Land banking company refused to refund the money

Dear Mr Tan
I am an investor who has invested in a land banking project with X. Despite my investments maturing, X has not paid me the interest or the exit price. They keep postponing the issue by responding to my queries only verbally (nothing concrete in writing). If possible I would like to join other such investors in any class action suit that might be in the offing.

I must also add that I called CAD branch of Singapore police to report the obvious irregularities at X in their misrepresentation of their products to their clients. CAD officer directed me to a lawyer (who as you know charge anywhere from $600-$900 per hour).

I am not sure who is the right regulatory body in Singapore that will deal with such a case. I am very surprised that a company like X is operating without any check in a place like Singapore and is blatantly treating many its clients with disdain. I was wondering if you could suggest what recourse I can take.

REPLY

It is the duty of the Commercial Affairs Department to investigate if this is a cheating case, especially as they have received a complaint. They cannot just push this matter to the lawyer. I suggest that you see your Member of Parliament.

Real Estate Data - RED Portal (2)

Dear Mr Kin Lian

This is indeed a very useful website. Thank you for putting this together. I am one of those who was fooled into thinking that my agent would do her homework and get me good deal. I've lost close to 100k due to failure in practising due diligence in marketing my property.

With your website, I think sellers need not be at the mercy of some agents who only want to close a deal as soon as possible and collect their commission! All buyer and sellers can do their own homework.

www.easysearch.sg (Real Estate Data)

CPF Life

Many people asked for my views on CPF Life. I replied:

a) It is a good scheme, as it provides the security of a lifetime income through pooling longevity risk
b) The Government gives a bonus of $4,000 for people (except the wealthy) to join the scheme
c) The annuity gives an imputed interest rate of 3.75% to 4%, which is attractive compared to the market return on low risk investments

Some of the remarks made by people who dislike the CPF Life are:

a) The Government will keep the money and may not pay it back
b) The Government makes a profit when the annuitant dies at an early age
c) The scheme will have a big surplus due to the low payout (based on the experience of other Government schemes)

I hope that these points can be addressed by the Government and that people can learn to trust the Government.

Tan Kin Lian

Behavior of the banks

The Archbishop of Canterbury, head of the church in the UK, has also criticised the banks for their excesses. Read this report.

Real Estate Data (RED) Portal

There is interest in private property in recent months. Before you make a big $1 million commitment, it is better for you to do some research. What is the price paid for recent transactions in the same condominium? What are the prices in similar condominiums in the same sector?

The Real Estate Data (RED) portal gives you the information. You will find the following information to be useful and easy to use:

BMP - benchmark price
AMX - amenity index
Transactions - actual transactions in this condominium.
Guide - read the instructions on how to use this portal.

Take note of the disclaimer. If you find any mistake or missing information, please reply to the Feedback tab. We need you to help make this portal useful for consumers.

Go to www.easysearch.sg (Real Estate Data).

Part Time Workers

I wanted to employ some part time workers for administrative and data entry work. I found a few suitable people in this portal, www.easysearch.sg (Part Time Workers).

I sent an e-mail to a few selected workers and wait for their response. I choose the workers that live near my home, rather than those who live far away.

I encourage people searching for part time work to register in this portal. I encourage employers who wish to have part time workers to search in this portal. This portal is managed by Tan Kin Lian & Associates. Service is free.

All the best!

Make a balanced decision

A few insurance agents have criticised me for my views about over-spending on buying of critical illness and private shield. They argued that, even though the risk is small, it is necessary to protect against the risk.

It is important for consumers to make a balanced decision. Each person has only a limited amount of savings. If you spend too much of your savings on insuring against risks with a low probability of happening, you will not have sufficient savings for other risks.

The biggest risk is insufficient money at retirement. Most people will survive to retirement without a critical illness or big hospital bill. If you over-spend your savings on insurance, you will not have enough savings for your retirement.

When you buy insurance, make sure that you pay the right amount of premium. Do not pay too much. Do not buy insurance that is not really necessary. Choose an adviser who takes care of your interest, rather than one that wants you to spend more (and you know why).

You can buy term insurance (including cover for critical illness) up to age 60 (or earlier) to give a large cover for a modest premium. You can scale down the cover at the older ages, to keep the premium low (e.g. decreasing term insurance or family income benefit). Read this FAQ for the benchmark premium.

Most people need insurance when they are young but they only need to cover for a period of say 25 years. After 25 years, they will have sufficient savings to protect them against loss of income due to illness or unemployment. But they need to put their savings in a low cost fund, so that it can grow and give a good rate of return. (Most structured or life insurance savings products take away too much charges and give a poor return).

There is a big argument about the merits of Medishield and Private Shield. There is no doubt that Private Shield covers more than Medishield, but consumers should ask the question - is the justified to incur a higher cost? The lifetime cost for Private Shield Plan A is 2.5 times of Medishield. Why pay 2.5 times of the cost when for most cases, Medishield will be sufficient to cover all the cost (excluding the co-payments). In fact, Private Shield requires you to bigger co-payment when you are hospitalised.

I want you, as a consumer, to be aware about the choice to be on Medishield. I have presented my reasons. Your insurance agent will present the argument to be on Private Shield. You have to make the final decision.

If you are happy with Private Shield, it is all right. If you decide to convert back to Medishield, you can get cancel your Private Shield and ask the insurance company to put you back on Medishield. I did that.

To recap: You have certain amount of savings to take care of your future financial security. You have to use this savings wisely. You can cover some risks through insurance, but you have to pay the right premium. Do not over-spend on insurance, and leave insufficient money for your retirement needs (as this represent the biggest risk that you have to face).

Tan Kin Lian

Financial adviser charged fixed fee

Mr. Tan,

I suggest that you add this advice in your book:

Do not use Financial Advisers charging on a fixed percent of the total managed fund with no conditions attached. This scheme is supposed to motivate the Financial Adviser to grow the fund to the benefit of both the client and customer. The contrary could turn out with Financial Adviser collecting the fee regardless of the outcome of the fund performance (which is also a conflict of interest) and customer suffering a double whammy – i.e. losses on the fund + paying a fee above all the other basic charges...

Challenge of reforming the finance sector

Read this report. I hope that President Obama succeeds in reforming the finance sector and create a better environment for future growth.

The world has not learned its lessons from the crisis

Read this report. The world has not learnt its lessons from the crisis and is continuing the bad old ways.

Using happiness as an economic indicator

Here are the views of President Zarkosky of France. I like the idea.

Financial Planning (4) - How much can you afford to save?

The amount that you can save depends on your income (combined with the income of your spouse) and the amount that you spend.

Some of your spendings are fixed. You have to make monthly repayments on the loans that you have taken to buy your home, car or furniture. If you do not make the payment, you are charged a high rate of interest, which can be a burden.

You also have to spend money on transport, food, clothings, utilities, telephone, medical expenses and other essentials. You can spend a smaller amount by being frugal, but there is a minimum sum to be spent. If you have more members in the family, the spending increases proportionately.

Tuition for the children and employing a maid are expensive items. Are they really necessary? Can they be avoided?

Spending on credit should be avoided. The interest charged on credit card can be 2% per month or 24% a year. This is too high and can be a heavy burden.

After setting aside the fixed commitments and the essential items, you have a remaining sum. You can decide on how much to set aside as savings for the future and how much should go into discretionary spending.

Some people make the mistake of setting aside too much of their monthly income in life insurance savings. This forced savings take a large part of their earnings. When they are unable to meet the premium payments, their policies lapse and they forfeit a large part of the premiums that have been paid. This should be avoided.

To recap: Have a budget to allocate your savings into fixed commitments, essential expenses and voluntary expenses. Avoid having fixed commitments (e.g. loans installments and life insurance savings) that may be difficult to service.

Tan Kin Lian

Calculation of insurance premium

In a competitive market, an insurer has to calculate its premium at a level that is just sufficent to pay the expected claims, expenses and provide a small margin of profit.

The expected claims is about 70% of the premium (also called the claim ratio), with the difference of 30% (also called the loading) being reserved for expenses and profit.

If the financial accounts show a claim ratio of 70% for a class of business, the premium rate is at the right level. If the claim ratio is less than 50%, the insurer is making an excessive profit margin by charging a high premium (relative to the expected claims).

If there is intense competition, the premium rate may be pushed down to a low level, resulting in a claim ratio higher than 70%. The insurance company is making a loss, and has to increase the premium rate in the future.

For example, take the case of term insurance covering $300,000 for young people with an average claim rate of 0.1% (say). The average claim per person is $300. Allowing for a loading of 30% (to cover expenses and profit), the premium charged per person should be $428.

An insurer is able to charge a higher premium rate and enjoy a bigger profit margin by designing a product that is not easy to be compared against similar products in the market. The insurer train the agents to sell the products, in spite of its higher price.

Customers should avoid insurance products that are not easy to compare and are marketed by agents who earn a high rate of commission. They should look behind the marketing presentation of the product to see what is the underlying claim ratio.

Tan Kin Lian

Financial Planning - Practical Steps (draft 4)

I have posted a revised draft 4 of my book, Financial Planning - Practical Steps. You can download the soft copy after entering your particulars here.

The printed version of this book will be sold for $7.90. It will be given free to members of FISCA at the new member briefing to be held each month. The author will also give a 1 hour talk of the key points in this book to the members. Join FISCA now.

The practical tips in this book can help you to choose the right products and save you a few thousand dollars in charges.