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.

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

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.

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.

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.

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

Need to investigate alleged cheating

Dear Mr. Tan,
If someone make a foolish investment without proper checking and later complained to the Police (or Commercial Affairs Department) that he has been cheated, do you expect the CAD to take action? Surely the CAD has other priorities to take care of?

REPLY
You are right. The CAD cannot investigate every complaint. It has to prioritize.

If there are several complaints made against a specific company alleging cheating, the CAD should start a preliminary enquiry. If the company is acting honestly, it will provide clarification and information to convince CAD that their activities are legitimate, and the matter can then be closed.

If the company refuse to cooperate or be transparent about its activities, there are grounds for CAD to suspect possible wrong doing. CAD can take the next step to investigate, gather evidence to frame a charge against the company for violating the law. Even if the evidence is not sufficient to be used in court, the company may be prepared to change its practices and even compensate the victims.

Recently, there were a few cases in New York State where the Attorney General was able to get financial institutions to compensate the losses suffered by their clients due to doubtful business practices. This is settled without admission of guilt, avoids a lengthy hearing in court and is a good outcome.

If CAD cannot take gather sufficient evidence to take action, they can at least warn the general public to avoid these doubtful practices, so that other people will not fall into the same trap. If CAD and the Attorney General is more active, many of the investment scams and alleged cheating can be minimized. We will have a better business climate in Singapore.

Tan Kin Lian

RED Portal (16) - Alert

You can sign up under Alert to be informed by e-mail about new information that is available in the RED portal.

Visit the RED portal to search for information about any condo or housing project. Look for benchmark price (BMP), amenity index (AMX) or comparables. View the actual past transactions and a price chart.

Declare medical condition for insurance

Dear Mr Tan,
Could you tell me whether it is necessary to declare flat-foot and astigmatism for medical insurance like Medishield?

REPLY
You should declare them and let the underwriter worry about it.

Law applied fairly to all

Even the new Prime Minister of Japan is not above the law. The prosecutors are willing to investigate into any alleged violation of the law.

Japan PM's office probed
TOKYO - JAPANESE prosecutors have launched a probe into the fund-raising activities of new Prime Minister Yukio Hatoyama's office, which is fully cooperating, his lawyer said on Monday.

'An investigation into the case of a (possible) violation of the political funds control law has begun,' Mr Hatoyama's lawyer, Mr Yoichi Ioroi, said in a statement.

Travel to Laos

I will be in Laos for the next four days. I believe that internet connection may be slow. I have posted a few articles that are scheduled to appear over the next few days that I am away. I may be slow in replying to e-mails.

Business leaders have doubts about economic recovery

Read this report.

Victim of an investment scam

Dear Mr. Tan,
If an ordinary person is the victim of an investment scam, and the police refuses to investigate the scam, what can the victim do? If the victim complained about the scam and is being sued for defamation by a big legal firm, who is to protect the victim?

REPLY
This is certainly a sad state of affairs. When a victim is cheated and is bullied in this manner, we are in an unjust society.

It is the duty of the state to protect is citizens from unfair treatment by powerful business interest. Perhaps you can see your member of parliament on this matter?

Building up a reserve on Medishield

Published in the Straits Times Forum on 3 October.

I refer to the letter from the Ministry of Health entitled “MOH exploring Medishield coverage for congenital illnesses” (ST 28 Sep 2009).

The Ministry said, “Medishield must build up sufficient reserves to fund future claims, as it is a long-term health insurance policy.”

I am not clear why this has to be the case. The premiums charged for Medishield in each year are based on each age band and are adjusted according to the claim experience.

If there is an intent to build up a reserve to reduce the premium rates that will be charged at the higher ages, the principles and method to be adopted must be stated clearly and the stakeholders must be allowed to express their views on this matter.

Without transparency, there is a risk that some groups may be unfairly treated or a huge reserve may be built up that will never be used in the lifetime of the contributing members. This will unnecessarily add to the cost of health care.

If there is sufficient reserve in the current premium rates, it may be possible to cover the congenital illnesses without any increase in premium rates, or to reduce the Deductible and make Medisheld more attractive to the members.

Tan Kin Lian

MAS proposed a direct channel

Someone said that MAS had proposed a direct channel for consumers to buy insurance directly from the insurance company and enjoy lower cost, due to removal of commission.

I did not read this news. Can that person find out the source of this proposal and send it to kinlian@gmail.com

Insurance agents can play a positive role

I wish to say a few positive words about insurance agents; I know many of them personally over the past years. They sincerely believe in providing a valuable service to protect the financial security of their clients. They work hard to make a living and earned a modest income.

The commission rates earned by the agents of NTUC Income are lower than the market rates. This helped to reduce the cost to the consumers. This was the case in past years; I believe that it is still the case today.

Some people have regulary posted anonymous comments to attack insurance agents, particularly the agents of NTUC Income. These comments were unfair and malicious; I have blocked them.

While most insurance agents act honestly, there are some agents that take advantage of the ignorance of their clients. These bad agents resort to twisting and gave bad advice to earn more commission. They are the minority, but they gave a bad name to the other agents. The insurance companies have to share the blame for the bad practices also.

Insurance companies can play a positive role by designing products that are fair and give good value to consumers, while providing a fair of remuneration to the agents. The correct approach is to simplify the product, improve transparency, increase the productivity of agents and reduce the distribution cost. This will create a positive environment and benefit all the parties.

Tan Kin Lian

Wasteful competition

Read this excellent article by Conrad Raj in Today paper. It tells about the wasteful competition that increases cost for the public. The example quoted is the bid by SingTel and Starhub to broadcast the EPL football matches for the next three years.

I have written a separate article that competition should be in the delivery of content and that the cable infrastructure should be a regulated monopoly. The same arguments goes for public transport - i.e. the bus and taxi services should be regulated and the individual operators can compete to provide the services on the agreed routes. Read my views here.

I hope that the government will review the current model of "leave it to the market". We need a different approach towards competition, rather than the wasteful competition model that is now being practiced.

Tan Kin Lian

Life insurance products can give good value

Life insurance products, including whole life, endowment, annuity and investment linked products, are useful to consumers if they are properly designed. They encourage consumers to make voluntary long term savings and manage the risk of premature death, disability or other calamities of life and improve the financial security of the insured families.

These products should be designed to be fair and give good value to consumers, by adopting the following approaches:

a) use the asset share method to distribute the fluctuating investment gains
b) keep distribution cost low
c) make the products transparent and easy to understand

There is also a need for the Government to review the tax incentive to encourage long term savings.

The asset share method is already adopted for the investment-linked products. They can be the platform for the future products.

It is possible to keep distribution cost low by educating the public on the purpose and value of life insurance products and the tax incentives that comes with them. When consumers want to buy insurance products, the sales people can be more productive in selling these products. The commission can be reduced or replaced by a fixed transaction fee.

It is useful for some tax incentive or subsidy to be provided for insurance products. If the interest earned in the life insurance fund pays a lower rate of tax (like in France) or is tax deferred (like in USA), the inherent advantage will make the life insurance products attractive to consumers. Alternatively, the premiums paid on insurance products can be allowed a modest rate of tax relief or subsidy (for people who do not pay tax).

To avoid any abuse of the tax incentive, a system of regulatory control has to be implemented, including meeting of performance indicators on cost, efficiency and benefit to consumers. This cannot be left to "the market". Predatory products that are unfair to consumers or designed to abuse the tax incentive should not be approved.

Singapore can learn from the positive experience of many countries in using tax incentives to develop a vibrant and efficient life insurance industry to encourage prudence, long term savings and financial security to the insured families.

I hope that the Government will consider my suggestion to provide tax incentive to encourage people to make voluntary savings for the financial security of their families.

Tan Kin Lian

Direction and future of our society

I spoke to a friend at a coffee shop about the changes that are necessary to make life better for the people of Singapore. He interrupted me on a few occasions and said, "that is engaging in politics; is it wise"?

I explained that I have no interest in "engaging in politics" but it does not prevent me from speaking as a citizen. We need more people to come forward to express their views about the direction and future of our society for our children and grandchildren.

My wishes for the future of Singapore:
a) Honesty - to be honest in our dealings and stating the truth
b) Fairness - to be fair and just
c) Courage - to have the courage to express our views
d) Positive - to express what is right (and not what is wrong)
e) Public service - to work in public interest and not for personal wealth

RED Portal (15) - URA website

Question: How different is the RED portal from URA website that provide transaction prices?

Answer: I tried using the URA website to get transaction data before. It was quite difficult (at least from my personal experience).

I have designed the RED portal to be easier to use. I hope that visitors will find it easier to get all relevant information about a condo or housing project from the RED portal.

I also developed the concept of BMP (benchmark pric), AMX (amenity index) and comparables (i.e. similar projects in the same postal sector).

RED portal

Efficient train system

Europe has an efficient train system to connect its major cities. Singapore, Malaysia and Thailand can develop a similar system, but it requires the cooperations of these countries. Read my suggestion here.

Free market and EPL Football

Football fans are angry at having to change set-top boxes in 2010 when SingTel takes over the broadcasting rights to the EPL football games from Starhub.

This is an example of the waste and higher cost suffered by consumers through free market competition. Starhub and SingTel have be compete aggressively for the broadcasting rights and pass the higher cost, including the additional infrastructure cost, to the consumers.

Consumers have a choice. They can give up watching EPL football. I will take this choice in my family. Goodbye, EPL.

I wish to suggest the following approach to the Media Development Authority. Ask Starhub to set up a separate company to operate the cable infrastructure, and to allow all content providers to rent the channels to broadcast their contents. SingTel can rent the channels to broadcast the EPL games.

This approach is similar to what is being done for the distribution of electricity. One company is responsible for the distribution and billing the power that is generated by different operators.

There is a need for the distribution monopoly (for broadcasting or power supply) to be public owned or to be publicly regulated. We need to develop the expertise to handle these regulated matters, rather than take the easy way out to "leave it to the market". We cannot expect market forces to work when there is no true market, such as the case of a monopoly or similar structures.

In the regulating bodies, the consumers should be adequately represented by consumer advocates, rather than selected from the "establishment".

Tan Kin Lian

Restructure of taxi service

For commuters who wish to have a more efficient and less costly taxi service, you can read my suggestions on the restructure of the taxi service here.

Give your views in this survey.

Survey: Free Market

Read my articles on the Free Market by clicking on the Label in the right panel or here.

Give your views in this survey. Thank you.

Sudoku Challenge, 7 and 14 Nov 2009

The Sudoku Challenge is held on 7 november (preliminary) and 14 November (finals) at Thomson Community Club. Registration through internet, www.one.pa.gov.sg or at Thomson CC Tel: 6251 6344 closing date: 23 october 2009.

National Service for citizens

I hope that the injustice done to Singapore born male citizens should be addressed soon. Read the views here and in The Online Citizen.

Here is another worrisome story. Read this article written by Seah Cheang Nee.

Here is my previous blog suggesting a review of National Service. This is a letter sent to the Straits Times that was long delayed and finally, rejected for publication.

Difficulty of forming class action for Pinnacle investors

Dear Mr Tan,
I have been advised by few people to approach you for advice with regards to the Early Redemption of the Pinnacle Notes Series 1 (S1) by Morgan Stanley on 21 Aug 09.

Briefly, sometime in Aug 2006, my financial advisor approached me and recommended the Pinnacle Notes. Trusting the security firm and my financial advisor's assurance that this was a low risk product, we proceeded to purchase the Pinnacle Notes.

After the collapse of Lehman Brothers, we started receiving adhoc updates from the security firm in relation to the Pinnacle Notes. The update on the Early Redemption on 21 Aug 09 showed a meager 0.57388% payout.

I heard that there is an action group engaging lawyers to file a civil suit. I will like to seek your advice, as well as to find out more in order to assess what is a better option for me in pursuit of a settlement.

REPLY
To my knowledge, the investors of the Pinnacle Notes are not able to organise a class action. Many investors are in the same situation as you, and they are also at a loss. Some have lodged complaint at FIDREC and in nearly all cases, their complaint has been rejected by FIDREC.

Honestly, I do not know what you can do now. I tried to get the Government to help the same investors who were misled, but they also refused.

Chee Soon Juan

I met Chee Soon Juan two years ago at a barbeque organised by The Online Citizen in East Coast Park. He brought his wife and three daughters with him. I had a friendly chat with him.

I met him on a few subsequent occasions. I gave some puzzles, quizzes and my books to him to give to his daughters. I have always wondered about how difficult life must be for his daughers in school.

I have spoken to Chee Soon Juan spoke on a few occasions and heard him speak at public meetings. He came across as being a sensible person and has some views about what is good for Singapore. I agree with his views on the need to have to promote democracy and to have a government that reflects the aspirations of the people and is accountable to the people.

The mainstream media has painted a negative picture of Chee Soon Juan. Many Singaporeans perceive him in a negative light, which I believe is a wrong perception. I hope that they will have the chance to meet him and listen to him, or read his views in this blog.

I met a friend at a coffee shop this morning. I told him about my views of Chee Soon Juan and his family. He agreed with me. He had heard a story that Soon Juan's daughter had to speak up in class and tell her classmates, "My father did not commit any crime". He was emotional; tears came down from his eyes when he said, "I wonder how any parent would feel if our own daughter had to face this kind of difficulty in the class".

I like to wish Chee Soon Juan, his wife and three daughters all the best as they face the difficulty of life in Singapore. I hope that more Singaporeans will come forward to express their support to him and his family.

Tan Kin Lian

A good endowment policy

Someone asked, "what is a good endowment policy available in the market?"

In my view, a good endowment policy has to meet all of the following:
a) has a reduction in yield of not more than 1%
b) distributes the bonus based on the asset share principle
c) can provide a net yield of at least 3.5% p. a. based on the current environment

I believe that none of the endowment policies in the market meet the above criteria. I hope that some insurance companies will introduce a good endowment policy in the future. They have to reduce the commission payable to agents to achieve the "reduction in yield" target.

However, if any person, including insurer or agent, considers that a specific product meets this criteria, please send an e-mail to kinlian@gmail.com.

Tan Kin Lian

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.

Target Marketing

If you are setting up a new business, such as a restaurant or service business, you will need to market to target customers living within a certain distance from your shop. We can give you particulars of the customers based on your selected profile. More details here.

Property bubble in Singapore

The bubble in the property market during the past six months is due to the following factors:
a) perception that the economy will get better
b) low interest rate
c) marketing tactic of property consultants
d) lack of information for customers

These activities help to create a false market, leading to a speculative bubble. It is not sustainable.

Some of the risks that will lead to the busting of the bubble are:
a) second dip in global economy (quite likely)
b) higher interest rate (a certainty)
c) control over marketing practices (not likely)
d) government measures (already in place)

Consumers can get better informed by searching this portal or by investing $25 in a property report (and save much more by avoiding a costing mistake).

Advertisements and public transport

We should restrict advertisements on public transport vehicles and stations. Read my views here.

Google Medical Records

Google has developed a system for a patient to enter his medical records. This is explained in the Youtube here.

TKL Central Medical Records system allows the doctors and clinics to update the records and to send the bills to the employers and insurance companies.

Crashgate - it ain't over

Read this article in Today Online.

Conrad Raj wrote about the incident where a Renault driver crashed his car deliberately at the inaugural SingTel Singapore Grand Prix. A minister said that the Government will not be pursuing this matter, as it is a tactic used by the team. Conrad Raj asked:

* What about the crime of endangering life and limb?
* What about corruption of the highest order?
* What makes this crime so different from soccer fixing?

He said that the Corrupt Practices Investigation Bureau ought to investigate this matter. I agree with his views.

Iceberg

View this amazing photo.

However, this is reported to be created by computer graphics and is not a real photo:
http://www.snopes.com/photos/natural/iceberg.asp

An honest agent

I asked my travel agent to recommend me a ticket to Paris or London. He obtained detailed quotes from three airlines. Two airlines quoted an economy fare of around $1,600. The third airline (which is of similar standing) quoted a fare of $1,000.

Although the agent earned a lower commission from the third airline, he brought the quote to my attention, so that I could consider it for my decision. He has to consider the interest of his client to build a long term relationship of trust.

RED Portal (15) Property Report

You can buy a property report on a specific project for $25. You have a choice of buying the RED property report or a more detailed report from Street Sine (also for $25). The information provided are slightly different in presentation.

Here is a sample webpage.

Go to the RED portal, Search for specific project, click on the Report tab, and you will get this page.

Free market (11) - Customer satisfaction

In the past, businesses put in great efforts to guard their reputation. They address customer complaints actively and maintain their reputation for fair treatment of customers.

In recent years, the standard of customer service has declined. This comes during an era of relentless search for higher profits and a drop in business ethics. Businesses do not care as much for their reputation, as it is now quite common for their competitors to have similar low standards.

The regulators have also dropped their standard of enforcements. They consider that these matters could be left to the market. If the consumers are not happy, they can go to another supplier. Even the mainstream media is driven by advertising dollars and are not vigorous in reporting bad practices of businesses.

Many businesses now take the view that if a group of customers are dissatisfied, they can market their products to other groups of customers.

The decline in business ethics will be bad for society. We need a refocus on good business ethics and practices. This requires the action of the regulators, mainstream media, and the examples of good corporate leaders.

Consumers should also come forward to be more active in expressing their dissatisfaction and views. They can use the new media to voice their views.

Tan Kin Lian

Tough time ahead for US and global economy

In September, employers in the US cut 263,000 jobs. The unemployment rate increased to 9.8%. Stocks and the US dollar slumped. Reality is beginning to set in that this recovery is going to be very slow in developing and erratic as it goes on. The prospects for the global economy is also bleak.

Digital Health Records in USA

The hard road ahead.

Electronic Medical Record - Singapore

MOH Budget Speech (Part 2) - Transforming Healthcare

06 Mar 2007
By Mr Khaw Boon Wan, Minister for Health
Venue: Parliament

Electronic Medical Record

7. First: an important infrastructure is the Electronic Medical Record (EMR). I have coined the slogan, "One Singaporean, One EMR" to catalyse this initiative. Right now, it is one Singaporean, multiple medical records, stored away in different clinics and hospitals in different formats, and not connected or consolidated. As a result, when patients visit different doctors, they have to have tests repeated and scans redone. This adds to unnecessary cost.

8. We are moving towards this target of "One Singaporean, One EMR". Because of legacy systems, we cannot achieve it in one step. But we have made progress. As pointed out by Dr Lam Pin Min, public hospitals now have the EMR eXchange (EMRX). We achieved a first but important psychological step in 2004 when public hospitals began to electronically exchange their Hospital Inpatient Discharge Summaries. Since then, we have made the EMRX more comprehensive, by adding other patient records such as laboratory tests, radiology reports and medication information. The electronic volume of laboratory results exchanged has grown 7 times in 2 years. Thousands of patients benefit from EMRX every month.

9. Our doctors' feedback is that EMRX has made their work easier. In particular, our Emergency Department doctors have said that the EMRX gives them greater reliability and confidence in treating patients, especially those with long and complicated medical histories. Extending EMRX to private doctors will be a natural step and is the objective. As Dr Lam pointed out, a National EMRX will minimise unnecessary medical investigations. More importantly, I see EMRX playing a critical role in the integrated delivery of care to patients.

10. However, this is a complex national project - very few if any countries have successfully implemented a system that links up public, private and the charity sector. This is because there are many issues such as data protection, regulation and audit to be addressed. We need to take a measured approach, to pilot and put together a comprehensive framework that takes care of these issues. This will begin with common data standards. We will do this within the public sector, and extend this to the step-down institutions. We have started to build the linkages to the private sector GP clinics by helping them to set up their IT systems under the Chronic Disease management effort. I am confident that we will get there.

Marketing technique of property consultant

My friend visited a new property launch. The price of the property had increased by more than 30% during the past six months. At the current price, the property was very expensive.

The property consultant recommended a specific unit at a good facing and with the price still not adjusted by as much as the other units. There is only one unit left with "good value". It was so enticing, that my friend almost presented a cheque to book that unit. She did not consider the heavy commitment, the monthly repayment, affordabilty and other factors.

Fortunately, a family member stopped her from making this "on the spot" purchase. After returning home, she realised that it was really beyond her reach.

Privacy of patient data

According to this report from the consultant McKinsey, it is better for the patient records to be available for analysis and hold doctors accountable to deliver the expected level of care. Campaigners for privacy may be playing into the hands of people who does not wish to be accountable for their mistakes or bad practice. This is an interesting conclusion.

Central Medical Records

A few months ago, I carried out a survey about the value of a central medical record system. Many respondents replied that they are interested to join this system, as it allow any doctor that is treating them to access the medical records. It also avoids having duplicate medical tests to be taken. Here are the survey results.

This system is designed primarily to handle the outpatient records (i.e the medical records that are kept in GP clinics). It is not intended to capture the detailed specialised records that are kept in hospitals.

You can read more about this system in this document. You can test the Demonstration system directly here.

If you like the system, please help me to pass the word around to doctors, employers, insurance companies and the health authority. It can help to improve the delivery of medical services in Singapore.

NOTE: The records in this demonstration database are fabricated. In the real system, there will be controls to ensure that only the patient and the doctors authorised by the patient can see the records.

Benefit Illustration for a Life Insurance Policy

When the agent gave you a benefit illustration, did the agent explain the following?

1. That you have a 14 day free look period to cancel the policy for a full refund?
2. That the amount shown as "distribution cost" s taken away from your premium?
3. That the "effect of deduction" is taken away from your investments to pay the various charges under the policy?

If the agent has explained these points to you clearly. the agent is being transparent and can be trusted. If some of the information is hidden from you or the explanation is not clear, you have to read the benefit illustration again. If you need help, you can approach FISCA, www.fisca.sg

Tan Kin Lian

Special treatment for Minibonds

There is a difference between Minibonds and the other credit-linked notes (i.e. Pinnacle Notes, High Notes).

For Minibonds, the credit default swaps did not fail. Only the swap counter-party (i.e. Lehman subsidiary) failed due to the liquidation of Lehman Brothers. PriceWaterhouseCoopers was appointed to arrange for the underlying assets to be released from the swap counter party and tranferred to another investment bank to handle the settlement.

For some notes, such as High Notes 5, Lehman Brothers was named as a reference entity for the credit default swap. The failure of Lehman Brothers caused the entire investment to be worthless.

For the Pinnacle Notes, the failure of a certain number of the underlying assets will cause a substantial or total loss of the investments. The investors have to wait and hope that these underlying assets do not fail. If they do, the investments will also be worthless.

It is not possible for any action to be taken to save the investments in the Pinnacle Notes, except to sell the notes to another party who is willing to take the gamble that it will not fail.

Different series of each credit linked notes are invested in different underlying assets and have different structures. It is difficult to make a general statement regarding these notes.

The Minibond class actions, led by Conrad Campos, are mainly to sue the distributors for failing in their duty to give proper advice to the investors. This is a separate matter from realising the value of the underlying assets.

For the same reason, the Hong Kong settlement only covered the Minibonds and not the other credit linked notes.

Tan Kin Lian

Free market (10) - Consumer protection

The governments in most countries consider it their duty to protect consumers from the bad practices of businesses.

In the financial services sector, it is possible for the financial institution to design products that take advantage of the ignorance of consumers and entice them with misleading promises that are not kept.

In the medical field, it is possible for drug companies to introduce products that may are unsafe for consumption or make benefit claims that are not verified by scientific evidence.

There used to be strong regulations on the sale of financial products, but the regulations have been weakened in recent years, during an era of deregulation. It was thought that, to promote financial innovation, financial products can be sold on the basis of product disclosure, and that should be left to make their own judgement about the suitability of the product, with the advice of financial advisers.

This approach turned out to be disastrous, as financial institutions introduced complex products that are designed to take advantage of the ignorance of consumers to reap big profit for the issuers. These products are sold with attractive commissions paid to the financial advisers, who pushed the products to consumers regardless of their suitability.

In America, the regulators took action to hold the financial institutions and advisers accountable for any misdeed. New legislation is now being introduced to set up an agency to protect consumers from predatory practices of financial institutions.

Singapore should consider similar measures as the problems faced by consumers here are of more serious than in America.

Fortunately, the control of the sale of drugs continues to be strongly regulated and consumers are well protected.

Tan Kin Lian

Difference of 20% in Term Insurance premium

Hi Mr. Tan,
I got 2 different quotations for 30-year level term insurance covering death, terminal illness, and total permanent disability, sum assured S$400k.

Company X: S$752/year
Company Y: S$628/year

I asked the agent why Company Y is 20% more expensive. She said that it is easier to make claims under Company X. Is this true? Is it worthwhile paying the higher premium to make easier claims?

REPLY:
Do not believe the agent from Company X. Do not pay 20% more. The claim process should be the same.

RED Portal (16) - Nearby Projects

If you wish to choose a project near a certain school, you can go to the RED portal, click on Search >> Popular places, enter the name of the school and you will get a listing and a map showing all housing projects within 1 km. You can see the benchmark price of these projects to see if any fit within your budget. You can then drill down to look at the recent detailed transactions.

You can also buy a detailed RED property report for $25 only. You also have the option to buy a more detailed report from the Street Sine website, also for $25 only.

The RED portal is designed to provide information that is easy for you to access. Get the information, before you talk to any property agent. Make sure that you get a good price if you wish to buy or sell any condo or apartment.

RED portal.

Bad advice by agents on Term Insurance

Some consumers approached an agent to buy Term insurance. The agent quoted a Term insurance premium that is more than twice what it available in the market. The agent pointed out that it is too much money to pay for the Term insurance, and sell a Whole Life, Critical Illness or Investment Linked policy instead.

This is misleading and bad advice. But it is used by the agent to get customers to buy a high cost product.

If you wish to buy Term insurance, you have to approach several insurance companies directly and get a quotation from them. Look for a Term insurance policy to cover 25 years or to cease at age 60. Do not go beyond this age, as the premium rate will be too high and the insurance is not necessary (after your children have grown up and you have sufficient savings).

Tan Kin Lian

US economy is still struggling

Quote
Oct. 1 (Bloomberg) -- U.S. stocks fell the most in three months as Treasuries and the dollar rallied after a decline in a gauge of manufacturing and an increase in jobless claims spurred concern over the strength of a recovery from the recession.
Unquote

Several economists have expressed the worry that the current recovery is due to the government stimulus. After the stimulus is spent, the economy will face the same difficulty as before - reduced consumer spending and confidence.

The underlying problems of the free market economic system has not been solved - high unemployment, extreme disparity of income, high dependence on mis-priced leverage, bubble in asset prices.

Interest rate is now too low, due to the infusion of public money. When the infusion stops, interest rate will have to increase to a higher level, and that will also affect the stock and property markets.

My view: Do not rely on low interest rate for too long. Do not invest and lock up your money on low interest rate for a few years. Do not invest in property or stocks at inflated prices.

Tan Kin Lian

Minibond holders may get back some money

Read this report in CNA.

There was no mention about how much the investors would get back and what is the estimated legal cost to unravel the structure. With the economic recovery, I hope that the value of the underlying assets would have improved and gave a high rate of return to the investors. We will have to wait and see.

Waste in health care

In health care, doctors and hospitals make more profit by being less efficient, according to this report.

Swiss health care system

This report describes the Swiss health care system, which is highly rated for delivering good outcomes.

Book: Bad experience on financial products

Someone suggested that I compile a book to show the bad experience on financial products. This has to be contributed by many individuals in Singapore.

If you wish to share your story, please write it below. I need you name, telephone and e-mail to contact you for verification, but your personal identity will not be disclosed in the book.

I will also edit your story - so you do not need to worry about your writing. If there is sufficient stories of interest to others, I will publish it in soft copy.

Click here to share your personal story.

Talk on solving puzzles

I gave a talk on solving puzzles to 40 people at the Thomson Community Club. It covered Shape Quiz, Sudoku and Intelligence Quiz. The participants enjoyed the talk and bought 60 books of different titles. Many bought the shape quiz pieces to organise competition among their grand children. The books can be bought here.

High upfront charge

A consumer asked my views about a product introduced by an insurance company.

He showed me a benefit illustration:
a) A large single premium is paid into the account.
b) The sum insured is about 7 times of the single premium
c) The cash value on the first year is 73% of the single premium. The upfront charge is 27% of the single premium.
d) At the end of 20 years, there is a guaranteed cash value based on the guaranteed crediting rate of 3% and maximum charges) amounting to 79% of the single premium.
e) There are two other illustrations, which are not guaranteed, that shows a cash value that is higher than the single premium invested.

MY ANALYSIS
a) The charges are TOO HIGH. If the single premium is $100,000, a sum of $27,000 is taken away from your investment to allow for commission and profit.
b) It is unlikely, in my view, for the payout to meet the non-guaranteed illustration, as they are based on optimistic assumptions on future earnings
c) The consumer can invest the single premium separately and pay the on a term insurance out of the interest earned.

Lower return expected in the future

QUOTE
Sept. 30 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross says investors should expect total returns on equities of about 5 percent annually as consumers curb spending and increase savings.

“Returns mimic nominal” gross domestic product, Gross, manager of the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio. “Nominal GDP is the growth rate of wealth on an annual basis. The new normal is 2 to 3 percent GDP and real growth of 1 to 2 percent.”
UNQUOTE

If total return on equity is 5% p.a., the return on a diversified fund will be lower, say 3% p.a. If the financial product gives a reduction in yield of 2%, the net return will only be 1%.

With low return, it is important for the financial product to have lower reduction in yield, i.e. lower the marketing and other charges.

Slot in cash card to enter and leave car park

Do you know why you still have to suffer the inconvenience and have to slot in your cash card to enter and leave some car parks in Singapore? Here is the likely reason.

Scam involving Australian property

A lawyer told me about this scam involving Australian property. A developer marketed the property in Singapore through a Singapore property agent. The property carried a rental guarantee which was provided by another company, having a similar name to the developer, but with no funds to back the guarantee.

On completion, the invetors did not get the guaranteed rental. The company that provided the guarantee declared insolvency.

The Australian banks that provided the 70% loan to the Singapore investors took over the property at a discount of 30%. The Singapore investors lost the 30% that they invested.

The Singapore investors went to see the property agent, who said they were only marketing the property to earn a commission, and was not responsible for the loss.

Lesson: Never invest in overseas properties, even with rental guarantee. The risk is too high.

Free market (9) - Corporate social responsibility

There is a focus on corporate social responsibility. This focus is to encourage corporates to recognize that they have to go beyond making profits for their shareholders and to take care of other stakeholders, such as their workers, customer, community and the environment.

Many corporates proudly embrace this concept, but pay only lip service to it. To be truly a responsible corporate citizen, they have to create a proper balance in the sharing of the profit among the various stakeholders.

The most important task is to provide goods and services at fair prices to their customers. They should not make excessive profits at the expense of their customers, by offering goods of inferior quality or provide misleading information about the value of the goods. They have to be honest.

The corporations have to provide fair wages to their workers. It is possible to use the market forces to suppress the wages and increase profits for their shareholders, but that would be against the concept of social responsibility. It is understandable for a corporation to reduce its wages, if this is necessary for the corporation to survive in a competitive market or where there is a drop in demand. However, if the corporation is able to make big profit, it should give a fair share to the workers.

A part of the profits should be set aside for the community and the environment.

The shareholders are entitled to the residual profits but there must be benchmarks on what is a reasonable rate of return. The corporation should not go beyond this reasonable rate, if it is done at the expense of the other stakeholders.

The concept of corporate social responsibility requires these benchmarks to be established. It will lead to a fairer society and ensure its long term sustainability.

Tan Kin Lian