Tan Kin Lian's Blog: High cost of switching funds

Sunday, October 04, 2009

High cost of switching funds

Dear Mr. Tan
I am currently on an Asset Builder plan. The agent has recently contacted me to
switch to another fund for better return, with one-time sale charge of 4%. The additional service provided is that the agent will switch the funds on my behalf, so that I do not have to monitor my investments. Is this true ? How can I monitor the funds by myself?

REPLY
Each time that you switched funds, you suffer a loss of 4%. A large part of this fee is paid as a commission to the agent. It is unlikely for any person to advice you on how to switch funds and earn an additional 4% to cover the front end fee.

There is no need to monitor your investments. You should invest for the long term and avoid the costly switches. You should consider making a complaint for this type of bad advice.

8 comments:

Singapore Short Stories said...: I also experienced the same advice from my agent when the fund I invested in did not do well. However I sticked to my fund, as if i switch fund, I will suffer an inevitable loss.; October 04, 2009 8:54 AM
Concerned said...: Banks relationship managers are fond of looking into their customers' account and advise them to switch into another fund which they think will outperform the current fund. Who are they to judge which funds will be outperforming in the future??? Ask them what is the switching commission. If it is 1%, maybe you can consider, but if it is 4% or 5% ask them to fly kite. This is the tactic some banks relationship managers are adopting since they minibond debacle.; October 04, 2009 11:58 AM
Zhummmeng said...: Beware of the FAs. They charge you for anything and supposedly to 'manage" your funds. They are rubbish advisers who tries to make commission on the pretext of 'rebalancing". What do these scumabags know about managing and rebalancing a portfolio? Don't be fooled . Bring this to the notice of MAS. This is similar to churning in disguise.; October 04, 2009 1:19 PM
Tan Kin Lian said...: Someone told me that AIA had an asset builder plan and there is not switching fee. I replied that this customer bought the plan from another insurance company (not AIA).; October 04, 2009 1:46 PM
Vincent Sear said...: If one intends to invest in UTs or SP-ILPs with a view to regular monitoring and occasional switching when required, look for companies that offer some free switches per year. An acceptable number would be 4 free switches per year (i.e. once per quarter) and the highest I've heard of is 12 per year.

However, fund managers (whether UTs or ILPs) don't like too frequent switches by clients, and for a good reason too. Switches entail some forced buying and selling in the underlying portfolio in order to rebalance the affected funds according to fund-size changes caused by the switches, which can disrupt investing strategies to a certain extent.

For those into trading actively, it's more advisable to trade stocks directly. Much much lower commission costs and be incharge of own portfolio positions and trading decisions.; October 04, 2009 2:17 PM
Anonymous said...: "Don't be fooled . Bring this to the notice of MAS"

Sorry brother, wrong department. This department only works based on their bosses direction & wishes. One good example is Minibond. All their heads were in the sand and still there even after Hong Kong and Taiwan have concluded their FIs misled the investors.; October 04, 2009 2:45 PM
Anonymous said...: i think there is a misconception.

most insurers/banks practice of switching usually is bid-to-bid prices. there is no spread.

switching fees (if any) is an admin cost that is charged by FA and not earned as comm by agent.

What happened to thread starter is that the agent's way of "switching" is to "sell the current fund and buy in another fund". This way the agent earns the bid-offer spread. This is wrong.; October 06, 2009 4:06 PM
Don Lim said...: From a customer's point of view, I am concerned about whether I end up with a decent profit. I think it's fair to reward the agent if he has the ability to help me make money.; October 13, 2009 2:23 AM