Tan Kin Lian's Blog: Consumer Finance Protection Agency

Monday, July 06, 2009

Consumer Finance Protection Agency

I suggest that a consumer finance protection agency should be introduced in Singapore, similar to the approach being considered now in America under the Obama Administration.

This agency should have the duty to examine financial products and ensure that they are suitable for sale to the general public. This is similar to the role of the drug authority in approving drugs for sale to the public.

It is not possible for ordinary consumers to assess the safety and fairness of the financial products on their own, based on the information given to them and their lack of financial expertise. This role has to be done by an agency that has access to financial experts. In making the assessment, the financial experts can ask relevant information from the product issuer, including information that is not disclosed in the published materials given to the consumers.

It may be difficult for the Government to take the big step of introducing an agency that has the power to approve or reject any specific financial product. I suggest that this agency can provide a white-list of the suitable products that meet its criteria of disclosure, fairness and general suitability.

This approach allows the ordinary people to check that a particular financial product has been on the white-list. Risky products can be on the white-list, so long as it is adequately disclosed and fairly priced.

The agency can declare products as “not meeting its criteria” without having the power to reject these products.

Tan Kin Lian

17 comments:

Anonymous said...: MAS has conflict of interest??? that is why it is not doing anything?
The bigger bombs are now in the insurance products, although they don't lose for you the capital they ALL WILL lose for you the purchasing power.
If this is not loss I wonder what it is.The loss can be in the billions over the long term.
Many people are unable to retire with enough fund because they invest in insurance products that are not growing the fund or working hard enough. At the best these products preserve the capital.If poor people put their hard earned money in them they will still be poor or poorer when they retire.Why is the authority not concerned about this?
This type of insurance products only benefit the insurance agents with high commission and the companies but not the consumers. There is a great need for education and Mr. Tan's FISCA can play this role and also as the watchdog for the products and the behaviour of the salespeople.; July 06, 2009 11:36 AM
Anonymous said...: Are we opening a can of worms - insurance products which at best preserve the capital but do not give reasonable growth to meet the financial needs of people?; July 06, 2009 11:50 AM
Unknown said...: Dear Mr Tan

This idea will help change the legal playing field;

from "buyers beware" to "sellers be fair"

Best of luck.; July 06, 2009 12:24 PM
Anonymous said...: I have not read the full info about FISCA but I think it is a good idea if it could take on this role.; July 06, 2009 12:25 PM
Anonymous said...: Hello here is REX commenting on the post no. 1.
Is it really true, that insurance products which preserve the capital are the "biggest bomb"? Less Gain is not the same as Loss. An insurance product which pays 3% equivalent p.a. and allows the interests to be collected at the end of 5 years, and preserves the capital fully, cannot be considered as a bad product. It is simply making less gain than traditional stock market investment in blue chips, that is all. One should not condemn such insurance products just because it makes less gain than other more risky products. Some people just dont like the risk of stock market products. To each his own.

There is another mistaken notion here which i wish to highlight. It is not possible to survive on shares and dividends or returns from insurance products, unless the capital invested is huge amount. For the average "Ah Beng" retiree, it makes no difference whehter he play shares or put in these insurance proudcts that pay 2-3% pa. The dividends or interest earned is basically just some petty cash. An "Ah Beng", can't get rich out of it, unless the original principal invested is substantial. The only way to have a strong healthy stable income after retiring, is to be rich originally, before you retired.. it's a very CRUEL idea yes i know, but i think it is a hard fact of life.

So, If you had been rich or reasonably rich up to age 50, you are ok, whether you play with shares or insurance products. If you are not already rich or reasonably rich up to age 50, don't even think that playing around with shares or insurance products till age 100, gonna make much difference to your wealth any way. So no need to condemn the rather low returns of capital guaranteed, safe insurance-based products. Just my opinion.
REX; July 06, 2009 1:08 PM
Anonymous said...: The danger of engaging experts to advice on the merits of anything is that the experts in their own fields, more often than not, earn their keeps from the big boys of business. They are not going to risk their rice bowls for a little 'kachang puteh'. They will still speak the language of the big boys.

Look at the past couple of years that these experts in their fields gave their advices on eg trans fat, telfon coated kitchen utensils, plastics etc.

They spoke favourably about the positve aspects of test results in the early stages of marketing the products, keeping out any negative points, which were only released after the big boys have made their pile.

Honestly, I always take advices from experts with a sprinkle of salt. You can't trust your own shadow in this make believe world. Nothing appears real.

Lost Citizen; July 06, 2009 2:45 PM
Anonymous said...: Nowadays, the insurance products look like scam with a lot of unnecessary extra benefits to delude the buyers.At the core of it there is nothing but a rotten return with expensive protection.
In fact today, the agents are promoting the frills than the actual product.
The truth is because of high operating cost and high commission for agents and low interest rate and low investment return, whole life and endowment products are rip off , rotten and are to be avoided. FDs kept for as long gives safer, liquidity and better return.
Don't beleive, make the agents justify the recommendation for your needs.; July 06, 2009 2:57 PM
Anonymous said...: Dear Mr. tan,

At the rate things are going, I don't think the government would do anything. Hopefully the role can be filled by some private establishments.; July 06, 2009 5:19 PM
Anonymous said...: anyone try claiming from an insurance company before? I heard it is easy for them to collect money but not the other way round. Can anyone out there care to share?; July 06, 2009 6:04 PM
Anonymous said...: REX,
everyone must be born rich so they don't have to risk for higher return than 3% which is just enough to preserve purchasing power. 3% is like standing stationary on a coming down escalator. Over the long term it may not be true.You may be always at the bottom of the escalator.
The poor majority is condemned for not being rich. Worse they are either made to stay status quo or poorer by insurance agents who have no inkling of investment but endowment products which they promote as FDs. The poor have to work very hard to earn more income because nothing and no investment helps them to improve their life if they were to depend on insurance salesmen. And unless they have huge lump sum like REX who can earn a low risk 3%(projected) keeping for 5 years, these poor folks have to eke out with regular whole life product or endowment which has a very long tunnel where light doesn't seem to be in sight.
Well, poor people, don't despair. So long you keep away from insurance salesmen or agents with fancifool names like financial consultant, senior or executive, they are all product pushers who push for commission and not for you or your retirement.
As mentioned you are already condemned why not take RISK with an honest and competent investment planner who MAY grow and make your money work harder with the same risk like the single premium endowment REX mentioned to get higher than 3%.What about 5% with the same risk as 3%, what do you think?
Ah, that is provided you stay away from disguised insurance agents.
These low down pushers don't have the skills and knowledge and the the INTEGRITY but greed. Very often that is the root cause of your problem like the minibond saga
where human greed and incompetence cause the downfall of many investors.
Wait for FISCA, at least you get unbiased, no vested interest , no conflict of interest advice.

The Watchman.; July 06, 2009 7:51 PM
Anonymous said...: REX,
you are still singing the same old song about 3%. Good for you if you don't need to grow any more but for the majority they need more than 3% to get out of the rut. Imagine 10 or 15 years down the road your money can only buy the same things as now.
REX, I believe the 3% tune is ntuc growth policy. If it is I am going to spoil your mood. I guess you haven't got over the change of the lyrics or still labour under an illusion that you will get 3% after 5 years. Hey, MR. Tan KL is not in charge anymore. If he is in charge there is a very high probability. Since the reshape of the bonus by the new alien FT the risk of your investment has gone up (by 45%), do you know? The reversionary bonus was reduced by 45% and now your future return depends on the special bonus which is not guaranteed. It can be ZERO, do you know?
You are too trusting, like many, even they steal right under your nose, you are still blur and still sing the same old tune. You wake up shocked one day but it might be too late.
Oh yes, you won't lose your capital. You will make a "gain",... in face value, not real value!!!!!; July 06, 2009 8:21 PM
Anonymous said...: Dear Watchman,
The point i was implicitly trying to make was that riches come to a person through good job opportunities, through lottery wins, through inheritance, through business successes. It should NEVER be considered that insurance products or shares should be the primary pathway to wealth, in any case. So if a person is not rich, then putting his money in insurance products or shares .. is barking up the wrong tree. Because his invested sum is so small and the percent return is so small. He would be better off buying $1 toto each week, some day may strike something, and the capital loss very small most times.

So You said "Well, poor people, don't despair. So long you keep away from insurance salesmen or agents..." Fine. Keep away then. But where exactly you advise these "poor people" to go to? To the stockbrokers to buy shares, hoping for increasing share values and dividends to cope the inflation? Will you be there to console such a "poor people" if the market goes against him, and the inflation is not taken care of because he gets miserable returns in a bad year? You will tell him hard luck the stock market crashed, sorry inflation not covered now and your principal also hilang this year, please wait, how long, dont know lah just wait for market to go up. What he gonna do in the meantime? Poor chap.

But for safe products which pay 3% pa, at least these poor people cannot die, the principal still there somehow after pre-determined time tenure. So those single insurance premium products are really much more suitable for people who are of average income, not the RICH who can afford to lose the principal.

And, those who are below average income and require almost every single cent of their money for the next 5 years should neither buy shares nor single premium products.... toto, 4D or the casino's would be probably safer. It is a very cruel position but true. The path through riches is just as i said, lottery win, inheritance, business success, good job opportunities.

(footnote: i agree with you that there are defective insurance products peddled by irresponsible insurance companies, which use your own money to finance the payments back to you with all sorts of complicated schedules. MAS and FISCA should expose and dismantle such scams. For me the only safe good insurance product with returns, is the idiot-proof single premium policies of 5 years and above, suitable for average income earners, contrary to what you said)
REX; July 06, 2009 8:59 PM
zhummmeng said...: Mr. Tan, we need to expose those conmen and women masquerading as insurance agents, financial consultants and RMs.These are the scumbags of society who don't add value but steal from society's poor.
I despise these mdrt or cot or tot agents for stealing from the poor by selling them whole life and endowment products which are useless in every aspect.They sell whole life and endowment and cash back anticipated endowment because of the high commission. They con, cheat and mislead the consumers into buying and not because they have the interest of the consumers in mind. How can these agents have the interest of the consumers in mind when they know that these products are neither good as a protection device nor a good saving plan. How can expensive protection be good? This is why Singaporeans are under insured.You know , LIA reveals that in 2009 the average death claim is only $43K. It is not even enough to bury the deceased let alone to take care of the deceased's dependents for next 20 years.
It is no wonder that single mother association is swelling with single mothers on the dole.Do you think it was the fault of the bread winner? No!!! I can think of the greedy agents who only want to push expensive wholelife product to make the huge commission.This is heartless and conscienceless knowing that the bread winner couldn't afford enough WL to take care of his family.But did the agent care. To add injury to insult the agents would tell the bread winner that they will 'review' when they have more money to buy more WL instead of recommending term to give full coverage. You see,most Singaporeans are walking around with a bomb ticking. If it explodes so goes the dependents' income.
You see, for a fraction of the premium one can get 10 times more coverage than the Wholelife with terms..But the term pays peanut commission. So it is commission, isn't it?
How can a return of less than 3% be good when you have to hold it for 30 years?Absurd, stupid and crazy, MAS website shows hardly 1% hold beyond age 65 but these agents have no qualms lying to their clients to earn huge commission to qualify for these dubious awards.They are best thieves in the business and that is what the awards are about and should be known as.
FISCA must act to get rid of the scourge of society. Please provide a review service for members and consumers who want to know whether their agents have conned them. I am very confident that every existing insurance policy has a telltale sign of mis-selling, conflict of interest and unethical selling or recommendations of no reasonable basis. This is cheating. They break the FAA laws too.
Enough is enough. It is pay back time for these insurance agents. It is retribution. Sow evils reaps evils.This is the law of retribution.; July 06, 2009 10:39 PM
A Singaporean said...: Dear Mr. Tan,

I agree with the basic notion of Consumer Finance Protection Agency. But I worry about the partiality of the experts that are engaged to assess the financial products. Unless we can be assured that the experts are really really independent of the big boys, I worry that such an organization will only add to the list of untrusted ones.

Given the bias of our own government, I cannot trust it to create such an impartial organization. Just look at the group of experts that are supposed to advise MAS. Instead, I suggest that organizations such as your FISCA are more suited for giving impartial advice to the ordinary public.; July 06, 2009 11:53 PM
Anonymous said...: To the post of Zhummeng
REX comments as follows:
Firstly let us correct some numerical errors. It was alluded that "43,000" is not sufficient to pay for burial. Actually it costs only around $5,000 to $10,000 for funeral services. It was also alluded that the going rate for endowment insurance policy products is 3% pa only if you put in for 30 years. This is untrue. Usually, you get about 3% pa if you purchase a single premium insurance policy for 5 years. For 10 years it's about 4%. Yes, this is pittance compared to stocks investment. But it has its attractions as i had enumerated before on this blog posts.

I fully agree that Singaporeans are underinsured because they got hoodwinked by insurance agents who just want to suck commissions and sell complicated endowment plans. Singporeans should be taught more about Term insurance and told to stay away from those stupid products now avaialble in the market. These bad products don't provide cover sufficiently for the dependents, and at the same time don't give good returns. It should be properly regulated, even blocked, by MAS or FISCA etc. (footnote: the only allowed product should be single insurance premium products but the name should be changed as they are hardly providing any insurance cover. SIPs are merely idiot-proof, simple, fixed deposits paying more than a bank fixed deposit, that's why i opine that they are good for average income earners and kiasu people NOT nec for the Rich as some still insist)

REX; July 07, 2009 8:51 AM
Anonymous said...: REX,
if you consider the last expense and other liabilities and funeral expenses, $43K is still not enough. For a Chinese rite funeral wake it can come to more than $50K.
Averagely a person with a wife as homemaker and 2 young children he needs to have at least $500K coverage against death only. What about other risks, like Critical illness and disability?
The truth is insurance agents are interested to sell whoelife and products with high commission. How to qualify for MDRT if they don't earn enough commission? MDRT is commission based.Sell term? although good for their clients but not good for them, leh.
So you see how despicable the agents are.This is the so called "noble profession" helping people. I wonder who helps who.
The problem is MAS is aware but not doing anything. only talk but no action.; July 07, 2009 11:22 AM
Anonymous said...: Given the same insurer and most other features being similar, a term plan and whole life plan should have similar commissions at the same premium.; July 08, 2009 1:27 PM

Monday, July 06, 2009

Consumer Finance Protection Agency

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