Achive top position in life insurance sales

Life insurance companies compete yearly to achieve the top position in life insurance sales. This is an indicator  of success and the productivity of the sales force. Several decades ago, the competition was based on annual premium on new policies, but in recent years, 10% of the single premiums are added to the annual premium to get the weighted premium as a measure of the sales.

To achieve sales and energize the sales agents, the life insurance companies introduce new and innovative products every year. These new products are variations of the old products, but have some changes to allow the agents to market the product. The variations may take the following forms:

a) a shorter period to pay the insurance premium
b) additional risks that are being covered
c) change from guaranteed to investment-linked payouts or back

As each new product is launched, the insurance agents have the chance to go back to the old customers and get the customers to terminate an existing policy and buy a new policy under the new product with the special features.

The customers are taken for a ride. They are not aware that the existing products give better value and that replacing the products is costly and against the interest of the consumer. In most cases, the consumer has to give up two years of premiums as upfront cost. The customers were also not aware they can buy separate insurance, at low cost, to cover any new needs. (I shall write separately on these matters).

Some insurance agents make a good living by replacing the existing policies of their customers every few years with the new "better" products, but making their customers poorer in the process. With the huge loses on the replaced products, the consumers are never able to accumulate sufficient savings for their retirements, even if they had been frugal.

An insurance agent can achieve the top sales position by making it possible for the sales agents to exploit the ignorance of their customers through the replacement of existing policies. The sales agents are happy with this arrangement, as they can earn high commission by selling the new policies, and it is easier to replace existing policies than to find new customers.

This bad practice of replacing policies, also known as "twisting" is made illegal in some countries. It is discouraged in Singapore, but the enforcement is weak.

An ethical insurance company will protect the interest of its customers by disallowing replacement of existing policies. An unethical company will make it easy for the sales agents to explot the ignorance of the existing customers to make new sales by replacing existing policies, and achieve the top sales position.

Tan Kin Lian

Logic9 (pocket sudoku) $4

Logic9 (pocket sudoku) vol 3 and 4 is now available at Internet shop. Each volume contains 128 puzzles at 4 levels (32 puzzles for each level). It can be kept in a pocket and can be used on the train, bus or plane. This is available at a discount of 15% during February (net price $3.40). Order here.

The Future That I Like To See

A reader asked me to summarize my views on social, economic and political topics, which have been expressed in various postings in this blog. I have made my first attempt here.

Government regulation

Some people expressed surprise that I advocate more regulation. They point to examples of oppressive and bad regulations.

Society need to be regulated. The poor and the weak have to be protected against abuse and exploitation. This has to be achieved through law and regulation. Regulation should not and need not be intrusive. They do not need to impinge on personal freedom. So, there has to be a proper balance.

In a democratic and free society, the citizens will help to determine where the line should be drawn between regulation and freedom. So, we need a democratic and accountable authority. I am giving some brief thoughts here, and will develop this idea more more in subsequent postings.

Tan Kin Lian

Risky new financial product

A new financial product has been created that could cause systemic risk. Read about it here.

America addresses its shortcomings

The American system has its strength - openness, accountability and freedom. However, it has its weaknesses - a political system in gridlock. It is difficult for American to take the actions that are needed to address its shortcomings, due to the obstruction caused by some legislators.

The shortcomings have been acknowledged and some people, including President Obama, are stepping forward to deal with these issues, to find a way to get the country to act and solve its long term problems. The willingness to recognize its problems, to discuss them openly, and to act on them, may well be the strengths of the American system. I hope that they will succeed in this challenge.

I hope that Singapore can adopt some of this new approach, and find new ways to solve problems that have not been solved for several decades, such as the high cost of living, long working hours, poor quality of life and the low birth rate.

Tan Kin LianPublish Post

Government regulations

Many people dislike government regulation and prefer to leave matters to be sorted out by the free market. This is the approach that has led to asset bubbles and the collapse of the global financial system. It is the government stimulus and financial support that have led to the restoration of confidence in the market. However, this government actions are only temporary props to the system. The underlying root of the problem has not been solved.

Some people like the free market as it provides opportunities for innovation and initiative. But it also provides opportunity for cheating and exploitation, which are the fastest and easiest ways to accumulate wealth (especially in an environment where enforcement of business ethics is lax).

To have a more fair and stable market, we need regulations. The regulations have to be of the right type and not the wrong type. The regulations should not be rigid and cannot solve all the problems, but they should be able to solve more problems than create them. Leaving the free market to solve the problem will not work, as the profit motive and vested interest will find ways to take advantage of the situation.

There is a need for the state to provide more of the social services required by the people, such as education, health care, security, infrastructure, transport, housing and old age pension. The state does not need to employ people to run these services, but they can be outsourced to the private sector - but the fees, charges and standard of service should be regulated.

The state needs to provide up to a basic standard and leave the space for the higher income to buy additional services from the private market.  But the state benefits should form the benchmark to compare the services provided in the private market.

This is the approach adopted by many social democracies, such as those in Europe. They are able to provide a better quality of life for their people.

Tan Kin Lian

Low takeup rate of training places

According to the Straits Times, there is a low take up rate of training places. Small businesses are not sending their workers for training and skill upgrading.

The government leaders and planners should not continue to live in their own world.  Their policies and strategies for the past decades have not worked. To get better results, they have to understand the real issues facing the small businesses and the workers.

Business conditions are difficult. Small businesses are not able to get a decent margin, due to excessive competition and wasteful activities. The cost of running a business is high, compounded by unnecessary activities  such as compliance with GST and other requirements.

The workers have to work long hours and do not have the time, energy or attention to be upgraded.

Tan Kin Lian

Financial Literacy for Secondary Students

Someone asked for my views about the content of a financial literacy talk for secondary students. After some discussion, we agreed on the following:

* to set aside savings, from parent's allowance or part time work, in a bank account
* to distinguish between necessary and avoidable expenditures
* to calculate the interest charges on installment payments for computer, mobile phones and other items
* to avoid investing in products that are inflexible and have high charges, e.g. life insurance policies
* to have flexible savings that may be needed to pay for education and other necessary expenses
* financial burden to parents on sending children for education in overseas universities

These points are covered in my book, Practical Guide on Financial Planning which is available here.

Please share your views on other points that should be included.

Tan Kin Lian

Financial Literacy for Primary Students

Someone asked for my views on the content of a financial literacy talk to primary students. After discussion, we agreed to cover the following:

* to spend what is needed from the parent's allowance, and set aside savings
* to put the savings in a bank to earn interest
* to pay for what they like from their savings, rather than depend on their parents
* to learn about what the parent has to do, to earn the money to support the family

My friend told me this story. His elder son, who is five years old, wanted to buy an expensive toy. He said, "Patrick, daddy can buy you this toy, but he has to stay back at the office until late at night to earn the money to pay for this toy. Do you wish daddy to come home earlier, or stay back at the office until late at night?" Patrick decided that he did not want the toy.

What are your views on the financial literacy matters that should be taught to primary students?

Tan Kin Lian

TKL Intelligence Quiz Vol 3

BOOK ADDED TODAY - INTERNET SHOP.

TKL Intelligence Quiz Vol 3 is now available for sale through Internet Shop. The usual price is $7.90 and the promotion discount of 15% is available for the month of February (Promotion code - BLOG).

Vol 1 and 2 of this quiz book were sold out. So, I decided to publish volume 3. This quiz contains 72 puzzles (at 3 levels of difficulty - 24 puzzles at each level) based on the popular puzzle that was purported to have been created by Albert Einstein, the scientist. The puzzles were published weekly in The New Paper for several months, but has stopped now. There are many people who are addicted to this puzzle. It is fun and is like a Word Sudoku.

Order here. You can also order the other books and item and enjoy the 15% discount, only for February.

Year of the Tiger

Best wishes for a Happy Lunar New Year. Wish you good health and happiness.

Tan Kin Lian

Low cost of living

I watched a TV program. It featured a worker earning $2 a day in a poor country. The worker said, that the $2 was additional income to the family, who depended on farming as their primary livelihood. Although they are poor, they do not have any financial stress, as they have low cost of living.

I recall the conditions of Singapore in the 1960s and 1970s. HDB flats were sold for $15,000 to $35,000, representing about two years of average earnings. Most people could find jobs that paid sufficient wages to pay their flats, accumulate savings in the CPF and live comfortably as long as they are willing to work. They have better financial security.

The financial condition worsened after 1980 when public housing was allowed to appreciate under the "asset enhancement" policy. It is now a financial burden to buy a modest HDB flat which has to be paid with a high proportion of the earnings when jobs are no longer secure. This has caused a lot of financial stress.

I believe that it is possible to rebuild a new economic structure that gives more financial security and less financial stress.

Tan Kin Lian
 

Improve the business practices

Somebody attacked me for "lambasting" the practices of banks and insurance companies after I "left the industry".

I believe that banks and insurance companies can play a useful role in the economy. They should adopt good and fair practices, which they had done in past years.

In recent years, several bad practices had taken root in the relentless drive for bigger profits. Some of these practices were unfair and unethical, and could even be illegal (if the authority were to take action).  My purpose is to point out these bad practices, so that the practitioners will realize the difference between good and bad, right and wrong.

A few cynics also attacked me for being idealistic. I do not post their comments. If they dislike the views expressed in this blog, they are not required to visit this blog. If they wish to express their views, they can do so without attacking me personally or attacking my views.

I wish to point out one specific good practice. A few months ago, Great Esatern Life, with the approval of their parent OCBC Bank, decided to give 100% refund to the investors of their investment linked product that had were invested in structures similar to the Pinnacle Notes. Many investors accepted the refund offer, and were relieved of the stress of watching the value of the notes drop, as more entities entered into default. This move caused several hundred million dollars to Great Eastern Life and OCBC Bank, but were appreciated by the policyholders.

Tan Kin Lian

High interest rate on bank borrowings

I know of a person who runs a small business. Due to the economic slowdown, his income was reduced, but his family expenses continued to be high.  He had to use an bank overdraft secured on a second mortgage of his house. This overdraft accumulated to $50,000 within two years. He had to pay a high interest rate of 2% a month on the overdraft. The interest cost him $1,000 a month. It was a burden to him, as his income stream has not recovered.

Fortunately for him, he was able to approach a family member for financial assistance to pay off the overdraft, saving him $1,000 a month. Instead, he paid $1,000 a month to repay the loan, free of interest. In this way, he would be able to repay the loan within four years.

The bank pays interest at 0.5% per annum to depositors and charge 24% per annum on loans to borrowers - secured on a second mortgage. It seems that this bank is exploiting the desperation of people who have to borrow to meet their living expenses.

  Tan Kin Lian

Large fee paid to swap counter-party

Dear Mr Tan,
I received the letter from HSBC on the recovery value of my Minibond Series 5. I am shocked by the huge fee paid to Lehmen LBSF for the settlement fee. The letter has these figures:

Series 5
Proceeds from liquidation – 82.30% (100% = principal amount)
Cost at underlying level – 0.47%
Swap payment to LBSF – 50.81%
Receivers fees – 0.38%
Legal fees – 0.48%
Other costs – 0.31%
Net proceeds to noteholders – 29.85%
A whopping 50.81% or $35 million is paid to LBSF.


Another friend, who has Series 10 has a liquidation value pf 104% but reduced by 41% fee to LBSF:
Series 10
Proceeds from liquidation – 104.04% (100% = principal amount)
Swap payment to LBSF – 40.60%
Receivers fees – 0.42%
Legal fees – 0.26%
Other costs – 0.33%
Net proceeds to noteholders – 62.43%

It is not true as reported in papers that some series has low recovery value due to nature of underlying assets or long maturity. The fact is huge fee has been paid to LBSF. Is this why Australia’s Lehman notes have been able to recover 85-95% instead (recently reported in your blog)? I feel HSBC and Receivers have failed the noteholders - a total of $200+ million has probably been paid to LBSF for this unfair settlement.

Mr Tan, do you think the large settlement fees to LBSF is fair? Thank you.

REPLY
I cannot understand why a large payment has to be given to the swap counterparty. I suggest that, as an investor, you ask the trustee on why the payment to the swap counterparty is so large. Maybe, you can get a few investors to join you in making a joint request.

FURTHER COMMENT
The swap is to take over the risk of default of the reference entities during the remainder of the contract. I believe that most of the reference entities are now quite secure, after the recovery of the global economy and markets. I am therefore surprised to find a large payment to take off the swap.

I think that the investors should ask the trustees to account fOR their decision to make this large payment, and ensure that it is in the commercial interest of the investors to accept this transaction.

I thought that the Monetary Authority of Singapore is monitoring this transaction, so they may have some information that may be helpful. We have to see if they make any statement on this matter.

I wish that we have a more active Parliament, similar to Hong Kong, where the legislators can ask questions, so that a clear explanation can be given to the public.

Pension hit by lower investment returns

The low investment return has hit the retirement income of retirees. Read this article.

Discount on books for February 2009

A few customers bought several copies of the Practical Guide for Financial Planning. They may be giving to their children or friends, or may be buying on behalf of friends.

If you wish to buy the books at a discount of 15% (Promotion Code - BLOG), do so during February. The promotion will end on 28 February. The promotion applies to all the books and the rechargeable torchlight shown in the Internet Shop. The Shape Quiz book contains 100 challenging shape puzzles which can give hours of fun for children, adults and seniors. It trains their mind to be flexible and see out of the box. It is an important skill.

Click here.

Vetting of mini-bonds in Hong Kong

Read this report about the proceedings in the Hong Kong Legislative Council, where the legislators questioned the Securities & Futures Commission that was responsible to regulate the financial market.

Swine Flu

Is the swine flu epidemic over? Read this article.

Some people said that this scare was exaggerated and the drug companies benefited from selling the drug to billions around the world. Now the health authorities are stuck with these drug.

Long working hours in Singapore

Summary of comments

Lilian said
I agree on the long working hours in Singapore. the peer pressure and competitiveness is really strong. My american friend is working here and he also feel pressurized to stay back sometimes, which he tell me that it is very uncommon in US.

php said...
I am not sure if any government is able to help at all. I think the most important person who can influence the working hours is the BOSS himself. I have been running an Asian HQ of a European MNC for the past 20 years and I told my staff that there is no need to stay later than the office hours unless it is extremely critical. The result is (almost) all the staff will leave the office just 5 minutes after working hour.

Tan Kin Lian said...
Hi php. You set a good example. Unfortunately, there are not many bosses like you. The majority are of the other kind.

I believe that there is a lot that the Government can do. They have the power to legislate and to regulate. As they have ignore this problem, the situation has gone really bad.

So, if the Government and the Parliament address this problem, a lot can be done. At the least, it will send a message to the majority of employers.

(Note: somebody object to my use of 99% of employers, so I change to majority).

Endorsement of indexed funds

Read this article.

Champions in Stock Pick

Congratulations to Albert, Michael and Ken Lua for being champions in stock picking in the simulation game (Pro-Investor).

You can download a comprehensive Guide to Pro-Investor here.
Click here to play the game.

Poor quality of life

Many Singaporeans spend too much time in the office. In some cases, their employer cut down on manpower, making it necessary for the employees to spend more hours to finish their work. In other cases, the employees stay back late due to peer or boss pressure, as leaving on time is considered as "not hard working".

I met an Indonesian who studied and continued to work in Singapore for the past eight years. His working hours is from 9 am to 9 pm, every day. He is caught in the Singapore system.

I hope that the Government leaders realise why Singaporeans are not producing babies. How can they, when many have to work long hours? They do not have time for their families. They may not have time to find their life partners.

The competitive environment in Singapore, the lack of job security and the high cost of living are the main factors contributing to our low birth-rate, which is now nearly the lowest in the world. Some apologists said that this is the trend in developed countries, but why should Singapore fare worse than other countries in this respect? There must be some factors in Singapore that make us worst!

Tan Kin Lian

Be patient and give way

Singapore drivers are generally impatient and do not give way. If the car in front signal to move lane, the car behind will usually sound the horn, rather than slow down. Why are drivers so impatient?

Easy search for a place in Singapore

I wanted to find a Muslim restaurant near Jalan Sultan. I found a famous restaurant at a specific address in North Bridge Road. I needed a map to locate this restaurant. I used the Real Estate Data Map portal in this webpage. It gave me the map immediately. I decided to bookmark this webpage for future use.

Political Compass

My friend introduced this quiz to me. It measures your political leaning.

http://www.politicalcompass.org/test

My score: economic left (-6.75), social neutral (-0.10). I am quite close to Ghandhi and Nelson Mandela, but slightly less socially liberal compared to them.

Investing in an equity linked note

Dear Sir,
My bank give me an overdraft to invest in an Equity link note tied to a certain share with a 12% return based on a strike price and date. Now the share is trading at 0.82. Can I terminate the order to purchase. I was not given and risk disclosure or details about the product.

REPLY
I am not familiar with the terms of the contract. But, I believe that you can terminate the contract. Before you take this decision, ask the bank to give you a statement of your posItion showing:

- your loss, if you terminate the contract now
- chance of recovering the loss or the risk of making a further loss, if you continue the contract

The bank has the duty to advice you, as they recommended the product to you in the first place.
Get the facts before you make a decision.

Shape Quiz - for children, adults, seniors

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Train your mind to be flexible
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Get the Benefit Illustration

Someone asked my views about the SAIL policy that is capital guaranteed. I do not know the features of this policy. I ask her to send the benefit illustration to me. I recall reading some negative comments about this policy but I do not know why.

Existing Life Insurance Policies

A few people have asked for my views on whether they should continue their existing life insurance policies, as the return is rather poor. I asked them to read this FAQ and get the relevant figures to make a decision.

Generally, it is better to continue with the existing policy. You have already incurred a high upfront cost during the first few years of the policy, which gave you a bad start. But, excluding the upfront loss (which you have to write off), the going-forward return should be better, maybe 3% to 4% per annum, compared to alternative investments.

Never give up an existing policy to buy a new life insurance policy. You will incur the upfront cost again. My insurance agent will tell you that a new policy is better. This is bad advice. It is also unethical, as they are earning a large commission again, at the expense of the client. This is called "twisting" and is illegal in some countries.

Tan Kin Lian

Practical Guide on Buying A Property

Someone has asked me to write a book to give practical tips on purchasing a property for investment or own occupation. As this is a major commitment, they like to know how to find and decide if the property is at the right price. This is similar to my book on financial planning. A lawyer, who has many years of experience in dealing with property will co-author this book.

Here are some possible topics for this book:
1. Trend of property prices in Singapore - by various types
2. Analysing a property purchase
3. How to identify and find some suitable properties
4. Steps and costs involved in a property purchase
5. Renting a property
6. Comparison of property with other types of investments
7. Personal experiences (from contributors)
8. Tips to watch out for
9. Legal aspects of property
10. Sample legal agreements
11. Access to property websites
12. Appointing a property agent

What are your views on the topics to be included?

Do you have any story to share about your personal experience (positive or negative) in buying or investing in a property? Send your story to kinlian@gmail.com

Peer pressure on long working hours

A friend told me this story. A Malaysian applied for a job in a bank in Singapore. He asked the HR manager, "If I finish my work, can I go home on time". The HR manager replied "yes".

It was a different situation after he started work. Many colleagues stayed in the office till late at night, even if they do not have work to do. It was peer pressure. When he leave work earlier, he heard negative comments from the colleagues.

This seemed to be the work pattern in Singapore. It is fashionable to work long hours. I wonder if this is true in other workplaces, or just in banks?

Pricing of HDB flats (2)

Here is the updated survey results based on 135 responses. The results are almost identical to the previous report based on 97 responses.

Taxation and social benefits (2)

Here are the survey results. It is based on 18 replies, which is insufficient to give a representative view.

Changes to Wage Income Supplement

The minister for manpower is making some changes to the Wage Income Supplement, a scheme to help supplement the wages of low income workers. He has identified four obstacles on why low income workers are not attending courses to upgrade their skills.

This is an example of a scheme that is not working well, as it does not address the root of the problem and is not practical.

A better approach is to set a minimum wage, without the need to attend courses (which are also costly and not so useful). Many of the low wage earners know how to do their work and do not need to attend courses, as they can learn on the job.

If the workers are paid a decent wage, they will not have to work long hours to earn enough, and this will allow them time to attend upgrading courses. Many people will want to upgrade their knowledge and skills, if they find it really useful to their job. (There are some exceptions, but they have to be dealt with separately).

Another example of a scheme that is not working well is the baby bonus, which does not help to address the decline in our birth rate during the past two decades.

Tan Kin Lian

Voting in General Election - (3)

Here is the updated survey results based on 139 replies. The results are above the same as the earlier report based on 97 replies. No significant change.

Pay decent minimum wage

Who wrote this statement? Do you agree with it?

Quote
Paying indecently low wages in high-cost Singapore not only dehumanises our workers, it also creates insecurity among the workforce. A wage structure that is out of kilter with productivity is inimical to long-term growth. Paying workers $3 and ministers $1,000 for an hour's work is not "market forces" - it is exploitation at its ugliest.


Legislating minimum wage for the lowest of the low-skilled employee will ensure tht workers will not be exploited. This amount must be commensurate with the cost of living in Singapore. At the moment, many of the working poor are not paid decent wages, making life for them a grinding misery. If the trend of income disparity continues to widen, society will be rendered asunder as inequality takes its toll. Not only will minimum wage legislation help to avert this crisis, it will also guarantee thta prosperity is shared by all.
Unquote

Click here to find the source of this quote.

Moderation in my blog

There are some people who do not post sincere comments but have the sole purpose of causing mischief in my blog. They use a fake name or post anonymously. I have to block these comments.

Comments that differ from my views are not blocked, if they are posted sincerely. There is no need for these comments to pass judgement on my views or attack my views. They can state their views objectively.

If you feel that your comments have been blocked unfairly, you can send an e-mail to me at kinlian@gmail.com. By showing your identity, you indicate that you are sincere and not mischievous.

A positive approach towards taxation (2)

I have updated my paper to show the flat rate tax that is needed in Singapore to meet the current level of Government expenditure.

Tax revenue as % of GDP

I obtained the following figures from Wikipedia.


Tax as % of GDP

Country	Tax %
Denmark	49.1%
France	44.2%
Germany	39.3%
UK	37.4%
New Zealand	36.0%
Canada	33.3%
Australia	30.6%
USA	28.3%
Japan	27.9%
China (PRC)	17.1%
Malaysia	15.5%
Philippines	14.4%
Thailand	13.0%
Singapore	13.0%
Hong Kong	12.8%
Indonesia	11.0%

It seems that the first world countries have a ratio above 25%. Even the USA, has a tax rate of 28.3%. Singapore has one of the lowest tax rates and competes with Hong Kong and Indonesia. The tax rate is lower than the Asean countries. Perhaps, the tax rate of Singapore and Hong Kong is distorted as a large part of the revenue comes from land sale, which is probably not counted here.

A higher tax rate means that more social services are provided, such as health care, welfare and financial security, as is the case in the first world countries.


Another survey by International Living showed that the countries with a higher quality of life score are those in Europe and other first world countries. It seems that this is correlated with higher tax rate.

I am in favor of higher tax rates to provide more social services, following the example of first world countires. It will also help to narrow the gap between high and lower income earners. Read my views here.

Tan Kin Lian

Practical Guide to Financial Planning - a gift

One customer bought 30 copies of the book to use as a gift to her friends. She found it to be very easy to read and useful. Another customer 10 books to be used in the same manner. You can order the books here. If you wish to buy 10 books or more, send an e-mail to kinlian@gmail.com to get a special price.

Twisting of Life Insurance Policies

Twisting occurs when an insurance agent ask the consumer to give up an existing life insurance policy to buy a new policy by stating that the new policy has some useful features. This is usually misleading and bad for the customer. It has been a rampant practice in many countries, including Singapore, for many years. By switching insurance, the consumer has to incur the upfront cost (of two years premium) again. This is how insurance agents continue to make a big income at the expense of the consumers.

Many consumers are not aware that they are being skimmed. Those who are, felt embarrassed and prefer to overlook it, rather than bring the agent to account. This is how the bad practice has continued for so long.

If consumers allow this type of practice to continue, they will have very poor return on their hard earned savings that they put into life insurance. They will not get a fair return. What a pity!

Tan Kin Lian

The Apathetic Generation

"Lucky Tan wrote" :

I got the idea to write the above from Tan Kin Lian's blog in which he posted this brilliant piece, The Lost Generation, by Jonathan Reed.

 

I rewrote some of the words from the original to make it more relevant to Singapore:http://singaporemind.blogspot.com/2010/02/apathetic-generation.html

 

Agent tried to sell high cost insurance policy

A consumer wanted to buy a Term Insurance policy under a Family Policy. She approached an agent who recommended a Whole Life policy (Vivolife), on the argument that the Whole Life policy provides a return on the premium. The comparison is not made on a fair basis, and the consumer was confused.

I asked the consumer to send the benefit illustration to me. I found that the Whole Life policy had a high "effect of deduction. The amount deducted represented more than 40% of the accumulated premiums - which is too high. Why should a consumer give away over 40% of the accumulated value of the savings to the insurance agent and to the insurance company?

Many consumers are still being given bad advice by insurance agent. To get an idea about the premium that you should be paying for Term Insurance, go and visit this website in America.

Tan Kin Lian

Practice to develop a skill

I have practiced more than 100 games on this simulated environment to pick the best stocks. I find that it is possible to catch the trend and to make better decisions. While this is applicable to the simulated environment, the skill is useful in the real world. I will look for data from the real world, to see if the strategy also work well.

Click here to try this simulation program. Be patient and persistent. Try the simulation many times, until you get the skill. Go from level 1 to 9, and try again. And again. Skill comes from constant practice.

SCMP:Legco panel to call senior bankers over Lehman minibonds sales

Hong Kong's parliament is active in investigating the minibond saga. Read this report.

The Legislative Council committee investigating the Lehman Brothers minibonds saga will summon senior representatives of six banks to testify before its hearings, committee chairman Dr Raymond Ho Chung-tai said. The banks are: DBS, ABN Amro, Citibank, Dah Sing Bank, the Bank of China and Standard Chartered Bank. Securities and Futures Commission chief executive Martin Wheatley will testify before the inquiry again on Tuesday.

Tricks by property agents

Some property agents used unethical means to mislead the buyers into paying a high price for a property or sellers to sell the property at below the market. In some cases, they pocket the difference. There are other property agents who are honest. Share your experiences here.

15% discount at Internet Shop

Order now to enjoy 15% discount on the following items:

Practical Guide on Financial Planning ($12)
Rechargeable torchlight ($6.50)
Shape Quiz book ($6)
Note: the above prices are before discount.

Enter the Promotion Code - BLOG (valid for February 2010 only) to get 15% off the above prices.

Order here.

Pro-investor

The steps to play the game are:

1. Register an account and create your user ID and password.
2. Login with your user ID and password
3. Read the Guide
4. Click Play to play a game. You will start at Level 1. Each game start with year 1 and continue to year 24. For each year, you have to view the Summary and Pick, select the stocks to invest in and click on End Year to see the results. Click on Next to go to the next year.
5. You should continue the game until year 24. However, if you reach a cumulative gain of $300,000 earlier, you will be upgraded to the next Level. If you have a cumulative loss of $300,000, you have to start the game again at the current level.
6. When you complete Level 9, you will be recognized as a Champion and have your name recorded. You can also share your experience. You will have greater confidence to apply for a job as a Fund Manager!

Click here to try the game.

Seek compensation for losses on the credit linked notes

Legal Action

The investors can take legal action on the following grounds:

a) against the distributor (i.e. the financial institution that sold the product to you) on the grounds that they have mis-represented the product or have failed in their duty to give proper advice.

b) against the issuer (i.e. the bank that created the product) on the grounds of mis-representation, fraud or other wrong doings.

If the investors take legal action, their lawyers have to prove the case in court. This is expensive and has an uncertain outcome. There are two class actions (involving the Mini bond and the High Notes 5) being heard in the Singapore court.  

FIDREC

Many investors have taken an adjudication case in FIDREC, which is rather inexpensive. Some investors were satisfied with the decision by the FIDREC adjudicator, but many were dis-satisfied with the outcome.

CLASS ACTION IN USA

A US lawyer is holding a seminar in March to explain how investors can participate in a class action to recover their losses against the issuers in USA. More details are set out in a separate posting in this blog.

Tan Kin Lian

Residual values of credit linked notes

A few investors still do not understand why the residual values of the Mini bonds are better than the Pinnacle Notes, Jubilee Notes and High Notes 5. It is important that they put in the effort to understand what they have bought and why it has dropped in value. They should not continue to be ignorant.

Here are the differences in structure of these notes.

Mini bonds. They carry credit default swaps on a number of entities. None of these entities failed, so there in no call on the swaps. The underlying asset is still intact. The problem is that the issuer Lehman Brothers has gone into insolvency. The trustees appointed a firm to handle the liquidation of the underlying assets and pay the residual value to the investors. These values range from 23% to 75%, depending on the tranche.

High Notes 5 and Jubilee Notes. These notes carry credit default swaps on a number of entities. One entity is Lehman Brothers. When this entity went into insolvency, the swap was called and the total invested amount was taken away to pay the counter-party to the swap. There is no residual value in these notes.

Pinnacle Notes. These notes carry credit default swaps on a large number of entities. If a specified number of entities (say 13 out of 200 entities) go into default, the total invested sum is used to pay out to the counter party to the swap. A few tranches have reached this critical number and the value of these tranches is almost nil. Some tranches are approaching this number, and the value is now quite low, say less than 20%. The investors can only hope that there are no more credit events, to get back their original investment. The alternative, is to sell them at the current market value.

Sell at market value?
Should the investor sell the notes at the current market value? If I were an investor, I would hold on to the notes as the current market value is likely to be lower than the underlying value (whatever the value is). The market maker probably knows the underlying value, and will offer a value that represents a deep discount. However, each investor should make his or her own decision on this matter.

Tan Kin Lian

Strategy to pick the right stocks - low PE and high yield

I tried a new strategy to pick the right stocks based on low price earning ratio (PE ratio) and a high yield during the past year. It produced good results in this simulation game. The theory is quite attractive - buy the stocks that are relatively cheap, i.e. low PE ratio. If these stocks have performed well in the past year, they may be on a strong trend. And they are cheap.

Click here to try the simulation game. The prices are simulated to be reflective of the trends in prices in real life.

Picking the right stocks require practice. This simulation game gives you the practice. You can find the right strategy and apply it to the real life, to see if it works. You can get the real data for the past few years to try it the theory that you have discovered through this simulation game.

Click here to download a PDF document showing the screen shots of how to play this simulation game.

Fighting rejected health claims

In America, 1 in 14 health claims are rejected.

In this story, the insured has to fight for her claim to be paid. She went through an appeal process, involving an external, impartial expert.

Practice to pick the right stocks

The Pro-Investor is a simulation game that uses a model to generate the earnings per share, price earning ratio of 45 stocks based on the economic trends in various countries, industries and market segment. It aims to give the player the experience of picking the right stocks in this environment.

After many rounds of practice, I found a good strategy to pick the right stocks. Find out the country, industry and market segment that performed well during the previous year. Pick the stocks that from the country, industry and market segment. It is likely to perform better than average during the following year.

The actual trends in each year can be used to pick the stocks for the following year. The stocks that are picked will rotate, but the overall results should be positive.

Will this strategy produce good results in real life? I like to have the data (EPS, PER, Price) for the past 50 years of actual stocks that have lasted for this period, together with a code to indicate their country and industry. If you have the data, you can pass them to me, so that I can use the simulation based on these real data.

If you wish to try Pro-Investor, click here. This game is best played with Internet Explorer 8.

Palindrome - the Lost Generation

A palindrome reads the same backwards as forward. This video reads the exact opposite backwards as forward. Not only does it read the opposite, the meaning is the exact opposite. This is only a 1 minute, 44 second video and it is brilliant. Make sure you read as well as listen forward and backward.

This is a video that was submitted in a contest by a 20-year old. The contest was titled "u @ 50" by AARP. This video won second place. When they showed it, everyone in the room was awe-struck and broke into spontaneous applause.

So simple and yet so brilliant. Take a minute and watch it.
http://www.youtube.com/watch?v=42E2fAWM6rA

Medan is a nice city with nice people

Hi Mr. Tan,
I'm your blog reader. Sorry to hear about the experience you had in Medan, my home town. This practice could exist in many entry ports in Indonesia.

If I may suggest, exchanging the currency in Changi Airport is better compared to the money changer outlets in Indonesia airports knowing you're foreigner/tourists. We just might bump into business that is trying to survive for the day, hence the cheating come in place.


REPLY
I have a good impression of Medan. It is a nice city with nice people. The bad experience with the money changer does not reflect badly on the people. I also change money in Jakarta many times, and I have no problem with them. They offer good service and a fair rate.

I did not want to change money at Changi Airport as they will change my US dollar to Singapore dollar and then change it to Rupiah, so I have to pay the spread two times. They are also not fair to customers.

Rechargeable torchlight - 15% discount

The rechargeable torchlight ($6.50) is also eligible for 15% discount, together with my books. Postage is $1 only. Enter the promotion code BLOG to enjoy the discount. Click here to order now

Seminar on class action

More than 90 people have indicated interest to attend the seminar in March that is being organised by the US lawyer on class action in America. If you wish to attend, please give your particulars here.

I am still waiting for details from the lawyer on the date, time and venue. I will give the details when they are finalized. The seminar is free. The proposed class action is on a "success fee" basis, i.e. the investor will share a part of the proceeds with the lawyer for their work. Typically, the share will not exceed 35% of the amount recovered, but could be less, depending on the work that has to be done. However, the lawyer will bear the cost (i.e. expense and time)  if there is no recovery.

However, the American lawyer will only take up the case if the chance of success is fair (and not weak), and there is sufficient amount to be recovered and the culpable party is still solvent. There is no certainty that all these conditions can be met. But it is worthwhile to attend the seminar and hear the lawyer.

I did not organize this seminar. The US lawyer approached me for assistance through their Singapore representative. I am willing to help, as it may be useful to the Singapore investors, especially the holders of the Pinnacle and Jubilee Notes, who wish to seek compensation from the issuers of these notes.

Tan Kin Lian

Immoral profit

Some financial institutions offered partial compensation to the investors and took over the Minibonds. These notes now have a recovery value that is higher than the compensation given. The financial institution had made a profit.

Take this hypothetical example. The financial institution offered 50% compensation on a $50,000 bond and took over the bonds. The bonds now have a recovery value of 70%. The financial institution made a profit of 20% or $10,000, while the investor lost 50% or $25,000. It would be immoral for the financial institution to keep this profit. I hope that they will be honorable and refund the profit to the investor.

Tan Kin Lian

A positive approach towards taxation

Read my views here. Give your views by email to kinlian@gmail.com or in the comment here.

GST is a costly exercise

I attended a 3 hour briefing on GST. My worse fears were confirmed. GST is complicated and costly. For every transaction, the GST taxpayer has to go through a complicated table of rules to decide on the classification, timing, and many other issues. It is so easy to make a mistake and be subject to an offence with penalty.

I hope that GST be scrapped soon. We should go back to higher income tax to collect the revenue needed to run the country (and avoid two layers of taxation, with the complicated rules and compliance cost). In fact, GST is more complicated than income tax.

A businessman should focus his attention on running the business, rather than on collecting GST for the government. He should not be required to spend money to recruit accountants, who are costly, to keep the records to comply with GST.

The accountants love GST as it means work, business and profit for them. The civil servants love GST as it means more job and opportunities. But these means additional cost and hassle to businesses and consumers. What a waste, to spend so much resources on unproductive activities.

Tan Kin Lian

Need for a minimum wage policy

MY HUSBAND is 50 this year. We had a comfortable life until he was retrenched a few years ago. He has been trying to get a job as a driver for the past two years, but lacks the experience.

We have two teenage children and my husband's current job in the security sector does not pay enough.
My husband is willing to learn and similarly, employers must be willing to offer opportunities and reasonable salaries. My husband may be 50, but he still has a lot of good years left in him and is able to contribute to society.
 
Mary Wee (Mrs)

High Notes 5

Dear Kin Lian
Like Minibond payouts can DBS HN5 investors also expect similar payouts.  DBS has been silent and also the case of 200+ invetors who are suing DBS has not come for hearing at the Courts. Any idea when the case is expected to be heard?

REPLY
You have to check with the lawyer or the members of the class action on HN5. The underlying assets in High Notes 5 is nil, as the money has been used to pay the credit default swap (of which Lehman Brothers was a reference entity that was insured under the swap). Do not expect any settlement like Minibonds.

Financial institution benefited from the settlement

Hi Mr Tan,
I am happy to hear that the residual value for Minibonds are finally out and for some Series, the value are surprisngly as high as more than 70%.

However, I questioned the fair deal in MAS for handling the whole saga. Many victims, whom I know, were awarded less than 50% after the judgement in Fidrec. They had transferred all the Minibonds to the FIs. In that case, should Singapore FIs gain from this saga ? Unlike HK, the FIs have to refund back to and not profit from anything. What should we do in this case ?

For my case, it is very clear in the ground of hearing (verdict) that Maybank did mis-sell the Minibonds to me. Now, with all my Minibonds transferred to Maybank, as ordered by Fidrec's judge, Maybank is better off than me. In additional to the costs I have to pay Fidrec, we have to go through all the stress through the hearing, but end up less well of than FI. What should victims like us do ?


REPLY
You should ask the Financial Institution to refund the difference back to you. It is only fair and honorable for them to accede to your request.

Pinnacle and Jubilee Notes

The Minibond investors are able to get back a fairly satisfactory payback on their investments because the underlying asset has some value, in spite of the insolvency of the issuer Lehman Brothers.

In the case of the Jubilee and Pinnacle Notes, the values of the underlying assets has depreciated as Lehman Brothers was named as a reference entity or the designated number of entities have entered into a credit event. There is little hope of recovery from the underlying assets.

The issuers of these notes are still around. The investors can participate in a class action in the USA to see if there was wrong doing by the issuers. You should attend the seminar that is being organised in March. Click here.

Tan Kin Lian

Voting in general elections - survey results

This survey is highly popular. 93 people participated within 6 hours. Results are shown here.

Voting in the general election

How will you vote in the next general election? Give your views here.

Overcharging by lawyer

There was a case of a lawyer who overcharged the client on handling a divorce matter. The client complained to the Law Soceity. The lawyer agreed that the fee should be $X and that he had billed the client for more than twice the amount. What can be done to deal with this type of issue?

The Growing Underclass - Jobs Gone Forever

Read this article. Some jobs are gone forever, and will never come back. The workers need to have new skills but that will take a long time to acquire, and new jobs (with the new skills) are uncertain. Home ownerhship adds to the problem, as they cannot afford to sell their existing home (due to drop in value) and take the financial loss. While this happens now in America, it tell us that Singapore may face the same situation.

Improve productivity in Singapore

The Minister for Manpower has said that Singapore firms need to improve their productivity and should not rely on low cost foreign workers. If they are unproductive and cannot survive, they have to move out of Singapore.

There has been talk about improving productivity for the past two decades. How far have we gone in this area? What can be done to have a sustainable improvement in productivity?

Let us identify some of the issues to be addressed:

a) Many organisations improved their productivity by pushing the work on to their customers. Many government agencies adopt this approach and pushes the burden to the citizens. For example, by asking the taxpayers to do e-filing, the work is done in a less productive way and take more time by the taxpayer who are not familiar with the website.

b) Many problems are not solved effectively because of the fine lines that are drawn between one agency and another. Much effort is spent on identifying who should be dealing with the problem, rather than how the problem can be dealt more effectively.

c) There is excessive emphasis on security and audit, which cause a lot of unproductive work. Most people want to play safe, and forget that these measures add to the cost, especially in paying consultants who exaggerate the risks.

If these issues can be addressed, we can reduce a lot of wasted work. The easiest and most effective way to  productivity is to cut down waste.

Please share your views.

Tan Kin Lian

Rechargeable lamp (with locator) - delivery $1

You can now buy the rechargeable torchlight (with locator lamp) for $6.50 from internet shop and pay a delivery charge of only $1 (previously $7). You do not need to spend money on battery as the rechargeable battery can be recharged using electricity (12 hours of charge to last about two weeks). You can switch on the locator lamp at night, to make it easy to look for the torchlight. Suitable for use at home, for travel, and for seniors.

You can also buy books at a special discount of 15% during February. Order here.

Calculate the rate of interest

Here is how you can calculate the rate of interest using Excel XP
Insert > Function > Rate
Enter the following
Number of periods
Regular payment
PV (i.e amount of loan)
FV (i.e. accumulated amount)
Type (0 - payment at end of period, 1 - payment at beginning of period
Enter negative amount for PV and FV and positive amount for regular payment
This will give you the interest rate per period. You can convert to an annual rate by multiplying the number of periods in a year.
The function in Excel 2007 is different, but the concept is the same.

Minibond Payout

Hi Mr Tan
Upon hearing the news that MB is paying all the investors some amount next Friday, I did a search and found this web page about the percentage for each series.


Please do me a favor and publish this on your blog, I don't know how to reach everyone to tell them the good news. When they click the link below, they will know how much they can get back.


http://www.hsbc.com.sg/1/2/miscellaneous/minibond-notes-frequently-asked-questions


Thank you for your help to all of us these long days, I believe that all of us will forever remember you. I still lose about $35K and don't know what else I can do to get back my "blood and sweat" money ???


HC

Class action in America

An American legal firm, specializing in class action suits, is holding a seminar in Singapore in March to explain their service in assisting investors to seek compensation under US securities laws for their investment losses due to wrong doing by the financial institutions. More details about this service is shown in this video.

This firm will only collect a fee based on successful outcome of the legal action. If there is no recovery, no fee is payable. More details of the seminar will be announced later, when details are finalized.

Please provide your particulars in this form, if you are keen to attend the seminar.

Two casinos

Here is an upbeat assessment of the two casinos. Hope that it materialises.

Interest payable on loans

I am doing some research on interest rates payable on home, car, computer, study and other loans.

Can you send to kinlian@gmail.com the details of loans that you have been offered recently as follows:
Date of offer
Financial Institution
Amount of loan
Purpose of loan
Number of repayments
Amount of monthly repayment

I will analyse the effective interest rate that you are paying for the loan.

FISCA - Member's benefits

FISCA will be organising a talk on "Coping during a Financial Crisis" for its members. Each member will be given a free copy of my book, "Practical Guide on Financial Planning". The talk will be for 1 1/2 hour, including questions. Details will be sent separately to members on date, time and venue. A talk will be held once each month.

I wish to thank FISCA members for your support. So far, the activity of FISCA is rather limited due to lack of resources. I hope that the talk and book will be appreciated by members. We can also organise members in groups to get to know each other.

Tan Kin Lian

Good response for Financial Planning book

I have received many orders for my Financial Planning book. I wish to thank the buyers for our support. One person bought the book to present to a nephew. This is a good idea, as the young will find it easy to understand, practical and useful. It can save them from wasting a lot of money by buying the bad products.

I am offering my books at a discount of 15% under the promotion code - BLOG. Several buyers did not enter the code, and had paid for the full price. I am sending to them my Shape Quiz (retail price $2) for each book that they buy at the full price. I hope that they will enjoy it.

A few people have indicated that they wish to show their support by buying my book. I thank them for this fine gesture. Help me to give the book to your family and friends, as it will be useful to them.

To order, click here.

Tan Kin Lian

Practical suggestions to improve a call center

Many customers find it difficult to access the call centers of large organisations, such as banks, telephone companies and government departments. They have to wait a long time for the call to be answered, and had to go through a maze of automated messages.

Here are some practical tips to improve the situation:

a) Have different telephone numbers for different languages. There is no need to ask someone to indicate the language, as it is identified by the specific number.

b) The first question for the automated message should be "press 1 to talk to a person or 2 to go through the automated system".

c) The next question should be optional "Enter your account number if available, press 0 to bypass".

With this simple change, the customer experience would be improved tremendously, without any additional workload for your call center.

Here is another tip, Train your call center staff to identify the routine inquiries (which they can handle) and the specialized inquiries (which they cannot). For the specialized inquiries, get the name and contact number of the customer and get the specialized staff to call back. Most people have mobile phones and would be happy to receive the return call.

Tan Kin Lian

Practical ideas to improve a corporate website

I had a difficult time in filing my GST return. I had to go through the IRAS spiderweb (a new term introduced to me by a commenter in my blog) that involved a few dozen clicks before one comes to the correct webpage. I could not find the webpage to submit my return, even with the guidance of an IRAS helpline officer. She could not find the webpage also, after guiding me on two attempts.

I was able to access the webpage later in the day, through the help of the another more experienced officer in IRAS. The most probable reason for the earlier failure was that the form was not yet activated earlier. Why is there a need to "hide" a blank form, i.e. to submit the GST return, through complicated structure of access security?

This type of spiderweb is not unique to IRAS. It applies to big organisations, such as banks and most government departments and agencies - such as LTA, CPF.

I wish to give some simple tips for these big corporations, which need a complicated website to serve many purposes and that need more than 100 forms.

a) Have 1 tab called FAQs. This should drop down a list of all the FAQs needed to guide your staff and customers in the work of your organisation. Each FAQ is identified by a number and description for easy asess, such as "GST23: Filing a GST return" or "IR8A: Filing your personal income tax".

b) The forms that are required to complete any task can be linked to the relevant FAQ. A click on the FAQ will display the form.There is no need to ask the customer to log in (which is another big hassle. Just give them the relevant form to fill in.

c)  The form (including the particulars of the person who prepared it) can then be stored in the server with the SingPass of the person who is required to sign the form. This allows a staff or outsourced accountant to prepare the form and for another person, e.g. the director, to sign the form.

d) This signing person can log in with the SingPass and locate all the forms that require his signature.  This is similar to the real world. The director has someone to do the work and presents the physical form at his desk for signature. The director does NOT type the entries in his form or search the filing cabinets to get the form.

I hope that these suggestions will be useful for big organisations to make it easy for their customers, including unwilling customers such as taxpayers, to access their website easily and conveniently.

Tan Kin Lian

Social services and taxation

The citizens of a country have to decide on the types of social services to be provided by its elected government and how the cost of these services should be paid for. In some countries, the government provides generous social services, such as old age pension, unemployment benefit, health care, education, and collects high taxation to fund them. In other countries, the government has a low rate of tax and provides minimal services, leaving the people to pay for these services in the private market.

There are various ways of collecting tax to pay for the social services and other cost of government. The most popular form is income tax (on earned and investment income) and levies but an increasing portion is now through consumption tax (such as Goods and Services Tax).

Many countries provide generous benefits but collect insufficient taxes to pay for these benefits, leading to a budget deficit. Some countries collect a lot of tax but provide low benefits, leading to a huge budget surplus (such as Singapore).

What are your views on social benefits and taxation? Give your views in this survey.

Order for Financial Planning book

You can place an Order for my book, "Practical Guide on Financial Planning" at the Internet Shop now.  I have received many orders during the past two days.

 Enjoy a 15% discount when you buy this book or other books during February by entering the Promotion Code - BLOG. Click here.

Help the singles with affordable housing

Letter from Joseph Ang

Under the existing HDB policy, singles are not allowed to buy or rent flats directly from the Housing and Development Board (HDB), unless they partner with another single person and apply under the joint-singles scheme. In times of such economic uncertainty, when the economy has not fully rebounded, should such a policy be re-visited, so that singles can remain independent and maintain their sense of dignity?

I hope HDB will re-consider this policy and allow individual singles to rent or buy directly from HDB with minimal waiting time between application and allotment of flats (3 – 6 months at most). The sense of security of having roof over the head is very important to all Singaporeans – whether they choose to marry or remain single.

I personally know of a number of cases where singles rent from the open market as their extended family is not able to accommodate them for various reasons both personal and economic. The open-market room rental which is $450 per month, is very high to a single who is earnings may be limited. Many usually will suffocate for having to pay for public transportation, meals, and other daily needs, on top of the rent from the open market. And what’s worst is they don;t know where to go for help. The families in crisis can go to the family service centres, but where do the singles go to?

Being single is by no means easy, but it is nevertheless a lifestyle we have chosen for ourselves.

While I appreciate the pro-family policies of the government, the government should not forget singles in the process of being pro-family. Singles after all, do contribute to the economy of Singapore as well. Despite this, we are discriminated as ‘third-class’ citizens, and treated worse than a foreign worker, who at least has a dormitory to go to at the end of his hard day’s work.

With only a single income (as compared to at least double incomes in a family) and the ever rising valuations and cash-over-valuations, many singles will find it extremely difficult to buy a HDB flat from the open market.

Of course, HDB has the joint-singles policy for HDB rental flats; but what happens if a single person is not able to find another suitable person to co-share the rental flat with him? Should he be homeless because of this?

I personally know of quite a number of singles who are already at their wit’s end. Most are earning less than $1700 per month. How can they survive if they continue to rent from the open market? What about the singles who earn even lesser?

The newspapers reported recently that there are two block of flats made available for the foreign workers who will be coming here – presumably to work in the Integrated resorts. It does not make sense that foreigners will have ready HDB flats to move in to when they come to Singapore, but a single Singaporean like me is denied affordable housing.

The government should stop only talking about the ‘Singaporean first’ policy, but more importantly make it a practice – whether they be in a family or are just singles by choice!

Joseph Ang

Crackdown on Tax Avoidance

America is suffering a big budget deficit. It is not collecting enough taxes to pay for the cost of government and the social programs. The deficit is partly due to the weak economy, which reduces the tax revenue and the cost of the economic stimulus.to boost the economy.

An important contributing factor (which the Obama Administration is now targeting) is the tax avoidance by American companies which use a variety of ways to avoid tax, using "tax vehicles" and taking advantage of tax loopholes. They shift their profits to countries with low tax rate, including Singapore.

By reducing our income tax rates to attract these companies, Singapore has to introduce the Goods & Services Tax to make up this shortfall. It has its other negative consequences for the people and for the cost of doing business. GST is another layer of tax and is wasteful and costly to administer.

America and other developed countries are taking action on the tax avoidance. While Singapore will lose its value as a tax hub, I believe that it is better to have a fairer world, and countries do not try to compete on offering "tax incentives" to businesses to reduce or avoid paying tax.

I hope that Singapore can go back to the days of higher income tax and removal of the wasteful Goods & Services Tax (GST)

Tan Kin Lian

What the General Election is about

Read this view by Dr. Wong Wee Nam.

Filing my first GST return

I "volunteered" to be a GST-registered business. I had to file my first GST return by end January (deadline has since passed). I had a difficult time.

I had a lot of trouble to figure out the complexity of classifying my sales into three categories - taxable, zero-rated, exempt. I also had to figure out which of my purchases are allowable to be deducted. I had to fill in figures into 13 boxes. They are explained in a 8 page Guide.

Finally, I got the figures sorted out. I tried to lodge my return last week, before the deadline (failing which I had to pay a fine).

I found that I could not file my GST return as IRAS insisted that it has to be done by e-filing. Sorry, I need to apply for an "access code" which would be sent by mail to my registered office in 4 days time. The mail did not arrive and I had to call IRAS to check. Finally, it arrived at my registered office , which is different from my operating office (sorry, cannot send by e-mail for "security reasons"). I had to authorize my registered office staff to open my mail and send the access code to me by SMS. Forget about security!

I tried to submit my GST return today, and it was "hell". I had to navigate through a complicated IRAS website. I found "myTaxPortal", which asked for my NRIC, company GST ID and IRAS PIN. I tried a few combinations and failed. I had to call the IRAS helpline.

Well, you know about IRAS helpline. You had to listen to a few minutes of automated messages, before you get to talk to a person. Often, you are unsure if you can ever get to talk to a person!

Finally, I talked to a person. She guided me through the complicated IRAS maze (sorry, website). It was impossible for an ordinary person, like me, to ever get through this maze on my own. She led me through one click and another. Finally, she said, "Can you click on the form called GST return". There was no such form.

Sorry, she had to check and call me back. She did. Another round of guiding through the IRAS maze. Got stuck again. A document that was supposed to be there could not be found. She said that it must be "intermittent" problem.

I asked her, why can't IRAS allow the taxpayer to fill up a form and fax it to IRAS? Surely, it is not expensive for IRAS to employ people (and there are many unemployed people keen to have a job) to do data entry? Why force the taxpayer to go through this type of trouble in submitting a GST return?

IRAS insisted that a volunteer GST taxpayer has to attend a 3 hour course. I was registered for the next course due in a few days time (i..e. after the deadline for submission has passed). I could not attend an earlier course as it was fully taken up.

I hope that the government officer who monitors this blog will take this feedback and pass it to senior people in IRAS and Ministry of Finance.

Tan Kin Lian

ST Online Forum: Hit hard by insurance policy termination

ST ONLINE FORUM
I BOUGHT three policies from Prudential for my children 15 years ago. Recently, due to a need for cash, I decided to terminate one of the policies.

To my shock and disappointment, the amount I am getting back upon surrendering the policy equates to less than 50 per cent of my contribution in the last 15 years.

I can understand if the early termination results in an 80 per cent return, but 50 per cent?

The customer service officer told me that given the crisis last year, policyholders did not have good bonuses and therefore the drop in value. So my questions are:

How can the year's bonus affect 50 per cent of my investment because a good bonus does not double my principal sum.

Is there an organisation in Singapore that ensures that policyholders are being protected?

As much as there are risks, what about those who have invested for 30 years hoping to get a good return only to be given the same answer?

Will the authorities please look into this so all of us who hope to retire well by investing in insurance policies will not lose a substantial amount of our hard-earned cash.

Sabrina Tan (Mdm)


MY COMMENTS

MAS should be the body that is responsible to look after the interest of consumers and make sure that they are fairly treated, especially on the declaration of bonus. I hope that MAS will ask Prudential to given an explanation and check if the explanation is acceptable. I am surprised that the cash value is only 50% after 15 years. It should have "broke even" by now.

MAS should not refer this matter to FIDREC. It should be investigated by MAS, as it is the core of the operation of the insurance company.

Car loan for 60 months

Dear Mr. Tan,
I am responding to your post on your blog - which is always a great pleasure to read and to follow, by the way.


Date of offer: July 2009
Financial Institution: (insurance company)
Amount of loan: $55,000
Purpose of loan: car loan
Number of repayments: 60 months
Monthly repayment: $1,031 for 59 months, and $1,048 for the final month.


The interest rate which they quoted me was 2.5%, and I would like to find out what is the effective effective interest rate.

REPLY
The total amount that you have to repay is $61,877. After deducting the loan of $55,000, you are paying interest of $6,877 for the 5 years. This works out to a FLAT interest rate of 2.5% per year.

However, as the loan reduces over the period of 5 years, the effective interest rate is higher, at 4.73% per year. I consider this interest rate to be acceptable for a 5 year loan.

Adopt a consistent approach

This simulation game shows that if you adopt a consistent approach in picking stocks, you will be able to get better results in the long run. There may be ups and downs in some years, due to volatility, but the consistency will produce positive results. Some good approaches are:

a) choose the stocks that perform well in recent years, as they are likely to continue to trend
b) choose low PE stocks as they are likely to revert to the average

These are theories that need to verified by practice. This simulation game allows you to try the theory over many years, and see if they work for the model. In real life, you also have to test the model that works well and stick to it.

Click here to try the simulation game on stock picking. Read the guides and share experiences of the Champions (i.e those who reach Level 9).

Foreign currency payments on credit cards

When I pay in a foreign currency by credit card, I trust that the bank will charge a fair conversion rate. But, I never spend the time to check on the conversion rate that they use. Someone told me that the conversion rate is rather high for the consumer. Do you have any information about this? Please share it.

Football on Pay TV

I am glad that Singtel and Starhub are working together on a joint bid for FIFA World Cup. I hope that they can reach an agreement with FIFA so that the World Cup can be broadcast to Singapore homes through both platforms. That would be good for soccer fans in Singapore.

If the operators and FIFA cannot agree on a fixed price,  I suggest that they work on a percentage sharing of the revenue from each subscriber or an agreed amount per subscriber (to be paid to FIFA).

Perhaps, Singtel and Starhub can get together to discuss how to make the English Premier League available to many homes who are cuurrently on Starhub. Starhub has offered to do the broadcast for free. I hope that Singtel will take up this offer. It will avoid the pain to Singtel of installing so its new set top boxes to many homes, which is likely to cause a lot of technical and capacity issues.

Tan Kin Lian

Bubble in commodity funds

This article explains a potential bubble in commodity funds. It involves complex financial engineering, created by investment banks to earn a fee. This is similar to the debacle on the credit deriviatives.  It is better to invest in indexed funds that invest directly in the underlying stocks. Derivatives should be avoided.

Lessons from Canada about banking

Read this report. Canada has a strong agency to product consumers on financial matters. This has kept Canada away from the mistakes made by other countries.

Pricing of HDB flats and subsidy

Read this letter.

Political risks in Asia

This article explains five key political risks in Asia.

Personal savings

This writer wants to take care of his own money, rather than let the Government decide on how the money is to be spent.

Cash loan - 16% effective rate

Dear Mr. Tan,
Financial Institution: (bank)
Amount of loan: $1500
Purpose of loan: Personal use
Number of repayments: 12
Amount of monthly repayment: $136.10

REPLY
You are paying a total interest of $133.20. This works out to 8.9% of the amount that you have borrowed. However, as you have to make monthly repayment, the outstanding balance of the loan reduces monthly. Based on the average amount that has been borrowed, the effective interest rate is 16% per annum.

The bank pays 0.5% to its customers on their savings. They charge 16% on loans given to other customers, giving a hefty margin to make a good profit for the bank.