestone hills as a backdrop and low storied buildings, there is such a huge expanse of sky over you.
Here you really feel that there are other ways to live other the life I know, and it can be so pleasant and enjoyable.
From Jusco I tried to take a cab to the bus terminal. The taxi driver wanted to overcharge me so I decided to walk back. I thought it would be good to see the hills grow dark as night fell.
Unfortunately as night fell, I lost my bearings. Luckily, I was picked up by a retired police officer who delivered me to the bus terminalI treated him to a meal. He told me that he retired at 40 and is now a used car dealer. He is doing very well, enough to play an expensive game of polo on horseback every month.
I envied him. He took pride in his job as a police officer and is enjoying his life. I do not think such a quality of life is achieveable in Singapore. It echoed the taxi driver in Penang who said, "Singapore is a place where you make money and get out". He had worked in Singapore as a SBS driver.
I'm thinking of buying a place in Ipoh in the future!
REPLY
Thank you for telling me about your visit to Ipoh (which I last visited 35 years ago). I will be visiting Penang, Ipoh and Kedah next month. My friend in Kedah will take me around.
I agree with your views about the nice pace of life in Ipoh. But many people in Ipoh seemed to take a different view, as they leave this town to work in Singapore and Kuala Lumpur.
Shape Quiz (T Puzzle)
Print the PDF document in this website. Cut out the 4 pieces. Try to form the shapes shown in the brochure. It is challenging and fun.
Thursday, June 25, 2009
Financial reforms in America
A key proposal of Obama's Administration is to set up a Consumer Protection Agency on financial products. It will encourage financial institutions to offer "plain manilla" products that meet their needs.
Critics said that it will stifle innovation. I disagree with these critics. My view is that consumers are best served by buying simple products. They do not need "innovative" products, which were created to make profit for the financial institutions, at the expense of the unwary consumers.
Another interesting proposal is for the products to be offered on an exchange. For example, the Administration is working on a health insurance product to be offered by the Government, which will be offered on an internet exchange together with private sector products. This will allow the consumers can make an informed choice on the available products. In my view, this is a major step forward.
I read that Paul Vocker, who is an adviser to the Obama Administration, is strongly in favour of all derivative products being transacted on an exchange, rather than over the counter. This will ensure transparency and fair pricing. I agree with this approach. If it had been adopted earlier, the world would have avoided the global financial crisis.
Free market and innovation have been misused by the proponents to act unethically and to take big risks, which has caused the downfall of the global economy.
We need new foundations to rebuild the global economy, namely:
a) plain manilla products
b) transacted through an exchange
c) consumers to be protected
My best wishes for the success of the financial reform that is being promoted by the Obama Administration. They have the courage to do the right thing.
Tan Kin Lian
Critics said that it will stifle innovation. I disagree with these critics. My view is that consumers are best served by buying simple products. They do not need "innovative" products, which were created to make profit for the financial institutions, at the expense of the unwary consumers.
Another interesting proposal is for the products to be offered on an exchange. For example, the Administration is working on a health insurance product to be offered by the Government, which will be offered on an internet exchange together with private sector products. This will allow the consumers can make an informed choice on the available products. In my view, this is a major step forward.
I read that Paul Vocker, who is an adviser to the Obama Administration, is strongly in favour of all derivative products being transacted on an exchange, rather than over the counter. This will ensure transparency and fair pricing. I agree with this approach. If it had been adopted earlier, the world would have avoided the global financial crisis.
Free market and innovation have been misused by the proponents to act unethically and to take big risks, which has caused the downfall of the global economy.
We need new foundations to rebuild the global economy, namely:
a) plain manilla products
b) transacted through an exchange
c) consumers to be protected
My best wishes for the success of the financial reform that is being promoted by the Obama Administration. They have the courage to do the right thing.
Tan Kin Lian
Unable to take up rights issue
Dear Mr. Tan,
I have invested in REITS. Due to the recent right issues carried out by several REITS, I have been forced to buy more shares or suffer dilution. Can you advice on:
1. Could you please kindly advise if it is worthwhile to buy & hold REIT for many years (i.e. 10-20 years)?
2. Should I switch into high dividend yield blue chips, as they do not issue rights often?
REPLY
All shares are subject to rights issue, i.e. not just REITs but other shares as well.
If you are not able to take up the rights issue, you have the option to sell the rights. The amount that you get for the rights should be almost the same as the amount of dilution in your shares.
For example,
Price of shares before rights issue $5
Rights issue (1 for 1) at $3
Share price after rights issue, due to dilution: $4
Value of rights, if sold in the market, should be $1.
The value of the rights is usually the same as the loss due to dilution, but it may vary somewhat, due to market condition.
Whether you should invest in REITS or blue chips is a different matter. Usually, it is better to be well diversified, e.g. buy a ETF of shares and REITS (if available).
I have invested in REITS. Due to the recent right issues carried out by several REITS, I have been forced to buy more shares or suffer dilution. Can you advice on:
1. Could you please kindly advise if it is worthwhile to buy & hold REIT for many years (i.e. 10-20 years)?
2. Should I switch into high dividend yield blue chips, as they do not issue rights often?
REPLY
All shares are subject to rights issue, i.e. not just REITs but other shares as well.
If you are not able to take up the rights issue, you have the option to sell the rights. The amount that you get for the rights should be almost the same as the amount of dilution in your shares.
For example,
Price of shares before rights issue $5
Rights issue (1 for 1) at $3
Share price after rights issue, due to dilution: $4
Value of rights, if sold in the market, should be $1.
The value of the rights is usually the same as the loss due to dilution, but it may vary somewhat, due to market condition.
Whether you should invest in REITS or blue chips is a different matter. Usually, it is better to be well diversified, e.g. buy a ETF of shares and REITS (if available).
Wednesday, June 24, 2009
Learn about medication
I was prescribed with Naproxen Sodium before. I had some remaining tablets but forgot what it was used for. I searched Google and found the following explanation. It was quite useful for me to learn about the medication. It is important for each person to learn about the medication that they are taking. The internet provides an easy reference.
Naproxen sodium is a non-steroidal anti-inflammatory drug (NSAID) that is most often used to treat pain, inflammation, menstrual cramps and fever. It is also a favorite medication used to treat the stiffness associated with arthritis, osteoarthritis and rheumatoid arthritis and other conditions affecting joints. Naproxen sodium, or naproxen, as it is often referred to, is less commonly used to treat Paget’s disease and Barrter’s syndrome.
Note: remaining details are removed.
Shopping through the internet
I need envelopes to send my books to customers. Each envelope (A5 size) cost 26 cents from a stationary shop.
As I needed a large number of envelopes, I searched the internet for a manufacturer to supply in bulk. I found an internet-based stationery who offered the envelopes at 8 cents, i.e. about 1/3rd of the retail price. I bought the envelopes and other stationary items for my office through this source, and paid using Paypal.
Lesson: It is easy to do "shopping" through the internet and find out the best source.
Tan Kin Lian
As I needed a large number of envelopes, I searched the internet for a manufacturer to supply in bulk. I found an internet-based stationery who offered the envelopes at 8 cents, i.e. about 1/3rd of the retail price. I bought the envelopes and other stationary items for my office through this source, and paid using Paypal.
Lesson: It is easy to do "shopping" through the internet and find out the best source.
Tan Kin Lian
Paying in foreign currency
Dear Mr Tan,
I am doing a 3-year distance learning course from a UK university. They offer payments by credit card or bank transfer and installment payment for each semester.What is the best way to make payment for my course? Should I open a foreign currency account and convert my money into GBP before the GBP increases?
REPLY
You should not try to speculate on whether the GBP will increase or drop. It can go either way.
When you make payment, look at the exchange rate and the bank charges. Get a few banks to quote to you, so that you get the best rate and lowest charges.
I am doing a 3-year distance learning course from a UK university. They offer payments by credit card or bank transfer and installment payment for each semester.What is the best way to make payment for my course? Should I open a foreign currency account and convert my money into GBP before the GBP increases?
REPLY
You should not try to speculate on whether the GBP will increase or drop. It can go either way.
When you make payment, look at the exchange rate and the bank charges. Get a few banks to quote to you, so that you get the best rate and lowest charges.
China Daily:Banks may face action from SFC
24 June 2009
HONG KONG: The Securities and Futures Commission (SFC) may take disciplinary action against some financial institutions due to misconducts related to the mis-selling of risky derivative products to individual investors, Martin Wheatley, chief executive of the market watchdog, said yesterday.
The SFC has completed its investigation into 11 of the 19 banks that had distributed toxic Lehman Brothers "minibonds" to individual investors, Wheatley told legislators yesterday at a public hearing on the issue by the legislature.
Seven of the banks have been served with a notice of proposed disciplinary action (NPDA) while the other four will soon be served with a similar notice as apparent evidence indicated mis-selling of risky debt derivatives, he said.
Disciplinary proceedings will be taken against these banks unless they agree to compromises, he said.
Sending out an NPDA is the first step the SFC will take after it has decided to start disciplinary proceedings.
A NPDA sets out the findings of the SFC investigation and indicates the sanctions the SFC considers appropriate to impose.
Wheatley did not elaborate on the likely disciplinary sanctions.
But, according to the Securities and Futures Ordinance (SFO), which governs the operation of the SFC, the market watchdog is empowered to discipline regulated persons or firms who are found guilty of misconduct.
Sanctions that could be taken by the SFC include revocation of license or registration, suspension of licence or registration, prohibition of application for licence or registration, fines up to $10 million and reprimands.
Individual investors, who have bought minibonds or other toxic derivatives products, welcomed the latest move by the SFC but claimed that the move is far from enough to force banks to buy back the toxic financial products at their original investment value.
"It is too mild a move. The SFC should have applied for the establishment of a Market Misconduct Tribunal to handle these serious market misconducts," said Peter Chan, chairman of Allied Victims of Lehman Products.
"Banks (that distributed the toxic products) have tried their best to avoid redeeming all the toxic financial products at full face value. The SFC should have taken disciplinary sanctions much earlier," he added.
Wheatley said the market watchdog will complete its investigation of the remaining eight banks as soon as possible.
He also confirmed during the hearing that the SFC had received complaints about mis-selling against financial institutions from investors who had bought credit-linked notes (CLN) and equity-linked notes (ELN) from them.
Many of these investors, who have suffered huge losses from their investment in CLNs and ELNs amid the volatile market in the past several months, claim that they bought CLNs and ELNs only because of mis-presentation by financial institutions.
The market watchdog has not started investigation on these complaints yet, Wheatley said.
He said the SFC had received 8,400 complaints against financial institutions, mostly alleging mis-selling of Lehman minibonds.
Wheatley declined to comment on reports that BOC Hong Kong had offered to buy back all minibonds it distributed at 40 percent discount to the original investment value.
Wheatley is scheduled to attend another public hearing on the minibond issue by the legislature this Friday.
HONG KONG: The Securities and Futures Commission (SFC) may take disciplinary action against some financial institutions due to misconducts related to the mis-selling of risky derivative products to individual investors, Martin Wheatley, chief executive of the market watchdog, said yesterday.
The SFC has completed its investigation into 11 of the 19 banks that had distributed toxic Lehman Brothers "minibonds" to individual investors, Wheatley told legislators yesterday at a public hearing on the issue by the legislature.
Seven of the banks have been served with a notice of proposed disciplinary action (NPDA) while the other four will soon be served with a similar notice as apparent evidence indicated mis-selling of risky debt derivatives, he said.
Disciplinary proceedings will be taken against these banks unless they agree to compromises, he said.
Sending out an NPDA is the first step the SFC will take after it has decided to start disciplinary proceedings.
A NPDA sets out the findings of the SFC investigation and indicates the sanctions the SFC considers appropriate to impose.
Wheatley did not elaborate on the likely disciplinary sanctions.
But, according to the Securities and Futures Ordinance (SFO), which governs the operation of the SFC, the market watchdog is empowered to discipline regulated persons or firms who are found guilty of misconduct.
Sanctions that could be taken by the SFC include revocation of license or registration, suspension of licence or registration, prohibition of application for licence or registration, fines up to $10 million and reprimands.
Individual investors, who have bought minibonds or other toxic derivatives products, welcomed the latest move by the SFC but claimed that the move is far from enough to force banks to buy back the toxic financial products at their original investment value.
"It is too mild a move. The SFC should have applied for the establishment of a Market Misconduct Tribunal to handle these serious market misconducts," said Peter Chan, chairman of Allied Victims of Lehman Products.
"Banks (that distributed the toxic products) have tried their best to avoid redeeming all the toxic financial products at full face value. The SFC should have taken disciplinary sanctions much earlier," he added.
Wheatley said the market watchdog will complete its investigation of the remaining eight banks as soon as possible.
He also confirmed during the hearing that the SFC had received complaints about mis-selling against financial institutions from investors who had bought credit-linked notes (CLN) and equity-linked notes (ELN) from them.
Many of these investors, who have suffered huge losses from their investment in CLNs and ELNs amid the volatile market in the past several months, claim that they bought CLNs and ELNs only because of mis-presentation by financial institutions.
The market watchdog has not started investigation on these complaints yet, Wheatley said.
He said the SFC had received 8,400 complaints against financial institutions, mostly alleging mis-selling of Lehman minibonds.
Wheatley declined to comment on reports that BOC Hong Kong had offered to buy back all minibonds it distributed at 40 percent discount to the original investment value.
Wheatley is scheduled to attend another public hearing on the minibond issue by the legislature this Friday.
SCMP:At least 11 banks mis-sold minibonds, SFC chief says
24 June 2009
Preliminary findings indicate that at least 11 banks violated regulations when selling Lehman Brothers minibonds, legislators heard yesterday.
Securities and Futures Commission chief executive Martin Wheatley told a Legislative Council subcommittee meeting that was the result of investigations of all 19 banks that sold the complex investment products.
"In seven of those, we have reached our preliminary conclusions where we have either filed preliminary notice of disciplinary action or we have opened settlement investigations," Mr Wheatley said, adding that there was prima facie evidence of lapses in control.
The securities regulator was also concluding initial investigations with four other banks, which would either receive a preliminary notice or face settlement talks, he said.
Mr Wheatley refused to comment on market rumours that the regulator had rejected Bank of China (Hong Kong)'s offer to buy back minibonds from clients at 60 per cent or more of the investment principal.
Earlier, brokers Sun Hung Kai Investment Services and KGI Asia reached an agreement with the commission to buy back minibonds from their clients at their original value.
"In terms of the statement about whether the initial agreements the SFC reached with the brokers is the only model, the answer is no, we are not dogmatic," Mr Wheatley said. "We have said that we will take account of the extent to which any bank mitigates the losses in the enforcement action that we take."
The regulator has received 8,400 complaints since September, most of them alleging that Lehman Brothers minibonds were misleadingly sold.
At the three-hour hearing, Mr Wheatley was repeatedly asked if there was any problem with the demarcation between the commission and the Monetary Authority.
"I think the demarcation is clear," he said.
Saying that the commission had no legal role overseeing the authority in the regulation of banks, Mr Wheatley said the commission was in "a co-ordination role, not a supervisory or an oversight role" with the banking regulator.
Asked whether the commission would regulate the names of financial products, Mr Wheatley said it would ask the issuer to justify the name.
It had also proposed to the financial secretary that more guidelines and codes be developed to cover the marketing of related documents.
Minibonds were not corporate bonds, but high-risk, credit-linked derivatives marketed as a proxy investment in well-known companies.
Mr Wheatley will give evidence again on Friday.
Preliminary findings indicate that at least 11 banks violated regulations when selling Lehman Brothers minibonds, legislators heard yesterday.
Securities and Futures Commission chief executive Martin Wheatley told a Legislative Council subcommittee meeting that was the result of investigations of all 19 banks that sold the complex investment products.
"In seven of those, we have reached our preliminary conclusions where we have either filed preliminary notice of disciplinary action or we have opened settlement investigations," Mr Wheatley said, adding that there was prima facie evidence of lapses in control.
The securities regulator was also concluding initial investigations with four other banks, which would either receive a preliminary notice or face settlement talks, he said.
Mr Wheatley refused to comment on market rumours that the regulator had rejected Bank of China (Hong Kong)'s offer to buy back minibonds from clients at 60 per cent or more of the investment principal.
Earlier, brokers Sun Hung Kai Investment Services and KGI Asia reached an agreement with the commission to buy back minibonds from their clients at their original value.
"In terms of the statement about whether the initial agreements the SFC reached with the brokers is the only model, the answer is no, we are not dogmatic," Mr Wheatley said. "We have said that we will take account of the extent to which any bank mitigates the losses in the enforcement action that we take."
The regulator has received 8,400 complaints since September, most of them alleging that Lehman Brothers minibonds were misleadingly sold.
At the three-hour hearing, Mr Wheatley was repeatedly asked if there was any problem with the demarcation between the commission and the Monetary Authority.
"I think the demarcation is clear," he said.
Saying that the commission had no legal role overseeing the authority in the regulation of banks, Mr Wheatley said the commission was in "a co-ordination role, not a supervisory or an oversight role" with the banking regulator.
Asked whether the commission would regulate the names of financial products, Mr Wheatley said it would ask the issuer to justify the name.
It had also proposed to the financial secretary that more guidelines and codes be developed to cover the marketing of related documents.
Minibonds were not corporate bonds, but high-risk, credit-linked derivatives marketed as a proxy investment in well-known companies.
Mr Wheatley will give evidence again on Friday.
Tuesday, June 23, 2009
Will Hong Kong investors get a higher compensation?
A few months ago, the media reports gave the impression that a high proportion of credit linked note investors in Singapore received full or partial compensation. The investors in Hong Kong used this reports to pressure their Government to set similar compensation for them. The general public believed that the regulators had intervened to get satisfactory compensation for the Singapore investors.
As the months went by, many Singapore investors, especially those who invested a large sum, were disappointed that their requests for compensation were rejected by the financial institutions or the compensation offers were unacceptably low.
Many investors rejected the offers and brought their cases to be heard in FIDREC. A few cases had their cases adjudicated with disappointing results to the investors.
Some investors did received satisfactory compensation, which they accepted gratefully. But, the proportion appears to be small.
The Legislative Assemby in Hong Kong had summoned the regulatory authority to testify in their chambers. These hearings were well reported in the media. The legislators were unhappy with the measures taken by the regulators before and after the crisis had erupted. In response, the regulators were compelled to take stronger action now to remedy the situation.
Recent media reports suggested that some financial institutions in Hong Kong are now willing to compensate the investors at more than 50%, which is more generous that the settlements offered in Singapore.
In my view, a compensation of 50% of the amount of loss would be fair, as the loss should be shared equally between the distributor (due to their negligence in mis-advising the investors about the nature of the product) and the investors (who wanted to earn a higher yield).
I hope that all investors in Singapore will receive this level of compensation, regardless of their age or educational level.
Tan Kin Lian
As the months went by, many Singapore investors, especially those who invested a large sum, were disappointed that their requests for compensation were rejected by the financial institutions or the compensation offers were unacceptably low.
Many investors rejected the offers and brought their cases to be heard in FIDREC. A few cases had their cases adjudicated with disappointing results to the investors.
Some investors did received satisfactory compensation, which they accepted gratefully. But, the proportion appears to be small.
The Legislative Assemby in Hong Kong had summoned the regulatory authority to testify in their chambers. These hearings were well reported in the media. The legislators were unhappy with the measures taken by the regulators before and after the crisis had erupted. In response, the regulators were compelled to take stronger action now to remedy the situation.
Recent media reports suggested that some financial institutions in Hong Kong are now willing to compensate the investors at more than 50%, which is more generous that the settlements offered in Singapore.
In my view, a compensation of 50% of the amount of loss would be fair, as the loss should be shared equally between the distributor (due to their negligence in mis-advising the investors about the nature of the product) and the investors (who wanted to earn a higher yield).
I hope that all investors in Singapore will receive this level of compensation, regardless of their age or educational level.
Tan Kin Lian
Full refund of premium under ILP
A policyholder was shocked to learn that the surrender penalty under his ILP policy at the end of 2 years was so high that it took away 90% of his savings. He was not properly advised of this matter by the distributor who sold the policy to him.
He pursued this matter vigorously against the distributor who sold the policy and the insurance company who created the product. He met with the senior officials of both organisations and also complained to MAS.
He was given various types of excuses and disclaimers. He was not discouraged but continued to fight on.
He was finally offered a full refund of the premiums paid for the 2 years and was asked to sign a non-disclosure agreement.
Lesson: If you are willing to fight for your right, the financial institutions may surrender, instead of the consumer.
Tan Kin Lian
He pursued this matter vigorously against the distributor who sold the policy and the insurance company who created the product. He met with the senior officials of both organisations and also complained to MAS.
He was given various types of excuses and disclaimers. He was not discouraged but continued to fight on.
He was finally offered a full refund of the premiums paid for the 2 years and was asked to sign a non-disclosure agreement.
Lesson: If you are willing to fight for your right, the financial institutions may surrender, instead of the consumer.
Tan Kin Lian
Monday, June 22, 2009
The Standard:BOCHK, regulator reach minibond impasse
23 June 2009
Talks between Bank of China (Hong Kong) (2388) and the Securities and Futures Commission have stalled over how much Lehman minibond investors should be compensated despite nearly two months of discussions.
BOCHK will not accede to the regulator's demands that it pay back 100 percent of the purchase value of the toxic investments and is suggesting a maximum offer of 70 percent, sources said.
Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products, said he is disappointed by the development and demanded BOCHK take responsibility.
``They did not even show they felt sorry for the situation and it is not acceptable to just pay back 60 percent,'' he said.
Investors aged 65 or older would get up to 70 percent of their capital back. Everyone else would be offered 60 percent. Both offers are on the condition that BOCHK does not accept liability for misselling of the toxic products.
The government has no intention of intervening, The Standard has learned.
A government spokeswoman said: ``We hope the matter can be resolved as quickly as possible.''
BOCHK, the city's largest distributor of Lehman minibonds products in Hong Kong, has submitted a proposal to the SFC and is awaiting its response, sources said.
BOCHK's proposal was based on the government's buyout plan submitted last year with an ``additional premium,'' a source said.
The administration last November suggested banks refund 55 percent of the principal on all minibond products but this proposal was scrapped for legal reasons.
The SFC has insisted on pursuing the same 100 percent rebate for investors that it has already negotiated with Sun Hung Kai Investment and KGI Securities.
BOCHK led minibond sales in Hong Kong with 40 percent of the market. Dah Sing Financial was the second-biggest seller of the structured products, according to research.
BOCHK's settlement will set a precedent for other banks' negotiations with the SFC.
Its 60 percent proposal will cost it HK$2.52 billion, according to Citigroup Global Markets, while paying back 100 percent would cost HK$4.2 billion.
It has so far set aside HK$769 million in provisions.
Dah Sing Financial sold about HK$1.1 billion in Lehman minibonds. So far it has put aside HK$300 million in provisions, according to Citi.
Talks between Bank of China (Hong Kong) (2388) and the Securities and Futures Commission have stalled over how much Lehman minibond investors should be compensated despite nearly two months of discussions.
BOCHK will not accede to the regulator's demands that it pay back 100 percent of the purchase value of the toxic investments and is suggesting a maximum offer of 70 percent, sources said.
Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products, said he is disappointed by the development and demanded BOCHK take responsibility.
``They did not even show they felt sorry for the situation and it is not acceptable to just pay back 60 percent,'' he said.
Investors aged 65 or older would get up to 70 percent of their capital back. Everyone else would be offered 60 percent. Both offers are on the condition that BOCHK does not accept liability for misselling of the toxic products.
The government has no intention of intervening, The Standard has learned.
A government spokeswoman said: ``We hope the matter can be resolved as quickly as possible.''
BOCHK, the city's largest distributor of Lehman minibonds products in Hong Kong, has submitted a proposal to the SFC and is awaiting its response, sources said.
BOCHK's proposal was based on the government's buyout plan submitted last year with an ``additional premium,'' a source said.
The administration last November suggested banks refund 55 percent of the principal on all minibond products but this proposal was scrapped for legal reasons.
The SFC has insisted on pursuing the same 100 percent rebate for investors that it has already negotiated with Sun Hung Kai Investment and KGI Securities.
BOCHK led minibond sales in Hong Kong with 40 percent of the market. Dah Sing Financial was the second-biggest seller of the structured products, according to research.
BOCHK's settlement will set a precedent for other banks' negotiations with the SFC.
Its 60 percent proposal will cost it HK$2.52 billion, according to Citigroup Global Markets, while paying back 100 percent would cost HK$4.2 billion.
It has so far set aside HK$769 million in provisions.
Dah Sing Financial sold about HK$1.1 billion in Lehman minibonds. So far it has put aside HK$300 million in provisions, according to Citi.
Brain Workout (aka Intelligence Quiz)
I have got 5 orders through the website for my books now. Payment for 3 orders were made through ATM and 2 by internet banking transfer. The process is working smoothly. I will be offering more products through the website later.
Click on these links:
Play online
Order books
A customer called me today as she wanted the book urgently for her children. They love the puzzles which appeared in The New Paper on Sunday.
Click on these links:
Play online
Order books
A customer called me today as she wanted the book urgently for her children. They love the puzzles which appeared in The New Paper on Sunday.
Correct approach to select an insurance policy
Many people think that a good insurance policy provides the widest cover. This is not the correct approach.
A good insurance policy meets the following criteria:
a) Provides cover that is relevant to the needs
b) The cover is clearly defined (i.e. not ambigious)
c) The premium is computed fairly.
The consumer should avoid a policy that provides wide cover that is irrelevant to the needs, have a negligible chance of occurence, and are ambigiously defined. Many of the coverages provided under a critical illness policy fall into this category.
To ensure that the premium is computed fairly, the ratio of claims to premium should be at least 60% in the case of a policy that covers the risk and does not accummulate any savings. If the ratio is less than 60%, the premium is overcharged, and gives poor value to the consumer.
Many travel insurance policies have a claim ratio of less than 30%. A large part of the premium goes to commission, expenses and profit to the insurance company. Many Shield plans also have claims ratio of less than 50%.
Motor insurance has a claim ratio of more than 70%, due to intensive competition. It gives good value to the consumer, except that the claims are inflated due to incompetency in claims control.
When you buy an insurance policy, make sure that the coverage is clearly defined and that the claim ratio is more than 60% of the premiums.
Tan Kin Lian
A good insurance policy meets the following criteria:
a) Provides cover that is relevant to the needs
b) The cover is clearly defined (i.e. not ambigious)
c) The premium is computed fairly.
The consumer should avoid a policy that provides wide cover that is irrelevant to the needs, have a negligible chance of occurence, and are ambigiously defined. Many of the coverages provided under a critical illness policy fall into this category.
To ensure that the premium is computed fairly, the ratio of claims to premium should be at least 60% in the case of a policy that covers the risk and does not accummulate any savings. If the ratio is less than 60%, the premium is overcharged, and gives poor value to the consumer.
Many travel insurance policies have a claim ratio of less than 30%. A large part of the premium goes to commission, expenses and profit to the insurance company. Many Shield plans also have claims ratio of less than 50%.
Motor insurance has a claim ratio of more than 70%, due to intensive competition. It gives good value to the consumer, except that the claims are inflated due to incompetency in claims control.
When you buy an insurance policy, make sure that the coverage is clearly defined and that the claim ratio is more than 60% of the premiums.
Tan Kin Lian
Sunday, June 21, 2009
Politics of Fear - Reader's Views
There were 7 replies from readers. All of them mostly agreed with the views contained in this article. Here are their reasons:
1. 40-50 years ago in Singapore, I always heard 2 news among my friends and elderlies : a) Ghost stories b)Secret police terrorised the oppositions. But since 1990 onwards I hardly hear such news. I believe, as our society progresses, most of the ghosts and secret police have gone for reincarnation. It is a more civilised society now.
2. Many years ago, someone found an intrusion into their home computer from the internet. The intrusion was later found out to be authorised from MOHA. Strangely this was reported in the press. WKS defend the move stating they are doing Singaporean a favour by checking for virus on the computers of singaporean. I think I was in my teens then and did not understand much about politics. The fact is that the gov is snooping on us and collecting intelligence. They can add any law they want and they have the power of ISA. They even have the control of the press and media. If Singaporean can see this control being broken or a change, they may become less fearful.
3. Take me as an example, I will criticize government poor policy with similar minded friends only. And will not go beyond that or go public. Largely, the mass follow local press and accept what is reported in the newspaper even it is sometime biased reporting. They do not challenge it. Hence, it is tough to enlighten them, as they will ask me to shhh... This is also fear on my part, sadly.
Any points to add?
1. Singaporeans should have more moral courage to speak up. This is our country.
2. Singapoeran males are not only afraid to vote. Some of them(20-39yrs old) that are civil servants even express their fears of deferment of their reservists even when they have valid reasons on fear that their promotion chances will be compromised.
3. There are some very prominent politicians who if they are willing to make a anti PAP stand, become the opposition party, it will definitely sway singaporean into changing their mindset. But that is if they are willing to open their eyes and see the trouble ahead for singaporean under PAP continued rule - example Tan Soo Khoon. If in this election we have PAP turn anti PAP, the tides will finally changed.
4. Besides the point you raised on the secrecy in election, the slogan "compulsory in voting" is a malpractice. Nobody should be force to vote against his/her wish. I believe Singapore has the highest turn out rate for voting in election. Coupled with the fear of the vote can be traced (serial number), most (fearful) vote will go to the party-you-know-which.
5. Even Francis Seow, a prominent public figure from a respectable background, can be so easily dealt with. Dear Mr Tan, please be careful. But I will definitely vote for opposition in this election.
1. 40-50 years ago in Singapore, I always heard 2 news among my friends and elderlies : a) Ghost stories b)Secret police terrorised the oppositions. But since 1990 onwards I hardly hear such news. I believe, as our society progresses, most of the ghosts and secret police have gone for reincarnation. It is a more civilised society now.
2. Many years ago, someone found an intrusion into their home computer from the internet. The intrusion was later found out to be authorised from MOHA. Strangely this was reported in the press. WKS defend the move stating they are doing Singaporean a favour by checking for virus on the computers of singaporean. I think I was in my teens then and did not understand much about politics. The fact is that the gov is snooping on us and collecting intelligence. They can add any law they want and they have the power of ISA. They even have the control of the press and media. If Singaporean can see this control being broken or a change, they may become less fearful.
3. Take me as an example, I will criticize government poor policy with similar minded friends only. And will not go beyond that or go public. Largely, the mass follow local press and accept what is reported in the newspaper even it is sometime biased reporting. They do not challenge it. Hence, it is tough to enlighten them, as they will ask me to shhh... This is also fear on my part, sadly.
Any points to add?
1. Singaporeans should have more moral courage to speak up. This is our country.
2. Singapoeran males are not only afraid to vote. Some of them(20-39yrs old) that are civil servants even express their fears of deferment of their reservists even when they have valid reasons on fear that their promotion chances will be compromised.
3. There are some very prominent politicians who if they are willing to make a anti PAP stand, become the opposition party, it will definitely sway singaporean into changing their mindset. But that is if they are willing to open their eyes and see the trouble ahead for singaporean under PAP continued rule - example Tan Soo Khoon. If in this election we have PAP turn anti PAP, the tides will finally changed.
4. Besides the point you raised on the secrecy in election, the slogan "compulsory in voting" is a malpractice. Nobody should be force to vote against his/her wish. I believe Singapore has the highest turn out rate for voting in election. Coupled with the fear of the vote can be traced (serial number), most (fearful) vote will go to the party-you-know-which.
5. Even Francis Seow, a prominent public figure from a respectable background, can be so easily dealt with. Dear Mr Tan, please be careful. But I will definitely vote for opposition in this election.
How to construct a diversified portfolio
Dear Mr Tan,
I've read several articles that you've written where you've advocated buying the STI ETF. Thanks for taking the time to explain in simple terms the pros and cons of the issue.
I belong to the passive investing camp and believe in buying and holding a diversified basket of index-tracking, low-cost funds tracking several world markets and different asset classes. The STI ETF appears to be one such index-tracking, low-cost fund.
However, investing in the STI ETF only gives you exposure to the Singapore market, which is less than 1% of the global market. While it is a good way to participate in the local stock market, it is certainly inadequate if one wants to create and hold a diversified portfolio.
I'm interested to know if you or your readers have managed to construct a portfolio of low-cost (less than 1% expense ratio), passively managed index funds that track global market indices, investing from Singapore?
REPLY
I advise people to invest in an ETF rather than to manage their own stocks. They may forget to take up rights issue or sell the rights, leading to loss due to dilution of their shares. The dividends due to them may be paid to the wrong account. To avoid these losses, the investor has to keep track of the shares - which is quite tedious. It is better to leave these matters to the fund manager of the ETF.
I've read several articles that you've written where you've advocated buying the STI ETF. Thanks for taking the time to explain in simple terms the pros and cons of the issue.
I belong to the passive investing camp and believe in buying and holding a diversified basket of index-tracking, low-cost funds tracking several world markets and different asset classes. The STI ETF appears to be one such index-tracking, low-cost fund.
However, investing in the STI ETF only gives you exposure to the Singapore market, which is less than 1% of the global market. While it is a good way to participate in the local stock market, it is certainly inadequate if one wants to create and hold a diversified portfolio.
I'm interested to know if you or your readers have managed to construct a portfolio of low-cost (less than 1% expense ratio), passively managed index funds that track global market indices, investing from Singapore?
REPLY
I advise people to invest in an ETF rather than to manage their own stocks. They may forget to take up rights issue or sell the rights, leading to loss due to dilution of their shares. The dividends due to them may be paid to the wrong account. To avoid these losses, the investor has to keep track of the shares - which is quite tedious. It is better to leave these matters to the fund manager of the ETF.
Incomplete information on shares
Dear Mr. Tan
It is easy for an ordinary share investor to be cheated when they are provided with incomplete information. Below are some examples:
1) The investors are told that a company has huge cash on hand to the tune of say several hundred millions of dollars which give the impression that the company is cash rich and hence will pay good dividend or ready for business expansion. But they are not aware that the company also has huge debt to the tune of say several billions of dollars to clear.
2) The investors are told that the current year profit of a company will exceed say $100 millions which give the impression that the company is making a lot of money. But the investors are not aware that the earning of the company is only a mere 5 cents per share because there is a total of 2 billions shares in the company.
3) The investors are told that the earning of a company has increased 100% over the past 3 years but they are not aware that the company share price has increased 500% over the same period.
4) The investors are told that a company is wining a big contract worth $50 millions which give the impression that the company business is very good. But they are not aware that the wining of a $50 millions contract is not significant to a company with annual turnover of several billions of dollars.
Pang
It is easy for an ordinary share investor to be cheated when they are provided with incomplete information. Below are some examples:
1) The investors are told that a company has huge cash on hand to the tune of say several hundred millions of dollars which give the impression that the company is cash rich and hence will pay good dividend or ready for business expansion. But they are not aware that the company also has huge debt to the tune of say several billions of dollars to clear.
2) The investors are told that the current year profit of a company will exceed say $100 millions which give the impression that the company is making a lot of money. But the investors are not aware that the earning of the company is only a mere 5 cents per share because there is a total of 2 billions shares in the company.
3) The investors are told that the earning of a company has increased 100% over the past 3 years but they are not aware that the company share price has increased 500% over the same period.
4) The investors are told that a company is wining a big contract worth $50 millions which give the impression that the company business is very good. But they are not aware that the wining of a $50 millions contract is not significant to a company with annual turnover of several billions of dollars.
Pang
Puzzle: The Two Tribes
An island is inhabited by two tribes. Members of one tribe always tell the truth, members of the other tribes always lie.
A missionary met two of the natives, one tall and the other short. "Are you a truth teller?" he asked the taller one.
"Ba" the tall native answered. The missionary recognised this as a native word meaning either yes or no, but he could not recall which. The short native spoke English, so the missionary asked him what his companion had said.
"He say 'yes' " replied the short native, "but him big liar!". Which tribe did each native belong to?
Give your answer here.
A missionary met two of the natives, one tall and the other short. "Are you a truth teller?" he asked the taller one.
"Ba" the tall native answered. The missionary recognised this as a native word meaning either yes or no, but he could not recall which. The short native spoke English, so the missionary asked him what his companion had said.
"He say 'yes' " replied the short native, "but him big liar!". Which tribe did each native belong to?
Give your answer here.
Saturday, June 20, 2009
Puzzle - The Tenth Roll
An ordinary dice (such as used in gambling) has six sides, so the probability that any one side will come out is one out of six, or 1/6.
Suppose your role a certain dice nine times. Each time the 1-dot turns up. What is the probablility that the 1-dot will turn up again onthe next roll? Is it better than 1/6, less than 1/6 or is it still 1/6?
Give your answer here.
Suppose your role a certain dice nine times. Each time the 1-dot turns up. What is the probablility that the 1-dot will turn up again onthe next roll? Is it better than 1/6, less than 1/6 or is it still 1/6?
Give your answer here.
Friday, June 19, 2009
Thursday, June 18, 2009
Independent finacial adviser - ad on CNBC
There is an advertisement by Interactive Brokers on CNBC TV. It shows an independent adviser describing her job as helping clients to monitor their investments and trading through a low cost internet platform offered by the advertiser. The adviser gives value to the clients by getting access to the suitable financial products traded on the exchange, at the lowest possible cost.
I hope that independent financial advisers will move to this business model, i.e. give value to the clients and earn a fee for their service. This fee is adequate for the time spent and is not so large as to make the client poorer off.
It is possible for a finacial adviser to make a living with this model, just as a doctor makes a living by giving medical advice for a fee.
Tan Kin Lian
I hope that independent financial advisers will move to this business model, i.e. give value to the clients and earn a fee for their service. This fee is adequate for the time spent and is not so large as to make the client poorer off.
It is possible for a finacial adviser to make a living with this model, just as a doctor makes a living by giving medical advice for a fee.
Tan Kin Lian
Wednesday, June 17, 2009
Office Staff in Ang Mo Kio office
I wish to employ an office staff to do admin work. The office is in Ang Mo Kio. The work can be for 4 to 8 hours a day (flexible). Preference to someone living in or near Ang Mo Kio (or 1 direct bus). Interested, please send resume to kinlian@gmail.com.
TKL Intelligence Quiz, Sudoku
I have received two orders for my TKL Intelligence Quiz book through my website. The books will be mailed, free of postage, to an address in Singapore. This is a new way of selling books, which I am experimenting with. I also have a book on TKL Sudoku ($7.90). It contain challenging puzzles.
More orders are welcomed.
More orders are welcomed.
Obama's plan for Financial Regulatory Reform
Here are the details of the plan.
Someone said: If USA, which is the center of capitalism, finds it necessary to regulate the financial system, what about the rest of the world?
Obama to Create Consumer Financial Agency
President Obama has the courage to do what needs to be done. He is creating a Consumer Financial Agency with powers to punish wrong doings by financial institutions. Read this report.
Reckless behaviour by financial institutions
In the early 1990s, several insurance companies in Scandinavia lost a lot of money on credit insurance. They insured financial institutions from losses on mortgages in the event that the borrower did not pay back the loan. During the economic recession, the property values fell and many borrowers defaulted. These insurance companies had to be recapitalised.
15 years later, other insuranced companies have started to issue credit default swaps. They are like the credit insurance, except that the magnitude of the bets are of an unimaginable scale and they are unregulated entirely.
Could the insurers have forgotten the lessons of the 1990s? I do not think so. These new gamblers are either arrogant (i.e. they think that they found a new way to manage the risk) or reckless (i.e. they wanted to make a lot of profit now, and let the system collapse later).
The regulators were also negligent in not stopping these reckless bets.
Tan Kin Lian
15 years later, other insuranced companies have started to issue credit default swaps. They are like the credit insurance, except that the magnitude of the bets are of an unimaginable scale and they are unregulated entirely.
Could the insurers have forgotten the lessons of the 1990s? I do not think so. These new gamblers are either arrogant (i.e. they think that they found a new way to manage the risk) or reckless (i.e. they wanted to make a lot of profit now, and let the system collapse later).
The regulators were also negligent in not stopping these reckless bets.
Tan Kin Lian
Life insurance - indisputable clause
A life insurance policy is likely to have an indisputability clause. This clause states that the insurance company will not dispute any claim after it has been in force for one or two years, except in the case of fraud.
The purpose of this clause is to protect the consumer (i.e. policyholder) from unreasonable rejection of a death claim due to non-disclosure of material information. After a policy has been issued for a few years, it will be difficult to establish if the non-disclosure is intended or an oversight. The indisputability clause states that the insurance company will not dispute the claim on this account.
The claim can be disputed if the premium is not paid.
Some claim offiicers are willing to dispute a claim under the "fraud" clause. They claim that policyholder is commiting fraud by the non-disclosure. This stand is in contraction to the indisputablity clause.
If the insurance company wish to use the fraud clause, they have the burden to prove that fraud was intended by the policyholder. The non-disclosure event does not amount to fraud. Other evidence had to be produced, e.g. that the policyholder knew about the duty to disclose and take steps to hide the facts. This type of evidence is usually not available, probably because fraud was not intended in the first place.
I hope that insurance companies are aware about the intent of the indisputability clause to protect the consumers from unreasonable rejection of claim on weak grounds. If such a case is challenged in court, it is likely that the insurance company is not able to prove the intent to commit a fraud, and that the claim will be paid.
Tan Kin Lian
The purpose of this clause is to protect the consumer (i.e. policyholder) from unreasonable rejection of a death claim due to non-disclosure of material information. After a policy has been issued for a few years, it will be difficult to establish if the non-disclosure is intended or an oversight. The indisputability clause states that the insurance company will not dispute the claim on this account.
The claim can be disputed if the premium is not paid.
Some claim offiicers are willing to dispute a claim under the "fraud" clause. They claim that policyholder is commiting fraud by the non-disclosure. This stand is in contraction to the indisputablity clause.
If the insurance company wish to use the fraud clause, they have the burden to prove that fraud was intended by the policyholder. The non-disclosure event does not amount to fraud. Other evidence had to be produced, e.g. that the policyholder knew about the duty to disclose and take steps to hide the facts. This type of evidence is usually not available, probably because fraud was not intended in the first place.
I hope that insurance companies are aware about the intent of the indisputability clause to protect the consumers from unreasonable rejection of claim on weak grounds. If such a case is challenged in court, it is likely that the insurance company is not able to prove the intent to commit a fraud, and that the claim will be paid.
Tan Kin Lian
Tuesday, June 16, 2009
FISCA Service
FISCA (Financial Services Consumer Association) has been registered. I will propose that FISCA create a website to allow customers to post their personal experience on the following:
1) Bad service
2) Good service
The customer has to be identified to FISCA and should have documentary evidence to back up their statement They should be prepared to face the business entity. FISCA will give the business entity the right of reply.
With this service, I hope that businesses will be encouraged to provide good service and look after their customers.
1) Bad service
2) Good service
The customer has to be identified to FISCA and should have documentary evidence to back up their statement They should be prepared to face the business entity. FISCA will give the business entity the right of reply.
With this service, I hope that businesses will be encouraged to provide good service and look after their customers.
Monday, June 15, 2009
Treat customers fairly
In the past, businesses were worried about their reputation. If they received a bad report in the newspapers about how badly they treated their customers, they would have taken immediate steps to rectify the bad image.
In recent times, businesses are not concerned about their reputation, for the following reasons:
a) Bad treatment of customers is quite common among their competitors as well
b) If some customers go away, they can use marketing to reach out to new customers (who may not be aware about their reputation)
c) The newspapers are less active in highlighting bad service, as they depend on the advertising revenue of these businesses.
What can consumers do? They should judge a business according to its record of treating customers well. If the business is too focused on making more profit, then they are likely to neglect their customers.
Tan Kin Lian
Fail to declare hypertension
Dear Mr. Tan,
REPLY
If you had declared hypertension, the insurance company would have loaded up the premium due to this medical condition.
As you have been paying a lower premium, compared to the loaded premium, a fair approach is for the insurance company to pay the claim on a pro-rata basis, i.e. based on the premium that you have paid compared to what you would should have paid, if the condition had been declared.
This approach of paying pro-rata has been applied in many situations, e.g. if a property had been underinsured, and can be applied here. It is fair to the insurance company and to the consumer.
I bought a medical insurance but forget to declare that I have hypertension. I went for a kidney operation and the insurance company wanted to reject the claim due to non-disclosure, although the kidney condition is not related to hypertension. Is this fair?
REPLY
If you had declared hypertension, the insurance company would have loaded up the premium due to this medical condition.
As you have been paying a lower premium, compared to the loaded premium, a fair approach is for the insurance company to pay the claim on a pro-rata basis, i.e. based on the premium that you have paid compared to what you would should have paid, if the condition had been declared.
This approach of paying pro-rata has been applied in many situations, e.g. if a property had been underinsured, and can be applied here. It is fair to the insurance company and to the consumer.
Reading Test
Only great minds can read this.
fi yuo cna raed tihs, yuo hvae a sgtrane mnid
Cna yuo raed tihs? Olny 55 plepoe out of 100 can.
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg.The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are,the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef,but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuot slpeling was ipmorantt!
fi yuo cna raed tihs, yuo hvae a sgtrane mnid
Cna yuo raed tihs? Olny 55 plepoe out of 100 can.
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg.The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are,the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef,but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuot slpeling was ipmorantt!
TKL Intelligence Quiz Vol 2
TKL Intelligence Quiz Vol 2 is now available. It can be ordered from the website (with free delivery by post in Singapore) here. It will be available in the major bookstores by end June.
Smoothing of bonus
Dear Mr. Tan,
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?
REPLY
These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.
Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).
In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.
Due to the low yield, it is best to avoid investing in life insurance products.
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?
REPLY
These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.
Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).
In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.
Due to the low yield, it is best to avoid investing in life insurance products.
Sunday, June 14, 2009
Going overseas for further studies
Hi Mr Tan,
I am 20 years old and looking to enrol at a local university. However, I couldn't get into the course I prefer. I am now looking to study in Australia.
1) Based on my calculation, I will probably accumulate a personal debt of A$60,000at the age of 24. Assuming that I can get a job and pay S$1,400 toward clearing the debt, I'll be 28 yrs old by that time.
2) If I stay in Singapore to study the course (Maths and Economics) that I am not too keen on. I'll be about 26 yrs old, debt-free.
Which is better?
REPLY
I usually discourage students from incurring a large debt for overseas studies. I know of many students who are not able to get a good paying job after they get an overseas degree. It will take a long time for them to repay the loan.
If you have a place in a local university, the cost is lower, but you have to like the course that you are taking. I find Mathmatics and Economics to be a good course, but perhaps it appeals to some students and not to others. You may be able to find another course that you like from a local university?
I believe that a hard working, well educated student with a good attitude can do well in the job market without an university degree. I suggest that you consider working as well.
I am 20 years old and looking to enrol at a local university. However, I couldn't get into the course I prefer. I am now looking to study in Australia.
1) Based on my calculation, I will probably accumulate a personal debt of A$60,000at the age of 24. Assuming that I can get a job and pay S$1,400 toward clearing the debt, I'll be 28 yrs old by that time.
2) If I stay in Singapore to study the course (Maths and Economics) that I am not too keen on. I'll be about 26 yrs old, debt-free.
Which is better?
REPLY
I usually discourage students from incurring a large debt for overseas studies. I know of many students who are not able to get a good paying job after they get an overseas degree. It will take a long time for them to repay the loan.
If you have a place in a local university, the cost is lower, but you have to like the course that you are taking. I find Mathmatics and Economics to be a good course, but perhaps it appeals to some students and not to others. You may be able to find another course that you like from a local university?
I believe that a hard working, well educated student with a good attitude can do well in the job market without an university degree. I suggest that you consider working as well.
Accountability in Hong Kong
I have posted several media articles about the process in Hong Kong involving the legislative council and the Monetary Authority.
The elected Lego members (equivalent to our Members of Parliament) have summoned the top officials of the Monetary Authority for questioning regarding their role in approving the credit linked notes for sale to the general public, and the steps that they have taken to rectify matters after these products went bust.
This is the process of holding people accountable to do the job that they are expected to do. It is very educational. It is good for society and will encourage officials to learn from mistakes. It will lead to better governance.
Tan Kin Lian
The elected Lego members (equivalent to our Members of Parliament) have summoned the top officials of the Monetary Authority for questioning regarding their role in approving the credit linked notes for sale to the general public, and the steps that they have taken to rectify matters after these products went bust.
This is the process of holding people accountable to do the job that they are expected to do. It is very educational. It is good for society and will encourage officials to learn from mistakes. It will lead to better governance.
Tan Kin Lian
Puzzle: Send More Money
A young man who is backpacking overseas sends his father the following telegram from Timbuktu:
The father looked at the telegram and, with a bit of logic, he figured out the exact amount of money that his son needed! How much money did the son request? Each letter in MONEY represents a different digit.
Give your answer here. The correct answer will be displayed after you submitted your entry.
Here is the explanation on how to solve this puzzle.
SEND
+ MORE
------
MONEY
The father looked at the telegram and, with a bit of logic, he figured out the exact amount of money that his son needed! How much money did the son request? Each letter in MONEY represents a different digit.
Give your answer here. The correct answer will be displayed after you submitted your entry.
Here is the explanation on how to solve this puzzle.
Saturday, June 13, 2009
China Daily:Authority feels more heat on Lehman Bros
13 June 2009
HONG KONG: The Monetary Authority was held to account again Friday for its failure to avert the Lehman Brothers mini-bond debacle.
Deputy Chief of the Authority Choi Yiu-kwan appeared before the Legislative Council (LegCo) Subcommittee examining allegations of malpractice in the sale of the mini bonds. Choi explained that during on-site investigations, the Monetary Authority inspectors "role play" with sales representatives to assess the understanding of reps about the products they sell.
Choi said representatives with records of high sales, especially sales among individuals more likely to be susceptible to manipulation, are given special scrutiny.
Lawmaker Raymond Ho Chung-tai cited the regulator's figures saying that the authority had carried out about 170 on-site inspections at banks between April 2003 and December last year. He wondered why the probes had failed to avert investors' losses on Lehman Brothers minibonds
Choi responded that during its inspections the Monetary Authority checked the materials banks used for training staff to sell investment products and found the materials satisfactory.
Legislator Kam Nai-wai asked why the authority does not reveal its inspection checklist to banks so that the banks could set guidelines for staying within the rules. Choi replied that banks should already be aware of the rules which are set out in the code of ethics and in the answers to frequently-asked questions issued by the authority.
He said his agency found 72 suspected cases of breaches of rules between April 1, 2003, and September 14 last year through its regular inspections. During the same period it had received 106 complaints from bank clients.
He declined to comment directly on whether existing measures to protect the interests of investors are sufficient. He added that the authority is doing its best.
Choi said the manner in which the authority regulates bank securities sales is similar to the Securities and Futures Commission and to overseas regulators.
He said sales personnel who sold Lehman Brothers-related products passed examinations set down by the Securities Institute concerning relevant regulations. However in matters of product knowledge, sales personnel receive their training from the banks who employ them.
Choi said it had so far received over 21,000 complaints concerning Lehman Brothers-related products and is hurrying to examine them. But he said the authority lacks the staff to proceed more quickly. He noted that the department already has about 60 professionals on loan from accounting firms to help with the investigations. He said he hopes to borrow more staff in the near future.
In the future, Choi said his agency intends to send officers posing as customers to banks so as to evaluate sales practices. He said consultation on the initiative will be launched within a time span of a few months to a year.
HONG KONG: The Monetary Authority was held to account again Friday for its failure to avert the Lehman Brothers mini-bond debacle.
Deputy Chief of the Authority Choi Yiu-kwan appeared before the Legislative Council (LegCo) Subcommittee examining allegations of malpractice in the sale of the mini bonds. Choi explained that during on-site investigations, the Monetary Authority inspectors "role play" with sales representatives to assess the understanding of reps about the products they sell.
Choi said representatives with records of high sales, especially sales among individuals more likely to be susceptible to manipulation, are given special scrutiny.
Lawmaker Raymond Ho Chung-tai cited the regulator's figures saying that the authority had carried out about 170 on-site inspections at banks between April 2003 and December last year. He wondered why the probes had failed to avert investors' losses on Lehman Brothers minibonds
Choi responded that during its inspections the Monetary Authority checked the materials banks used for training staff to sell investment products and found the materials satisfactory.
Legislator Kam Nai-wai asked why the authority does not reveal its inspection checklist to banks so that the banks could set guidelines for staying within the rules. Choi replied that banks should already be aware of the rules which are set out in the code of ethics and in the answers to frequently-asked questions issued by the authority.
He said his agency found 72 suspected cases of breaches of rules between April 1, 2003, and September 14 last year through its regular inspections. During the same period it had received 106 complaints from bank clients.
He declined to comment directly on whether existing measures to protect the interests of investors are sufficient. He added that the authority is doing its best.
Choi said the manner in which the authority regulates bank securities sales is similar to the Securities and Futures Commission and to overseas regulators.
He said sales personnel who sold Lehman Brothers-related products passed examinations set down by the Securities Institute concerning relevant regulations. However in matters of product knowledge, sales personnel receive their training from the banks who employ them.
Choi said it had so far received over 21,000 complaints concerning Lehman Brothers-related products and is hurrying to examine them. But he said the authority lacks the staff to proceed more quickly. He noted that the department already has about 60 professionals on loan from accounting firms to help with the investigations. He said he hopes to borrow more staff in the near future.
In the future, Choi said his agency intends to send officers posing as customers to banks so as to evaluate sales practices. He said consultation on the initiative will be launched within a time span of a few months to a year.
Friday, June 12, 2009
Good and bad acts
Hi Mr. Tan,
I have an article to share. If you think that it is suitable, you may publish my thoughts in your blog.
Mr. Lee
Do good or bad acts in a lifetime: The calculated risks
An interesting analysis: Should one do good or bad acts in a lifetime? Advantaging oneself at the expense of others’ would only make sense if:
1. There is 0% of a God in this world, or
2. If there is a God, he does not punish or reward accordingly to one’s good and bad behaviours.
Say if an individual lives to one hundred years old. He has been reaping benefits at the expense of others through bad behaviours in his lifetime. He might have “gained” for one hundred years, but “lost” for eternity if a judicial God exists.
Even as modern societies become more secular, based on calculated risks, it is still more worthwhile to do the right and correct acts in one’s lifetime. This is despite the possibility that there is just a small chance, say 10%, of a judicial God existing. It is because most likely than not, one’s afterlife would be for eternity. One may enjoy his ill-gotten gains for 100 years, but could possibly pay for his misdeeds for eternity.
Hence, one is better off at “investing” in good and correct acts rather than bad acts in a lifetime.
Mr Lee
I have an article to share. If you think that it is suitable, you may publish my thoughts in your blog.
Mr. Lee
Do good or bad acts in a lifetime: The calculated risks
An interesting analysis: Should one do good or bad acts in a lifetime? Advantaging oneself at the expense of others’ would only make sense if:
1. There is 0% of a God in this world, or
2. If there is a God, he does not punish or reward accordingly to one’s good and bad behaviours.
Say if an individual lives to one hundred years old. He has been reaping benefits at the expense of others through bad behaviours in his lifetime. He might have “gained” for one hundred years, but “lost” for eternity if a judicial God exists.
Even as modern societies become more secular, based on calculated risks, it is still more worthwhile to do the right and correct acts in one’s lifetime. This is despite the possibility that there is just a small chance, say 10%, of a judicial God existing. It is because most likely than not, one’s afterlife would be for eternity. One may enjoy his ill-gotten gains for 100 years, but could possibly pay for his misdeeds for eternity.
Hence, one is better off at “investing” in good and correct acts rather than bad acts in a lifetime.
Mr Lee
T Puzzle - improve your child's IQ
The T puzzle is fun and can improve your child's IQ. It trains the child or adult to see matters from a different angle, and develops flexibility of mind. Read this.
Survey: It is easy to be cheated
Do you like my articles on "It is easy to be cheated"? Please reply to this survey. You can click here to view the various articles.
Here are the survey results (based on 41 replies). There are many personal observations.
Let your insurance company handle the recovery
Dear Mr Tan,
My parked vehicle was hit by another vehicle. A eye-witness left me a letter stating the number of the vehicle involved, but did not provide any contact information. I made a police report and went to my insurance's authorized workshop to claim third party against the other vehicle.
They recommended me to claim against my own insurance. As i have "no" eye-witnesses, they say the claim is highly improbable and i will eventually have to fork out from my own pocket or claim against my own insurance if i were to wait for the third party claim.
What should I do? Employ a lawyer to pursue? Repair and claim against my own insurance policy?
I decided to claim third party first and leave the car in my car park while waiting for the result? Is it advisable?
REPLY
It is better for you to claim under your own policy and let the insurance company handle the recovery from the other party.
As the witness is not prepared to give his or her identity, it will be difficult for you to prove that the specified vehicle had caused the damage, unless you are able to get an investigator to inspect their other vehicle before it is repaired. This is, as you can see, quite a lot of hassle.
So, leave it to your insurance company to handle this matter.
My parked vehicle was hit by another vehicle. A eye-witness left me a letter stating the number of the vehicle involved, but did not provide any contact information. I made a police report and went to my insurance's authorized workshop to claim third party against the other vehicle.
They recommended me to claim against my own insurance. As i have "no" eye-witnesses, they say the claim is highly improbable and i will eventually have to fork out from my own pocket or claim against my own insurance if i were to wait for the third party claim.
What should I do? Employ a lawyer to pursue? Repair and claim against my own insurance policy?
I decided to claim third party first and leave the car in my car park while waiting for the result? Is it advisable?
REPLY
It is better for you to claim under your own policy and let the insurance company handle the recovery from the other party.
As the witness is not prepared to give his or her identity, it will be difficult for you to prove that the specified vehicle had caused the damage, unless you are able to get an investigator to inspect their other vehicle before it is repaired. This is, as you can see, quite a lot of hassle.
So, leave it to your insurance company to handle this matter.
Thursday, June 11, 2009
SCMP:HSBC marks out areas for wealth products sales
12 June 2009
HSBC Holdings will become the first lender to separate its retail banking and wealth management departments after a public outcry over tellers selling risky financial products to customers.
The move is expected to be followed by other lenders and follows recommendations by the Hong Kong Monetary Authority that banks tighten regulations on such high-risk investment products sales.
The fallout from the Lehman Brothers Holdings minibond scandal, in which banks sold highly speculative products to inexperienced investors, has put selling practices in the industry under the spotlight.
HSBC announced yesterday that three of its 100 branches in Hong Kong would separate its deposit-taking and investment service areas.
The pilot branches are at Hopewell Centre in Wan Chai, and Pedder Street and Lyndhurst Terrace in Central. The scheme will be expanded to all branches by September.
Peter Wong Tung-shun, the bank's executive director, said different designs would be used for the general banking and investment service areas to make sure customers could easily differentiate the two zones. Such clear zoning was in line with the HKMA's recommended measures and would enhance investor protection, he said.
The HKMA received more than 20,000 complaints about mis-selling by staff of 20 banks, including products that are touted as alternatives to time deposits but were in fact risky credit-linked notes.
About HK$20 billion of the Lehman products were bought by 48,000 Hong Kong investors. The products became worthless when the United States lender went bankrupt in September last year.
Sales activities within the investment areas would be audio-recorded and the tapes kept for seven years, HSBC said.
A Standard Chartered Bank spokesman said the bank was finalising its arrangements and would launch new measures by September. A spokesman for Hang Seng Bank could not be reached for comment.
The HKMA suggested banks completely separate their wealth management businesses from ordinary banking business by October 1 and record sales activities with customers by July 1.
Julia Leung Fung-yee, the Undersecretary for Financial Services and the Treasury, said yesterday the HKMA had received 500 complaints from people who had lost hundreds of millions of dollars on a complex credit-linked investment product called Octave notes, sold by US investment bank Morgan Stanley.
Two-thirds of the notes, sold mainly through 16 retail banks between 2004 and 2007, have lost more than 90 per cent of their value.
Hong Kong investors had bought HK$24.9 billion worth of structured products, including Lehman minibonds and Octave notes. Of the credit-linked products, HK$4.5 billion is still outstanding.
HSBC Holdings will become the first lender to separate its retail banking and wealth management departments after a public outcry over tellers selling risky financial products to customers.
The move is expected to be followed by other lenders and follows recommendations by the Hong Kong Monetary Authority that banks tighten regulations on such high-risk investment products sales.
The fallout from the Lehman Brothers Holdings minibond scandal, in which banks sold highly speculative products to inexperienced investors, has put selling practices in the industry under the spotlight.
HSBC announced yesterday that three of its 100 branches in Hong Kong would separate its deposit-taking and investment service areas.
The pilot branches are at Hopewell Centre in Wan Chai, and Pedder Street and Lyndhurst Terrace in Central. The scheme will be expanded to all branches by September.
Peter Wong Tung-shun, the bank's executive director, said different designs would be used for the general banking and investment service areas to make sure customers could easily differentiate the two zones. Such clear zoning was in line with the HKMA's recommended measures and would enhance investor protection, he said.
The HKMA received more than 20,000 complaints about mis-selling by staff of 20 banks, including products that are touted as alternatives to time deposits but were in fact risky credit-linked notes.
About HK$20 billion of the Lehman products were bought by 48,000 Hong Kong investors. The products became worthless when the United States lender went bankrupt in September last year.
Sales activities within the investment areas would be audio-recorded and the tapes kept for seven years, HSBC said.
A Standard Chartered Bank spokesman said the bank was finalising its arrangements and would launch new measures by September. A spokesman for Hang Seng Bank could not be reached for comment.
The HKMA suggested banks completely separate their wealth management businesses from ordinary banking business by October 1 and record sales activities with customers by July 1.
Julia Leung Fung-yee, the Undersecretary for Financial Services and the Treasury, said yesterday the HKMA had received 500 complaints from people who had lost hundreds of millions of dollars on a complex credit-linked investment product called Octave notes, sold by US investment bank Morgan Stanley.
Two-thirds of the notes, sold mainly through 16 retail banks between 2004 and 2007, have lost more than 90 per cent of their value.
Hong Kong investors had bought HK$24.9 billion worth of structured products, including Lehman minibonds and Octave notes. Of the credit-linked products, HK$4.5 billion is still outstanding.
SCMP:SFC may regulate all investment offerings
12 June 2009
The government is considering amending the law to let the Securities and Futures Commission regulate all investment products and prospectuses, a move that may plug the loophole exposed by the sales of the Lehman Brothers minibonds.
SFC chief executive Martin Wheatley said in a Legislative Council financial affairs panel yesterday that structured products such as the minibonds issued by Lehman or the Octave notes by Morgan Stanley were now regulated by the Companies Ordinance.
John Leung Chi-yan, a Deputy Secretary for Financial Services and the Treasury, said in the same meeting that the government might consider shifting the provisions on prospectuses and product offerings under the Companies Ordinance to the Securities and Futures Ordinance.
The government is considering amending the law to let the Securities and Futures Commission regulate all investment products and prospectuses, a move that may plug the loophole exposed by the sales of the Lehman Brothers minibonds.
SFC chief executive Martin Wheatley said in a Legislative Council financial affairs panel yesterday that structured products such as the minibonds issued by Lehman or the Octave notes by Morgan Stanley were now regulated by the Companies Ordinance.
John Leung Chi-yan, a Deputy Secretary for Financial Services and the Treasury, said in the same meeting that the government might consider shifting the provisions on prospectuses and product offerings under the Companies Ordinance to the Securities and Futures Ordinance.
Easy life in Solo, Indonesia
My friend told me that the people of Solo are easy going, without any stress. Most people are able to make a living without having much worry. They work but also have time for family and friends. Life is not as hectic as in Jakarta.
There are factory owners in Solo, but each owner runs only one factory or business. They do not own many factories or try to make a lot of money.
I will visit Solo one day, and see the quality of life there. I was in Jogjakarta last year, and had a similar impression of this city.
There are factory owners in Solo, but each owner runs only one factory or business. They do not own many factories or try to make a lot of money.
I will visit Solo one day, and see the quality of life there. I was in Jogjakarta last year, and had a similar impression of this city.
Wednesday, June 10, 2009
It is easy to be cheated (11) - Life policy with annual cash payment
In recent years, many life insurance companies have introduced a life policy with annual recurring payment. The agents sold this product actively and earned high commisison. The policy gives a very low yield to the policyholder. and is worse than an endowment policy. It is easy for the agent to sell the attraction of the annual cash payment to a consumer who is not aware that that he or she is actually taking back a part of the premium.
A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.
The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.
Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.
Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?
This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.
The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.
The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!
Tan Kin Lian
A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.
The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.
Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.
Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?
This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.
The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.
The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!
Tan Kin Lian
It is easy to be cheated (12) - Buying shares
There is also a risk of buying shares. Are you able to monitor the shares and make sure that the dividents are paid to you each year? If there is an administrative mistake, will you overlook to receive the dividend? Do you have the time to keep track of your personal share investments?
There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.
However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.
If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.
Tan Kin Lian
There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.
However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.
If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.
Tan Kin Lian
High Executive Pay
Remuneration committees of the board of directors approve high pay for CEOs on the reasoning that it is needed to attract other top talents to join the organisation.
To justify the high pay, the CEOs and top managers have to improve the profits, i.e. to "increase sharehholder value". This has led to a culture of excessive risk taking and taking advantage of customers. This is the reason for the bad business ethics that was seen in recent years.
Singapore has gone into this bad phase, which has led to a serious loss of trust in business and government institutions. I hope that corrective steps are now taken to improve the business ethics and enviornment in Singapore.
Tan Kin Lian
To justify the high pay, the CEOs and top managers have to improve the profits, i.e. to "increase sharehholder value". This has led to a culture of excessive risk taking and taking advantage of customers. This is the reason for the bad business ethics that was seen in recent years.
Singapore has gone into this bad phase, which has led to a serious loss of trust in business and government institutions. I hope that corrective steps are now taken to improve the business ethics and enviornment in Singapore.
Tan Kin Lian
TKL Intelligence Quz
If you wish to buy Vol 1 or Vol 2 of the TKL Intelligence Quiz, you can place your order here. Free delivery to your home in Singapore. Pay by bank transfer or PayPal.
Cut in maturity benefit just before maturity
Mr Tan,
I have a policy with X where I paid premium for 12 years which will mature in July. On 31 March 2009, upon my request I was given at estimated maturity sum. On April 24, I received a letter stating a maturity sum which differed by almost 10% lower.
I have emailed and spoken to X but without making much headway. Can an insurance company provide you with an estimate barely 3 months before maturity and then slashed it down by such a large sum?
I have emailed MAS and am thinking of approaching FIDREC. I would appreciate advice from you.
REPLY
X owes you a satisfactory explanation for the lower maturity sum. Between 31 March and now, the investment market had improved considerably. If there is any change, the maturity value should have been higher.
You can lodge a complaint with FIDREC. It will cost you only $50. If you wish to strengthen your case, you can consider asking CASE for help as well.
I have a policy with X where I paid premium for 12 years which will mature in July. On 31 March 2009, upon my request I was given at estimated maturity sum. On April 24, I received a letter stating a maturity sum which differed by almost 10% lower.
I have emailed and spoken to X but without making much headway. Can an insurance company provide you with an estimate barely 3 months before maturity and then slashed it down by such a large sum?
I have emailed MAS and am thinking of approaching FIDREC. I would appreciate advice from you.
REPLY
X owes you a satisfactory explanation for the lower maturity sum. Between 31 March and now, the investment market had improved considerably. If there is any change, the maturity value should have been higher.
You can lodge a complaint with FIDREC. It will cost you only $50. If you wish to strengthen your case, you can consider asking CASE for help as well.
Monday, June 8, 2009
It is easy to be cheated (10) - Orphan money
A life insurance company is allowed to distribute only 10% of the surplus of the participating fund to its sharehohlders. The remaining 90% of its surplus has to be distributed to participating policyholders.
In past years, most insurance companies distribute nearly all of the 90% to its policyholders in the form of annual bonuses. In recent years, more insurance companies have started to keep a large porportion of the surplus in the fund, without distributing them as annual bonuses. Some companies have reduced their annual bonus by 50% or more. They promised that the undistributed surplus will be paid as terminal bonus when the policy matures or is terminated.
Many insurance companies have accumulated a large amount of the undistirbuted surplus. This is called orphan money. Each policyholder has involuntarily contributed to this orphan money, but the amount contributed by each policyholder is not identified. This retention is made without the agreement of the policyholders and against their wishes. Most of them preferred the surplus to be declared as an annual bonus.
It is easy for the insurance company to use the orphan money in many ways that do not benefit the policyholders that had involuntarily contributed to it. They can be used to pay high commission to increase the sale of new policies (which do not benefit the old policyholders), or to pay high salaries and commissions.
When the policies mature or are terminated, the amount of terminal bonus given to the policyholder is likely to be much lower than they are entitled to, based on their actual contribution in past years. There is no way for the policyholder to find out if they have been fairly treated. There is lack of transparency and accountability. The insurance company can declare that they have been fair in distributing the bonsues, but there is no way for this statement to be verified. The policyholder has no say in this matter.
Is this fair? Are the policyholders being cheated? Can you trust the future management to be fair?
As many financial institutions have acted unfairly in recent years, it is better not to trust them. Do not invest in the financial products that give a lot of discretion to the financial institution and insufficent rights to protect the consumer.
Tan Kin Lian
Logic Quiz 5-2 (Vol 4)
There are five houses with different colours in a row. Each occupant plays a different sport, keeps a different pet and drinks a different beverage.
2. The soccer player lives left of the tennis player.
3. The lawyer lives right of the volleyball player.
4. The yellow house is left of the red house.
5. The salesman keeps dalmatian.
6. The manager lives left of the accountant.
7. The accountant drinks rum.
8. The beer drinker lives in the white house.
9. The schnauzer owner lives left of the collie owner.
10. The martini drinker lives in the red house.
11. The vodka drinker lives in the blue house.
12. The cricket player keeps pomeranian.
13. The doctor lives in the last house.
14. The spaniel owner lives in the brown house.
15. The doctor lives right of the wine drinker.
Question: Who plays golf?
Give your answer here. The correct answer will be displayed when you submit your entry.
Benchmark
1 to 10 mins: very good
10 to 15 min: good
15 to 20 mins: fair
more than 20 mins: need more practice!
More of the quiz
It appears every Sunday in The New Paper.
President Obama's plans to create new jobs
President Obama's plans to create new jobs is likely to make a better impact than the measures adopted in Singapore (which gives a subsidy to employers who are doing fairly well). Read this article.
Sunday, June 7, 2009
It is easy to be cheated (9) - A better way to gamble
I consider investing to be similar to a gamble. The investor buys a financial product and hopes that the price will go up. If the price goes up, the investor makes a profit. If it comes down, the investor makes a loss. The investor has to take the invested asset does not fail and become valueless.
In recent times, it seems that even money kept in fixed deposit in a bank, which pays a low rate of interest, has the risk of default of the bank. Some people think that it is safer to keep the money under the bed!
To make the matter worse, financial institutions have created products that are risky and do not disclose the actual nature of the risk and do not pay a fair rate of return to the investor for the risk!
To avoid risk, it is better to invest in the following:
a) bonds that are issued by the AAA rated government. They offer a low yield, but is fair and safe.
b) A low cost, diversified fund invested in many bonds or shares, such as an indexed fund or exchange traded fund. Invest for the long term, to average out the good and bad years.
For investors who like the excitement of speculating on the price movement of shares or other assets, be honest and recognise that you are actually gambling. If you wish to gamble, it is better to go to a casino. The odds are fairer to the gambler, and the terms of the gamble are controlled by the authorities. You know the odds, and can decide on which side of the gamble to take!
Singapore is opening two world class casinos. When you gamble, make sure that you gamble an amount that you can afford to lose. Enjoy the gamble and good luck
Tan Kin Lian
Writing fee
Many magazines approach people to write articles, but they declined to make any payment or they pay a very low fee. It seems to be a habit in Singapore for people to be asked to write for free. I hope that mgazines are willing to pay writers at a fair rate, so that it is possible for writers to make a living.
I have been asked to contribute articles to magazines. Although I do not need the money, I asked for payment to be made to a non-profit organisation. If they refuse, I decline to write.
Saturday, June 6, 2009
Speaking fee
When a conference organiser in Singapore engages a speaker from overseas, they have to pay the travelling expenses and a speaker's fee. When they engage a local speaker, they pay nothing.
Recently, I have been invited to speak on a few occasions, and have declined. I am willing to speak only if they agree to make a modest donation to a non-profit organisation nominated by me.
I wish to encourage conference organisers, and our media companies, to be fair to local speakers and be willing to make a modest contribution. They should not expect local experts to speak for free, while overseas experts command a large fee. We have to be fair to our local people.
Many of these conference organisers or media company make a profit and can afford to make a modest donation or pay a modest fee. It will not create any significant dent in their profits.
Recently, I have been invited to speak on a few occasions, and have declined. I am willing to speak only if they agree to make a modest donation to a non-profit organisation nominated by me.
I wish to encourage conference organisers, and our media companies, to be fair to local speakers and be willing to make a modest contribution. They should not expect local experts to speak for free, while overseas experts command a large fee. We have to be fair to our local people.
Many of these conference organisers or media company make a profit and can afford to make a modest donation or pay a modest fee. It will not create any significant dent in their profits.
It is easy to be cheated (8) - Your private banker
Wealthy people have private bankers. These private banks are welll trained to convince the customer to invest in exotic products that are created by the financial institutions. These products are quite complicated and are not well publicised. It is easy for the unsavvy investor to be conned into investing in products that have high profit and expense margins for the financial institution.
When the investor found out that the product made a big loss, there is nothing that they can do. The private banker will explain that the market has gone against them. But in reality, the products usually would not give a corresponding return when the market goes in their favour, as a large part of the profit would have been taken away by the financial institution.
The private banker may encourage the customer to invest in certain currencies, shares or other assets that are traded in the open market or exchanges. As the prices of these products move every second, it is not easy for the customer to know if they have been given the fair prices. It is possible for the prices to be inflated or deflated, to the detriment of the customer.
The customer has to rely on the honesty of the private banker or the financial institution in giving the correct price. But, in recent years, there is lack of honesty as financial institutions searched for higher profits.
When times are bad, and financial instituions make losses on their own portfolio, it is easy for them to find some way to push these losses to their unsuspecting customers. The customer does not know if the transactions are properly audited.
Many people have lost large sums of money by acting on the recommendations of the private bankers or wealth managers. They are not sure if the losses are just due to the market or to dishonest practices of these intermediaries.
Tan Kin Lian
Finding financial advice in an age of bad behaviour
Read this article. It shows that wealth managers and financial advisers cannot be trusted.
Friday, June 5, 2009
It is easy to be cheated (7) - Cashing out your financial product
Many investors bought the credit-linked notes without understanding the nature of the risks. When they found out later, and some of the underlying assets had turned bad, they wanted to cash out and take a loss.
The only buyer of the product are the product issuers who quoted a very low price for the product. The investor is not able to assess what is the correct price of the product, as they do not have information about the underlying assets and the extent to which they are likely to default.
The product issuer has the information, but they are acting with a conflict of interest and a monopolistic position. They can quote a price that is much lower than the underlying value and make a big profit.
What can the investor do? It is best to take the risk and ride it out. If the situation become worse, it is bad luck. But, it could turn out to be better. If the investor accept the low price now, it is likely to be much lower than the value of the underlying assets, and the investor is likely to take a much definiate loss now.
Is this fair to the investor, to be placed in a weak position against the financial institution that has the information and is taking advantage of the lack of information and desperation of the investor?
A similar situation applies in the case of the policyholder of a life insurance policy who wish to cash out. The cash value quoted by the insurance company is likely to be much lower than the actual underlying value. This allows the insurance company to make a profit on the terminated policy. The policyholder already suffered the large deductions to pay the commission to the agent, the cost of the life insurance cover and the high expenses. Why should the policyholder have to take another big penalty to give more profit to the insurance company?
The lesson: do not trust any financial institution that creates proprietary products where there is no free market for selling off the product at its fair value. You will be placed under the mercy of the financial institution, which will seek to maximise its profits at your expense.
The only buyer of the product are the product issuers who quoted a very low price for the product. The investor is not able to assess what is the correct price of the product, as they do not have information about the underlying assets and the extent to which they are likely to default.
The product issuer has the information, but they are acting with a conflict of interest and a monopolistic position. They can quote a price that is much lower than the underlying value and make a big profit.
What can the investor do? It is best to take the risk and ride it out. If the situation become worse, it is bad luck. But, it could turn out to be better. If the investor accept the low price now, it is likely to be much lower than the value of the underlying assets, and the investor is likely to take a much definiate loss now.
Is this fair to the investor, to be placed in a weak position against the financial institution that has the information and is taking advantage of the lack of information and desperation of the investor?
A similar situation applies in the case of the policyholder of a life insurance policy who wish to cash out. The cash value quoted by the insurance company is likely to be much lower than the actual underlying value. This allows the insurance company to make a profit on the terminated policy. The policyholder already suffered the large deductions to pay the commission to the agent, the cost of the life insurance cover and the high expenses. Why should the policyholder have to take another big penalty to give more profit to the insurance company?
The lesson: do not trust any financial institution that creates proprietary products where there is no free market for selling off the product at its fair value. You will be placed under the mercy of the financial institution, which will seek to maximise its profits at your expense.
Thursday, June 4, 2009
It is easy to be cheated (6) - Currency linked notes
This is similar to the equity linked notes. They are usually marketed as Dual Currency Investments or Dual Currency Deposits.
They are created by financial institutions and usually take the following form - the capital is invested in a certain foreign currency. If the currency rate stay above a certain price X during the specified , the investor gets a specified interest rate, which is higher than fixed deposit rate.
If the currency rate fall below a certain price Y, the investors have to take delivery of the specified currency. The investors are told that they can keep the currency until it recovers in value. The investor think that it is all right to keep the currency.
This is how the investor can be cheated. If the specified currency goes up 10% during the holding period, the investor gets a certain interst rate, which is lower than the actual gain. The product issurer keeps the balance of the gain. If the currency drops by 10%, the investor has to bear the full paper loss.
There is no way for the retail investor to know if the terms of the transactions are fair. As the terms are determined by the product issuer, it is likely that the terms are created to make a profit for the issuer, at the expense of the investor.
Many people have lost a large proportion of their capital when the currency market goes against them. If the market goes in their favour, the received a higher interest rate, but they were not aware that this is much lower than the actual gain.
To make the matter worse, some financial institutions lend money to take five times of the risk of the invested capital. The retail investors were not aware that their risk has increased five times due to the leverage. If the currency drops 20%, they could lose their entire capital. They do not get a commensurate return if the share price moves in their favour!
Is this fair? Can it be considered as cheating?
Tan Kin Lian
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