Saturday, October 10, 2009

Sunshine Empire

Read this story.

Pitfall of private medical insurance

Read this story.

Sudoku Challenge, 7 and 14 Nov 2009

The contest rules and application form can be found here. Closing date: 20 October 2009

Expect proper advice from an independent financial adviser

A consumer asked my advice about a disability insurance product offered by an independent financial adviser. The adviser recommended one product and did not give the benefit illustration.

I asked the consumer to get the following explanation from the adviser:

a) What is the coverage under the product
b) What is the premium rate charged by several insurers offering the same product?
c) Which product does the adviser recommend, and why?
d) How much commission does the adviser get from selling the product?
e) Provide the benefit illustration

The adviser owes a duty to give proper advice to the consumer. The consumer should not expect someone else to explain the product, when it is the adviser that is earning the commission from selling the product.

If the adviser is not able to give clear explanation about the product, the consumer should not buy the product.

If the consumer wants confirmation, the consumer can approach FISCA ( to get the assistance of a knowledgeable volunteer to go through the benefit illustration and verify the points against the explanation given by the adviser to the consumer. An administration fee of $50 is payable for this assistance (which does not amount to financial advice).

Tan Kin Lian

Photos of Vientiane, Laos

Need for new consumer agency in USA

The vested interests wish to kill reform but President Obama is determined to set up a consumer protection agency. It will require banks to offer low risk simple versions of mortgages and credit cards. Read this report.

I hope that America succeeds in this reform and that other countries (especially Singapore) will follow soon.

Features of a good investment linked policy

A good investment linked policy has the following features:

a) offers term insurance and critical illness coverage at guaranteed rates for fixed or decreasing coverage
b) allows savings to be invested in an equity or money market fund with an upfront charge of 2% or less
c) have an annual fund management fee of not more than 1% (for equity) or 0.5% (for money market fund)
d) have a fixed upfront fee and a monthly administration fee

This product to be explained in a brochure that can be downloaded from the website. The product is kept simple and is easy to understand. It can be bought over the counter or through the internet.

This policy allows the consumer to meet its protection and savings needs in an insurance policy that offers fair, competitive and transparent charges.

Thursday, October 08, 2009

Adjusted to life in Laos

My tour guide is a Laotian but was brought up in USA. He returned to Laos recently. At first, he found it difficult to adjust to the life in Laos as the health care, education and facilities were backward. After living in Laos for some time, he now liked the life here (compared to USA).

Volatility of Australian Dollar

The AUD hit a high of SGD1.30 in July 08. It dropped sharply to below SGD0.95 in October. It climbed steadily during the past 12 months and has now reached SGD1.25. Some experts predict that it is likely to pass SGD1.30 due to the recent increase in interest rate.

Observations about Vientiane, Laos

Laos has a population of about 5 million people. This is the same as Singapore but the land area is large. It is located between Thailand and Vietnam and does not have a coastline. The Mekong river passes through part of Laos.

The capital is Vientiane. I like this small city. Most of the buildings are 5 stories or lower. The roads are not congested. Traffic moves slowly. The pace of life is slow. there are a few nice restaurants providing various types of Lao, European and Asian food in the city center, where my hotel is located.

It is nice to see some families with their young children playing in the park at the Fountain, which is in the center of Vientiane.

I like this type of life. It is much better than crowded cities like Singapore, Kuala Lumpur, Bangkok and Jakarta.

Laos is a communist country. But life goes on peacefully and there is no sense of fear or lack of freedom.

What's wrong with Investment Linked Policies?

Most investment linked policies marketed in Singapore have the following features:

a) designed to hide the high upfront charges
b) high charges for insurance cover
c) not tranparent

The upfront charge can be as high as two years of premium. If the savings is $300 a month, an amount of $7,200 can be taken away to pay commission and upfront charges. The consumer is not told directly about these charges. Here are the ways adopted to hide these charges, as adopted by different insurance companies:

a) The consumer is told that x% of the premium is allocated for investment. This means that (100-x)% is taken away. But the non-savvy consumer may not be aware about its significance.

b) The consumer is told that 100% is allocated for investment, but is not aware about the annual charge that is taken away to pay the distribution cost and the surrender penalty that is imposed if the policy is terminated within a certain period, say 10 years. Even if the consumer is told, the consumer is usually not aware about its significance

c) The consumer is told that the total amount allocated for investment is more than the premiums paid after a certain period, say 20 years or longer, but is not told that there is an additional charge (usually 5%) deducted from each premium that is invested. The actual amount invested will be less than the premiums, due to the upfront charges.

The charges for the insurance cover is usually much higher than the same cover provided by a separate term insurance or critical illness policy that can be bought in the market. The consumer is not aware that there is a choice to buy the cover separately or about the lower cost that is available in the market (but not from the insurer that markets the investment-linked product).

The consumer is not told and is not aware that the same premium can be invested in a unit trust that offers the same potential return, but does not incur the high upfront charge that is used to pay commission to the agent.

The terms of the investment-linked products are confusing to the consumer. In this environment, an agent can mislead the consumer into buying a product that pays a high commission to the agent, gives a high profit margin to the insurer, but provides a low return (relative to the risk) to the consumer.

Most informed consumers will never accept these high charges. This is why many insurers have devised ways to hide these charges from the consumer.

I will write a separate blog to describes the features of a good investment-linked product and to encourage insurance companies to adopt these features.

Tan Kin Lian

Wednesday, October 07, 2009

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?

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.

Tuesday, October 06, 2009

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?

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?

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.

Monday, October 05, 2009

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?

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

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).

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

Sunday, October 04, 2009

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, 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.

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

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?

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.

Blog Archive