Good and bad acts

Hi Mr. Tan,
I have an article to share. If you think that it is suitable, you may publish my thoughts in your blog.
Mr. Lee

Do good or bad acts in a lifetime: The calculated risks
An interesting analysis: Should one do good or bad acts in a lifetime? Advantaging oneself at the expense of others’ would only make sense if:

1. There is 0% of a God in this world, or
2. If there is a God, he does not punish or reward accordingly to one’s good and bad behaviours.

Say if an individual lives to one hundred years old. He has been reaping benefits at the expense of others through bad behaviours in his lifetime. He might have “gained” for one hundred years, but “lost” for eternity if a judicial God exists.

Even as modern societies become more secular, based on calculated risks, it is still more worthwhile to do the right and correct acts in one’s lifetime. This is despite the possibility that there is just a small chance, say 10%, of a judicial God existing. It is because most likely than not, one’s afterlife would be for eternity. One may enjoy his ill-gotten gains for 100 years, but could possibly pay for his misdeeds for eternity.

Hence, one is better off at “investing” in good and correct acts rather than bad acts in a lifetime.

Mr Lee

T Puzzle - improve your child's IQ

The T puzzle is fun and can improve your child's IQ. It trains the child or adult to see matters from a different angle, and develops flexibility of mind. Read this.

Survey: It is easy to be cheated

Do you like my articles on "It is easy to be cheated"? Please reply to this survey. You can click here to view the various articles.

Here are the survey results (based on 41 replies). There are many personal observations.

Let your insurance company handle the recovery

Dear Mr Tan,
My parked vehicle was hit by another vehicle. A eye-witness left me a letter stating the number of the vehicle involved, but did not provide any contact information. I made a police report and went to my insurance's authorized workshop to claim third party against the other vehicle.

They recommended me to claim against my own insurance. As i have "no" eye-witnesses, they say the claim is highly improbable and i will eventually have to fork out from my own pocket or claim against my own insurance if i were to wait for the third party claim.

What should I do? Employ a lawyer to pursue? Repair and claim against my own insurance policy?

I decided to claim third party first and leave the car in my car park while waiting for the result? Is it advisable?

REPLY
It is better for you to claim under your own policy and let the insurance company handle the recovery from the other party.

As the witness is not prepared to give his or her identity, it will be difficult for you to prove that the specified vehicle had caused the damage, unless you are able to get an investigator to inspect their other vehicle before it is repaired. This is, as you can see, quite a lot of hassle.

So, leave it to your insurance company to handle this matter.

SCMP:HSBC marks out areas for wealth products sales

12 June 2009

HSBC Holdings will become the first lender to separate its retail banking and wealth management departments after a public outcry over tellers selling risky financial products to customers.

The move is expected to be followed by other lenders and follows recommendations by the Hong Kong Monetary Authority that banks tighten regulations on such high-risk investment products sales.

The fallout from the Lehman Brothers Holdings minibond scandal, in which banks sold highly speculative products to inexperienced investors, has put selling practices in the industry under the spotlight.

HSBC announced yesterday that three of its 100 branches in Hong Kong would separate its deposit-taking and investment service areas.

The pilot branches are at Hopewell Centre in Wan Chai, and Pedder Street and Lyndhurst Terrace in Central. The scheme will be expanded to all branches by September.

Peter Wong Tung-shun, the bank's executive director, said different designs would be used for the general banking and investment service areas to make sure customers could easily differentiate the two zones. Such clear zoning was in line with the HKMA's recommended measures and would enhance investor protection, he said.

The HKMA received more than 20,000 complaints about mis-selling by staff of 20 banks, including products that are touted as alternatives to time deposits but were in fact risky credit-linked notes.

About HK$20 billion of the Lehman products were bought by 48,000 Hong Kong investors. The products became worthless when the United States lender went bankrupt in September last year.

Sales activities within the investment areas would be audio-recorded and the tapes kept for seven years, HSBC said.

A Standard Chartered Bank spokesman said the bank was finalising its arrangements and would launch new measures by September. A spokesman for Hang Seng Bank could not be reached for comment.

The HKMA suggested banks completely separate their wealth management businesses from ordinary banking business by October 1 and record sales activities with customers by July 1.

Julia Leung Fung-yee, the Undersecretary for Financial Services and the Treasury, said yesterday the HKMA had received 500 complaints from people who had lost hundreds of millions of dollars on a complex credit-linked investment product called Octave notes, sold by US investment bank Morgan Stanley.

Two-thirds of the notes, sold mainly through 16 retail banks between 2004 and 2007, have lost more than 90 per cent of their value.

Hong Kong investors had bought HK$24.9 billion worth of structured products, including Lehman minibonds and Octave notes. Of the credit-linked products, HK$4.5 billion is still outstanding.

SCMP:SFC may regulate all investment offerings

12 June 2009
The government is considering amending the law to let the Securities and Futures Commission regulate all investment products and prospectuses, a move that may plug the loophole exposed by the sales of the Lehman Brothers minibonds.

SFC chief executive Martin Wheatley said in a Legislative Council financial affairs panel yesterday that structured products such as the minibonds issued by Lehman or the Octave notes by Morgan Stanley were now regulated by the Companies Ordinance.

John Leung Chi-yan, a Deputy Secretary for Financial Services and the Treasury, said in the same meeting that the government might consider shifting the provisions on prospectuses and product offerings under the Companies Ordinance to the Securities and Futures Ordinance.

Easy life in Solo, Indonesia

My friend told me that the people of Solo are easy going, without any stress. Most people are able to make a living without having much worry. They work but also have time for family and friends. Life is not as hectic as in Jakarta.

There are factory owners in Solo, but each owner runs only one factory or business. They do not own many factories or try to make a lot of money.

I will visit Solo one day, and see the quality of life there. I was in Jogjakarta last year, and had a similar impression of this city.

It is easy to be cheated (12) - Buying shares

There is also a risk of buying shares. Are you able to monitor the shares and make sure that the dividents are paid to you each year? If there is an administrative mistake, will you overlook to receive the dividend? Do you have the time to keep track of your personal share investments?

There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.

However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.

If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.

Tan Kin Lian

It is easy to be cheated (11) - Life policy with annual cash payment

In recent years, many life insurance companies have introduced a life policy with annual recurring payment. The agents sold this product actively and earned high commisison. The policy gives a very low yield to the policyholder. and is worse than an endowment policy. It is easy for the agent to sell the attraction of the annual cash payment to a consumer who is not aware that that he or she is actually taking back a part of the premium.

A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.

The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.

Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.

Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?

This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.

The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.

The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!

Tan Kin Lian

High Executive Pay

Remuneration committees of the board of directors approve high pay for CEOs on the reasoning that it is needed to attract other top talents to join the organisation. 

To justify the high pay, the CEOs and top managers have to improve the profits, i.e. to "increase sharehholder value". This has led to a culture of excessive risk taking and taking advantage of  customers. This is the reason for the bad business ethics that was seen in recent years.

Singapore has gone into this bad phase, which has led to a serious loss of trust in business and government institutions. I hope that corrective steps are now taken to improve the business ethics and enviornment in Singapore.

Tan Kin Lian

TKL Intelligence Quz

If you wish to buy Vol 1 or Vol 2 of the TKL Intelligence Quiz, you can place your order here. Free delivery to your home in Singapore. Pay by bank transfer or PayPal.

Executive rewards for what?

Here an honest view from the CEO of Shell.

Cut in maturity benefit just before maturity

Mr Tan,

I have a policy with X where I paid premium for 12 years which will mature in July. On  31 March 2009, upon my request I was given at estimated maturity sum. On April 24, I received a letter stating a maturity sum which differed by almost 10% lower.

I have emailed and spoken to X but without making much headway. Can an insurance company provide you with an estimate barely 3 months before maturity and then slashed it down by such a large sum?

I have emailed MAS and am thinking of approaching FIDREC. I would appreciate advice from you.

REPLY
X owes you a satisfactory explanation for the lower maturity sum. Between 31 March and now, the investment market had improved considerably. If there is any change, the maturity value should have been higher.

You can lodge a complaint with FIDREC. It will cost you only $50. If you wish to strengthen your case, you can consider asking CASE for help as well.

Is Animal Farm relevant to Singapore?

Read this article.

It is easy to be cheated (10) - Orphan money

A life insurance company is allowed to distribute only 10% of the surplus of the participating fund to its sharehohlders. The remaining 90% of its surplus has to be distributed to participating policyholders. 

In past years, most insurance companies distribute nearly all of the 90% to its policyholders in the form of annual bonuses. In recent years, more insurance companies have started to keep a large porportion of the surplus in the fund, without distributing them as annual bonuses. Some companies have reduced their annual bonus by 50% or more. They promised that the undistributed surplus will be paid as terminal bonus when the policy matures or is terminated.

Many insurance companies have accumulated a large amount of the undistirbuted surplus. This is called orphan money. Each policyholder has involuntarily contributed to this orphan money, but the amount contributed by each policyholder is not identified. This retention is made without the agreement of the policyholders and against their wishes. Most of them preferred the surplus to be declared as an annual bonus.

It is easy for the insurance company to use the orphan money in many ways that do not benefit the policyholders that had involuntarily contributed to it. They can be used to pay high commission to increase the sale of new policies (which do not benefit the old policyholders), or to pay high salaries and commissions.

When the policies mature or are terminated, the amount of terminal bonus given to the policyholder is likely to be much lower than they are entitled to, based on their actual contribution in past years. There is no way for the policyholder to find out if they have been fairly treated. There is lack of transparency and accountability. The insurance company can declare that they have been fair in distributing the bonsues, but there is no way for this statement to be verified. The policyholder has no say in this matter.

Is this fair? Are the policyholders being cheated? Can you trust the future management to be fair?

As many financial institutions have acted unfairly in recent years, it is better not to trust them. Do not invest in the financial products that give a lot of discretion to the financial institution and insufficent rights to protect the consumer.

Tan Kin Lian

Logic Quiz 5-2 (Vol 4)

There are five houses with different colours in a row. Each occupant plays a different sport, keeps a different pet and drinks a different beverage.

 1. The vodka drinker lives in the second house.
 2. The soccer player lives left of the tennis player.
 3. The lawyer lives right of the volleyball player.
 4. The yellow house is left of the red house.
 5. The salesman keeps dalmatian.
 6. The manager lives left of the accountant.
 7. The accountant drinks rum.
 8. The beer drinker lives in the white house.
 9. The schnauzer owner lives left of the collie owner.
10. The martini drinker lives in the red house.
11. The vodka drinker lives in the blue house.
12. The cricket player keeps pomeranian.
13. The doctor lives in the last house.
14. The spaniel owner lives in the brown house.
15. The doctor lives right of the wine drinker.

Question: Who plays golf?

Give your answer here. The correct answer will be displayed when you submit your entry.

Benchmark
1 to 10 mins: very good
10 to 15 min: good
15 to 20 mins: fair
more than 20 mins: need more practice! 

More of the quiz
It appears every Sunday in The New Paper.

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President Obama's plans to create new jobs

President Obama's plans to create new jobs is likely to make a better impact than the measures adopted in Singapore (which gives a subsidy to employers who are doing fairly well). Read this article.

It is easy to be cheated (9) - A better way to gamble

I consider investing to be similar to a gamble. The investor buys a financial product and hopes that the price will go up. If the price goes up, the investor makes a profit. If it comes down, the investor makes a loss. The investor has to take the invested asset does not fail and become valueless.

In recent times, it seems that even money kept in fixed deposit in a bank, which pays a low rate of interest, has the risk of default of the bank. Some people think that it is safer to keep the money under the bed!

To make the matter worse, financial institutions have created products that are risky and do not disclose the actual nature of the risk and do not pay a fair rate of return to the investor for the risk!

To avoid risk, it is better to invest in the following:

a) bonds that are issued by the AAA rated government. They offer a low yield, but is fair and safe.

b) A low cost, diversified fund invested in many bonds or shares, such as an indexed fund or exchange traded fund. Invest for the long term, to average out the good and bad years.

For investors who like the excitement of speculating on the price movement of shares or other assets, be honest and recognise that you are actually gambling. If you wish to gamble, it is better to go to a casino. The odds are fairer to the gambler, and the terms of the gamble are controlled by the authorities. You know the odds, and can decide on which side of the gamble to take!

Singapore is opening two world class casinos. When you gamble, make sure that you gamble an amount that you can afford to lose. Enjoy the gamble and good luck

Tan Kin Lian

Writing fee

Many magazines approach people to write articles, but they declined to make any payment or they pay a very low fee. It seems to be a habit in Singapore for people to be asked to write for free. I hope that mgazines are willing to pay writers at a fair rate, so that it is possible for writers to make a living.

I have been asked to contribute articles to magazines. Although I do not need the money, I asked for payment to be made to a non-profit organisation. If they refuse, I decline to write.

Speaking fee

When a conference organiser in Singapore engages a speaker from overseas, they have to pay the travelling expenses and a speaker's fee. When they engage a local speaker, they pay nothing.

Recently, I have been invited to speak on a few occasions, and have declined. I am willing to speak only if they agree to make a modest donation to a non-profit organisation nominated by me.

I wish to encourage conference organisers, and our media companies, to be fair to local speakers and be willing to make a modest contribution. They should not expect local experts to speak for free, while overseas experts command a large fee. We have to be fair to our local people.

Many of these conference organisers or media company make a profit and can afford to make a modest donation or pay a modest fee. It will not create any significant dent in their profits.

It is easy to be cheated (8) - Your private banker

Wealthy people have private bankers. These private banks are welll trained to convince the customer to invest in exotic products that are created by the financial institutions. These products are quite complicated and are not well publicised. It is easy for the unsavvy investor to be conned into investing in products that have high profit and expense margins for the financial institution.

When the investor found out that the product made a big loss, there is nothing that they can do. The private banker will explain that the market has gone against them. But in reality, the products usually would not give a corresponding return when the market goes in their favour, as a large part of the profit would have been taken away by the financial institution.

The private banker may encourage the customer to invest in certain currencies, shares or other assets that are traded in the open market or exchanges. As the prices of these products move every second, it is not easy for the customer to know if they have been given the fair prices. It is possible for the prices to be inflated or deflated, to the detriment of the customer.

The customer has to rely on the honesty of the private banker or the financial institution in giving the correct price. But, in recent years, there is lack of honesty as financial institutions searched for higher profits.

When times are bad, and financial instituions make losses on their own portfolio, it is easy for them to find some way to push these losses to their unsuspecting customers. The customer does not know if the transactions are properly audited.

Many people have lost large sums of money by acting on the recommendations of the private bankers or wealth managers. They are not sure if the losses are just due to the market or to dishonest practices of these intermediaries.

Tan Kin Lian

A positive attitude

View this meaningful powerpoint.