1) What is the likelihood that investors can salvage some value from the Minibonds or High Notes?
In my opinion, if the unwinding of the invesment structure is done properly, and the administrator seek the best possible value for the assets, there is the possibility of some salvage value. I cannot imagine that all the investments have no value now. I hope that the regulator will ensure that these unwinding is carried out properly and the interest of the investors are protected.
2) Should the distributors/financial advisers of these products, which include a number of banks and brokerage firms, be held accountable since Lehman has gone bankrupt? Can the investors of these structured products seek compensation from the distributors?
Section 27 of the Financial Advisers Act require the advisers to make appropriate recommendation to the client. They will fail in their duty to recommend a high risk product to an investor who is risk adverse. If the adviser is held to be negligent, the adviser is required to compensate the investor for the loss.
3) What is your advice to investors of Minibonds and DBS High Notes?
Prepare a statement about the advice that you have received from the adviser, even if it is a verbal advice. Look for written evidence, if available. Get together with other investors in similar situation. Lodge a complaint with the financial institution that sold the product to you. Be ready to take it to FiDREC (www.fidrec.org.sg) or the MAS.
4) Any retail products in the market which, in your opinion, are at risk and can go down like the Minibonds and High Notes?
There are several other credit linked notes, similar to Minibonds. They have dropped in value already. An investor fold me that the Pinnacle Notes have depreciated by 65%.
Thursday, September 25, 2008
Overwhelmed by e-mails and questions
I received more than 100 e-mails. Many contained detailed and difficult questions that I am not able to answer with my limited time. I am now in Dubai, and can only spare some time to reply to your many questions.
I hope that the investors understand the situation. Please read the postings in my blog. And remember that I cannot spend time to attend to your questions individually.
The first step that you have to do is to lodge a formal complaint with the financial institution that sold the product to you. You can state that you were misled about the product, which is actually risky.
My colleague, Peter and Andrew is trying to find a place to hold a meeting. Please be patient and wait for announcement on this blog. We are not able to answer your questions individually.
I have written to a very senior person in MAS to outline the concerns of the investors in these products. Please wait for further development.
I hope that the investors understand the situation. Please read the postings in my blog. And remember that I cannot spend time to attend to your questions individually.
The first step that you have to do is to lodge a formal complaint with the financial institution that sold the product to you. You can state that you were misled about the product, which is actually risky.
My colleague, Peter and Andrew is trying to find a place to hold a meeting. Please be patient and wait for announcement on this blog. We are not able to answer your questions individually.
I have written to a very senior person in MAS to outline the concerns of the investors in these products. Please wait for further development.
Approach taken by Hong Kong Monetary Authority
Posted in www.theonlinecitizen.com
14)--> Lucky Tan on September 24th, 2008 11.22 am
It is interesting to watch how Hong Kong respond to the Lehman Minibond issue vs Singapore.
In HK, the authorities have set up direct hotlines to register complaints and lawmakers are preparing to take action against the banks. In Singapore, MAS issue a statement asking individual investors to go sort it out with the banks themselve - its like a “please don’t bother me attitude”.
14)--> Lucky Tan on September 24th, 2008 11.22 am
It is interesting to watch how Hong Kong respond to the Lehman Minibond issue vs Singapore.
In HK, the authorities have set up direct hotlines to register complaints and lawmakers are preparing to take action against the banks. In Singapore, MAS issue a statement asking individual investors to go sort it out with the banks themselve - its like a “please don’t bother me attitude”.
Lodge your complaint with your financial institution
Some investors were worried that they missed out from signing the online petition that attracted over 500 signatures. There is no need to worry about missing this petition.
A petition is a request to the authority to take action. 500 signatures are more than enough. I am sure that MAS will be responding pro-actively to the petition.
You can still register your particulars here:
http://www.petitiononline.com/CLSINVES/petition.html
It is more important that each investor should write to lodge your complaint with the financial institution that sold the product to you. You can send a registered letter to make sure that there is a record of its despatch.
Read this blog:
http://tankinlian.blogspot.com/2008/09/lodge-complaint-with-financial.html
Some investors told me that they have difficulty in writing the complaint letter. My friend Adrian Tan has agreed to help. You can send your facts to him in by e-mail. He will try to write it for you. Adrian Tan <atans1@hotmail.com>
A petition is a request to the authority to take action. 500 signatures are more than enough. I am sure that MAS will be responding pro-actively to the petition.
You can still register your particulars here:
http://www.petitiononline.com/CLSINVES/petition.html
It is more important that each investor should write to lodge your complaint with the financial institution that sold the product to you. You can send a registered letter to make sure that there is a record of its despatch.
Read this blog:
http://tankinlian.blogspot.com/2008/09/lodge-complaint-with-financial.html
Some investors told me that they have difficulty in writing the complaint letter. My friend Adrian Tan has agreed to help. You can send your facts to him in by e-mail. He will try to write it for you. Adrian Tan <atans1@hotmail.com>
MAS statement on Protecting Policyholders
Hi Kin Lian,
Thanks for your prompt reply. I just found the actual MAS statement which is more assuring. Here's the link: http://www.mas.gov.sg/news_room/letters_to_editors/2008/Response_to_do_more_to_protect_policy_holders.html
Thanks for your prompt reply. I just found the actual MAS statement which is more assuring. Here's the link: http://www.mas.gov.sg/news_room/letters_to_editors/2008/Response_to_do_more_to_protect_policy_holders.html
Beware of ELN (Equity Link Notes)
Dear Mr. Tan,
This is the first time I visited your blog and find that they are very useful and informative. I have experience in stock market, but not in the bond market of structure product and hence fall into th plight of the recent turmoil.
I would like to post the following in your blog to draw attention from the public about the above product. It is normally ties to a single company. For example for company X which is trading at $2.00. The bank could offer you 96% ($1.92) bid price at 12%pa for a period of 4 weeks. Here is how it work, if at maturity, the stock price is at or above $1.92 you get the interest of about 1%. Should the price of the stock fall below it, you will receive the stock which will be sold to you at the bid price ($1.92) even though the price of the stock is only at $1 trading at SGX - another example of limited earning and limitless loss.
HS
This is the first time I visited your blog and find that they are very useful and informative. I have experience in stock market, but not in the bond market of structure product and hence fall into th plight of the recent turmoil.
I would like to post the following in your blog to draw attention from the public about the above product. It is normally ties to a single company. For example for company X which is trading at $2.00. The bank could offer you 96% ($1.92) bid price at 12%pa for a period of 4 weeks. Here is how it work, if at maturity, the stock price is at or above $1.92 you get the interest of about 1%. Should the price of the stock fall below it, you will receive the stock which will be sold to you at the bid price ($1.92) even though the price of the stock is only at $1 trading at SGX - another example of limited earning and limitless loss.
HS
Experience in lodging a complaint with the bank
Hi Mr. Tan,
I had a tele conference with two "product experts" of DBS. This conference, arranged by my RM, was to address any concerns I might have about my investment in high notes 2.
We discussed about the several issues and told them that I strongly felt that the product was mispresented to me. I also cited a clause in the pricing statement saying that "the product was not suitable for inexperienced investor" and told them that it was unethical of the bank to have sold many of this risky high notes products to gullible old uncles and aunties.
That noted my complaints and promised that the taped conversation will be passed to an "independent team" within the bank to investigate, the results of which would be forwarded to MAS.
Do you think this is what the MAS wanted the bank to do and is this sufficient? My concerns are not every investor has a RM to ask for a tele conference and how about those who cannot converse in English?
You may want to post this email in your blog (within revealing my email address) so as to encourage as many investors as possible to voice their complaints through such tele conference.
C.S.Tan
REPLY
I do not agree with the approach taken by MAS. I hope that MAS realise that it is very difficult for the public to go through this complicated process. They are likely to get an unsatisfactory outcome from the financial institution.
I had a tele conference with two "product experts" of DBS. This conference, arranged by my RM, was to address any concerns I might have about my investment in high notes 2.
We discussed about the several issues and told them that I strongly felt that the product was mispresented to me. I also cited a clause in the pricing statement saying that "the product was not suitable for inexperienced investor" and told them that it was unethical of the bank to have sold many of this risky high notes products to gullible old uncles and aunties.
That noted my complaints and promised that the taped conversation will be passed to an "independent team" within the bank to investigate, the results of which would be forwarded to MAS.
Do you think this is what the MAS wanted the bank to do and is this sufficient? My concerns are not every investor has a RM to ask for a tele conference and how about those who cannot converse in English?
You may want to post this email in your blog (within revealing my email address) so as to encourage as many investors as possible to voice their complaints through such tele conference.
C.S.Tan
REPLY
I do not agree with the approach taken by MAS. I hope that MAS realise that it is very difficult for the public to go through this complicated process. They are likely to get an unsatisfactory outcome from the financial institution.
Wednesday, September 24, 2008
Unable to pay premium till 70 - Revosave
Dear Mr Tan
I attended a talk you conducted when you were still with NTUC income and you came across as honest and sincere.
I vaguely understand that Revosave is a combination of insurance, savings and investment. Expecting no one to support my needs in old age, I bought Revosave on impulse, putting in about $1,000 every month. If I understand correctly, I should be getting a "guaranteed cash benefit" after two years, but how much and whether it is worth it, I don't know.
I am past 55 and getting worried that I would not have the resources to put aside $1,000 a month till I'm 70 years old to benefit from the plan. Should I cut my losses and terminate the plan now and just put my money in a fixed deposit?
REPLY
It is improper for the insurance adviser to sell you a policy without considering your abilty to pay the premium. If you have been badly advised, you should lodge a complaint with NTUC Income. If they do not give you a suitable redress, you can complaint to FiDREC (www.fidrec.org.sg). You should not have to suffer a big loss from this bad advice.
I attended a talk you conducted when you were still with NTUC income and you came across as honest and sincere.
I vaguely understand that Revosave is a combination of insurance, savings and investment. Expecting no one to support my needs in old age, I bought Revosave on impulse, putting in about $1,000 every month. If I understand correctly, I should be getting a "guaranteed cash benefit" after two years, but how much and whether it is worth it, I don't know.
I am past 55 and getting worried that I would not have the resources to put aside $1,000 a month till I'm 70 years old to benefit from the plan. Should I cut my losses and terminate the plan now and just put my money in a fixed deposit?
REPLY
It is improper for the insurance adviser to sell you a policy without considering your abilty to pay the premium. If you have been badly advised, you should lodge a complaint with NTUC Income. If they do not give you a suitable redress, you can complaint to FiDREC (www.fidrec.org.sg). You should not have to suffer a big loss from this bad advice.
Business Ethics
Can we get business to operate honestly and with integrity?
Can they earn the trust of consumers?
Read this paper:
http://www.tankinlian.com/articles/ethics.html
Can they earn the trust of consumers?
Read this paper:
http://www.tankinlian.com/articles/ethics.html
Preparing your statement or affidavit
This blog contains a few useful tips for you to prepare your statement or affidavit to submit to the financial instition that sold the credit linked securities to you (i.e. minibond, high notes) without advising you clearly about the risk.
I suggest that investors should get the papers ready now:
http://thinkhappiness.blogspot.com/2008/09/meeting-lawyer.html
I suggest that investors should get the papers ready now:
http://thinkhappiness.blogspot.com/2008/09/meeting-lawyer.html
MAS statement on Structured Products
22 September 2008
Comments by MAS Spokesperson on Investments in Structure Products
" MAS understands that many investors would have queries about their investments in structured products. The FIs concerned are already assessing structured products that are linked to Lehman Brothers to determine how investors will be affected. We have asked FIs to update all affected investors as soon as information becomes available. MAS is in close contact with the FIs.
Investors who consider that they were mis-sold a product or that a product was misrepresented to them should also contact their FI in the first instance. MAS expects the FIs concerned to give priority in dealing with such queries and handle complaints promptly, in accordance with existing MAS requirements. If the consumer is not satisfied with the FI's response and they have a legitimate cause of grievance, they can approach FIDReC which is the independent organisation set up to help resolve disputes in the financial sector. MAS will continue to monitor how FIs are handling complaints they are receiving.
MAS expects all financial institutions to have in place proper procedures to ensure that investment products are marketed and sold appropriately. Where we have clear evidence in the current matter that an FI has breached our laws or regulations, we will hold the FI to account. At the same time we urge consumers to be careful in their investments decisions. MAS will continue to work with our partners in MoneySense to enhance our financial education efforts so that investors understand the risks and returns of the products that they are investing in, and not to invest in products they do not fully understand." - MAS Spokesperson
Denise Gan
Asst Director (Communications)
Monetary Authority of Singapore
DID: 6229 9425
Comments by MAS Spokesperson on Investments in Structure Products
" MAS understands that many investors would have queries about their investments in structured products. The FIs concerned are already assessing structured products that are linked to Lehman Brothers to determine how investors will be affected. We have asked FIs to update all affected investors as soon as information becomes available. MAS is in close contact with the FIs.
Investors who consider that they were mis-sold a product or that a product was misrepresented to them should also contact their FI in the first instance. MAS expects the FIs concerned to give priority in dealing with such queries and handle complaints promptly, in accordance with existing MAS requirements. If the consumer is not satisfied with the FI's response and they have a legitimate cause of grievance, they can approach FIDReC which is the independent organisation set up to help resolve disputes in the financial sector. MAS will continue to monitor how FIs are handling complaints they are receiving.
MAS expects all financial institutions to have in place proper procedures to ensure that investment products are marketed and sold appropriately. Where we have clear evidence in the current matter that an FI has breached our laws or regulations, we will hold the FI to account. At the same time we urge consumers to be careful in their investments decisions. MAS will continue to work with our partners in MoneySense to enhance our financial education efforts so that investors understand the risks and returns of the products that they are investing in, and not to invest in products they do not fully understand." - MAS Spokesperson
Denise Gan
Asst Director (Communications)
Monetary Authority of Singapore
DID: 6229 9425
Tell your Member of Parliament
Hi,
Thanks for your initiative. I hope more people will sign up. There was a protest in Hong Kong on the same issue and understandably, CNA reported, the investors are considering suing the Lehman sellers.
My series 3 was sold to me by X based low risk with the possibility of defaulting if any of the 6 banks declare bankrupt. Given the good rating and the international reputation of these banks, I was encourage to take especially when it is also a bond.
When Lehman declared bankrupt, more information was release from internet [Lioninvestor.com] Then I came to know about Swap agreement, arranger and derivative packaging. Till now, I still have no idea what Lehman do with the money since X did not furnish the information. They are more like trying to say follow the contract i.e. Swap arranger defaulted, so wait for HSBC trustees to determine any $ left.
Bad selling, poor understanding of this product and finally sad for Singapore's financial hub if MAS is not going to help as the investments are hard earn money for retirement. I paid $Y and still thinking how to start saving all over again.
REPLY
I suggest that you should lodge a complaint with your Member of Parliament. I hope that your MP can ask for MAS to be more pro-active in looking after the interest of the general publlic.
Thanks for your initiative. I hope more people will sign up. There was a protest in Hong Kong on the same issue and understandably, CNA reported, the investors are considering suing the Lehman sellers.
My series 3 was sold to me by X based low risk with the possibility of defaulting if any of the 6 banks declare bankrupt. Given the good rating and the international reputation of these banks, I was encourage to take especially when it is also a bond.
When Lehman declared bankrupt, more information was release from internet [Lioninvestor.com] Then I came to know about Swap agreement, arranger and derivative packaging. Till now, I still have no idea what Lehman do with the money since X did not furnish the information. They are more like trying to say follow the contract i.e. Swap arranger defaulted, so wait for HSBC trustees to determine any $ left.
Bad selling, poor understanding of this product and finally sad for Singapore's financial hub if MAS is not going to help as the investments are hard earn money for retirement. I paid $Y and still thinking how to start saving all over again.
REPLY
I suggest that you should lodge a complaint with your Member of Parliament. I hope that your MP can ask for MAS to be more pro-active in looking after the interest of the general publlic.
Tuesday, September 23, 2008
Special program on CNBC about Credit Linked Securities
CNBC is filming a special program on Credit Link Securities. It is expected to be filmed on Thursday. I do not know the exact details.
I was interviewed on CNBC to give my views about the risk of these securities and why they are not suitable for risk adverse investors. I also suggested the steps that can be taken by the Authority to investigate potential mis-selling by the financial institution and any potential wrong-doing in the structuring of these securities.
Watch out for this program on CNBC.
I was interviewed on CNBC to give my views about the risk of these securities and why they are not suitable for risk adverse investors. I also suggested the steps that can be taken by the Authority to investigate potential mis-selling by the financial institution and any potential wrong-doing in the structuring of these securities.
Watch out for this program on CNBC.
Group Meeting of MiniBond Investors
Message from Jan Chan: Mr. Tan, please help us to pass this message through your blog
We are a group of Lehman Minibonds investors who are organizing a meeting tomorrow to discuss collective action and to sign a petition for submission to the authorities to voice our grievances.
Interested parties are encouraged to join us.
Date/Time : Wed., 24/9/08 at 7pm
Venue : outside Hans Cafe (#01-01) at the Central Public Library, 100 Victoria Street.
Jan Chan
How to get to Central Public Library :
Nearest MRT: Bugis MRT Station or City Hall MRT Station
Bus stop (North Bridge Road ): SBS 145, 197, 32, 51, 63, 7, 80 175 and SMRT 851, 61
Bus stop (Victoria St -Allson Hotel) : SBS 2, 7, 12, 32, 33, 51, 63, 80, 175 and SMRT 61
Bus stop (Victoria St -Bras Basah Complex) : SBS 2, 12, 33, 130, 133, SMRT 960, NR7
Bus stop (Victoria St -St. Joseph's Church): SBS 130, 133, 145, 197, C3, SMRT 851, 960, NR7
Bus stop (Middle Rd - Nam Peng Building) : SBS 56, SMRT 980
We are a group of Lehman Minibonds investors who are organizing a meeting tomorrow to discuss collective action and to sign a petition for submission to the authorities to voice our grievances.
Interested parties are encouraged to join us.
Date/Time : Wed., 24/9/08 at 7pm
Venue : outside Hans Cafe (#01-01) at the Central Public Library, 100 Victoria Street.
Jan Chan
How to get to Central Public Library :
Nearest MRT: Bugis MRT Station or City Hall MRT Station
Bus stop (North Bridge Road ): SBS 145, 197, 32, 51, 63, 7, 80 175 and SMRT 851, 61
Bus stop (Victoria St -Allson Hotel) : SBS 2, 7, 12, 32, 33, 51, 63, 80, 175 and SMRT 61
Bus stop (Victoria St -Bras Basah Complex) : SBS 2, 12, 33, 130, 133, SMRT 960, NR7
Bus stop (Victoria St -St. Joseph's Church): SBS 130, 133, 145, 197, C3, SMRT 851, 960, NR7
Bus stop (Middle Rd - Nam Peng Building) : SBS 56, SMRT 980
Lodge a complaint with the financial institution
1. I have received the particulars of 70 investors of the credit linked securities. It will be quite difficult for me to communicate with you individually. I hope that you will refer to my blog each day to get the updated information.
2. I have arranged for two friends to help me to manage this group:
Peter Ng
Andrew Loh
3. I have asked them to arrange a meeting for the investors to get together. Wait for further details.
4. The Monetary Authority of Singapore had advised these investors to approach the financial institution who sold them the structured product. The investor could seek redress from the financial institution for the loss due to mis-selling. The financial institution is required to have a process to deal with these complaints.
5. I suggest that you should, as soon as possible, write a letter addressed to the CEO of the financial institution from whom you have bought the credit linked securities (i.e Minibond, High Notes, etc). The letter should state the following:
a) What did you invest in, i.e. name of product, amount invested and other particulars?
b) How you happened to invest in these securities, e.g. convinced by the marketing officer to make the investment
c) Any assurances (verbal or otherwise) that you received concerning the low risk nature
d) Your personal risk profile, i.e. were you risk adverse?
e) Were you informed by the adviser about the nature of the risk?
f) Why you feel that you have not been properly advised, i.e. mis-selling, by the adviser?
g) Why a risky investment is not suitable for your circumstances
h) If you have any written evidence to support your statement, you should provide it in your letter.
6. You should send the letter as early as possible, to register your complaint of mis-selling. At this time, you do not need to have a sworn statement, i.e. affidavit. If necessary, you can prepare an affidavit at a later date, using a copy of your letter.
7. You should also see your Member of Parliament and give a copy of your letter to your MP. Let your MP be aware of your feeling on this matter and how painful it is to lose the hard earned money.
2. I have arranged for two friends to help me to manage this group:
Peter Ng
Andrew Loh
3. I have asked them to arrange a meeting for the investors to get together. Wait for further details.
4. The Monetary Authority of Singapore had advised these investors to approach the financial institution who sold them the structured product. The investor could seek redress from the financial institution for the loss due to mis-selling. The financial institution is required to have a process to deal with these complaints.
5. I suggest that you should, as soon as possible, write a letter addressed to the CEO of the financial institution from whom you have bought the credit linked securities (i.e Minibond, High Notes, etc). The letter should state the following:
a) What did you invest in, i.e. name of product, amount invested and other particulars?
b) How you happened to invest in these securities, e.g. convinced by the marketing officer to make the investment
c) Any assurances (verbal or otherwise) that you received concerning the low risk nature
d) Your personal risk profile, i.e. were you risk adverse?
e) Were you informed by the adviser about the nature of the risk?
f) Why you feel that you have not been properly advised, i.e. mis-selling, by the adviser?
g) Why a risky investment is not suitable for your circumstances
h) If you have any written evidence to support your statement, you should provide it in your letter.
6. You should send the letter as early as possible, to register your complaint of mis-selling. At this time, you do not need to have a sworn statement, i.e. affidavit. If necessary, you can prepare an affidavit at a later date, using a copy of your letter.
7. You should also see your Member of Parliament and give a copy of your letter to your MP. Let your MP be aware of your feeling on this matter and how painful it is to lose the hard earned money.
Investors of Credit Linked Securities - particulars
I have used this petition to collect particulars of investors who are affected by the credit linked securities (such as Minibond or High Notes).
http://www.PetitionOnline.com/CLSINVES/petition.html
http://www.PetitionOnline.com/CLSINVES/petition.html
Investors of Credit Linked Securities
I have removed the blog containing the particulars of investors in the credit linked securities. This is to prevent the contact information from being accessed by other people who are not connected with this matter.
If you wish to join a collective action, you can send your particulars to me at kinlian@gmail.com.
I will ask a colleague to contact you and ask for your name, contact number and e-mail address. I will try to arrange a meeting for the registered people to meet and discuss the collective action.
If you wish to join a collective action, you can send your particulars to me at kinlian@gmail.com.
I will ask a colleague to contact you and ask for your name, contact number and e-mail address. I will try to arrange a meeting for the registered people to meet and discuss the collective action.
Hong Kong Monetary Authority
Hello Mr Tan,
Hong Kong Monetary Authority are helping to fight for all these investor. That would include a public reprimand, a fine, or both, or suspension of license," said executive director Raymond Li.But our MAS tells us to sort it out on our own.
http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=df6b33586fa8c110VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&ss=Hong+Kong&s=News
Hong Kong Monetary Authority are helping to fight for all these investor. That would include a public reprimand, a fine, or both, or suspension of license," said executive director Raymond Li.But our MAS tells us to sort it out on our own.
http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cba0a0a0/?vgnextoid=df6b33586fa8c110VgnVCM100000360a0a0aRCRD&vgnextfmt=teaser&ss=Hong+Kong&s=News
Maintaining the cooperative spirit?
Dear Mr.Tan Kin Lian,
First of all, let us express our great appreciation to your various financial planning advice extended to members of public which we find them beneficial and informative.
We applied for Incomeshield and has been offered which will practically exclude most major illnesses, making the scheme less meaningful and less relevant to us.
Is there a way for us to appeal for a waiver or any other better alternatives for our health insurance? We have declared thoroughly our medical background to NTUC including the contact details of our regular doctor. Our doctor can help to certify that our medical condition is well within the limit and show no sign of deterioration in the last few years under present medication.
REPLY
I suggest that you write to NTUC. I hope that they still retain the cooperative spirit and are willing to treat their customers differently from other commercial insurance compnay.
First of all, let us express our great appreciation to your various financial planning advice extended to members of public which we find them beneficial and informative.
We applied for Incomeshield and has been offered which will practically exclude most major illnesses, making the scheme less meaningful and less relevant to us.
Is there a way for us to appeal for a waiver or any other better alternatives for our health insurance? We have declared thoroughly our medical background to NTUC including the contact details of our regular doctor. Our doctor can help to certify that our medical condition is well within the limit and show no sign of deterioration in the last few years under present medication.
REPLY
I suggest that you write to NTUC. I hope that they still retain the cooperative spirit and are willing to treat their customers differently from other commercial insurance compnay.
Affidavit for investors of Credit Linked Securities
I sent this message to a few lawyers. Several lawyers are not able to act for the consumer, as they have relationship with the banks. I hope that some lawyers can come forward.
1. Many people were advised by financial advisers to invest in Credit Linked Securities (such as Mini-bonds, High Notes) on the assurance that they are safe and can earn a better rate of interest compared to bank deposits.
2. The investors are usually ignorant of these financial instruments and are risk adverse. They invested in the CLS on the verabal assurance of the adviser that the CLS is safe.
3. The investors had to sign several forms covering the adviser. Most of them were not aware about what they were signing.
4. The CLS have now turned bad. The investors could most or all of the amount invested.
5. The Monetary Authority of Singapore had advised these investors to approach the financial institution who sold them the CLS product. The investor could seek redress from the financial institution for the loss due to mis-selling. The financial institution is required to have a process to deal with these complaints.
6. I wish to look for a lawyer to help these investors to prepare their statement to be lodged with the financial insitution. The statement should cover the following:
a) Circumstance in which the investor was recommended the CLS product
b) The investor's intention to avoid high risk product
c) The assurance recweived that the CLS was “low risk”
d) Any written document (if any) to support the affidavit
e) A statutory declaration that the statement is true.
7. This legal statement will be useful for the investor to lodge with the financial institution. If there is no redress, the statement can be taken to the next step, i.e FiDREC (financial dispute resolution center, http://www.fidrec.com.sg/).
8. If there is still no resolution, the matter can go to court.
9. Can your firm help the investor to prepare the affidavit at a modest cost?
Tan Kin Lian
1. Many people were advised by financial advisers to invest in Credit Linked Securities (such as Mini-bonds, High Notes) on the assurance that they are safe and can earn a better rate of interest compared to bank deposits.
2. The investors are usually ignorant of these financial instruments and are risk adverse. They invested in the CLS on the verabal assurance of the adviser that the CLS is safe.
3. The investors had to sign several forms covering the adviser. Most of them were not aware about what they were signing.
4. The CLS have now turned bad. The investors could most or all of the amount invested.
5. The Monetary Authority of Singapore had advised these investors to approach the financial institution who sold them the CLS product. The investor could seek redress from the financial institution for the loss due to mis-selling. The financial institution is required to have a process to deal with these complaints.
6. I wish to look for a lawyer to help these investors to prepare their statement to be lodged with the financial insitution. The statement should cover the following:
a) Circumstance in which the investor was recommended the CLS product
b) The investor's intention to avoid high risk product
c) The assurance recweived that the CLS was “low risk”
d) Any written document (if any) to support the affidavit
e) A statutory declaration that the statement is true.
7. This legal statement will be useful for the investor to lodge with the financial institution. If there is no redress, the statement can be taken to the next step, i.e FiDREC (financial dispute resolution center, http://www.fidrec.com.sg/).
8. If there is still no resolution, the matter can go to court.
9. Can your firm help the investor to prepare the affidavit at a modest cost?
Tan Kin Lian
Dubai, 24-27 Sep 2008
I am travelling to Dubai for the next four days. I may not be able to access internet or my e-mail during this time.
Monday, September 22, 2008
Blog for Minibond investors
Hi Mr Tan,
I understand you have talked to a lawyer about the possibility of taking action for minibond holders. Thousands of minibond holders has been to my blog:
http://www.lioninvestor.com/what-will-happen-to-my-lehman-minibond/
If you intend to organise or facilitate anything for them, let me know and I can help to inform them.
Martin
I understand you have talked to a lawyer about the possibility of taking action for minibond holders. Thousands of minibond holders has been to my blog:
http://www.lioninvestor.com/what-will-happen-to-my-lehman-minibond/
If you intend to organise or facilitate anything for them, let me know and I can help to inform them.
Martin
Pinnacle Notes
Here is how the Pinnacle Notes work. It is frightening to me.
http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Investments%2BAnd%2BSavings/Story/A1Story20070814-21882.html
http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Investments%2BAnd%2BSavings/Story/A1Story20070814-21882.html
Proof of misleading advice
The bank officer selling the credit linked securities tells the investor that the product has low risk. This is done verbally.
But if many investors are able to sign a statement that they receive the same verbal statement from the bank officer, the collective evidence may carry weight in court.
It is important for the investors to get together and give their statement.
But if many investors are able to sign a statement that they receive the same verbal statement from the bank officer, the collective evidence may carry weight in court.
It is important for the investors to get together and give their statement.
Customer service on Motor Insurance
Hi Mr. Tan
I was involved in a car accident, where a Volvo slammed into the back of my vehicle.
I brought my vehicle to IDAC. After inspecition, I brought my vehicle to an NTUC authorized workshop in UBI.
I have just got my vehicle back. I would like to know:
1) Is it the usual procedure for the workshop to claim my medical expenses? The workshop I went to simply asked me to hand over all my medical bills and they will assist to "claim on my behalf".
Reply: A good insurance company will assist you to make this claim. But they prefer to have the easy way out. So, you have to depend on the workshop to do it for you.
2) Would I be able to know how much the insurer of the Volvo is liable to pay to the workshop I went to? I have heard stories from my friends that very often, the workshop will get to claim a much larger amount from the insurer and they would only pass a fraction of that money to me.
Reply: You are entitled to have your car repaired to its condition before the accident. How much the insurer pays to the workshop is a separate matter.
3) Am I also able to claim for lost allowance / hardship for the injuries caused to me? (I suffered a badly bruised right eye) What would be the procedure to do this? Can I just leave it to the workshop to claim this for me
Reply: You can make this claim by writing direct to the insurance company. But they tend to give a low amount to the claimant. So, many claimants prefer to engage a lawyer to make the claim. Try the lawyer.
4) I am upset over the transparency of the entire motor insurance claims procedure. In your expertise is there a better way to do this?
Reply: It is the duty of a good insurance company to make it easy for you to claim for your losses. You should insist on a high standard of service and assistance from the insurance company.
If they fail to do so, you should lodge a complaint. Read my blog about "Consumer complaint to MAS".
I was involved in a car accident, where a Volvo slammed into the back of my vehicle.
I brought my vehicle to IDAC. After inspecition, I brought my vehicle to an NTUC authorized workshop in UBI.
I have just got my vehicle back. I would like to know:
1) Is it the usual procedure for the workshop to claim my medical expenses? The workshop I went to simply asked me to hand over all my medical bills and they will assist to "claim on my behalf".
Reply: A good insurance company will assist you to make this claim. But they prefer to have the easy way out. So, you have to depend on the workshop to do it for you.
2) Would I be able to know how much the insurer of the Volvo is liable to pay to the workshop I went to? I have heard stories from my friends that very often, the workshop will get to claim a much larger amount from the insurer and they would only pass a fraction of that money to me.
Reply: You are entitled to have your car repaired to its condition before the accident. How much the insurer pays to the workshop is a separate matter.
3) Am I also able to claim for lost allowance / hardship for the injuries caused to me? (I suffered a badly bruised right eye) What would be the procedure to do this? Can I just leave it to the workshop to claim this for me
Reply: You can make this claim by writing direct to the insurance company. But they tend to give a low amount to the claimant. So, many claimants prefer to engage a lawyer to make the claim. Try the lawyer.
4) I am upset over the transparency of the entire motor insurance claims procedure. In your expertise is there a better way to do this?
Reply: It is the duty of a good insurance company to make it easy for you to claim for your losses. You should insist on a high standard of service and assistance from the insurance company.
If they fail to do so, you should lodge a complaint. Read my blog about "Consumer complaint to MAS".
OCBC Preference Shares
MR TAN
I believe you have saved many people, especially those who read your blog. You always educate us not to buy complicated structure products (Mini bonds, Pinnacle notes etc)
I am fortunate that I take your advice to invest only in low cost fund(NTUC INCOME Growth Fund), STI ETF Fund & many endowment policies from NTUC Income.(I bought it 15to 20 years ago)
I have about 100K from my matured policy from NTUC Income, I do not know what to invest, so I have bought 50k of OCBC Preference shares recently(It give 5.1% dividend). Now the market is so bad, I am worried about my Preference shares will become Mini Bonds.
Please advice me whether preference shares is safe to invest & also tell us more about preference shares.
REPLY
In my view, the OCBC Preference Shares are quite safe. I will be buying some of these shares for my investments. They will not be like MiniBonds - as they are entirely different types of investments.
I believe you have saved many people, especially those who read your blog. You always educate us not to buy complicated structure products (Mini bonds, Pinnacle notes etc)
I am fortunate that I take your advice to invest only in low cost fund(NTUC INCOME Growth Fund), STI ETF Fund & many endowment policies from NTUC Income.(I bought it 15to 20 years ago)
I have about 100K from my matured policy from NTUC Income, I do not know what to invest, so I have bought 50k of OCBC Preference shares recently(It give 5.1% dividend). Now the market is so bad, I am worried about my Preference shares will become Mini Bonds.
Please advice me whether preference shares is safe to invest & also tell us more about preference shares.
REPLY
In my view, the OCBC Preference Shares are quite safe. I will be buying some of these shares for my investments. They will not be like MiniBonds - as they are entirely different types of investments.
Financial Adviser Act, Section 27
I researched the Financial Adviser Act and found section 27. It describes the responsibility of the financial adviser or its representative in giving proper advice to the consumer. The adviser is required by section 2 (a) to ensure that the recommendation (i.e. to invest in the credit linked securities) is appropriate to the consumer. I believe that the adviser has failed in this duty.
Recommendations by licensees
27. —
(1) No licensee shall make a recommendation with respect to any investment product to a person who may reasonably be expected to rely on the recommendation if the licensee does not have a reasonable basis for making the recommendation to the person.
(2) For the purposes of subsection (1), a licensee does not have a reasonable basis for making a recommendation to a person unless —
(a) he has, for the purposes of ascertaining that the recommendation is appropriate, having regard to the information possessed by him concerning the investment objectives, financial situation and particular needs of the person, given such consideration to, and conducted such investigation of, the subject-matter of the recommendation as is reasonable in all the circumstances; and
(b) the recommendation is based on the consideration and investigation referred to in paragraph
(a).
(3) Where —
(a) a licensee, in making a recommendation to a person, contravenes subsection (1);
(b) the person, in reliance on the recommendation, does a particular act, or refrains from doing a particular act;
(c) it is reasonable, having regard to the recommendation and all other relevant circumstances, for the person to do that act, or to refrain from doing that act, as the case may be, in reliance on the recommendation; and
(d) the person suffers loss or damage as a result of doing that act, or refraining from doing that act, as the case may be,
then, without prejudice to any other remedy available to that person, the licensee is liable to pay damages to that person in respect of that loss or damage.
(4) In this section, a reference to the making of a recommendation is a reference to the making of a recommendation expressly or by implication.
(5) This section shall not apply to any licensee or class of licensees in such circumstances or under such conditions as may be prescribed.
Recommendations by licensees
27. —
(1) No licensee shall make a recommendation with respect to any investment product to a person who may reasonably be expected to rely on the recommendation if the licensee does not have a reasonable basis for making the recommendation to the person.
(2) For the purposes of subsection (1), a licensee does not have a reasonable basis for making a recommendation to a person unless —
(a) he has, for the purposes of ascertaining that the recommendation is appropriate, having regard to the information possessed by him concerning the investment objectives, financial situation and particular needs of the person, given such consideration to, and conducted such investigation of, the subject-matter of the recommendation as is reasonable in all the circumstances; and
(b) the recommendation is based on the consideration and investigation referred to in paragraph
(a).
(3) Where —
(a) a licensee, in making a recommendation to a person, contravenes subsection (1);
(b) the person, in reliance on the recommendation, does a particular act, or refrains from doing a particular act;
(c) it is reasonable, having regard to the recommendation and all other relevant circumstances, for the person to do that act, or to refrain from doing that act, as the case may be, in reliance on the recommendation; and
(d) the person suffers loss or damage as a result of doing that act, or refraining from doing that act, as the case may be,
then, without prejudice to any other remedy available to that person, the licensee is liable to pay damages to that person in respect of that loss or damage.
(4) In this section, a reference to the making of a recommendation is a reference to the making of a recommendation expressly or by implication.
(5) This section shall not apply to any licensee or class of licensees in such circumstances or under such conditions as may be prescribed.
Sad experience of a Minibond investor
Hi, Mr Tan
I have just started reading your blogs and find them very useful. I regretted not reading your blogs earlier.
I am also one of the unfortunate 'victims' in the Lehman Brothers case. I have bought some Mini Bond Series 6 from X last year. I did not know that my principal amount is not protected. I am actually quite careful with my money. I have always placed whatever money I have in the local banks' Fixed Deposits. This is the first time I bought a Mini bond and I may not have understood completely the nature of the Bond and that there are heavy risks involved. If I had known that, I will not have invested my hard earned money there.
I read your blog this morning and think your suggestion that more people like us should get together to lodge a complaint. I wonder will you be able to help us get in touch with common 'victim', maybe create a platform so that we can work together to 'fight' this battle, to get our hard earned savings back?
I just spoke to CASE and the officer was helpful to provide me this contact number to call for advice: FIDREC: tel: 6327 8878. I have just spoken to the officer in FIDREC and she advised me to lodge a formal complaint to X, with proofs of my allegations. I will have to go home and check out any documentary proofs before I can do that. I think it may be difficult because it could have been verbal only.
REPLY
I have spoken to a lawyer and see if they are able to take up a case on behalf of the investors who were misled into investing in these products.
My wish is that MAS will take action on behalf of the investors, to see if the financial institutions had failed in their duty to ensure that the products are suitable for the investors.
I have just started reading your blogs and find them very useful. I regretted not reading your blogs earlier.
I am also one of the unfortunate 'victims' in the Lehman Brothers case. I have bought some Mini Bond Series 6 from X last year. I did not know that my principal amount is not protected. I am actually quite careful with my money. I have always placed whatever money I have in the local banks' Fixed Deposits. This is the first time I bought a Mini bond and I may not have understood completely the nature of the Bond and that there are heavy risks involved. If I had known that, I will not have invested my hard earned money there.
I read your blog this morning and think your suggestion that more people like us should get together to lodge a complaint. I wonder will you be able to help us get in touch with common 'victim', maybe create a platform so that we can work together to 'fight' this battle, to get our hard earned savings back?
I just spoke to CASE and the officer was helpful to provide me this contact number to call for advice: FIDREC: tel: 6327 8878. I have just spoken to the officer in FIDREC and she advised me to lodge a formal complaint to X, with proofs of my allegations. I will have to go home and check out any documentary proofs before I can do that. I think it may be difficult because it could have been verbal only.
REPLY
I have spoken to a lawyer and see if they are able to take up a case on behalf of the investors who were misled into investing in these products.
My wish is that MAS will take action on behalf of the investors, to see if the financial institutions had failed in their duty to ensure that the products are suitable for the investors.
TV program on credit linked securities
An international TV station wish to interview investors who have invested in the structured products affected by the collapse of Lehman Brothers (i.e. the credit linked securities). They wish to know if the investor had been given the right advice by the financial adviser or bank officer who sold the product.
If you are affected and wish to be interviewed on TV, send your name, telephone number to me at kinlian@gmail.com.
If you are affected and wish to be interviewed on TV, send your name, telephone number to me at kinlian@gmail.com.
Investor in Minibond can seek redress
Dear Mr. Tan,
I read your blog everyday to see if there is any good news about Minibonds. I invested in this product on the advice of the bank officer. She told me that the risk is very small. I did not want to take risk.
I am told now that the Minibond may be worth nothing. I have a lot of my savings invested in this bond. Can I ask the bank to compensate me for my loss?
REPLY
There are many people in a similar situation as you are. I understand that the Financial Adviser Act require the adviser (i.e. the bank officer who sold the product to you) to ensure that the product is suitable to your needs. Clearly, a risky product of this type is not suitable.
You have a case to bring up against the bank officer. I suggest that you get many people in similar situation as you are and take up this matter collectively to the MAS or Consumer Association or other body. You can also take up a legal case.
I read your blog everyday to see if there is any good news about Minibonds. I invested in this product on the advice of the bank officer. She told me that the risk is very small. I did not want to take risk.
I am told now that the Minibond may be worth nothing. I have a lot of my savings invested in this bond. Can I ask the bank to compensate me for my loss?
REPLY
There are many people in a similar situation as you are. I understand that the Financial Adviser Act require the adviser (i.e. the bank officer who sold the product to you) to ensure that the product is suitable to your needs. Clearly, a risky product of this type is not suitable.
You have a case to bring up against the bank officer. I suggest that you get many people in similar situation as you are and take up this matter collectively to the MAS or Consumer Association or other body. You can also take up a legal case.
Sunday, September 21, 2008
Lack of transparency in terminal bonus
Dear Mr. Tan,
With the problem facing AIG, is it better for me to buy insurance from NTUC? Will my savings be safe?
REPLY
It is better to buy term insurance and invest the difference in a low cost fund. Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
NTUC now declares a low rate of annual bonus with a large part of the maturity benefit in the form of non-guaranteed terminal bonus. This is similar to the practice of the commercial insurance companies.
It is better not to rely on the non-guaranteed bonus, as there is a high chance that it will not be paid, even in good times. There is lack of transparency in the distribution of terminal bonus. The insurance company gets away with paying less than what is fair to the policyholder.
With the problem facing AIG, is it better for me to buy insurance from NTUC? Will my savings be safe?
REPLY
It is better to buy term insurance and invest the difference in a low cost fund. Read this FAQ:
http://www.tankinlian.com/faq/fptips.html
NTUC now declares a low rate of annual bonus with a large part of the maturity benefit in the form of non-guaranteed terminal bonus. This is similar to the practice of the commercial insurance companies.
It is better not to rely on the non-guaranteed bonus, as there is a high chance that it will not be paid, even in good times. There is lack of transparency in the distribution of terminal bonus. The insurance company gets away with paying less than what is fair to the policyholder.
A expert view about Structured Products
Hi Mr. Tan,
Structured products are essentially investment instruments engineered by so called "financial engineers" using complex mathematical models (models which works 9 out of 10 years, and the other 1 year, it blows up spectacularly).
These products almost always results in the investor underwriting/selling an financial options or insurance in exchange for an small fixed premium, (e.g. dual currency account, mini-bonds insuring credit events). This is the main reason I have been avoiding RMs (i.e relationship managers) marketing their structured products, i.e. I don't want to underwrite a huge risk for a small premium.
Let me elaborate on why individual investors should never sell/"underwrite" financial options/insurance:
- the losses can be catastrophic to the investor in return for a small fixed return eg something happens, your losses are very high and nothing happens, your return is just 3% more.. individuals simply do not have the capacity to take on such risks (evidently even AIG don't)
- the general public simply do not have the neccesary training/finance knowledge to understand these products and the risks involved.. those that do, probably won't invest in them..
- financial markets have a very high correlation during extreme events, diminishing the effects of diversification
- banks also have an incentive to push these products, because there is a lot of demand for financial options/insurance from hedge funds, banks, investment-banks. Effectively, these financial insurances are underwritten by the unsuspecting public and subsequently passed to the bank's clients. The bank made a spread or fee from both sides and the RM made a nice commission.
MAS failed in regulating these practices, and the banks and RMs put the life savings of investors at risk because of their own fat pockets.
I urge the financial journalists to find out:
- what proportion of bankers, RMs actually invested in these structured products (putting their own money where their mouth is)?
- where has the losses gone too?
Come on, guys at ST put your journalist professionalism and critical thinking to use!!
ym
Structured products are essentially investment instruments engineered by so called "financial engineers" using complex mathematical models (models which works 9 out of 10 years, and the other 1 year, it blows up spectacularly).
These products almost always results in the investor underwriting/selling an financial options or insurance in exchange for an small fixed premium, (e.g. dual currency account, mini-bonds insuring credit events). This is the main reason I have been avoiding RMs (i.e relationship managers) marketing their structured products, i.e. I don't want to underwrite a huge risk for a small premium.
Let me elaborate on why individual investors should never sell/"underwrite" financial options/insurance:
- the losses can be catastrophic to the investor in return for a small fixed return eg something happens, your losses are very high and nothing happens, your return is just 3% more.. individuals simply do not have the capacity to take on such risks (evidently even AIG don't)
- the general public simply do not have the neccesary training/finance knowledge to understand these products and the risks involved.. those that do, probably won't invest in them..
- financial markets have a very high correlation during extreme events, diminishing the effects of diversification
- banks also have an incentive to push these products, because there is a lot of demand for financial options/insurance from hedge funds, banks, investment-banks. Effectively, these financial insurances are underwritten by the unsuspecting public and subsequently passed to the bank's clients. The bank made a spread or fee from both sides and the RM made a nice commission.
MAS failed in regulating these practices, and the banks and RMs put the life savings of investors at risk because of their own fat pockets.
I urge the financial journalists to find out:
- what proportion of bankers, RMs actually invested in these structured products (putting their own money where their mouth is)?
- where has the losses gone too?
Come on, guys at ST put your journalist professionalism and critical thinking to use!!
ym
Loss of hard earned money
Dear Mr. Tan
I am also hit by DBS High Notes 5 (ST Sept 18 news). My relationship manager persuaded me to have lunch and showed me the product. He reinterated that it was a very safe investments as all the fund principals are all A rated.
I signed for $X. As I was busy, I trusted him and signed on the form. When Lehman's bankruptcy appeared in the news, I immediately called the relationship manager and was shocked to be informed that there will be zero payout.
I was not told about this and was only shown a copy of the prospectus but not given one. I would be grateful if you could advise me where can I make a complaint.
REPLY
You can lodge a complaint with MAS.Your complaint is about the conduct of the adviser (i.e relationship manager of the bank) for failing to disclose proper explanation about the product. Read my blog:
http://tankinlian.blogspot.com/2008/09/monetary-authority-of-singapore.html
Dear Mr. Tan,
I applaud your determination to help us, the helpless and disappointed investors who have dumped in thousands of dollars of our hard earned money into High Note 5. I hope MAS will take actions against the bank and its employees.
I am also hit by DBS High Notes 5 (ST Sept 18 news). My relationship manager persuaded me to have lunch and showed me the product. He reinterated that it was a very safe investments as all the fund principals are all A rated.
I signed for $X. As I was busy, I trusted him and signed on the form. When Lehman's bankruptcy appeared in the news, I immediately called the relationship manager and was shocked to be informed that there will be zero payout.
I was not told about this and was only shown a copy of the prospectus but not given one. I would be grateful if you could advise me where can I make a complaint.
REPLY
You can lodge a complaint with MAS.Your complaint is about the conduct of the adviser (i.e relationship manager of the bank) for failing to disclose proper explanation about the product. Read my blog:
http://tankinlian.blogspot.com/2008/09/monetary-authority-of-singapore.html
Dear Mr. Tan,
I applaud your determination to help us, the helpless and disappointed investors who have dumped in thousands of dollars of our hard earned money into High Note 5. I hope MAS will take actions against the bank and its employees.
A flawed global financial system
During the Asian Financial Crisis in 1998, the global fund managers had a great time in selling short in the equity and currency markets. They made huge profits. The leaders in the developed countries said that the Asian economies deserve to be punished for their lax economic policies.
Now, the table has turned. It is the developed countries that are now suffering from short selling. What do the leaders say now? Short selling is bad and has to be stopped.
Wow. Double standard! What a hypocritical world.
My conclusion is that the global financial system is flawed and need to be changed. I agree with the posting by "ym" on the flaws of the "fractional banking system". Banks should not be allowed to create money on their own.
Now, the table has turned. It is the developed countries that are now suffering from short selling. What do the leaders say now? Short selling is bad and has to be stopped.
Wow. Double standard! What a hypocritical world.
My conclusion is that the global financial system is flawed and need to be changed. I agree with the posting by "ym" on the flaws of the "fractional banking system". Banks should not be allowed to create money on their own.
Book on Financial Planning
I will try to find the time to write a book on Financial Planning. The topics in this book are:
Chapter
1 Introduction
2 How much life insurance do you need?
3. What type of life insurance policy?
4. How to invest savings?
5. Investing in a unit trust
6. Investing on your own
7. Why avoid high commission products?
8. Saving for a child’s education
9. Insuring against medical expenses, disability
10. Structured investment products
11. Investment tips for a retiree
12. Life annuity
13. Government sponsored insurance schemes
14. Use of credit cards
15. Loans (mortgage, car, study)
16. Investing in property
17. Taxation
18. Leaving assets for your descendents
19. Conclusion
Chapter
1 Introduction
2 How much life insurance do you need?
3. What type of life insurance policy?
4. How to invest savings?
5. Investing in a unit trust
6. Investing on your own
7. Why avoid high commission products?
8. Saving for a child’s education
9. Insuring against medical expenses, disability
10. Structured investment products
11. Investment tips for a retiree
12. Life annuity
13. Government sponsored insurance schemes
14. Use of credit cards
15. Loans (mortgage, car, study)
16. Investing in property
17. Taxation
18. Leaving assets for your descendents
19. Conclusion
Saturday, September 20, 2008
Biggest gamble in history - Credit default swaps
http://www.time.com/time/business/article/0,8599,1723152,00.html
Size of market
Credit default swap - USD 45 trillion
Stock market - USD 22 trillion
Housing market (mortgages) - USD 7 trillion
US Treasuries - USD 4 trillion
Size of market
Credit default swap - USD 45 trillion
Stock market - USD 22 trillion
Housing market (mortgages) - USD 7 trillion
US Treasuries - USD 4 trillion
Singapore banks and short selling
Dear Mr. Tan,
I always thought that putting my lifetime savings in a bank to earn interest is safe. The recent crisis in US and news about Lehman Bros and AIG is disturbing. I begin to wonder how safe is our Singapore banks and which of the three banks is the safest of all? Why are we protected only on $20,000 on each account?
The Straits Times article about the Minibond series 3 is enlightening. I was offered this product which was sold as a bond. I stayed clear because I had a bad experience of structured deposit sold by bank. What worries me is that the bank and financial adviser also claimed that they were also mislead.
Retail customers transact with a bank based on trust that they are reliable and expert in financial product. Can anyone enlighten me what is the role and ethic of the bank?
In US, the government has banned short selling in their stock market to salvage the crisis. The relevant authorities acknowledge the negative effect of short selling. In Singapore short selling is allowed too.
The financial adviser told me that buying equities is about investment. The unfolding of the recent event in US and our stock market make me think otherwise. Buying equities is not an investment when short selling is involved. SGX has tried to take measures by allowing short sell on borrowed shares. Short-sell will make the price go up or down. Can thus be considered as genuine market force of supply and demand?
Let me try to visualise the Lehman scenario as a layman. For example, there are 1 million genuine Lehman share, but because of short selling, 10 million Lehman share were artificially created in the stock market and sold down. I hope in the near future all forms of short selling should be banned from sensitive equities, such as financial, banking and insurance equities.
I would appreciate if you can comments how safe and resilent is our local bank to the recent unfolding crisis in US.
REPLY
I think that the Singapore banks are quite safe. Even in America, the large banks dealing with the public are quite safe. They are monitored by the Fed.
The banks that got into trouble are the investment banks, which were highly leveraged and not controlled by the Fed.
I always thought that putting my lifetime savings in a bank to earn interest is safe. The recent crisis in US and news about Lehman Bros and AIG is disturbing. I begin to wonder how safe is our Singapore banks and which of the three banks is the safest of all? Why are we protected only on $20,000 on each account?
The Straits Times article about the Minibond series 3 is enlightening. I was offered this product which was sold as a bond. I stayed clear because I had a bad experience of structured deposit sold by bank. What worries me is that the bank and financial adviser also claimed that they were also mislead.
Retail customers transact with a bank based on trust that they are reliable and expert in financial product. Can anyone enlighten me what is the role and ethic of the bank?
In US, the government has banned short selling in their stock market to salvage the crisis. The relevant authorities acknowledge the negative effect of short selling. In Singapore short selling is allowed too.
The financial adviser told me that buying equities is about investment. The unfolding of the recent event in US and our stock market make me think otherwise. Buying equities is not an investment when short selling is involved. SGX has tried to take measures by allowing short sell on borrowed shares. Short-sell will make the price go up or down. Can thus be considered as genuine market force of supply and demand?
Let me try to visualise the Lehman scenario as a layman. For example, there are 1 million genuine Lehman share, but because of short selling, 10 million Lehman share were artificially created in the stock market and sold down. I hope in the near future all forms of short selling should be banned from sensitive equities, such as financial, banking and insurance equities.
I would appreciate if you can comments how safe and resilent is our local bank to the recent unfolding crisis in US.
REPLY
I think that the Singapore banks are quite safe. Even in America, the large banks dealing with the public are quite safe. They are monitored by the Fed.
The banks that got into trouble are the investment banks, which were highly leveraged and not controlled by the Fed.
Credit Default Swaps (CDS)
AIG lost a few tens of billions in Credit Default Swaps. Here is an explanation in Wikipedia.
A credit default swap (CDS) is a contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default or "credit event" in respect of a third party or "reference entity".
If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value ("physical settlement") or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction ("cash settlement").
A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and is not generally considered insurance for regulatory purposes.
http://en.wikipedia.org/wiki/Credit_default_swap
A credit default swap (CDS) is a contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default or "credit event" in respect of a third party or "reference entity".
If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value ("physical settlement") or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction ("cash settlement").
A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and is not generally considered insurance for regulatory purposes.
http://en.wikipedia.org/wiki/Credit_default_swap
Call to MAS to take pro-active action
Two months ago, the New York State Attorney took action against several financial institutions for marketing the "auction rate securities" to retail investors on the representation that they are liquid investments and can be redeemed at any time. The financial institions had to buy back these securities at no loss to the investors.
I hope that the Monetary Authority of Singapore or the Attorney General can take similar action on behalf of retail investors who had been misled into investing in the Mini-Bonds and similar structured products by their bank's relationship managers in the belief that these investments are safe.
It is time to hold the financial institutions accountable for their mis-selling activities and for our regulators to be pro-active.
I hope that the Monetary Authority of Singapore or the Attorney General can take similar action on behalf of retail investors who had been misled into investing in the Mini-Bonds and similar structured products by their bank's relationship managers in the belief that these investments are safe.
It is time to hold the financial institutions accountable for their mis-selling activities and for our regulators to be pro-active.
Minibond Series 6
This blog was first posted on 16 July 2007
Dear Mr Tan
My risk-adverse retired father has always placed his funds in fixed deposits as they are risk-free.
I saw the advertisement in today's papers for the minibonds series 6 which pays 5.1% for 5 3/4 yrs.
These bonds seem to be relatively low risk and the returns appears good. Is there any catch? I'm considering asking my dad to transfer his funds to buy this since his fixed deposit is maturing. Can you advise?
-----------------------------
REPLY:
The Minibond series 6 pays 5.1% p.a. for 5 3/4 years. This payment comes from the principal invested in the fund, and is NOT the same as the actual return earned on the fund.
Here are the information obtained from the advertisement.
1. The fund is invested in credit-linked securities that are rated AA at the time of issue. These credit-linked securities have a high risk than bonds with the same rating.
2. The Notes are not principal guaranteed or principal protected. There is a likelihood that the investor may not get 100% of your principal on the maturity date. This is likely to happen, as the fund pays out more than what it earns and has to incur heavy expenses (not disclosed) for distributing and managing the fund.
3. If there is a Credit Event happening to any of the 6 financial institution before the maturity date, the investor may lose part or substantially all of the invested amount.
You need to read the prospectus carefully to understand the definition of the Credit Event and the likely amount that can be lost. (I believe that this is difficult to assess, even for an expert like me).
4. There is a provision for the Issuer to redeem the Notes earlier, on or after 3 years from the Issue Date. This right is likely to be exercised, if interest rate has fallen. The investor will have to re-invest the money to earn a lower interest rate.
5. You are advised to read the prospectus and understand the investment risks and the terms. If you do not, you cannot complain later if the investment turn out to be bad.
My views: Do not invest in this product, as it has much uncertainty and the return is not attractive. It is better to invest in a government bond to earn about 3.5% per annum over the next 5 years.
You can read the following:
Structured Products - how they work
Avoid Structured Products
Ask Mr Tan
Dear Mr Tan
My risk-adverse retired father has always placed his funds in fixed deposits as they are risk-free.
I saw the advertisement in today's papers for the minibonds series 6 which pays 5.1% for 5 3/4 yrs.
These bonds seem to be relatively low risk and the returns appears good. Is there any catch? I'm considering asking my dad to transfer his funds to buy this since his fixed deposit is maturing. Can you advise?
-----------------------------
REPLY:
The Minibond series 6 pays 5.1% p.a. for 5 3/4 years. This payment comes from the principal invested in the fund, and is NOT the same as the actual return earned on the fund.
Here are the information obtained from the advertisement.
1. The fund is invested in credit-linked securities that are rated AA at the time of issue. These credit-linked securities have a high risk than bonds with the same rating.
2. The Notes are not principal guaranteed or principal protected. There is a likelihood that the investor may not get 100% of your principal on the maturity date. This is likely to happen, as the fund pays out more than what it earns and has to incur heavy expenses (not disclosed) for distributing and managing the fund.
3. If there is a Credit Event happening to any of the 6 financial institution before the maturity date, the investor may lose part or substantially all of the invested amount.
You need to read the prospectus carefully to understand the definition of the Credit Event and the likely amount that can be lost. (I believe that this is difficult to assess, even for an expert like me).
4. There is a provision for the Issuer to redeem the Notes earlier, on or after 3 years from the Issue Date. This right is likely to be exercised, if interest rate has fallen. The investor will have to re-invest the money to earn a lower interest rate.
5. You are advised to read the prospectus and understand the investment risks and the terms. If you do not, you cannot complain later if the investment turn out to be bad.
My views: Do not invest in this product, as it has much uncertainty and the return is not attractive. It is better to invest in a government bond to earn about 3.5% per annum over the next 5 years.
You can read the following:
Structured Products - how they work
Avoid Structured Products
Ask Mr Tan
Pinnacle Notes and MiniBonds
This blog was first posted on 16 July 2007
COMMENT POSTED IN MY BLOG:
Maybe you like to comment on the Minibonds and Pinnacles. Both recieved overwhelming response from the public. What I know they are products designed for people who want streams of income. The tenor is 3-5 years with step up options with higher returns.
Since they are well received they must be good. Investors don't throw away $150 mil. for each tranche for nothing. There had been quite a few tranches already.
--------------------------------
REPLY:
Can you give specific examples of the earlier series of the Minibonds and Pinnacle Notes. What price are they trading now? How well have they performed? Did they provide a good return to the investors?
I have highlighted some of the current features of these products. They contain an element of speculation and carry a risk that has not been properly assessed.
COMMENT POSTED IN MY BLOG:
Maybe you like to comment on the Minibonds and Pinnacles. Both recieved overwhelming response from the public. What I know they are products designed for people who want streams of income. The tenor is 3-5 years with step up options with higher returns.
Since they are well received they must be good. Investors don't throw away $150 mil. for each tranche for nothing. There had been quite a few tranches already.
--------------------------------
REPLY:
Can you give specific examples of the earlier series of the Minibonds and Pinnacle Notes. What price are they trading now? How well have they performed? Did they provide a good return to the investors?
I have highlighted some of the current features of these products. They contain an element of speculation and carry a risk that has not been properly assessed.
Avoid complicated products
This blog was first posted on 17 July 2007
I have made an analysis of the recently launched structured products (i.e. Pinnacle Notes, Minibonds) based on their advertisements. The information is not sufficient to make an investment.
To understand the product, the investor has to read a detailed prospectus with supporting documents. It can come to more than 100 pages, and may take more than 10 hours to read.
After spending this time, the investor will still have more questions. There are still so much uncertainty.
If you ask the marketeer who sell the products, they will not be able to give you the correct answer. Some of them give misleading answers, similar to some of the anonymous postings in my blog.
For example, they will tell you that the risk of a credit event is small, that your investment is safe.
Is this correct? You are warned, in writing, that in when a "credit event" occurs, you may lose part or all of your investment.
What is a "credit event"? It is not clearly spelled out. It is not the same as "bankrupcy". It could mean "failure to make payment on time".
I am not prepared to spend a lot of time, and take an unspecified risk, to earn a small increase in yield (which is not commensurate with the risk). There is a large cost in designing, advertising and marketing the product, and a large profit margin for the product issuer, which have to be borne by the investors.
Lesson: Do not invest in complicated products, that you cannot understand.
If you want to understand how the structured product works, read this article. It is just 1 page (not 100 pages). And it is clear (not confusing).
I have made an analysis of the recently launched structured products (i.e. Pinnacle Notes, Minibonds) based on their advertisements. The information is not sufficient to make an investment.
To understand the product, the investor has to read a detailed prospectus with supporting documents. It can come to more than 100 pages, and may take more than 10 hours to read.
After spending this time, the investor will still have more questions. There are still so much uncertainty.
If you ask the marketeer who sell the products, they will not be able to give you the correct answer. Some of them give misleading answers, similar to some of the anonymous postings in my blog.
For example, they will tell you that the risk of a credit event is small, that your investment is safe.
Is this correct? You are warned, in writing, that in when a "credit event" occurs, you may lose part or all of your investment.
What is a "credit event"? It is not clearly spelled out. It is not the same as "bankrupcy". It could mean "failure to make payment on time".
I am not prepared to spend a lot of time, and take an unspecified risk, to earn a small increase in yield (which is not commensurate with the risk). There is a large cost in designing, advertising and marketing the product, and a large profit margin for the product issuer, which have to be borne by the investors.
Lesson: Do not invest in complicated products, that you cannot understand.
If you want to understand how the structured product works, read this article. It is just 1 page (not 100 pages). And it is clear (not confusing).
Foreign currency exchange rates
Do not trust your bank to give you a fair exchange rate. They don't. They like to increase their profits, and that is done by charging a high spread on their customers.
If you change from foreign currency X to foreign currency Y, the bank changes your money from X to SGD and from SGD to Y. At each change, they charge a spread of about 1%. You have to pay a spread of 2% for changing from X to Y. This is too high. If you do not ask, the bank does not tell you how it is done. It applies the two spread automatically and send a statement to you. When you realise it, it is too late.
In the past, I trust my bank. Now, I don't. I always ask my bank to quote the exchange rate or interest rate to me. With the quoted rate, I can compare with the rates charged by other banks. My bank automatically gives me a competitive rate, as they are afraid when I move my business to another bank. Later, they will lose me as a customer.
You should always your bank to quote the rate to you. The relationship manager will give you the "excuse" that the rate changes every minute. This is partly true. But the real reason is that, if you do not ask, they can charge you a large spread and you will not realise it.
I hope that the Consumer Association or Monetary Authority of Singapore get the bank to adopt a code of practice that is transparent and fair to consumers.
If you change from foreign currency X to foreign currency Y, the bank changes your money from X to SGD and from SGD to Y. At each change, they charge a spread of about 1%. You have to pay a spread of 2% for changing from X to Y. This is too high. If you do not ask, the bank does not tell you how it is done. It applies the two spread automatically and send a statement to you. When you realise it, it is too late.
In the past, I trust my bank. Now, I don't. I always ask my bank to quote the exchange rate or interest rate to me. With the quoted rate, I can compare with the rates charged by other banks. My bank automatically gives me a competitive rate, as they are afraid when I move my business to another bank. Later, they will lose me as a customer.
You should always your bank to quote the rate to you. The relationship manager will give you the "excuse" that the rate changes every minute. This is partly true. But the real reason is that, if you do not ask, they can charge you a large spread and you will not realise it.
I hope that the Consumer Association or Monetary Authority of Singapore get the bank to adopt a code of practice that is transparent and fair to consumers.
Pinnacle Notes
Hi Mr. Tan,
I invested in Pinnacle notes series 6. The arranger is Morgan Stanley and the 6 reference entity are Bank of America, Citigroup Inc, DBS, Singtel, OCBC and UOB.
Should I continue to hold on to the notes or cash out? If I cash out now, I will get only 34.07% of our total principal. I know that the health of Morgan Stanley is crucial to the survival of this Note. With so much uncertainty in the market, is it better to take a loss now?
REPLY
In my view, and it is just my guess, Morgan Stanley will not face the same fate as Lehman Brothers. The six reference entitles appear to be all right. The rescue package being arranged by the Fed and Treasury in USA is likely to prevent other big failures. It is not worth while to sell the Pinnacle Notes at a loss of 65% at this time.
I invested in Pinnacle notes series 6. The arranger is Morgan Stanley and the 6 reference entity are Bank of America, Citigroup Inc, DBS, Singtel, OCBC and UOB.
Should I continue to hold on to the notes or cash out? If I cash out now, I will get only 34.07% of our total principal. I know that the health of Morgan Stanley is crucial to the survival of this Note. With so much uncertainty in the market, is it better to take a loss now?
REPLY
In my view, and it is just my guess, Morgan Stanley will not face the same fate as Lehman Brothers. The six reference entitles appear to be all right. The rescue package being arranged by the Fed and Treasury in USA is likely to prevent other big failures. It is not worth while to sell the Pinnacle Notes at a loss of 65% at this time.
Mini-bonds - ask MAS to investigate
Hi Mr. Tan,
Last year due to some unfortunate series of events, my parents and I decided to invest in the minibonds, which is already gone as Lehman Brother is undergoing liquidation. It is very sad, but we have to accept the loss.
REPLY
It is unfortunate that Lehman Brothers went into bankrupcy, triggering a credit event. If they had been rescued like AIG, the credit event could have been avoided.
You should write to ask MAS to investigate what happen to the mini-bonds. Although a credit event has been triggered, you should ask what really happened to the money. Who took the money when a credit event is triggered?
It seems that many investors lost their money, and someone must have made a big gain. I undersand that the money raised from the mini-bonds are actually invested in other assets and are not invested in Lehman Brothers. So, somebody must have made a big gain at the expense of the small investors.
Please ask MAS to investigate this structure on behalf of the small investors.
Last year due to some unfortunate series of events, my parents and I decided to invest in the minibonds, which is already gone as Lehman Brother is undergoing liquidation. It is very sad, but we have to accept the loss.
REPLY
It is unfortunate that Lehman Brothers went into bankrupcy, triggering a credit event. If they had been rescued like AIG, the credit event could have been avoided.
You should write to ask MAS to investigate what happen to the mini-bonds. Although a credit event has been triggered, you should ask what really happened to the money. Who took the money when a credit event is triggered?
It seems that many investors lost their money, and someone must have made a big gain. I undersand that the money raised from the mini-bonds are actually invested in other assets and are not invested in Lehman Brothers. So, somebody must have made a big gain at the expense of the small investors.
Please ask MAS to investigate this structure on behalf of the small investors.
Friday, September 19, 2008
DBS High Notes
Dear Mr Tan,
You were always very critical on structure products from Bank.
And you are right!
Thanks for the previous posts on such structure products.
Sep 18, 2008, The Straits Times
DBS High Notes investors at risk
Bank warns they may lose entire stake in Lehman-linked product
By Francis Chan
SOME local investors of a product linked to bankrupt investment giant Lehman Brothers have received late-night phone calls from DBS Bank warning them that their entire stake may be wiped out. The investors have their cash in a product called DBS High Notes 5 that the bank offered wealthier clients last year. It came with a promised annual return of about 5 per cent.
But Lehman's collapse on Monday means the product will be unwound and investors may only get a portion of their investment back - or none at all.
REPLY
Thank you for sending this news article to me. I am now in Jakarta and was not aware about this event. It is so sad that many people have lost their money in this "credit event".
Perhaps the small investors who lost their savings should ask MAS to look into the structure of this product, and why should the "credit event" cause a lose of their entire savings? Where did the money go?
FAQ on Structured Investment Products
http://www.tankinlian.com/faq/sinvest.html
You were always very critical on structure products from Bank.
And you are right!
Thanks for the previous posts on such structure products.
Sep 18, 2008, The Straits Times
DBS High Notes investors at risk
Bank warns they may lose entire stake in Lehman-linked product
By Francis Chan
SOME local investors of a product linked to bankrupt investment giant Lehman Brothers have received late-night phone calls from DBS Bank warning them that their entire stake may be wiped out. The investors have their cash in a product called DBS High Notes 5 that the bank offered wealthier clients last year. It came with a promised annual return of about 5 per cent.
But Lehman's collapse on Monday means the product will be unwound and investors may only get a portion of their investment back - or none at all.
REPLY
Thank you for sending this news article to me. I am now in Jakarta and was not aware about this event. It is so sad that many people have lost their money in this "credit event".
Perhaps the small investors who lost their savings should ask MAS to look into the structure of this product, and why should the "credit event" cause a lose of their entire savings? Where did the money go?
FAQ on Structured Investment Products
http://www.tankinlian.com/faq/sinvest.html
True cost of life insurance
Does a life insurance policy provide good value for a person to plan for the future?
http://www.tankinlian.com/faq/true.html
http://www.tankinlian.com/faq/true.html
Fake Money
Hi, Mr. Tan,
I have been taking about fake money very often in your blog, but I suspect not many people understand me..
Below is a link to an instructive cartoon about the fractional reserve banking system
> how it creates money out of thin air
> how it skews the wealth distribution, making the bankers richer and richer over time
> why this system is a ponzi scheme and will eventually collapse
http://video.google.com/videoplay?docid=-9050474362583451279
After watching the video, people should realise nearly all money is actually fake, created out of debt.. and we will need more and more fake money to keep the economy going (exactly like a ponzi scheme)..
When the amount of debt gets too big and balks at creating more fake money, the system will collapse and cause a severe recession/depression.
I believe we are really close to this point of collapse now.... and we should welcome the collapse and take the chance to adopt a different banking system, one where is sustainable and money not controlled by bankers/central bankers.. one such system is a free banking system proposed by most Austrian economists.. but which government is willing to give up the power to create money?
ym
I have been taking about fake money very often in your blog, but I suspect not many people understand me..
Below is a link to an instructive cartoon about the fractional reserve banking system
> how it creates money out of thin air
> how it skews the wealth distribution, making the bankers richer and richer over time
> why this system is a ponzi scheme and will eventually collapse
http://video.google.com/videoplay?docid=-9050474362583451279
After watching the video, people should realise nearly all money is actually fake, created out of debt.. and we will need more and more fake money to keep the economy going (exactly like a ponzi scheme)..
When the amount of debt gets too big and balks at creating more fake money, the system will collapse and cause a severe recession/depression.
I believe we are really close to this point of collapse now.... and we should welcome the collapse and take the chance to adopt a different banking system, one where is sustainable and money not controlled by bankers/central bankers.. one such system is a free banking system proposed by most Austrian economists.. but which government is willing to give up the power to create money?
ym
Thursday, September 18, 2008
Poor conversion rate for Foreign Currency
Dear Mr.Tan,
I gave instructions that on maturity of my FD to convert GBP to NZ$. I got a poor exchange rate. I checked the conversion on the Internet and, in my opinion, a fair value is 2.3% higher.
I made numerous calls to the bank to ask how their rate was derived. They have not replied to me. As guideline. I understand that direct conversion GBP to NZ$ will give a higher figure than converting GBP to SGD and then changing to NZD.
So I want to get redress from MAS. Who shall I address to?
REPLY
Read these pages:
http://tankinlian.blogspot.com/2008/09/monetary-authority-of-singapore.htmlhttp://www.moneysense.gov.sg/contact_us/Consumer_Portal_Contact_Us.html
You probably have to take the following steps:
1. Write to CEO of the bank
2. File a complaint with FiDREC.
3. At last stage, approach MAS
I gave instructions that on maturity of my FD to convert GBP to NZ$. I got a poor exchange rate. I checked the conversion on the Internet and, in my opinion, a fair value is 2.3% higher.
I made numerous calls to the bank to ask how their rate was derived. They have not replied to me. As guideline. I understand that direct conversion GBP to NZ$ will give a higher figure than converting GBP to SGD and then changing to NZD.
So I want to get redress from MAS. Who shall I address to?
REPLY
Read these pages:
http://tankinlian.blogspot.com/2008/09/monetary-authority-of-singapore.htmlhttp://www.moneysense.gov.sg/contact_us/Consumer_Portal_Contact_Us.html
You probably have to take the following steps:
1. Write to CEO of the bank
2. File a complaint with FiDREC.
3. At last stage, approach MAS
Double standards
During the Asian Financial Crisis in 1998, the currency and stock markets in South East Asia dropped sharply. It was caused by short selling and aggravated by the accounting rule of "mark to market". The hedge funds made a lot of money by pressing down the markets. The global fund managers said that the weaknesses were due to "lack of transparency" and other factors.
This time, the financial crisis originated from the markets in USA. To address these problems, the following actions are being taken:
> restrict short selling
> use of Government funds to support the market
The following measures are being considered:
> suspend "mark to market"
> suspend the credit rating
These measures were frowned up during the Asian Financial crisis. Now they are being considered. This is a world of double standards.
This time, the financial crisis originated from the markets in USA. To address these problems, the following actions are being taken:
> restrict short selling
> use of Government funds to support the market
The following measures are being considered:
> suspend "mark to market"
> suspend the credit rating
These measures were frowned up during the Asian Financial crisis. Now they are being considered. This is a world of double standards.
How far more for the ST Index to fall?
Someone asked me, "What is the lowest point that the ST Index can go down to?"
I do not know the answer. I don't think that anybody knows. But I can make a guess. And I wish to caution that this is just an opinion.
Here are the high and low points of the ST Index during the past two crisis.
Asian Financial Crisis - 1998: drop from high of 2,400 to low of 800
Corporate scandals - 2002: drop from high of 2,400 to low of 1,200
I consider the "fair value" of ST Index in 1998 to be 1,600 (mid-way between the high and low) and in 2002 to be 2,000. Projecting from these two fair values, I regard the fair value of ST Index in 2008 to be 2,700.
During a crisis, the market can drop to 1/2 or 1/3 of its peak. Taking the peak before the current crisis to be 3,800, I think that the ST Index can drop all the way down to 1,900.
However, if you wish to invest, you should not wait for it go all the way down to 1,900. It is all right to start investing now, and to add on (i.e. average it) down to 1,900. In case it does not reach this level (and the market recovers), you will have made some investments. As you are investing below the "fair value", it is all right to hold on to the investments, even if it falls further. The market will eventually recover.
I do not know the answer. I don't think that anybody knows. But I can make a guess. And I wish to caution that this is just an opinion.
Here are the high and low points of the ST Index during the past two crisis.
Asian Financial Crisis - 1998: drop from high of 2,400 to low of 800
Corporate scandals - 2002: drop from high of 2,400 to low of 1,200
I consider the "fair value" of ST Index in 1998 to be 1,600 (mid-way between the high and low) and in 2002 to be 2,000. Projecting from these two fair values, I regard the fair value of ST Index in 2008 to be 2,700.
During a crisis, the market can drop to 1/2 or 1/3 of its peak. Taking the peak before the current crisis to be 3,800, I think that the ST Index can drop all the way down to 1,900.
However, if you wish to invest, you should not wait for it go all the way down to 1,900. It is all right to start investing now, and to add on (i.e. average it) down to 1,900. In case it does not reach this level (and the market recovers), you will have made some investments. As you are investing below the "fair value", it is all right to hold on to the investments, even if it falls further. The market will eventually recover.
Beware of Scams
Read this article and comemnts from readers in
http://theonlinecitizen.com/2008/09/beware-of-scams/#comment-21550
http://theonlinecitizen.com/2008/09/beware-of-scams/#comment-21550
On My Own
This is another of my favorite songs from Les Miserables.
http://www.youtube.com/watch?v=7tcEf2mEjP4&feature=related
http://www.youtube.com/watch?v=7tcEf2mEjP4&feature=related
Wednesday, September 17, 2008
Eligibility for an Eldershield claim
Disability shall mean the inability of the Policyholder to perform at least 3 of the following Activities of Daily Living, even with the aid of special equipment, and always to require the physical assistance of another person throughout the entire activity.
Washing : The ability to wash in the bath or shower (including getting into and out of the bath or shower) or wash by other means.
Dressing : The ability to put on, take off, secure and unfasten all garments and, as appropriate, any braces, artificial limbs or other surgical or medical appliances.
Feeding : The ability to feed oneself food after it has been prepared and made available.
Toileting : The ability to use the lavatory or manage bowel and bladder function through the use of protective undergarments or surgical appliances if appropriate.
Mobility : The ability to move indoors from room to room on level surfaces.
Transferring : The ability to move from a bed to an upright chair or wheelchair, and vice versa.
Definition of Pre-existing Disability
Pre-existing Disability are excluded, i.e. suffering from the Disability as defined above before your ElderShield Policy's commencement date. For persons who are auto-covered, disability caused solely by accidents that occur during the 90-day opt-out period shall not be regarded as Pre-existing Disability.
Washing : The ability to wash in the bath or shower (including getting into and out of the bath or shower) or wash by other means.
Dressing : The ability to put on, take off, secure and unfasten all garments and, as appropriate, any braces, artificial limbs or other surgical or medical appliances.
Feeding : The ability to feed oneself food after it has been prepared and made available.
Toileting : The ability to use the lavatory or manage bowel and bladder function through the use of protective undergarments or surgical appliances if appropriate.
Mobility : The ability to move indoors from room to room on level surfaces.
Transferring : The ability to move from a bed to an upright chair or wheelchair, and vice versa.
Definition of Pre-existing Disability
Pre-existing Disability are excluded, i.e. suffering from the Disability as defined above before your ElderShield Policy's commencement date. For persons who are auto-covered, disability caused solely by accidents that occur during the 90-day opt-out period shall not be regarded as Pre-existing Disability.
Eldershield - is it worth insuring?
Dear Mr Tan,
I have just received a letter asking me to subscribe for Eldershield. Can I know is it worthwhile to subscribe to it or not. I am covered with enhanced Incomeshield, term insurance, accident and critical illness plan.
REPLY
It depends on the cost and benefit of the Eldershield plan.
I suggest that you take the annual premium and accumulate it at interest rate of 4% per annum (which is what you now earn on your special account).
The chance of making a claim before age 75 is quite low. The chance of making a claim after 75 is probably between 30% to 50% (which is just my guess).
Perhaps, you can see if it make sense to insure, or carry the risk on your own.
I have just received a letter asking me to subscribe for Eldershield. Can I know is it worthwhile to subscribe to it or not. I am covered with enhanced Incomeshield, term insurance, accident and critical illness plan.
REPLY
It depends on the cost and benefit of the Eldershield plan.
I suggest that you take the annual premium and accumulate it at interest rate of 4% per annum (which is what you now earn on your special account).
The chance of making a claim before age 75 is quite low. The chance of making a claim after 75 is probably between 30% to 50% (which is just my guess).
Perhaps, you can see if it make sense to insure, or carry the risk on your own.
Tuesday, September 16, 2008
Eldershield - benchmark figures
A male at 40 pays $175 for 25 years for the lifetime coverage of Eldershield. If this person opts out of Eldershield and keeps the money in CPF special account to earn 4% a year, the premium will accumulate to $11,220 at age 75.
The chance of making an Eldershield claim before age 75 is quite small, maybe less than 5%. The chance of making a claim after 75 is perhaps less than 30% (but it may increase in the future).
Eldershield pays $400 a month for up to 72 months. However, most people who make the claim do not live for 72 months. I guess that the average payout could be (say) 48 months. This gives $19,200.
If the chance of making a claim is 30%, the average payout is $5,760. This represents a claim ratio of 51%. This claim ratio is quite fair.
However, if the chance of making a claim during the lifetime is less than 30%, then it is better to self-insure, rather than buy Eldershield.
A female pays a premium of $218. This is 25% higher than for a male. The chance of a female making an Eldershield claim is higher than for a male.
I do not have the latest figures on the claim rate. Perhaps, the Ministry of Health may release this figure in the future?
The chance of making an Eldershield claim before age 75 is quite small, maybe less than 5%. The chance of making a claim after 75 is perhaps less than 30% (but it may increase in the future).
Eldershield pays $400 a month for up to 72 months. However, most people who make the claim do not live for 72 months. I guess that the average payout could be (say) 48 months. This gives $19,200.
If the chance of making a claim is 30%, the average payout is $5,760. This represents a claim ratio of 51%. This claim ratio is quite fair.
However, if the chance of making a claim during the lifetime is less than 30%, then it is better to self-insure, rather than buy Eldershield.
A female pays a premium of $218. This is 25% higher than for a male. The chance of a female making an Eldershield claim is higher than for a male.
I do not have the latest figures on the claim rate. Perhaps, the Ministry of Health may release this figure in the future?
Term insurance - is the premium proportional?
Dear Mr. Tan,
Thank you so much for putting so much useful information on your website. I almost bought a whole life insurance policy from my financial planner--but luckily thanks to finding your site I realized that it doesn't really make sense to do so. I'm in the process of reading every article in your website.
I have a question about the following page on your website: http://www.tankinlian.com/faq/term.html
In it you stated that the annual premium for $100 000, 30-year old male, covered for 30 years, are $305 for level, and $115 for decreasing.
My question is: how linear is this guideline? Does it mean that to get if the sum is $200 000, the premium should be $610 and $230, respectively? Does it get cheaper if the sum assured is more than 1 million? Also, what if I want the coverage to last 35 years (until I'm 67), instead of 30 years?
Thank you very much in advance, and thanks again for your blog and your website.
REPLY
Usually, the premium rate is in straight proportion to the sum assured. However, it depends on the practice of each insurance company. It is best to ask a few insurance companies to quote you the rates for various sum assured.
Here are some companies that you can call
http://www.tankinlian.com/faq/termd.html
Thank you so much for putting so much useful information on your website. I almost bought a whole life insurance policy from my financial planner--but luckily thanks to finding your site I realized that it doesn't really make sense to do so. I'm in the process of reading every article in your website.
I have a question about the following page on your website: http://www.tankinlian.com/faq/term.html
In it you stated that the annual premium for $100 000, 30-year old male, covered for 30 years, are $305 for level, and $115 for decreasing.
My question is: how linear is this guideline? Does it mean that to get if the sum is $200 000, the premium should be $610 and $230, respectively? Does it get cheaper if the sum assured is more than 1 million? Also, what if I want the coverage to last 35 years (until I'm 67), instead of 30 years?
Thank you very much in advance, and thanks again for your blog and your website.
REPLY
Usually, the premium rate is in straight proportion to the sum assured. However, it depends on the practice of each insurance company. It is best to ask a few insurance companies to quote you the rates for various sum assured.
Here are some companies that you can call
http://www.tankinlian.com/faq/termd.html
Monday, September 15, 2008
Do you hear the people sing
This is my favorite song from Les Miserables. It was during a time when the poor people of France were oppressed, and they wanted a new life. Maybe, this reflects our current times?
http://www.youtube.com/watch?v=x6-5g78Nr6Q
http://www.youtube.com/watch?v=x6-5g78Nr6Q
Is your money safe with AIA ?
Several AIA policyholders have asked my advice. They are worried that AIA may be affected by the collapse of AIG. They asked if they should surrender their AIA policy now and receive the surrender value now.
My advice is:
> AIA has a separate policyholder's fund covering its liability to its policyholders in Singapore.
> To my knowledge, this fund is solvent and is not affected by the problem faced by AIG
> There is no need to panic and surrender the AIA policies at this time
> Even if this fund is in trouble, there is a Policyholder's Guarantee Fund managed by MAS that can take care of most of the liability (maybe 90% or more).
> It is better to wait for any official announcement from MAS
I hope that my comments are correct and can help to allay the fears of AIA policyholders.
My advice is:
> AIA has a separate policyholder's fund covering its liability to its policyholders in Singapore.
> To my knowledge, this fund is solvent and is not affected by the problem faced by AIG
> There is no need to panic and surrender the AIA policies at this time
> Even if this fund is in trouble, there is a Policyholder's Guarantee Fund managed by MAS that can take care of most of the liability (maybe 90% or more).
> It is better to wait for any official announcement from MAS
I hope that my comments are correct and can help to allay the fears of AIA policyholders.
Guaranteed drawdown pension
Hi Mr. Tan,
What are your views about this type of pension? If a UK insurance company can offer something like this, surely the Singapore government can offer something like this on annuities for post 62ers? Or least something better than what we will get.
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/business/7595951.stm
REPLY
I promoted the concept of pension drawdown with an investment fund (i.e. equity, bond or mixed fund). The idea is that you invest your savings in the investment fund, earn a market yield (which can fluctuate wildly) and draw down each month what you need. Any balance in the fund on death of the investor is paid to the estate.
You can calculate the monthly drawdown to last until you are (say) 120 years old. As most people will not live to that age, there will always be some balance that is available.
If you are investing for many years, you reduce the risk of the investment fund as you will get some good years and some bad years, which will give an average yield over the period.
The UK product works in a similar way. It has an added feature to provide the guarantee. I usually advice people to avoid buying this type of guarantee, for the following reasons:
> it is costly
> it is not transparent
> the financial institution backing the guarantee can go bust (like what is happening to the credit default swaps,etc)
Take risk. Risk is to your advantage. Stay with the transparent products. Avoid structured products (like this type of guarantees),-
What are your views about this type of pension? If a UK insurance company can offer something like this, surely the Singapore government can offer something like this on annuities for post 62ers? Or least something better than what we will get.
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/business/7595951.stm
REPLY
I promoted the concept of pension drawdown with an investment fund (i.e. equity, bond or mixed fund). The idea is that you invest your savings in the investment fund, earn a market yield (which can fluctuate wildly) and draw down each month what you need. Any balance in the fund on death of the investor is paid to the estate.
You can calculate the monthly drawdown to last until you are (say) 120 years old. As most people will not live to that age, there will always be some balance that is available.
If you are investing for many years, you reduce the risk of the investment fund as you will get some good years and some bad years, which will give an average yield over the period.
The UK product works in a similar way. It has an added feature to provide the guarantee. I usually advice people to avoid buying this type of guarantee, for the following reasons:
> it is costly
> it is not transparent
> the financial institution backing the guarantee can go bust (like what is happening to the credit default swaps,etc)
Take risk. Risk is to your advantage. Stay with the transparent products. Avoid structured products (like this type of guarantees),-
Sunday, September 14, 2008
Distress over an investment linked policy
A reader asked for my advice on the following:
> He invested heavily in an investment-linked policy. He made many fund switches in past years.
> Recently, he asked to make a partial surrender. The company held back the payment of the surrender amount, to investigate his fund switches. The payment was not made after more than one month.
> The company did not specify in writing the reason for the delay and the nature of the investigation. The customer called the company, but was given verbal promises that were not kept.
>The customer also asked to switch from the equity fund to the money market fund. This was not executed. The customer went to the company the following day and submitted a new request. This company did not execute the switch. The company wrote a week later to state that the switching has been suspended due to irregularites. They did not specify the nature of the irregularities. The equity fund dropped by 30% over the next two weeks, causing great loss to the customer.
I advised the customer to lodge a complaint with MAS on the dreadful conduct of the insurance company. If this is not resolved, the customer should take up a legal case against the company for the losses that they have caused to him.
> He invested heavily in an investment-linked policy. He made many fund switches in past years.
> Recently, he asked to make a partial surrender. The company held back the payment of the surrender amount, to investigate his fund switches. The payment was not made after more than one month.
> The company did not specify in writing the reason for the delay and the nature of the investigation. The customer called the company, but was given verbal promises that were not kept.
>The customer also asked to switch from the equity fund to the money market fund. This was not executed. The customer went to the company the following day and submitted a new request. This company did not execute the switch. The company wrote a week later to state that the switching has been suspended due to irregularites. They did not specify the nature of the irregularities. The equity fund dropped by 30% over the next two weeks, causing great loss to the customer.
I advised the customer to lodge a complaint with MAS on the dreadful conduct of the insurance company. If this is not resolved, the customer should take up a legal case against the company for the losses that they have caused to him.
Specific Unfair practices
Schedule 2 of the Consumer Protection (Fair Trading Act) lists down 20 specific unfair practices. They are listed here:
http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_legdisp.pl?actno=2003-ACT-27-N&doctitle=CONSUMER%20PROTECTION%20%28FAIR%20TRADING%29%20ACT%202003%0a&date=latest&method=part
Those relevant to financial products are:
7. Representing that a price benefit or advantage exists respecting goods or services where the price benefit or advantage does not exist.
11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.
12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.
14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.
20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.
http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_legdisp.pl?actno=2003-ACT-27-N&doctitle=CONSUMER%20PROTECTION%20%28FAIR%20TRADING%29%20ACT%202003%0a&date=latest&method=part
Those relevant to financial products are:
7. Representing that a price benefit or advantage exists respecting goods or services where the price benefit or advantage does not exist.
11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.
12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.
14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.
20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.
Consumer Protection (Fair Trading) Act
Financial products are now governed by the Consumer Protection (Fair Trading) Act.
More details here:
http://app.mti.gov.sg/default.asp?id=84
Read this FAQ:
http://app.mti.gov.sg/default.asp?id=565
1. What constitutes an unfair practice under the Act?
It is an unfair practice for a trader, in relation to a consumer transaction-
> to do or say anything, or omit to do or say anything, if as a result a consumer might reasonably be deceived or misled;
> to make a false claim;
> to take advantage of a consumer if the trader knows or ought reasonably to know that the consumer
++ is not in a position to protect his own interests; or
++ is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction; or
> to do any of the 20 unfair practices listed in the Second Schedule of the Act.
The trader should provide the consumer with all relevant and material information so as not to mislead the consumer. The consumer can then make an informed decision. Traders should review their business practices; in particular, what information they provide to consumers and how they convey information.The court, in determining whether or not a trader has engaged in an unfair practice, would consider the reasonableness of the actions of the trader. The court would also take into account, in granting remedies to the consumer, whether the consumer tried to resolve the dispute with the trader first before commencing action.
My comment: Many of the complicated financial products offered in the market will not pass this test of "fair trading".
More details here:
http://app.mti.gov.sg/default.asp?id=84
Read this FAQ:
http://app.mti.gov.sg/default.asp?id=565
1. What constitutes an unfair practice under the Act?
It is an unfair practice for a trader, in relation to a consumer transaction-
> to do or say anything, or omit to do or say anything, if as a result a consumer might reasonably be deceived or misled;
> to make a false claim;
> to take advantage of a consumer if the trader knows or ought reasonably to know that the consumer
++ is not in a position to protect his own interests; or
++ is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction; or
> to do any of the 20 unfair practices listed in the Second Schedule of the Act.
The trader should provide the consumer with all relevant and material information so as not to mislead the consumer. The consumer can then make an informed decision. Traders should review their business practices; in particular, what information they provide to consumers and how they convey information.The court, in determining whether or not a trader has engaged in an unfair practice, would consider the reasonableness of the actions of the trader. The court would also take into account, in granting remedies to the consumer, whether the consumer tried to resolve the dispute with the trader first before commencing action.
My comment: Many of the complicated financial products offered in the market will not pass this test of "fair trading".
Are Consumer Protection Initiatives Meeting Expectations
This paper gives an interesting explanation of the approach adopted in Canada, UK and Australia:
http://www.isis.org.my/files/pubs/papers/AreConsumerProtection.pdf
It explains the approach taken in Singapore as follows:
In the case of Singapore, financial services (excluding money lending and pawn broking) have now been brought within the ambit of the Consumer Protection (Fair Trade) Act of 2004. Consumers now have the option to pursue remedies under the Act for unfair practices and unconscionable conduct (such as high-pressure selling) by financial institutions. Dispute resolution is delegated to the Financial Industries Disputes Resolution Centre Ltd although only cases of up to S$50,000 will be heard. Interestingly, in 2004 the President of the Consumer Association of Singapore, who is also a Member of Parliament, raised the issues of high pressure sales tactics, the high rates of interest charged on credit card balances and the ‘cartel-like manner’ in which banks maintained interest rates of 24 per cent when other financial borrowings incurred interest of less than 5 per cent.
The Second Minister of Finance responded by saying that the Monetary Authority of Singapore does not consider its role to include directly settling commercial disputes between financial institutions and their customers. The Authority also does not interfere in the setting of interest rates and prices or what terms and conditions should govern commercial transactions. Rather, he Authority provides the regulatory framework for the necessary disclosure and the proper business conduct standards to be undertaken so as to ensure that the consumer is fairly treated.
In the light of the above, how might one evaluate Bill Knight’s conclusion that “the importance of
the consumer to a vibrant and healthy economy has moved non-prudential/market conduct regulation to a place at the table beside prudential regulators in the financial services regulatory structures around the world”? This might be true of OECD countries generally but significant developments in other parts of the world seem less apparent. Could one possibly envisage conditions where governments “move forward to adjust regulatory structures (and) pay close attention to the consumer and their needs”? Consumers are unable to generate any degree of countervailing weight while governments still seem be too protective of, and too hesitant to ‘fetter’ their financial institutions, to do anything dramatic in this direction. One may not be far wrong to say that most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be.
The key message from this paper is quoted in the last line, "most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be."
http://www.isis.org.my/files/pubs/papers/AreConsumerProtection.pdf
It explains the approach taken in Singapore as follows:
In the case of Singapore, financial services (excluding money lending and pawn broking) have now been brought within the ambit of the Consumer Protection (Fair Trade) Act of 2004. Consumers now have the option to pursue remedies under the Act for unfair practices and unconscionable conduct (such as high-pressure selling) by financial institutions. Dispute resolution is delegated to the Financial Industries Disputes Resolution Centre Ltd although only cases of up to S$50,000 will be heard. Interestingly, in 2004 the President of the Consumer Association of Singapore, who is also a Member of Parliament, raised the issues of high pressure sales tactics, the high rates of interest charged on credit card balances and the ‘cartel-like manner’ in which banks maintained interest rates of 24 per cent when other financial borrowings incurred interest of less than 5 per cent.
The Second Minister of Finance responded by saying that the Monetary Authority of Singapore does not consider its role to include directly settling commercial disputes between financial institutions and their customers. The Authority also does not interfere in the setting of interest rates and prices or what terms and conditions should govern commercial transactions. Rather, he Authority provides the regulatory framework for the necessary disclosure and the proper business conduct standards to be undertaken so as to ensure that the consumer is fairly treated.
In the light of the above, how might one evaluate Bill Knight’s conclusion that “the importance of
the consumer to a vibrant and healthy economy has moved non-prudential/market conduct regulation to a place at the table beside prudential regulators in the financial services regulatory structures around the world”? This might be true of OECD countries generally but significant developments in other parts of the world seem less apparent. Could one possibly envisage conditions where governments “move forward to adjust regulatory structures (and) pay close attention to the consumer and their needs”? Consumers are unable to generate any degree of countervailing weight while governments still seem be too protective of, and too hesitant to ‘fetter’ their financial institutions, to do anything dramatic in this direction. One may not be far wrong to say that most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be.
The key message from this paper is quoted in the last line, "most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be."
Saturday, September 13, 2008
Avoid investing with leveraged money
Dear Mr. Tan,
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.
Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.
How can I reduce my loss, especially from the leveraged investment?
REPLY
Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.
It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.
Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.
How can I reduce my loss, especially from the leveraged investment?
REPLY
Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.
It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).
Stress and uncertainty with Incomeshield
Hi Mr. Tan,
I would like to seek you advice on my Incomeshield. Previously, I was still covered under Medishield. I underwent an operation to remove X and Y. Later, I switched to Incomeshield. I declared the operation but forgot about the Y and only indicated X. I was accepted with no exclusion term.
Recently I found out about the omission and make another declaration. I was excluded from any claim relation to and/or arising out of Y.
I called CPF to check if I were to revert back to Medishield, would Y be excluded? They were not able to answer it. I called NTUC, they are not able to advise whether the basic component will still cover that.
At the point of my operation, I was covered under Medishield. What is the possibility that CPF will exclude this clause. I'm in dilemma as to whether I should continue with NTUC or go back to CPF.
REPLY
I believe that Incomeshield is required (by Ministry of Health) to cover you for Y for the Medishield limits under Medishield. You can confirm this point with NTUC Income. If this is the case, you can lodge a complaint about giving you a lot of stress and uncertainty.
I would like to seek you advice on my Incomeshield. Previously, I was still covered under Medishield. I underwent an operation to remove X and Y. Later, I switched to Incomeshield. I declared the operation but forgot about the Y and only indicated X. I was accepted with no exclusion term.
Recently I found out about the omission and make another declaration. I was excluded from any claim relation to and/or arising out of Y.
I called CPF to check if I were to revert back to Medishield, would Y be excluded? They were not able to answer it. I called NTUC, they are not able to advise whether the basic component will still cover that.
At the point of my operation, I was covered under Medishield. What is the possibility that CPF will exclude this clause. I'm in dilemma as to whether I should continue with NTUC or go back to CPF.
REPLY
I believe that Incomeshield is required (by Ministry of Health) to cover you for Y for the Medishield limits under Medishield. You can confirm this point with NTUC Income. If this is the case, you can lodge a complaint about giving you a lot of stress and uncertainty.
Friday, September 12, 2008
Simple Financial Planning
I wish to give this advice to any person on your financial planning:
> buy a 20 year term assurance for 5 to 10 years of your income
> ask the insurance company to quote the rate for your comparison
> do not talk to an insurance agent
> do not invest in any whole life, endowment or investment linked policy
> make monthly savings (of 15% of your earnings) in a bank
> when the saving reach $3,000, buy 1,000 units of STI ETF.
Read these FAQs:
Financial planning for the young
http://www.tankinlian.com/faq/fptips.html
Personal insurance:
http://www.tankinlian.com/faq/choice.html
Buy Term Insurance directly:
http://www.tankinlian.com/faq/termd.html
If you talk to an insurance agent, be prepared for the agent to "convince" you to buy a critical illness policy or a term to 100 years (which is a whole life policy by another name). Say good-bye to more than $1,000 of your savings (as it will be used to pay commission to the agent.
> buy a 20 year term assurance for 5 to 10 years of your income
> ask the insurance company to quote the rate for your comparison
> do not talk to an insurance agent
> do not invest in any whole life, endowment or investment linked policy
> make monthly savings (of 15% of your earnings) in a bank
> when the saving reach $3,000, buy 1,000 units of STI ETF.
Read these FAQs:
Financial planning for the young
http://www.tankinlian.com/faq/fptips.html
Personal insurance:
http://www.tankinlian.com/faq/choice.html
Buy Term Insurance directly:
http://www.tankinlian.com/faq/termd.html
If you talk to an insurance agent, be prepared for the agent to "convince" you to buy a critical illness policy or a term to 100 years (which is a whole life policy by another name). Say good-bye to more than $1,000 of your savings (as it will be used to pay commission to the agent.
Swedish practice on life insurance
After the Second World War, there were political discussions where the left wing parties, who were in power, suggested that all banks and insurance companies should be state owned.
As a compromise, a fairness principle was introduced in the Swedish Insurance Company Act in 1948. The fairness principle stated that premiums paid by policyholders shall be fair compared to the benefits received by these policyholders. For life insurance business, this was interpreted to mean that all profits made on premiums should be returned as bonus to the policyholders, present or future.
The shareholders of the companies were only allowed a fair return on the share capital, which in most companies was very small.
This was in line with how some life insurers already operated, but was a major change for some others.
During the 1960’s and 1970’s, a practice emerged of paying no dividends at all to shareholders, and this was formalised when the Swedish Parliament in 1982 passed a bill that prohibited the distribution of profits to shareholders of a life insurance company.
This is what makes special the mutual model for non-profit distributing life insurance companies in Sweden: as in a true mutual life insurance company, no profit is distributed to shareholders but the company is still formally a shareholder-owned company. An important aspect of this is that the shareholders retain the right to make important business decisions for the company, without requiring permission from the policyholders or any of their representatives.
Around 1990, unit link life insurance was allowed in Sweden, and unit link companies were allowed to distribute profits to its shareholders through dividends. Sweden became a member of the European Union in 1996, and a change to the Swedish Insurance Company Act in 2000 again opened up for distribution of profits to shareholders in traditional life insurance companies.
However, a process has been established to transform an existing life insurance company to a
profit distributing company, where a transformation for example depends on the approval of the policyholders.
Since then, only a few existing life insurance companies have changed into profit distributing
companies following the change of the company act. In these cases all existing capital of the company has been distributed to the policyholders while the shareholders have injected new risk capital in the form of equity into the company.
As a compromise, a fairness principle was introduced in the Swedish Insurance Company Act in 1948. The fairness principle stated that premiums paid by policyholders shall be fair compared to the benefits received by these policyholders. For life insurance business, this was interpreted to mean that all profits made on premiums should be returned as bonus to the policyholders, present or future.
The shareholders of the companies were only allowed a fair return on the share capital, which in most companies was very small.
This was in line with how some life insurers already operated, but was a major change for some others.
During the 1960’s and 1970’s, a practice emerged of paying no dividends at all to shareholders, and this was formalised when the Swedish Parliament in 1982 passed a bill that prohibited the distribution of profits to shareholders of a life insurance company.
This is what makes special the mutual model for non-profit distributing life insurance companies in Sweden: as in a true mutual life insurance company, no profit is distributed to shareholders but the company is still formally a shareholder-owned company. An important aspect of this is that the shareholders retain the right to make important business decisions for the company, without requiring permission from the policyholders or any of their representatives.
Around 1990, unit link life insurance was allowed in Sweden, and unit link companies were allowed to distribute profits to its shareholders through dividends. Sweden became a member of the European Union in 1996, and a change to the Swedish Insurance Company Act in 2000 again opened up for distribution of profits to shareholders in traditional life insurance companies.
However, a process has been established to transform an existing life insurance company to a
profit distributing company, where a transformation for example depends on the approval of the policyholders.
Since then, only a few existing life insurance companies have changed into profit distributing
companies following the change of the company act. In these cases all existing capital of the company has been distributed to the policyholders while the shareholders have injected new risk capital in the form of equity into the company.
Thursday, September 11, 2008
Speaker's Corner, 13 September 5 p.m.
The Online Citizen is organising an event as follows:
Topic: Public Transport in Singapore
Venue: Speaker's Corner, Hong Lim Park
Time: 5 p.m.
Date: Saturday 13 September, 2008.
Agenda: Speech by 4 speakers on the topic
A paper on proposals to improve the public transport will be handed out.
Project 11-11-2008
My target is to achieve 500,000 visitors to my blog by 11-11-2008.
The sitemeter shows 430,484 visitors as at 11 Sep 2008. The average visitor per day is 1,137.
The projected date to achieve the target of 500,000 visitors is 11 Nov 2008 (based on average of 1137 per day). We are right on target ... exactly to the day!
Today is the 7th anniversary of 9-11 terrorist attack on the World Trade Center in New York.
The sitemeter shows 430,484 visitors as at 11 Sep 2008. The average visitor per day is 1,137.
The projected date to achieve the target of 500,000 visitors is 11 Nov 2008 (based on average of 1137 per day). We are right on target ... exactly to the day!
Today is the 7th anniversary of 9-11 terrorist attack on the World Trade Center in New York.
Ask the agent
Many readers dare not ask the agent to explain the key questions. They are confused by the explanation given by the agent. They sent an e-mail to me for advice.
My usual reply is:
> The agent can earns $1,000 or more to sell a life policy to you
> The agent has a duty to explain the product clearly to you
> You should ask for explanation on the Benefit Illustration
> Ask for the explanation in writing
> You should never buy the product, if you are not clear about it
> I am not able to give personal advice to you
> You have to make your own judgement
My usual reply is:
> The agent can earns $1,000 or more to sell a life policy to you
> The agent has a duty to explain the product clearly to you
> You should ask for explanation on the Benefit Illustration
> Ask for the explanation in writing
> You should never buy the product, if you are not clear about it
> I am not able to give personal advice to you
> You have to make your own judgement
Advice from my blog and website
Hi Mr. Tan,
I have been reading your articles on the high costs of whole life insurance. Could you help to comment on the below quotations from Income for a 10 yr and 20yr Vivolife policy? I would like to know the explanation of distribution cost and effect of deduction using the below.
(Details removed)
REPLY
My advice is given in my blog:
http://tankinlian.blogspot.com/2008/09/advice-on-vivolife.html
Please read my blog and website for the information:
http://www.tankinlian.blogspot.com/
http://www.tankinlian.com/
I have been reading your articles on the high costs of whole life insurance. Could you help to comment on the below quotations from Income for a 10 yr and 20yr Vivolife policy? I would like to know the explanation of distribution cost and effect of deduction using the below.
(Details removed)
REPLY
My advice is given in my blog:
http://tankinlian.blogspot.com/2008/09/advice-on-vivolife.html
Please read my blog and website for the information:
http://www.tankinlian.blogspot.com/
http://www.tankinlian.com/
Wednesday, September 10, 2008
Free Public Transport
This article describes cities that have free public transport:
http://en.wikipedia.org/wiki/Zero-fare_public_transport
A friend, who sent the information to me, confirmed that the information on Auckland is true:
Auckland, New Zealand
A free CBD loop service links the ferry terminus, railway station, universities, theatres, casino, galleries and shopping districts using hybrid electric buses. It operates from 8am to 6pm, 7 days, at 10 mins interval, but not all buses are hybrid.
The quality of service is quite good, although it does get crowded at certain time, eg. school hours, lunch time, etc.
http://en.wikipedia.org/wiki/Zero-fare_public_transport
A friend, who sent the information to me, confirmed that the information on Auckland is true:
Auckland, New Zealand
A free CBD loop service links the ferry terminus, railway station, universities, theatres, casino, galleries and shopping districts using hybrid electric buses. It operates from 8am to 6pm, 7 days, at 10 mins interval, but not all buses are hybrid.
The quality of service is quite good, although it does get crowded at certain time, eg. school hours, lunch time, etc.
World Class Public Transport System
Read about my suggestions to improve the public transport system in Singapore, and comments from other readers as follows:
http://theonlinecitizen.com/2008/09/ptw-from-third-world-to-first/#comment-20915
http://theonlinecitizen.com/2008/09/ptw-from-third-world-to-first/#comment-20915
Inadequate cash value
Dear Mr. Tan,
Thank you for telling us about the special report in The New Paper. I surrendered my life policy recently and received a refund that is much lower than the premiums that I paid. I have written to MAS to ask them to take up the case with my insurance company. I hope that they will act. Do you think that the insurance company will pay more to me?
http://tankinlian.blogspot.com/2008/09/new-paper-truth-of-life-insurance.html
REPLY
Let us wait for the reply. Wish you all the best.
Thank you for telling us about the special report in The New Paper. I surrendered my life policy recently and received a refund that is much lower than the premiums that I paid. I have written to MAS to ask them to take up the case with my insurance company. I hope that they will act. Do you think that the insurance company will pay more to me?
http://tankinlian.blogspot.com/2008/09/new-paper-truth-of-life-insurance.html
REPLY
Let us wait for the reply. Wish you all the best.
Tuesday, September 09, 2008
Take a bigger loan at a low interest rate
Hi Mr. Tan,
I am in the process of looking for a housing loan. My friend advised me not to pay off the loan so fast, but to use my available cash for investments. Is it a wise thing to do? He showed me some calculations, to convince me that I would be better off taking loans and investing my cash. But won't I be losing from the high interest the bank charges?
REPLY
If the interest rate on your loan is low (say 2.6% for HDB loan), you should be able to earn more than than this interest rate from your invetment, if it is invested wisely. You should avoid investment that has a high charge, especially if it is marketed to you by an agent or financial adviser.
However, if the interest rate is more than 4%, it is not worthwhile to take the investment risk.
I am in the process of looking for a housing loan. My friend advised me not to pay off the loan so fast, but to use my available cash for investments. Is it a wise thing to do? He showed me some calculations, to convince me that I would be better off taking loans and investing my cash. But won't I be losing from the high interest the bank charges?
REPLY
If the interest rate on your loan is low (say 2.6% for HDB loan), you should be able to earn more than than this interest rate from your invetment, if it is invested wisely. You should avoid investment that has a high charge, especially if it is marketed to you by an agent or financial adviser.
However, if the interest rate is more than 4%, it is not worthwhile to take the investment risk.
Suzy Orman on Life Insurance
A friend recommends a whole life policy and earns $10,000 in commission.
Watch this video:
http://www.youtube.com/watch?v=6vnN9liFWaE
Watch this video:
http://www.youtube.com/watch?v=6vnN9liFWaE
Suitable products depending on needs
Some readers argued that certain products are not inherently bad. They are suitable for certain people, according to their needs. This is only partly true.
Here are my points:
> A product is bad, if it is designed to "cheat" people. This type of product has high charges that are hidden from the consumer.
> These products are "pushed" by agents or marketeers, who mislead the consumer through their "marketing techniques".
Most life insurance "savings" products and structured financial products fall in this category.
The good products are those that do not need to be marketed. They are bought by the consumer, usually over the counter. They include:
> bank deposits
> government bonds
> low cost unit trust
> term insurance products
Here are my points:
> A product is bad, if it is designed to "cheat" people. This type of product has high charges that are hidden from the consumer.
> These products are "pushed" by agents or marketeers, who mislead the consumer through their "marketing techniques".
Most life insurance "savings" products and structured financial products fall in this category.
The good products are those that do not need to be marketed. They are bought by the consumer, usually over the counter. They include:
> bank deposits
> government bonds
> low cost unit trust
> term insurance products
Monday, September 08, 2008
Advice on Vivolife
Hi Mr. Tan,
You must be familiar with NTUC Vivolive. An agent tried to sell it to me...Is it of any good value? It seems to be a whole life policy.
REPLY
You should ask the agent to explain the following figures to you:
1. What is the value of the premium accumulated at 3.75% and 5.25% after 20 years or at age 65 ?
2. What is the projected cash value of the prolicy after 20 years or at age 65
3. What is the percentage reduction from the value of the premium represented by the cash value?
4. If the percentage reduction is more than 30%, the policy is expensive.
5. What is the amount deducted from your policy as distribution cost (mainly to pay commission to the agent)
Read this FAQ:
http://www.tankinlian.com/faq/true.html- Hide quoted text -
You must be familiar with NTUC Vivolive. An agent tried to sell it to me...Is it of any good value? It seems to be a whole life policy.
REPLY
You should ask the agent to explain the following figures to you:
1. What is the value of the premium accumulated at 3.75% and 5.25% after 20 years or at age 65 ?
2. What is the projected cash value of the prolicy after 20 years or at age 65
3. What is the percentage reduction from the value of the premium represented by the cash value?
4. If the percentage reduction is more than 30%, the policy is expensive.
5. What is the amount deducted from your policy as distribution cost (mainly to pay commission to the agent)
Read this FAQ:
http://www.tankinlian.com/faq/true.html- Hide quoted text -
Big exchange loss in a Dual Currency Investment
Hi Mr. Tan,
I invested in a Dual Currency Investment two years ago and made a good return. Recently, the AUD depreciated against the USD. All of my investments got converted to AUD at 0.90. The exchange rate has now dropped further to 0.816, which makes the unrealized forex loss to US$50K.
What strategy should I take to minimized the loss? Right now, while waiting for the AUD to do better against USD, I have placed my money into a weekly time deposit earning almost 6%p.a.
REPLY
It is all right to keep the AUD in fixed deposit and earn 6% interest. There is a chance that it will recover, as it has dropped by more than 10%.
If you had invested in the AUD directly, instead of a DCI investment during the past two years, you would have made an exchange gain that is more than the loss that you suffer now. But, if you invested in the DCI, your gain would have been much lower.
I usually advise people to avoid DCI, as the investor is taking the risk of a loss (like you did), it was not able to enjoy the full appreciation (if the currency goes up).
Read this FAQ:
http://www.tankinlian.com/faq/duali.html
I invested in a Dual Currency Investment two years ago and made a good return. Recently, the AUD depreciated against the USD. All of my investments got converted to AUD at 0.90. The exchange rate has now dropped further to 0.816, which makes the unrealized forex loss to US$50K.
What strategy should I take to minimized the loss? Right now, while waiting for the AUD to do better against USD, I have placed my money into a weekly time deposit earning almost 6%p.a.
REPLY
It is all right to keep the AUD in fixed deposit and earn 6% interest. There is a chance that it will recover, as it has dropped by more than 10%.
If you had invested in the AUD directly, instead of a DCI investment during the past two years, you would have made an exchange gain that is more than the loss that you suffer now. But, if you invested in the DCI, your gain would have been much lower.
I usually advise people to avoid DCI, as the investor is taking the risk of a loss (like you did), it was not able to enjoy the full appreciation (if the currency goes up).
Read this FAQ:
http://www.tankinlian.com/faq/duali.html
Choice of term or personal accident insurance
Dear Mr. Tan,
I have read your blog and website. Your articles are really helpful to individual investors at the grassroots.
I have term life and personal accident policy. You mentioned that it's reasonable to have sum assumed 5 to 10 times of annual income. Does this ceiling apply to life and personal accident respectively or separately? Should the aggregate sum assumed be taken to make up the ceiling?
REPLY
If you can afford the premium, you should buy term insurance for the target sum of 5 to 10 years of salary. Term insurance covers death from accidents and illness.
If you with to reduce the cost, you can insure the target sum partly by term insurance and partly by accident.
You should get the quotation of the cost and make your decision based on the figures.
I have read your blog and website. Your articles are really helpful to individual investors at the grassroots.
I have term life and personal accident policy. You mentioned that it's reasonable to have sum assumed 5 to 10 times of annual income. Does this ceiling apply to life and personal accident respectively or separately? Should the aggregate sum assumed be taken to make up the ceiling?
REPLY
If you can afford the premium, you should buy term insurance for the target sum of 5 to 10 years of salary. Term insurance covers death from accidents and illness.
If you with to reduce the cost, you can insure the target sum partly by term insurance and partly by accident.
You should get the quotation of the cost and make your decision based on the figures.
Sunday, September 07, 2008
Investing in NZD
Dear Mr Tan
What is your opinion of investing in the NZD at this point of time? What are the risks and rewards involved?
REPLY
Read this FAQ
http://www.tankinlian.com/faq/foreign.html
The NZD has corrected a lot from its high level. This seems to be an attractive level for a new investment.
What is your opinion of investing in the NZD at this point of time? What are the risks and rewards involved?
REPLY
Read this FAQ
http://www.tankinlian.com/faq/foreign.html
The NZD has corrected a lot from its high level. This seems to be an attractive level for a new investment.
Another scam: Beware of Push Pockets ...
I RECEIVED THIS E-MAIL
While the scams are happening in Malaysia , it's a lesson worth noting for anyone of you who loves to travel. Be alert!!
I am sure you all have heard of 'pick pocket'. Now there is a new trend, 'push pocket'.
A few days ago a new type of crime has surfaced in town. It goes something like this:-
Somebody slips a hand-phone into your pocket, sometimes it could be just a wallet with an identity card and a few Ringgit.
A few minutes later, the 'owner' comes up and confronts you, the 'thief'. He makes a big commotion that you stole his stuff.
You, caught unaware, are then pulled aside by the 'owner' for a settlement you are intimidated and threatened that if you do not pay up, the police will be brought in. If you pay up, this 'owner' lets you go. If not, the police are brought in.
Another strange thing is that, there always seems to be a 'witness' to the your 'theft'.
I am told this often happens to foreigners at the Kuala Lumpur International Airport (KLIA) or even at LRT trains. Given that you're 'guilty until proven innocent' as far as the Malaysian police are concerned, I understand some poor people are in jail for these 'offences'.
At the KLIA, the 'owner' throws his hand-phone and wallet with the few Ringgit notes into the luggage trolley of a just arrived passenger. The drama unfolds a few minutes later.
The real culprit has easily convinced our Malaysian police to arrest the real victim (if he has not paid up the 'settlement' demand).
This is a very serious matter.
This is another form of extortionists operating in broad daylight. They are disgusting criminals who will do anything to rob and steal. The sickening part of the whole scenario is that unless you pay the 'quoted settlement' money, they will put you in real trouble by calling the police.
The real culprit gets back his hand-phone and wallet but the real victim (i.e. could be any one of us) is thrown into the police lock up and charged in court.
So do be very careful, otherwise you may end up as a 'thief' as you have no way to prove your innocence.
While the scams are happening in Malaysia , it's a lesson worth noting for anyone of you who loves to travel. Be alert!!
I am sure you all have heard of 'pick pocket'. Now there is a new trend, 'push pocket'.
A few days ago a new type of crime has surfaced in town. It goes something like this:-
Somebody slips a hand-phone into your pocket, sometimes it could be just a wallet with an identity card and a few Ringgit.
A few minutes later, the 'owner' comes up and confronts you, the 'thief'. He makes a big commotion that you stole his stuff.
You, caught unaware, are then pulled aside by the 'owner' for a settlement you are intimidated and threatened that if you do not pay up, the police will be brought in. If you pay up, this 'owner' lets you go. If not, the police are brought in.
Another strange thing is that, there always seems to be a 'witness' to the your 'theft'.
I am told this often happens to foreigners at the Kuala Lumpur International Airport (KLIA) or even at LRT trains. Given that you're 'guilty until proven innocent' as far as the Malaysian police are concerned, I understand some poor people are in jail for these 'offences'.
At the KLIA, the 'owner' throws his hand-phone and wallet with the few Ringgit notes into the luggage trolley of a just arrived passenger. The drama unfolds a few minutes later.
The real culprit has easily convinced our Malaysian police to arrest the real victim (if he has not paid up the 'settlement' demand).
This is a very serious matter.
This is another form of extortionists operating in broad daylight. They are disgusting criminals who will do anything to rob and steal. The sickening part of the whole scenario is that unless you pay the 'quoted settlement' money, they will put you in real trouble by calling the police.
The real culprit gets back his hand-phone and wallet but the real victim (i.e. could be any one of us) is thrown into the police lock up and charged in court.
So do be very careful, otherwise you may end up as a 'thief' as you have no way to prove your innocence.
Hurricanes in USA
The hurricanes have a name, starting with A, B up to Z using female names. After 26 hurricanes, a new series is started with A, B up to Z using male names. The current names are (male) Gustav, Hanna and Ike.
Gustav (which has just passed) was earlier feared to be as bad as Katrina a few years ago, but it finally did not cause much damage.
CORRECTION
The names of the hurricanes alternate between male and female names, starting from A followed by B, etc. Here is a list of names of hurricanes:
http://www.nhc.noaa.gov/aboutnames.shtml
Gustav (which has just passed) was earlier feared to be as bad as Katrina a few years ago, but it finally did not cause much damage.
CORRECTION
The names of the hurricanes alternate between male and female names, starting from A followed by B, etc. Here is a list of names of hurricanes:
http://www.nhc.noaa.gov/aboutnames.shtml
Saturday, September 06, 2008
The New Paper - Truth of Life Insurance Payout
The New Paper has a special report on "The truth of Life Insurance Payout" in its
September 6 edition.
I recommend to all policyholders to read this special report. It shows that the amounts paid out to policyholders on a surrendered or matured policy is far short of the "asset share" of the policy. Many policyhoders are being paid far less than a "fair amount".
If you fall in this category, I suggest that you should write to the Monetary Authority of Singapore to ask them to take up the matter with your insurance company.
I have written to the Consumer Association to raise the following matter with MAS:
1. Is the amount paid to the policyholder of a surrendered or matured policy quite close to the "individual liability” in respect of the policy? Is the insurance company allowed to pay out an amount that is far short of this “individual liability”? The individual liability is required to be computed by the insurance company for each policy and reported in total in the annual return to MAS.
2. In the interest of transparency and fairness, can MAS require the insurance company to disclose the "individual liability", upon the request of the policyholder of a terminated policy, so that the policyholder is aware of the amount of the "individual liability" that is held back from him?
3. Is it fair for a policyholder, on surrender of a policy, to be getting back less than the premiums paid after 10 years or longer, when the insurance company is able to retain up to 40% of the "individual liability" from the policyholder?
4. Why is it not possible for Singapore to adopt the practice in Malaysia and other countries, which requires the insurance company to pay out the “asset share” on a terminated policy after it has been held for more than a certain period? The “asset share” is similar to the “individual liability” reported in the annual return to MAS. This payout appears to be fairer and is much higher than the cash value now given to a policyholder in Singapore.
5. Can MAS ask the insurance company to disclose the total cash value of all policies, to allow it to be compared with the “sum of the individual liability in respect of each policy” as reported in the annual return? This will allow the public to know the amount that is held back by the insurance company, if all the policies were terminated.
September 6 edition.
I recommend to all policyholders to read this special report. It shows that the amounts paid out to policyholders on a surrendered or matured policy is far short of the "asset share" of the policy. Many policyhoders are being paid far less than a "fair amount".
If you fall in this category, I suggest that you should write to the Monetary Authority of Singapore to ask them to take up the matter with your insurance company.
I have written to the Consumer Association to raise the following matter with MAS:
1. Is the amount paid to the policyholder of a surrendered or matured policy quite close to the "individual liability” in respect of the policy? Is the insurance company allowed to pay out an amount that is far short of this “individual liability”? The individual liability is required to be computed by the insurance company for each policy and reported in total in the annual return to MAS.
2. In the interest of transparency and fairness, can MAS require the insurance company to disclose the "individual liability", upon the request of the policyholder of a terminated policy, so that the policyholder is aware of the amount of the "individual liability" that is held back from him?
3. Is it fair for a policyholder, on surrender of a policy, to be getting back less than the premiums paid after 10 years or longer, when the insurance company is able to retain up to 40% of the "individual liability" from the policyholder?
4. Why is it not possible for Singapore to adopt the practice in Malaysia and other countries, which requires the insurance company to pay out the “asset share” on a terminated policy after it has been held for more than a certain period? The “asset share” is similar to the “individual liability” reported in the annual return to MAS. This payout appears to be fairer and is much higher than the cash value now given to a policyholder in Singapore.
5. Can MAS ask the insurance company to disclose the total cash value of all policies, to allow it to be compared with the “sum of the individual liability in respect of each policy” as reported in the annual return? This will allow the public to know the amount that is held back by the insurance company, if all the policies were terminated.
Life insurance products can give good value
Some people argued that whole life, whole life limited premium and other life insurance products can meet the needs of certain categories of people and can be considered as good products.
This is correct.
Life insurance products can be designed to be good for consumers. They become bad products when they are designed to pay high commission to the agent and give poor value to the consumer. This high cost is not disclosed to the consumer.
Unfortunately, most of the products in the Singapore market are designed to be high cost, good for the agent and bad for the consumer. Up to two years of the premium are taken away to pay the commission and marketing expenses. If the monthly premium is $300, the amount of the hard earng savings taken away from the policyholder can be as much as $7,200.
This is a lot of money to be taken away from the unsuspecting policyholder, and is not told to the policyholder at the point of sale. This fact is hidden in the Benefit Illustration among 20 pages of confusing information.
If the charges are kept at a reasonable level, say a maximum of half year's premium (which is still a lot of money) and this is clearly disclosed to the policyholder, then a whole life, endowment or investment linked policy can be considered to be a good product and is suitable for most people.
This is correct.
Life insurance products can be designed to be good for consumers. They become bad products when they are designed to pay high commission to the agent and give poor value to the consumer. This high cost is not disclosed to the consumer.
Unfortunately, most of the products in the Singapore market are designed to be high cost, good for the agent and bad for the consumer. Up to two years of the premium are taken away to pay the commission and marketing expenses. If the monthly premium is $300, the amount of the hard earng savings taken away from the policyholder can be as much as $7,200.
This is a lot of money to be taken away from the unsuspecting policyholder, and is not told to the policyholder at the point of sale. This fact is hidden in the Benefit Illustration among 20 pages of confusing information.
If the charges are kept at a reasonable level, say a maximum of half year's premium (which is still a lot of money) and this is clearly disclosed to the policyholder, then a whole life, endowment or investment linked policy can be considered to be a good product and is suitable for most people.
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