The Minster said that the global crisis is caused by "failure of regulations premised by beliefs that were not supported by facts", in particular the "faith in self-correcting markets". He argued that the government has a duty to intervene to stop asset bubbles from growing to an unsupportable level.
I agree.
There is another big market failure that has not been recognised in the paper - the failure to provide transparent and fair information to consumers. The sellers have more information than the buyers and can mislead the buyers into paying an inflated price that is far more than what the product is worth.
This is the modus operandi of land banking and structured products (e.g. capital guaranteed, linked products, dual currency products, high cost life insurance products) that were created by financial experts for sale on unfair terms to consumers (but generate high profit margin to the issuer). The sale of new property launches at unjustified high prices is also premised on the insufficient information available to consumers.
It is important that the regulation should also focus on providing transparent and fair information to consumers. FISCA will play a role by creating a white list of financial products.
I have build a website at www.easysearch.sg (Real Estate Data) that makes it easy for consumers to get information on properties. I urge consumers to do your research before jumping into making million dollar purchases that will tie you down for a lifetime.
Tan Kin Lian
There is another big market failure that has not been recognised in the paper - the failure to provide transparent and fair information to consumers. The sellers have more information than the buyers and can mislead the buyers into paying an inflated price that is far more than what the product is worth.
This is the modus operandi of land banking and structured products (e.g. capital guaranteed, linked products, dual currency products, high cost life insurance products) that were created by financial experts for sale on unfair terms to consumers (but generate high profit margin to the issuer). The sale of new property launches at unjustified high prices is also premised on the insufficient information available to consumers.
It is important that the regulation should also focus on providing transparent and fair information to consumers. FISCA will play a role by creating a white list of financial products.
I have build a website at www.easysearch.sg (Real Estate Data) that makes it easy for consumers to get information on properties. I urge consumers to do your research before jumping into making million dollar purchases that will tie you down for a lifetime.
Tan Kin Lian
6 comments:
I have to block a posting that is rude to the Minister. Please be polite and respectful when you post your views.
Are there such thing called a "fair" price?
financial products?
drugs and medicine?
electronic goods?
software?
food and retail?
How does one determine what is "fair"? Is it fair if a bottle of Coke is sold for $1.50 when the cost of product is less than US$0.10?
Is it fair for a book to be sold for $20.00 when the cost of printing, binding, etc cost less then $3.00?
How does one determine the "fair" profit margin to make?
It is good if someone can work on a global databased of the majority of the common goods and services and list out the cost of such items, then will fair pricing prevail.
The Minister is only partially right. Truth is bubbles and crashes are normal. what goes up must come down, it is the natural order of things.
It seems to me, many people here are complaining against high commissions for insurance agenst. As I've explained (not taking sides but just stating facts), in another thread, there's a reason and logic for this. Insurance agents need an income to feed themselves and their families too.
If an insurance agent withholds information about costs, implications and liabities, then he's in the wrong. But if he duly disclosed everything, then what blame is there?
Why don't we look at Microsoft Windows and Office. Very expensive, but if you choose it then that's it. There's no point accusing Microsoft of overcharging. There're alternatives around. If they cost less and work better, Microsoft would die a natural death.
Similarly, nobody or very few are questioning about banks paying 0.5% for your deposits while charging 18 to 24% for your overdrafts and credit card balances. That's more than 20 times proft margin. Where does the money go? If not paid in the category of "commission" you're happy?
The trouble with insurance and other sales business is that, if you pay a salary, there's no incentive to secure new business, just collect the salary. If you pay a commission, there's more incentive to work more more new business. Whichever way, costs have to be incurred, and certainly deducted from premiums.
To Vincent Sear,
If the agent disclose the high commission earned on traditional or ILP product, most customer will not buy. So, the agent will find ways to hide it.
According to my survey, only 20% understand the distribution cost. 80% are not told about the distribution cost. When the find out, 80% said that it is too much to pay to the agent - but it is already too late.
Of the 20% who are told the distribution cost, it could be people who buy single premium product where the distribution cost is 3% of the single premium (and quite acceptable).
This is the world of insurance sales.
I think one can't 100% define what is a fair price but that does not mean that nothing can be done about it. In my opinion, a few principles should be adhered to, namely:
(1) there should be transparency and all key and relevant information should be disclosed so that decisopns can be made in a well-informed manner;
(2) a person should only transact in areas that he or she has sufficient competency/understanding;
(3) this may mean that the simpletons should be afforded some sort of protection but I believe this is sometimes easier said than done;
(4) the government or philantropic organisations may have to intervene to ensure that adequate essential goods and services and made available/assessible as sole reliance on the free market for these may not be appropriate;
(5) there should be good regulatory framework to minimise anti-competitive behaviour in order to facilitate more competitive pricings.
As I said, nothing is perfect but if the above guidelines are adhered to, we should be able to more closely approximate "fair" pricing in the long run. It is more difficult to have fair pricing in the short term because of many reasons; amongst them:
- short term barriers to entries/exits of players;
- human sentiments(eg: greed and fear) that exaggerates short term demand and supply.
In mis-selling of regular premium ILP, usually it's incomplete disclose of distribution costs and unrealistically optimistic projection of future returns, glossing over the risks.
Yes, given full facts to a rational client, to serve the same objective, buy term and invest the rest in single premium surely makes more economic sense. To the agent however, selling regular premium ILP or whole life pays him more commission. There's the conflict of interest. It depends on the agent's integrity.
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