Laos has a population of about 5 million people. This is the same as Singapore but the land area is large. It is located between Thailand and Vietnam and does not have a coastline. The Mekong river passes through part of Laos.
The capital is Vientiane. I like this small city. Most of the buildings are 5 stories or lower. The roads are not congested. Traffic moves slowly. The pace of life is slow. there are a few nice restaurants providing various types of Lao, European and Asian food in the city center, where my hotel is located.
It is nice to see some families with their young children playing in the park at the Fountain, which is in the center of Vientiane.
I like this type of life. It is much better than crowded cities like Singapore, Kuala Lumpur, Bangkok and Jakarta.
Laos is a communist country. But life goes on peacefully and there is no sense of fear or lack of freedom.
Wednesday, October 7, 2009
What's wrong with Investment Linked Policies?
Most investment linked policies marketed in Singapore have the following features:
a) designed to hide the high upfront charges
b) high charges for insurance cover
c) not tranparent
The upfront charge can be as high as two years of premium. If the savings is $300 a month, an amount of $7,200 can be taken away to pay commission and upfront charges. The consumer is not told directly about these charges. Here are the ways adopted to hide these charges, as adopted by different insurance companies:
a) The consumer is told that x% of the premium is allocated for investment. This means that (100-x)% is taken away. But the non-savvy consumer may not be aware about its significance.
b) The consumer is told that 100% is allocated for investment, but is not aware about the annual charge that is taken away to pay the distribution cost and the surrender penalty that is imposed if the policy is terminated within a certain period, say 10 years. Even if the consumer is told, the consumer is usually not aware about its significance
c) The consumer is told that the total amount allocated for investment is more than the premiums paid after a certain period, say 20 years or longer, but is not told that there is an additional charge (usually 5%) deducted from each premium that is invested. The actual amount invested will be less than the premiums, due to the upfront charges.
The charges for the insurance cover is usually much higher than the same cover provided by a separate term insurance or critical illness policy that can be bought in the market. The consumer is not aware that there is a choice to buy the cover separately or about the lower cost that is available in the market (but not from the insurer that markets the investment-linked product).
The consumer is not told and is not aware that the same premium can be invested in a unit trust that offers the same potential return, but does not incur the high upfront charge that is used to pay commission to the agent.
The terms of the investment-linked products are confusing to the consumer. In this environment, an agent can mislead the consumer into buying a product that pays a high commission to the agent, gives a high profit margin to the insurer, but provides a low return (relative to the risk) to the consumer.
Most informed consumers will never accept these high charges. This is why many insurers have devised ways to hide these charges from the consumer.
I will write a separate blog to describes the features of a good investment-linked product and to encourage insurance companies to adopt these features.
Tan Kin Lian
a) designed to hide the high upfront charges
b) high charges for insurance cover
c) not tranparent
The upfront charge can be as high as two years of premium. If the savings is $300 a month, an amount of $7,200 can be taken away to pay commission and upfront charges. The consumer is not told directly about these charges. Here are the ways adopted to hide these charges, as adopted by different insurance companies:
a) The consumer is told that x% of the premium is allocated for investment. This means that (100-x)% is taken away. But the non-savvy consumer may not be aware about its significance.
b) The consumer is told that 100% is allocated for investment, but is not aware about the annual charge that is taken away to pay the distribution cost and the surrender penalty that is imposed if the policy is terminated within a certain period, say 10 years. Even if the consumer is told, the consumer is usually not aware about its significance
c) The consumer is told that the total amount allocated for investment is more than the premiums paid after a certain period, say 20 years or longer, but is not told that there is an additional charge (usually 5%) deducted from each premium that is invested. The actual amount invested will be less than the premiums, due to the upfront charges.
The charges for the insurance cover is usually much higher than the same cover provided by a separate term insurance or critical illness policy that can be bought in the market. The consumer is not aware that there is a choice to buy the cover separately or about the lower cost that is available in the market (but not from the insurer that markets the investment-linked product).
The consumer is not told and is not aware that the same premium can be invested in a unit trust that offers the same potential return, but does not incur the high upfront charge that is used to pay commission to the agent.
The terms of the investment-linked products are confusing to the consumer. In this environment, an agent can mislead the consumer into buying a product that pays a high commission to the agent, gives a high profit margin to the insurer, but provides a low return (relative to the risk) to the consumer.
Most informed consumers will never accept these high charges. This is why many insurers have devised ways to hide these charges from the consumer.
I will write a separate blog to describes the features of a good investment-linked product and to encourage insurance companies to adopt these features.
Tan Kin Lian
An intent to cheat
Dear Mr. Tan
I bought a land banking product and was given an option to sell back the product after on year at the original cost plus X%. After completing this period, I gave notice to redeem the product according to the terms. The land banking firm did not pay the money back to me. A few other investors were caught in the same situation. We made a complaint to the Commercial Affairs Department, but were told to see a lawyer as this is a civil case. Can we ask the CAD to investigate if the company were cheating us?
REPLY
Cheating is defined in the Penal Code of Singapore as follows:
Cheating – Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he or she would not do or omit if he or she were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". For example, A cheats if he intentionally deceives Z into a belief that A means to repay any money that Z may lend to him when A does not intend to repay it, and thereby dishonestly induces Z to lend him money.
At the time of selling the product, the land banking firm might not have any intent to cheat. They may have some reason now to be unable to honor the option to repay the investment, or may have some liquidity problem. This is probably the reason why CAD is not pursuing the matter as a cheating case, and has advised you to consult a lawyer to take civil action.
I bought a land banking product and was given an option to sell back the product after on year at the original cost plus X%. After completing this period, I gave notice to redeem the product according to the terms. The land banking firm did not pay the money back to me. A few other investors were caught in the same situation. We made a complaint to the Commercial Affairs Department, but were told to see a lawyer as this is a civil case. Can we ask the CAD to investigate if the company were cheating us?
REPLY
Cheating is defined in the Penal Code of Singapore as follows:
Cheating – Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he or she would not do or omit if he or she were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". For example, A cheats if he intentionally deceives Z into a belief that A means to repay any money that Z may lend to him when A does not intend to repay it, and thereby dishonestly induces Z to lend him money.
At the time of selling the product, the land banking firm might not have any intent to cheat. They may have some reason now to be unable to honor the option to repay the investment, or may have some liquidity problem. This is probably the reason why CAD is not pursuing the matter as a cheating case, and has advised you to consult a lawyer to take civil action.
However, if the land banking firm, knowing that they are not able to fulfill its commitment for repay the investments to earlier investors due to liquidity problem and continues to market similar products to new investors with similar promises, it can be argued that they intend to cheat the new investors. You can bring this matter to the attention of CAD
Tuesday, October 6, 2009
RED Portal (17) HDB Resale Price
The RED portal now shows the median resale price of HDB flats by town and type of flats. This is taken from HDB website. Click on "Info" tab. It is easy to retreive the relevant information from this website.
Target Marketing - new restaurant
My friend started a new restaurant in Lorong Chuan. He used the target marketing service to send out mailers to the owners of landed property and 4/5 room flats within 3 km of his restaurant. He reported roaring business, with full house. It was a good start.
Singaporeans like to try a new restaurant. The target marketing is a good way to reach out to them at a low cost.
Monday, October 5, 2009
Land banking is not a Ponzi scheme
Someone posted a comment in my blog that a certain land banking scheme was a Ponzi scheme. This is not correct.
In a land banking scheme, the investors bought a plot of land at a certain price. They were usually told that if the land was rezoned, the value would go up two or three times. If the rezoning does not materialise, the investors have to hold the plot for many years or find another investor to take over the plot.
This becomes a Ponzi scheme only if the promoters use the funds from the later sales to pay off the earlier investors with a profit, creating the false impression that the land banking scheme was a profitable investment.
If there is no evidence that this was the practice, it would be wrong to call the land banking a Ponzi scheme.
In a land banking scheme, the investors bought a plot of land at a certain price. They were usually told that if the land was rezoned, the value would go up two or three times. If the rezoning does not materialise, the investors have to hold the plot for many years or find another investor to take over the plot.
This becomes a Ponzi scheme only if the promoters use the funds from the later sales to pay off the earlier investors with a profit, creating the false impression that the land banking scheme was a profitable investment.
If there is no evidence that this was the practice, it would be wrong to call the land banking a Ponzi scheme.
Ponzi scheme
A good example of a Ponzi scheme is the Madoff case. Madoff collected money from investors and invested the money on their behalf. He "earned" an attractive rate of return for the investors, better than the market return.
Actually, he took money from the subsequent investors to pay the purported returns earned by the earlier investors. This leaves a big deficit in his accounts, but he manipulated the accounts to show a false financial situation.
As word went round about the attractive return, the current investors put in more money and other investors also joined in. The Ponzi scheme become bigger and bigger, along with the deficit. When the Ponzi scheme was finally exposed, the deficit was so large, that there was very little to pay back the remaining investors.
Usually, in a Ponzi scheme, the promoters were able to siphoned out the money illegally into their personal bank accounts. This increased the deficit.
Singapore has our own share of Ponzi scheme 40 years ago. It was called the Gemini Chit Fund. The situation was similar. The fund paid an attractive return to the members, using the funds of other members. The total investment grew rapidly over a period of one or two years, before it finally collapsed.
Tan Kin Lian
Actually, he took money from the subsequent investors to pay the purported returns earned by the earlier investors. This leaves a big deficit in his accounts, but he manipulated the accounts to show a false financial situation.
As word went round about the attractive return, the current investors put in more money and other investors also joined in. The Ponzi scheme become bigger and bigger, along with the deficit. When the Ponzi scheme was finally exposed, the deficit was so large, that there was very little to pay back the remaining investors.
Usually, in a Ponzi scheme, the promoters were able to siphoned out the money illegally into their personal bank accounts. This increased the deficit.
Singapore has our own share of Ponzi scheme 40 years ago. It was called the Gemini Chit Fund. The situation was similar. The fund paid an attractive return to the members, using the funds of other members. The total investment grew rapidly over a period of one or two years, before it finally collapsed.
Tan Kin Lian
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