Saturday, February 13, 2010
In the Mercer survey, Singapore ranked 34th based on 39 factors including political, economic, environmental, personal safety, health, education, transportation and other public service factors. Cities were compared to New York City which was given a base score of 100.
To achieve sales and energize the sales agents, the life insurance companies introduce new and innovative products every year. These new products are variations of the old products, but have some changes to allow the agents to market the product. The variations may take the following forms:
a) a shorter period to pay the insurance premium
b) additional risks that are being covered
c) change from guaranteed to investment-linked payouts or back
As each new product is launched, the insurance agents have the chance to go back to the old customers and get the customers to terminate an existing policy and buy a new policy under the new product with the special features.
The customers are taken for a ride. They are not aware that the existing products give better value and that replacing the products is costly and against the interest of the consumer. In most cases, the consumer has to give up two years of premiums as upfront cost. The customers were also not aware they can buy separate insurance, at low cost, to cover any new needs. (I shall write separately on these matters).
Some insurance agents make a good living by replacing the existing policies of their customers every few years with the new "better" products, but making their customers poorer in the process. With the huge loses on the replaced products, the consumers are never able to accumulate sufficient savings for their retirements, even if they had been frugal.
An insurance agent can achieve the top sales position by making it possible for the sales agents to exploit the ignorance of their customers through the replacement of existing policies. The sales agents are happy with this arrangement, as they can earn high commission by selling the new policies, and it is easier to replace existing policies than to find new customers.
This bad practice of replacing policies, also known as "twisting" is made illegal in some countries. It is discouraged in Singapore, but the enforcement is weak.
An ethical insurance company will protect the interest of its customers by disallowing replacement of existing policies. An unethical company will make it easy for the sales agents to explot the ignorance of the existing customers to make new sales by replacing existing policies, and achieve the top sales position.
Tan Kin Lian
Friday, February 12, 2010
Society need to be regulated. The poor and the weak have to be protected against abuse and exploitation. This has to be achieved through law and regulation. Regulation should not and need not be intrusive. They do not need to impinge on personal freedom. So, there has to be a proper balance.
In a democratic and free society, the citizens will help to determine where the line should be drawn between regulation and freedom. So, we need a democratic and accountable authority. I am giving some brief thoughts here, and will develop this idea more more in subsequent postings.
Tan Kin Lian
The shortcomings have been acknowledged and some people, including President Obama, are stepping forward to deal with these issues, to find a way to get the country to act and solve its long term problems. The willingness to recognize its problems, to discuss them openly, and to act on them, may well be the strengths of the American system. I hope that they will succeed in this challenge.
I hope that Singapore can adopt some of this new approach, and find new ways to solve problems that have not been solved for several decades, such as the high cost of living, long working hours, poor quality of life and the low birth rate.
Tan Kin LianPublish Post
Some people like the free market as it provides opportunities for innovation and initiative. But it also provides opportunity for cheating and exploitation, which are the fastest and easiest ways to accumulate wealth (especially in an environment where enforcement of business ethics is lax).
To have a more fair and stable market, we need regulations. The regulations have to be of the right type and not the wrong type. The regulations should not be rigid and cannot solve all the problems, but they should be able to solve more problems than create them. Leaving the free market to solve the problem will not work, as the profit motive and vested interest will find ways to take advantage of the situation.
There is a need for the state to provide more of the social services required by the people, such as education, health care, security, infrastructure, transport, housing and old age pension. The state does not need to employ people to run these services, but they can be outsourced to the private sector - but the fees, charges and standard of service should be regulated.
The state needs to provide up to a basic standard and leave the space for the higher income to buy additional services from the private market. But the state benefits should form the benchmark to compare the services provided in the private market.
This is the approach adopted by many social democracies, such as those in Europe. They are able to provide a better quality of life for their people.
Tan Kin Lian
The government leaders and planners should not continue to live in their own world. Their policies and strategies for the past decades have not worked. To get better results, they have to understand the real issues facing the small businesses and the workers.
Business conditions are difficult. Small businesses are not able to get a decent margin, due to excessive competition and wasteful activities. The cost of running a business is high, compounded by unnecessary activities such as compliance with GST and other requirements.
The workers have to work long hours and do not have the time, energy or attention to be upgraded.
Tan Kin Lian
* to set aside savings, from parent's allowance or part time work, in a bank account
* to distinguish between necessary and avoidable expenditures
* to calculate the interest charges on installment payments for computer, mobile phones and other items
* to avoid investing in products that are inflexible and have high charges, e.g. life insurance policies
* to have flexible savings that may be needed to pay for education and other necessary expenses
* financial burden to parents on sending children for education in overseas universities
These points are covered in my book, Practical Guide on Financial Planning which is available here.
Please share your views on other points that should be included.
Tan Kin Lian
* to spend what is needed from the parent's allowance, and set aside savings
* to put the savings in a bank to earn interest
* to pay for what they like from their savings, rather than depend on their parents
* to learn about what the parent has to do, to earn the money to support the family
My friend told me this story. His elder son, who is five years old, wanted to buy an expensive toy. He said, "Patrick, daddy can buy you this toy, but he has to stay back at the office until late at night to earn the money to pay for this toy. Do you wish daddy to come home earlier, or stay back at the office until late at night?" Patrick decided that he did not want the toy.
What are your views on the financial literacy matters that should be taught to primary students?
Tan Kin Lian
Thursday, February 11, 2010
TKL Intelligence Quiz Vol 3 is now available for sale through Internet Shop. The usual price is $7.90 and the promotion discount of 15% is available for the month of February (Promotion code - BLOG).
Vol 1 and 2 of this quiz book were sold out. So, I decided to publish volume 3. This quiz contains 72 puzzles (at 3 levels of difficulty - 24 puzzles at each level) based on the popular puzzle that was purported to have been created by Albert Einstein, the scientist. The puzzles were published weekly in The New Paper for several months, but has stopped now. There are many people who are addicted to this puzzle. It is fun and is like a Word Sudoku.
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I recall the conditions of Singapore in the 1960s and 1970s. HDB flats were sold for $15,000 to $35,000, representing about two years of average earnings. Most people could find jobs that paid sufficient wages to pay their flats, accumulate savings in the CPF and live comfortably as long as they are willing to work. They have better financial security.
The financial condition worsened after 1980 when public housing was allowed to appreciate under the "asset enhancement" policy. It is now a financial burden to buy a modest HDB flat which has to be paid with a high proportion of the earnings when jobs are no longer secure. This has caused a lot of financial stress.
I believe that it is possible to rebuild a new economic structure that gives more financial security and less financial stress.
Tan Kin Lian
I believe that banks and insurance companies can play a useful role in the economy. They should adopt good and fair practices, which they had done in past years.
In recent years, several bad practices had taken root in the relentless drive for bigger profits. Some of these practices were unfair and unethical, and could even be illegal (if the authority were to take action). My purpose is to point out these bad practices, so that the practitioners will realize the difference between good and bad, right and wrong.
A few cynics also attacked me for being idealistic. I do not post their comments. If they dislike the views expressed in this blog, they are not required to visit this blog. If they wish to express their views, they can do so without attacking me personally or attacking my views.
I wish to point out one specific good practice. A few months ago, Great Esatern Life, with the approval of their parent OCBC Bank, decided to give 100% refund to the investors of their investment linked product that had were invested in structures similar to the Pinnacle Notes. Many investors accepted the refund offer, and were relieved of the stress of watching the value of the notes drop, as more entities entered into default. This move caused several hundred million dollars to Great Eastern Life and OCBC Bank, but were appreciated by the policyholders.
Tan Kin Lian
Fortunately for him, he was able to approach a family member for financial assistance to pay off the overdraft, saving him $1,000 a month. Instead, he paid $1,000 a month to repay the loan, free of interest. In this way, he would be able to repay the loan within four years.
The bank pays interest at 0.5% per annum to depositors and charge 24% per annum on loans to borrowers - secured on a second mortgage. It seems that this bank is exploiting the desperation of people who have to borrow to meet their living expenses.
Tan Kin Lian
Wednesday, February 10, 2010
I received the letter from HSBC on the recovery value of my Minibond Series 5. I am shocked by the huge fee paid to Lehmen LBSF for the settlement fee. The letter has these figures:
Proceeds from liquidation – 82.30% (100% = principal amount)
Cost at underlying level – 0.47%
Swap payment to LBSF – 50.81%
Receivers fees – 0.38%
Legal fees – 0.48%
Other costs – 0.31%
Net proceeds to noteholders – 29.85%
A whopping 50.81% or $35 million is paid to LBSF.
Another friend, who has Series 10 has a liquidation value pf 104% but reduced by 41% fee to LBSF:
Proceeds from liquidation – 104.04% (100% = principal amount)
Swap payment to LBSF – 40.60%
Receivers fees – 0.42%
Legal fees – 0.26%
Other costs – 0.33%
Net proceeds to noteholders – 62.43%
It is not true as reported in papers that some series has low recovery value due to nature of underlying assets or long maturity. The fact is huge fee has been paid to LBSF. Is this why Australia’s Lehman notes have been able to recover 85-95% instead (recently reported in your blog)? I feel HSBC and Receivers have failed the noteholders - a total of $200+ million has probably been paid to LBSF for this unfair settlement.
Mr Tan, do you think the large settlement fees to LBSF is fair? Thank you.
I cannot understand why a large payment has to be given to the swap counterparty. I suggest that, as an investor, you ask the trustee on why the payment to the swap counterparty is so large. Maybe, you can get a few investors to join you in making a joint request.
The swap is to take over the risk of default of the reference entities during the remainder of the contract. I believe that most of the reference entities are now quite secure, after the recovery of the global economy and markets. I am therefore surprised to find a large payment to take off the swap.
I think that the investors should ask the trustees to account fOR their decision to make this large payment, and ensure that it is in the commercial interest of the investors to accept this transaction.
I thought that the Monetary Authority of Singapore is monitoring this transaction, so they may have some information that may be helpful. We have to see if they make any statement on this matter.
I wish that we have a more active Parliament, similar to Hong Kong, where the legislators can ask questions, so that a clear explanation can be given to the public.
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I agree on the long working hours in Singapore. the peer pressure and competitiveness is really strong. My american friend is working here and he also feel pressurized to stay back sometimes, which he tell me that it is very uncommon in US.
I am not sure if any government is able to help at all. I think the most important person who can influence the working hours is the BOSS himself. I have been running an Asian HQ of a European MNC for the past 20 years and I told my staff that there is no need to stay later than the office hours unless it is extremely critical. The result is (almost) all the staff will leave the office just 5 minutes after working hour.
Tan Kin Lian said...
Hi php. You set a good example. Unfortunately, there are not many bosses like you. The majority are of the other kind.
I believe that there is a lot that the Government can do. They have the power to legislate and to regulate. As they have ignore this problem, the situation has gone really bad.
So, if the Government and the Parliament address this problem, a lot can be done. At the least, it will send a message to the majority of employers.
(Note: somebody object to my use of 99% of employers, so I change to majority).
Tuesday, February 09, 2010
I met an Indonesian who studied and continued to work in Singapore for the past eight years. His working hours is from 9 am to 9 pm, every day. He is caught in the Singapore system.
I hope that the Government leaders realise why Singaporeans are not producing babies. How can they, when many have to work long hours? They do not have time for their families. They may not have time to find their life partners.
The competitive environment in Singapore, the lack of job security and the high cost of living are the main factors contributing to our low birth-rate, which is now nearly the lowest in the world. Some apologists said that this is the trend in developed countries, but why should Singapore fare worse than other countries in this respect? There must be some factors in Singapore that make us worst!
Tan Kin Lian
My score: economic left (-6.75), social neutral (-0.10). I am quite close to Ghandhi and Nelson Mandela, but slightly less socially liberal compared to them.
My bank give me an overdraft to invest in an Equity link note tied to a certain share with a 12% return based on a strike price and date. Now the share is trading at 0.82. Can I terminate the order to purchase. I was not given and risk disclosure or details about the product.
I am not familiar with the terms of the contract. But, I believe that you can terminate the contract. Before you take this decision, ask the bank to give you a statement of your posItion showing:
- your loss, if you terminate the contract now
- chance of recovering the loss or the risk of making a further loss, if you continue the contract
The bank has the duty to advice you, as they recommended the product to you in the first place.
Get the facts before you make a decision.
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Generally, it is better to continue with the existing policy. You have already incurred a high upfront cost during the first few years of the policy, which gave you a bad start. But, excluding the upfront loss (which you have to write off), the going-forward return should be better, maybe 3% to 4% per annum, compared to alternative investments.
Never give up an existing policy to buy a new life insurance policy. You will incur the upfront cost again. My insurance agent will tell you that a new policy is better. This is bad advice. It is also unethical, as they are earning a large commission again, at the expense of the client. This is called "twisting" and is illegal in some countries.
Tan Kin Lian
Here are some possible topics for this book:
1. Trend of property prices in Singapore - by various types
2. Analysing a property purchase
3. How to identify and find some suitable properties
4. Steps and costs involved in a property purchase
5. Renting a property
6. Comparison of property with other types of investments
7. Personal experiences (from contributors)
8. Tips to watch out for
9. Legal aspects of property
10. Sample legal agreements
11. Access to property websites
12. Appointing a property agent
What are your views on the topics to be included?
Do you have any story to share about your personal experience (positive or negative) in buying or investing in a property? Send your story to firstname.lastname@example.org
Monday, February 08, 2010
It was a different situation after he started work. Many colleagues stayed in the office till late at night, even if they do not have work to do. It was peer pressure. When he leave work earlier, he heard negative comments from the colleagues.
This seemed to be the work pattern in Singapore. It is fashionable to work long hours. I wonder if this is true in other workplaces, or just in banks?
This is an example of a scheme that is not working well, as it does not address the root of the problem and is not practical.
A better approach is to set a minimum wage, without the need to attend courses (which are also costly and not so useful). Many of the low wage earners know how to do their work and do not need to attend courses, as they can learn on the job.
If the workers are paid a decent wage, they will not have to work long hours to earn enough, and this will allow them time to attend upgrading courses. Many people will want to upgrade their knowledge and skills, if they find it really useful to their job. (There are some exceptions, but they have to be dealt with separately).
Another example of a scheme that is not working well is the baby bonus, which does not help to address the decline in our birth rate during the past two decades.
Tan Kin Lian
Paying indecently low wages in high-cost Singapore not only dehumanises our workers, it also creates insecurity among the workforce. A wage structure that is out of kilter with productivity is inimical to long-term growth. Paying workers $3 and ministers $1,000 for an hour's work is not "market forces" - it is exploitation at its ugliest.
Legislating minimum wage for the lowest of the low-skilled employee will ensure tht workers will not be exploited. This amount must be commensurate with the cost of living in Singapore. At the moment, many of the working poor are not paid decent wages, making life for them a grinding misery. If the trend of income disparity continues to widen, society will be rendered asunder as inequality takes its toll. Not only will minimum wage legislation help to avert this crisis, it will also guarantee thta prosperity is shared by all.
Click here to find the source of this quote.
Sunday, February 07, 2010
Comments that differ from my views are not blocked, if they are posted sincerely. There is no need for these comments to pass judgement on my views or attack my views. They can state their views objectively.
If you feel that your comments have been blocked unfairly, you can send an e-mail to me at email@example.com. By showing your identity, you indicate that you are sincere and not mischievous.
Tax as % of GDP
A higher tax rate means that more social services are provided, such as health care, welfare and financial security, as is the case in the first world countries.
Another survey by International Living showed that the countries with a higher quality of life score are those in Europe and other first world countries. It seems that this is correlated with higher tax rate.
I am in favor of higher tax rates to provide more social services, following the example of first world countires. It will also help to narrow the gap between high and lower income earners. Read my views here.
Tan Kin Lian
Many consumers are not aware that they are being skimmed. Those who are, felt embarrassed and prefer to overlook it, rather than bring the agent to account. This is how the bad practice has continued for so long.
If consumers allow this type of practice to continue, they will have very poor return on their hard earned savings that they put into life insurance. They will not get a fair return. What a pity!
Tan Kin Lian
I asked the consumer to send the benefit illustration to me. I found that the Whole Life policy had a high "effect of deduction. The amount deducted represented more than 40% of the accumulated premiums - which is too high. Why should a consumer give away over 40% of the accumulated value of the savings to the insurance agent and to the insurance company?
Many consumers are still being given bad advice by insurance agent. To get an idea about the premium that you should be paying for Term Insurance, go and visit this website in America.
Tan Kin Lian
Click here to try this simulation program. Be patient and persistent. Try the simulation many times, until you get the skill. Go from level 1 to 9, and try again. And again. Skill comes from constant practice.
The Legislative Council committee investigating the Lehman Brothers minibonds saga will summon senior representatives of six banks to testify before its hearings, committee chairman Dr Raymond Ho Chung-tai said. The banks are: DBS, ABN Amro, Citibank, Dah Sing Bank, the Bank of China and Standard Chartered Bank. Securities and Futures Commission chief executive Martin Wheatley will testify before the inquiry again on Tuesday.
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02/07 - 02/14
- Most Livable Cities - Surveys
- Vancouver is rated the world's most liveable city
- Achive top position in life insurance sales
- Logic9 (pocket sudoku) $4
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- Government regulation
- Risky new financial product
- America addresses its shortcomings
- Government regulations
- Low takeup rate of training places
- Financial Literacy for Secondary Students
- Financial Literacy for Primary Students
- TKL Intelligence Quiz Vol 3
- Year of the Tiger
- Low cost of living
- Improve the business practices
- High interest rate on bank borrowings
- Large fee paid to swap counter-party
- Pension hit by lower investment returns
- Discount on books for February 2009
- Vetting of mini-bonds in Hong Kong
- Swine Flu
- Long working hours in Singapore
- Endorsement of indexed funds
- Champions in Stock Pick
- Poor quality of life
- Be patient and give way
- Easy search for a place in Singapore
- Political Compass
- Investing in an equity linked note
- Shape Quiz - for children, adults, seniors
- Get the Benefit Illustration
- Existing Life Insurance Policies
- Practical Guide on Buying A Property
- Peer pressure on long working hours
- Pricing of HDB flats (2)
- Taxation and social benefits (2)
- Changes to Wage Income Supplement
- Voting in General Election - (3)
- Pay decent minimum wage
- Moderation in my blog
- A positive approach towards taxation (2)
- Tax revenue as % of GDP
- Practical Guide to Financial Planning - a gift
- Twisting of Life Insurance Policies
- The Apathetic Generation
- Agent tried to sell high cost insurance policy
- Practice to develop a skill
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