Friday, May 23, 2008

Collective Protest - Action

If you wish to participate in the Collective Protest against the restructure of bonus, please click on this page:

You have to print the letter and signature form. Please collect as many signatures as possible. Mail it to my address shown in the instruction page, to reach me before 25 May 2008.

Make it easy to pay by bank transfer

Mr. Tan,
When I get my invoices processed, my Accounts department will start processing if I provide an email copy in advance. They still need an original (i.e. signed) invoice before releasing the cheque. I think that this is required as an audit trail.

A direct debit payment (DDA) has to be done through banks. I understand that it is a hassle to arrange with the bank such a payment mode. I think that there are extra charges or delays. For one-time payments, perhaps it's much easier to pay by cheque.

We are caught in the old ways of making payments, due to various reasons. Mostly, it is the reluctance to try a new way.

Many people continue to write cheques and mail them. The receipients have to open the envelope and visit the bank to deposit the payment into their account.

In many other "advanced" countries such as Cjhina, the payee instructs the bank to make the transfer to the payor. The bank gives detailed information to the payor about the payment - sufficient for audit trail, etc

I hope that employees of commercial organisations or banks reading my blog will ring this matter up to their bosses.

Thursday, May 22, 2008

Low transaction cost

I have a good arrangement with my remisier. He sends a few documents to me daily to keep me updated on the major investment opportunities. If I need information on any company, I send an e-mail to him. He forward it to the research department and give me the information within one day.

I pay 0.3% for each transaction. If it involves $10,000, the brokerage is $30. He keeps about 40% of this fee, i.e. $12. If the trade is $50,000, he earns $60. He also takes care of the paperwork involved in the trade. Although the cost is low, my remisier can look forward to a few trades in each month from each active client.

I hope, one day, that insurance sales can be made as efficient and low cost as trading of shares.

Contact NTUC Income

Dear Mr. Tan
I tried to email my NTUC Income agent regarding to my living policies cash value. However, she has not replied to my mail for a long time. Then I tried to write to, Again, there is no reply. What other email address can I write to for a reply?

You can try the service quality officer,

Benefit Illustration

Dear Mr. Tan,

I am given a benefit illustration for a life insurance product. It seems to be quite detailed, long and complicated. Do you have any tips on the important things to watch out for?


You should ask the agent to explain the key points to you. You can ask the questions contained in this FAQ:

Make sure that the agent explain the answers clearly. Do not be shy to ask for clarification, if the point is not clear to you. It is the agent's duty to provide clear explanation.

True cost of life insurance

Dear Mr. Tan

I read several comments in your blog. They seem to suggest that there is such a thing as a high cost life insurance policy, and a low cost policy. How can a consumer tell the difference?


You can read this FAQ:

It explains the true cost of a life insurance policy, as reflected in the reduction in the yield that can be earned from the life fund.

Tunis, Tunisia

What is the difference between Tunis and Tunisia?

Tunis is the capital of Tunisia, a country in North Africa. It is a small country situated between Libya and Algeria. I will be visiting Tunis in June. It will be my first trip to the continent of Africa.

A few countries have a name ending with "sia", e.g. Malaysia, Indonesia, Tunisia, Rhodesia (now Zimbabwe) and Polynesia.

Wednesday, May 21, 2008

Wealth Accumulator

Dear Mr. Tan
Someone told me that you recommended a product called the "Wealth Accumulator". Can you explain the features of this product, and why it is good?

This product is just a concept at this time. It has no front-end load and a low annual fee. It is like an indexed fund. I hope to get a new life insurance company to offer this product in the near future.

You can read more about this product here:

In the meantime, if you wish to find a low cost investment fund, you can consider any of the following:


Football fans will remember that Wigan FC played the last game of the Premier League against Manchester United. That game decided MU to be the champion of the League.

My first encounter with Wigan was about 25 years ago. I was in a train which stopped at Wigan Wallgate. I found the name Wigan to be strange, and Wallgate to be strange also. I mentioned this to my English friend. He laughed and told me that the town of Wigan actually had two train stations, called Wigan Wallgate and Wigan North Western. He told this joke.

An Indian immigration worked in Wigan for many years. He received a telegram asking him to return to India, as his mother was very sick.

We went to the train station in Wigan and asked for a train ticket to take him to Bombay, India. Nobody at the station had every heard of Bombay or India. They sent him by train to London.

Nobody in London heard of Bombay or India either. So, they sent him to Paris. He finally arrived in India after much difficulty. He stayed in Bombay for some time until after his mother passed away. Now it is time for him to return to England.

He went to the train station in Bombay and asked for a ticket to Wigan. The clerk replied immediately, "Yes, sir. Do you want to be at Wigan Wallgate or Wigan North-western?"

Where is the joke? During the days of the British Empire, nobody in England has heard of any place outside of England. Everybody in the British Empire knows all the train stations in England!

Pay and Performance of Leaders

Someone asked my views on this topic a few weeks ago. I posted my views in this blog. I have since written an expended version, which will appear in later today under a new title.

MAS Guidelines on Fair Dealing Outcome

I have submitted my views to MAS on their consultation paper on "fair dealing outcome" to consumers.

MAS wants to make the management and board of financial institution responsible to achieve this outcome. The key points of my paper are:

1. The management and board of financial institutions have the goal of making the most profit for shareholders. It is difficult for them to be responsible for "fair dealing outcome" for consumers. There is a conflict of interest.

2. "Fair dealing outcome" has to be defined more clearly. It should be defined as a product that have fair (not excessive) charges and give good value to consumers.

3. For complicated financial products, the regulator must ask two independent financial experts to study and give their views. The vews of the experts should be posted in a website to guide consumers.

I quote the example of new drugs. The regulator tests and approves the new drugs before they are sold to the public. They do not expect the consumers to do their own testing. Financial products should go through the same test.

Annual and Terminal Bonuses

Dear Mr. Tan,
I wish to share my views on this matter. Please post it in your blog.

1) Does terminal bonus smooth returns for policyholders?

Policyholders who have the rotten luck of dying, surrendering (due to unemployment/financial hardships), or whose policy matures (to pay for their children's university education) when the investment markets are doing badly, will see low returns on their terminal bonus policies - perhaps insufficient for their initial plan on how to use the maturity payout.

Policyholders who claims/surrenders/matures during good investment times will be paid the returns shown in the benefit illustration (ie around 3.5% to 4.5%).

But is this fair and equitable? Is this the intention of with-profits life insurance policies?

For reversionary bonus, the impact of investment market volatility on the claimants, surrenders, maturities are significantly reduced, since past bonuses are guaranteed and cuts in reversionary bonus affects all policyholders fairly.

Compare this to terminal bonus which affects only unfortunate claimants in bad investment cycles. Higher reversionary bonus payouts provide higher certainty for all policyholders.

2) Bonuses are not guaranteed anyway, so are they different products?

The provision of certainty and higher bonus-vesting (via high reversionary bonus) adds value to policyholders and is a very different product from the high terminal bonus version.

My friend gave me this analogy. If you ask your investment broker to buy a secure long-term government bond, but instead he gives you a well diversified unit-trust but giving you an excuse that you can expect higher returns, will you be happy with it?

A promise is a promise. Income has promised policyholders a design of high reversionary bonus (low terminal bonuse). Arguably, Income's management does not have the right to change to a low reversionary bonus design unilaterally. In the past, I have personally recommended Income's policies based on this high reversionary bonus design. The move to 'industry practice' is a significant drawback.

3) So what's the value-add of Terminal Bonus? Does it really give higher returns? Are terminal bonus less likely to be cut?

Using an insurance adviser's example, a return of 3.5% is about long-term bond gov rate. Old income policies also returns around the same rate.

Which is more valuable to policyholders, an uncertain return of 3.5% (based mostly on terminal bonus) or a more-certain return of 3.5% (based mostly on reversionary bonus)? Clearly, the reversionary bonus. Bear in mind that 3.5% is about the returns of very secure long-term government bonds anyway.

All else being equal, are policies with high terminal bonus less likely to suffer bonus cuts? Evidently no. Since during the last investment down cycle, industry players cut terminal bonus significantly as well.

4) What about solvency and investment allocation? Terminal bonus approach allows more allocations to high returns/risk assets right?

My recent statistics collated from the MAS website, shows industry players that uses terminal bonus approach have on average solvency ratio of 300%, equity investment ratio of 20%-30%. What level of solvency ratio is adequate? Is 300% too high?

Bearing in mind, MAS minimum is 120% at company level. Are these companies being too safe at the expense of policyholders? With such a comfortable buffer of 300% solvency ratio, shouldn't allocations to risky investments be higher?

Yew Ming

Land Banking

Dear Sir,

I wish to hear your opinion about land banking opporunity through X as follow:

> audited track records 29 yrs
> no clients losing money
> audited by Y

I do not like this investment product. There is no liquid market. You can put your money in, but you have to wait a long time before you can find someone to buy the investment from you. I have been approached many times to invest in the product, but I always declined.

You can search my blog for my past postings on this type of investment. Type "land banking" and click on Search Blog.

Tuesday, May 20, 2008

Uncertain yield

A policyholder sent to me a whole life policy (premiums payable for 10 years) taken for a child age 19, covering a sum assured of $50,000.

Total Cash Value Yield
Premium Gtd N-Gtd Total p.a.
10 yr $15,980 $14,050 $1,523 $15,573 -0.5%
20 yr $15,980 $18,400 $6,887 $25,287 2.2%
30 yr $15,980 $23,700 $15,723 $39,423 3.0%

The yield for the first 10 years is negative. The yield becomes positive over the subsequent 20 years due to the non-guaranteed special bonus. If the special bonus is reduced, the yield will fall accordingly. The yield on this policy is uncertain.

Revolution in financial advisory industry

Mr. Tan,

I'm an ardent follower of your blog since it was launched. It has been delightful gaining insight into your views on investment and insurance.

I just read your entry on the fee based approach. For me, that is a very viable alternative for both clients and advisors which I whole-heartedly endorse. I, too, believe "Buy Term, Invest the Rest" is a mantra that give the best value to most clients.

However, most financial advisory firms do not advocate this. It might be attributed to :-

1) Infrastructure. The two investment platform, iFast and Navigator, available do not carry low-cost funds especially index funds or index ETFs.

2) Business sustainability. The current business model of the firms are meant to maximize shareholder value.

3) The Advisors. Advisors are commissioned based and as such, it's human instinct to "milk" as much as possible, considering that the amount of time expended in travelling and prospecting need to be justified.

With your approach of clients visiting the "clinic", I am sure that advisors will be more willing to jump onto the bandwagon and hopefully, lead to a revolution in the financial advisory industry.


Monday, May 19, 2008

Invest your SRS savings

Hi Mr. Tan,

Let me say thank you for your blog which has been educational. I hope more people will read it and hopefully learn to be slightly more financially savvy in their personal financial planning / management.

I believed that ultimately knowledge and education is the best way the customer can be protected. The rules and regulation set by the authorities such as MAS are also important steps that served to protect customer's interest.

In view of Income proposed restructuring of its bonus, which effectively reduce the yearly vested annual bonus significantly in favour of non-vested terminal/special bonus, I think that parking SRS money in Growth policies for long-term is no longer an attractive option.

For you personally, where would you park your yearly SRS contribution, given the current situation, assuming that you are taking an investment time-frame of 15 to 20 years?


In the past, I have invested my SRS in the Growth Policy (i.e. single premium endowment). I will keep this policy, as NTUC Income has assured the policyholders that the total bonus payout on maturity will not be reduced by the restructuring of the bonus. The reduction in annual bonus will be compensated by an increase in the special (terminal) bonus.

Today, if I wish to invest my SRS contribution for next 15 to 20 years, I would chose an investment fund. This is explained here:

Welfare in Singapore

Should the Singapore Government spend more on welfare?

Read my views in:

Cost of travelling - taxi and car

The petrol consumption on my Toyota Camry is 24 cents per kilometer. If I travel by taxi, the fare is 60 cents p kilometer (off-peak) and 80 cents (peak hours). So, taxi cost 3 to 4 times of driving. In both cases, I have to pay the ERP charges. I save on parking charges when I take a taxi.

Conclusion? Take the MRT!

Advice backed by proper research

A person by the name of "June" attacked me in "She" said that the views posted by Mr. Tan Kin Lian in his blog and website are not backed by proper research.

It is easy for "June" to discredit me, while under the cloak of anonymity. I do not know if "she" is a real person and what is her background.

I invite my visitors to read the FAQs posted here:

You can take my advice, if they are relevant to you. You can ignore them, if they are not relevant or not backed by "proper research".

You can judge if the financial adviser is making a recommendation that is backed by "proper research" or "selective research" and is beneficial to you. Be sure that you understand the adviser. If the adviser does not explain clearly to you, do not trust the adviser.

Ask the simple and relevant questions, including those set out in this FAQ:

Understanding the Benefit Illustration

Someone posted a comment in as follows,

"Mr. Tan suggested that the public should look at the Effect of Deduction and Distribution Cost" in the Benefit Illustration. What is the point of these information, when consumers do not understand what they mean?"

I agree with this comment.

The regulator required the financial institution to disclose these key information. The financial institutions found a way to provide these information buried in 10 pages or more, of other details. The consumers are lost.

The financial advisers have the responsibility to explain the relevant points to the consumer. I suspect that they will skip these sensitive areas. Even if the consumer ask, the adviser could find a way to confuse the consumer and side-track this issue.

I suggest that the regulaor should carry out a survey (say with 50 consumers who have recently bought a life insurance product) and ask the following questions:

1. Have you been told about the Effect of Deduction and the Distribution Cost?
2. Did the adviser explain these terms to you clearly, before you buy the product?
3. Now that you are aware about these items, do you feel that you have made the correct decision in buying the product?

Wasteful way to make a payment

An organisation wanted to pay me $400 to give a talk. I asked them to credit the payment directly into my bank account.

This is what actually happened.

1. I was asked to send a signed invoice by mail. They do not accept an invoice by e-mail.
2. I had to provide a photocopy of my bank statement for them to verify my bank account.
3. Three weeks later, they send a cheque to me by mail (in spite of verifying my bank account).
4. I have to mail the cheque to my bank to credit the payment.

The practice of this organisation is quite common in Singapore. They have still not woke up to the new world. They are still stuck to the old bureaucratic way of making payment by cheque.

My friend in China was surprised at our outdated practice in Singapore. Cheques are almost unheard of in China. All payments are made through bank transfer.

Wake up, Singapore. The world has changed. Why are we still using outmoded and expensive methods to make a simple payment?

I hope that people reading my blog will give the following suggestions to their bosses. You can take this suggestion as your own, and earn some merits:

1. Organisations can make payments directly to bank accounts
2. Banks can encourage and educate their business clients to adopt this new method
3. MAS and IDA can encourage the business community to adopt the more efficient methods.

Financial advice for a young person

Hi Mr Tan,
Your website has certainly been extremely important in my understanding of today's financial products and situation.

I have just graduated and will be starting work soon. I carried out some research on how I should diversify my savings into investment and insurance. Through your guidance, I decided to do them separately.

A financial adviser tried to promote the following product:

Riders attached with this plan:
1) Disability Linked
2) Waiver of Contribution (TPD or Critical Illness)
3) Critical Illness link benefit

For all 3 riders: Sum assured is $150,000. Regular Contribution: $250 and about $22 being contributed to payment of insurance

Bid offer spread: 5%
Top up Minimum S$500, at no additional charge
Partial withdrawal allowed (minimum of S$250 per withdrawal)

Unit allocation (as percentage of premiums paid)
Year 1: 13%
Year 2: 40%
Year 3: 45%
Year 4 to 6: 100%
Year 7 to 9: 103%
Year 10 onwards: 105%

Is this investment-linked plan advantageous to me? I have my doubts over the low percentage of premium going into the investments.

Secondly, at my age, what kind of insurance should I actually consider? Is it all right to purchase term insurance.

Thirdly, I have considered embarking on a monthly investment plan on unit trusts with the intention of starting my investments early, not trying to time the market and at the same time accumulating my savings for future investments. I would like to seek your advice on whether this is feasible.


Do not invest in this high cost product. 200% of your annual premium is taken away during the first three years.

Read this FAQ:

This product appears to give you allocation of 105% from year 10. After discounting the spread of 5%, you are actually investing at the net asset value. A honest adviser will tell you the truth. A dishonest adviser will mislead you into thinking that you are getting 5% more.

Here is my suggestion for investing your monthly savings:

Existing Life Insurance Policies

A commentor agreed that it is better to "Buy Term and invest the Difference". He asked, "What should the policyholder do, with the high cost life insurance policies purchased in the past?" Many people are caught in this situation.

My advice is given in these FAQs. Read them:

Generally, I advise people to keep the existing policies, as they have already incurred the high front-end charges. But, if the continuing charges remain too high, they should terminate the policies and invest differently.

For younger people, I strongly advise them to follow the advice given in this FAQ:

After you have read and understood the FAQ, it is all right for you to talk to a financial or insurance adviser. The adviser will be able to help you to find a low cost option. Some of the advisers do look after the interests of their clients. You can help them to help you, by being educated about the options available to you.

Sunday, May 18, 2008

Petrol Consumption - Toyota Camry

During the past 11 days, my Toyota Camry travelled 473 km, consuming 52.91 litres, or 8.9 km per litre. The price is $2.136 per litre. The petrol consumption is 24 cents per kilometer - consistent with my previous record. I spent $107 for 11 days. My petrol consumption is almost $300 per month. It is high.

Write to ask NTUC Income

Hi Mr. Tan,

I have several Growth policies (single premium) and a Living policy. Are these policies much affected by the bonus resturcturing?

I suggest that you write to ask NTUC Income. They should have informed you by now.

If your policies are taken during the last 15 years, and I suspect that your Growth policy falls in this category, it is affected by the bonus restructuring. My Growth policy is in this category.-

Mortgage Insurance

Dear Mr Tan,

We are planning to apply for Bank Home Loan (both my wife and I are PRs) and would like to know about Home Loan insurance. We already have term insurance including critical illness policy, hospitalisation insurance.

Should we buy Home Loan insurance? I know some banks already included in their home loan product. Can we opt-out and choose separate Home Loan insurance? What are the best low cost insurance for Home Loan in the market?


You can buy a Mortgage Insurance. You need to provide the following:

Amount of mortgage loan
Duration of repayment
Interest rate on theloan
Ages of the insured persons, e.g. you and your spouse

You can call a few insurance companies and ask them to give you a quote. You can select the company that respond to you (indicate that they give good service) and give you the best terms. Ask about the annual premium and the number of years paid. You can also opt to pay a single premium.

The telephone numbers of the insurance companies are shown here:

Effect of Deduction

A policyholder sent to me a whole life policy (premiums payable for 10 years) taken for a child age 19, covering a sum assured of $50,000.

The Effect of Deduction is as follows:

Total Cash Value Effect of
Premium Gtd N-Gtd Total Deduction
10 yr $15,980 $14,050 $1,523 $15,573 $5,830
20 yr $15,980 $18,400 $6,887 $25,287 $10,416
30 yr $15,980 $23,700 $15,723 $39,423 $20,132

After paying the premium for 10 years, the cash value is still less than the premiums paid. The effect of deduction is about $5,830, This is the money that could have been earned by investing the premiums.

The effect of deduction over 30 years is about $20,132. If the parent had bought a level term assurance for the child for 30 years, the total premiums plus interest would be about $3,500. This is cheaper than the $20,132 (i.e. "effect of deduction") charged under the life insurance policy.

Read this FAQ:

Vivolife (premiums payable for 10 years)

Dear Mr Tan,
My posting on theonlinecitizen gave an example of a Vivolife policy, where premium is payable for 10 yrs (not 20 yrs as mentioned by you) but the coverage is for whole life.

Here are the details you requested:
Age 30 male (non-smoker).
Premium for a $100,000 Vivolife-10 yr premium term. Premium is $4251.75 a yr.
Total premium paid for 10 yrs is $42518. The cash value continues to grow even though premium is stopped.

At age 60 (that is, after the policy is inforce for 30 yrs), the cash value is $99306. If the policyholder surrenders the policy, he gets $99,306 (capital gain of $56788). Using a financial calculator, the yield is 4%p.a. This is similar to the coupon rate of long term government bonds.

Where can you find a zero coupon bond that allows you to pay in installments (instead of upfront) and yet offers you insurance coverage, as well as the flexibility to cash out and get a FULL refund + interests?

My investment savvy clients are familiar with asset allocation and they prefer to include Vivolife in part of their bond portfolio.

They classify Vivolife as an appreciating asset and Term policy is an expense. My clients are covered with both term and whole life policies.

Catherine Choong


Dear Catherine
I calculate the yield on this policy, kept for 30 years, to be about 3.5% p.a. (and not 4%).

Can you give the following figures from your Benefit Illustration, i.e. total premiums paid, cash value (guaranteed, non guaranteed), effect of deduction for 10, 20, and 30 years.

I understand that a large portion of the yield at the end of 30 years depends on non-gauranteed terminal bonuses. There is a high degree of uncertainty, as the terminal bonuses could be removed during bad years (and this has happened with other insurance companies). I suspect also, that the yields during the earlier durations could be negative.

If the policyholder invest the premium in an investment fund to earn a net yield of 4.5% p.a. the total amount at the end of 30 years is $132,000 (i.e. 33% higher than $99,306). As he is investing for 30 years, he can choose a higher risk profile and invest in equities. If he earns a net yield of 6%, he will get $191,000 at the end of 30 years.

The cost of providing the insurance protection has to be paid out of the savings, so the estimated return in 30 years could be lower than the gross figures of $132,000 and $191,000 by 10% to 15% (my estimate, depending on the cost of the protection).

If the policyholder choose an investment fund, there is flexibility to continue the saving beyond 10 years, instead of having to buy another high cost product. He can also discontinue saving for some years, without suffering any penalty.

In spite of my comments, I recognise that the non-savvy policyholders may find the packaging of Vivolife to be more suitable to their needs. A good adviser will present both options for the customer to choose.

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