Saturday, February 28, 2009

Choose your financial product carefully

Dear Mr Tan,
I have been curious about the development of banking industry and insurance industry for the past decade. Since the two industries evolve and expand their line of business, I can see the overlapping of the products offered by the two industries. I can choose an insurance company or a bank if I want to buy investment fund, securities bond or even insurance.

What are the main differences between these two industries? Maybe in terms of operational aspect, insurance companies tend to stick with agent-based customer management. However, I don't see much different in terms of investment product offering.

What do you think the competitive edge for both banks and insurance companies, in terms of service diversity, service level, financial power, reliability?

It is more important for you to know if the product is designed to give good value to the customers. Unfortunately, many financial institutions design products to have big profit margin for their institutions, often at the expense of the customer. They pay high commission to their agents and distributors. The customer gets a poor deal, after deducing the expenses and profit margins.

It is better for the customer to invest directly in stocks and bonds, especially in low cost, diversified funds. Read my views in

Singapore Budget 2009 - The Alternative Policies

I am speaking at this public forum organised by The Reform Party at 2 pm today at the Allson Hotel. Please attend for an interesting discussion.

Friday, February 27, 2009

Some views on General Election 2009 (2)

1. I hope can have more than 10 candidates from alternative parties are voted into Parliament

2. The government has long since neglected its role of building a nation. It now only knows to cling on to power and put economic growth above all considerations. Not that it is managing the country or economy well. The longer it stays in complete power, the greater the damage to our country and nation. Like global warming, we may already be reaching a point of no return.

3. Mr Tan should step forward, form a new party and lead a team in the GRC. I am sure many Singaporeans will lend you their support.

4. The change will come when the old man gamble away all our reserves, or the old man die!

5. Singaporeans have a spirit of greatness that have built our country into world class. Tap on this to continue to build. Success is possible. Talent is in us, tap it. The only loss is to think and act we can't.

6. I wish for a truly free & dynamic press instead of the compliant ST/Today and MediaCorp that we have now. Singapore's downhill has been greatly contributed by these people.

7. Many of your questions are crafted in such a way as to discredit the Government.

8. If there are credible opposition candidates ie quality of those PAP introduces I would consider them. However the sad thing is that the candidates from opposition did not meet such expectation. So until that day whereby the opposition becomes more credible and able to offer more constructive ideas I would still go with PAP.

Some views on General Election, 2009

1. With the overall openness of Singapore's economy, it is not surprising then, that its society will soon follow suit. It is not a matter of "whether" but "when", will we enjoy a constitutional democracy where a government is not only brought to power by the people, but also kept in check by the restricting powers of just laws. It may take time, but one thing for certain is that it will come.

2. It is not that I don't want more than 10 alternative parties in parliament, but would prefer the real voice or quality people.

3. I prefer continuity

4. Economy should get worse; PAP will lose greater ground than rally stronger ground support to see the people through this crisis; Credible alternatives to PAP may not emerge just yet.

5. I doubt most if not all of the current elite PAP MPs, had ever gone through any life's difficulties. They have lost touch with the ground.

6. Be strong and don't be naive. We need the change for a better life.

7. Nobody and no party is indispensable. For too long, Singaporeans are fed with the fear that Singapore will go down the drain if the PAP is not the governing party. This is a fallacy.

8. Many other countries like Hong Kong have done well, in fact better than Singapore, in many areas like transport, welfare, tourism, taking care of their elderly, etc. What we are experiencing in Singapore is not exactly booming, what with so many elderly in such dire straits and with a heartless government. Enough is enough.

9. The civil servants are the ones doing the work, NOT the ministers or MPs. If we can manage the civil servants well, any party can be the government.

Is it safe to stay with AIA?

Dear Mr. Tan,
I have purchased some investments from AIA including a single premium 10-year plan with guaranteed 3.5% p.a. return.

As you are aware, AIG is seeking to sell some of its assets including AIA. If AIA is finally taken over by another financial instititution, what would you think will be the impact on the investors here like myself and many other policy holders?

Shall we terminate our policies/investments and cash out before the take over materializes?

Does the government's guarantee to cover financial institutions' obligations in Singapore also cover the obligations of insurance companies like AIA?

Many AIA customers are anxiously watching the development in the market concerning the deteriorating financial conditions of AIG and wish to have some advice from people like you as to how to react to such major changes which could affect our investments in AIA. Please share your view with us in your blog (no commitment).

I believe that the interest of the policyholders of AIA will be protected in the event that AIA is sold to new owners. You should avoid terminating a life policy, as you are likely to suffer a big penalty.

Investing your CPF savings

Dear Mr. Tan,
Like many young Singapore couple, my wife and I plan to retrieve an amount of 20K from my CPF account for other investment before all our money in the CPF is wiped out by HDB for our HDB flat. Basically, the reason for doing this is to save our money for rainy day in case anything happen (i.e. retrenchment).

As we are not a high risk taker, we decided to just invest our money into unit trust. We met up with our insurance agent from AIA and he introduced us to these few AIA funds.

1) AIA Greater China Equity Fund 30%
2) AIA Regional Equity Fund 20%
3) AIA Regional Fixed Income Fund 50%

As such, we will appreciate your expert advice on the following:

1) Is this the right time for us to invest our money into unit trust?
2) Is unit trust the best option for us?
3) Is it advisable for us to invest onto AIA Company in view that they may be took over by other company soon.
4) Please advise if the three funds that our agent introduced to us is suitable for us?

I normally advise people to invest in the STI ETF due to low charges. You can get most of the returns. Read the FAQ in my website.

If you buy an investment linked product from an insurance company, you should ask about the charges that are taken away from your investments. This is also explained in the FAQ.

Civic Advocator

I invite readers of my blog to visit the Civic Advocator. It is managed by my friend and is aimed at educating the public about social affairs.

Thursday, February 26, 2009

High birth rate in France

France has a high birth rate, compared to other European countries. I asked a French friend for the reason. He identified two key factors:

1. The income tax system favours large families. The larger the family, the lower the effective tax rate. Some high income earners does not have to pay any income tax, if they have a few children.

2. There are adequate child care facilities in the community and the workplace.  This is supplemented by a system of nannies who take care of children in their homes. The cost of the nany is largely borne by the state.

City watchdog promises 'banking revolution'

Financial regulators may in the future ban financial products if they are too risky or too complex, Lord Turner, chairman of the Financial Services Authority, said today.

Read this article.

TKL Blog passes 1 million visitors

My blog passes 1 million visitors on 26 February 2009, just slightly more than 2 years since the count started in February 2007.

Miami banker gives $60 million of his own to employees

A generous banker.

Palm Jumeriah, Dubai

The Palm Jumeriah is built on reclaimed land. It is a very large development shaped like a palm tree. It comprises of the trunk, crescent and many fronds. 

There are several large apartment blocks built on the trunk. Atlantis Hotel and its supporting developments is built on the crescent. The expensive villas are built on the fronds. Almost all developments have a waterfront.

The development is served by a monorail system that is connected to the Dubai Metro. It is opening in April 2009.

Atlantis is a popular attraction for the locals and tourists.  You can watch this video to get an idea of the Palm. There is a tunnel that goes under the water connecting the mainland to the Palm and from the trunk to the crescent of the Palm.

Wednesday, February 25, 2009

Respect Other People's Views

Minister for Health Khaw Boon Wan suggested that some people can consider sending their elderly parents to a nursing home in Johor Bahru, where the cost is less than half of the cost in Singapore.

This created a big uproar. It attracted more than 300 comments in postings in The Online Citizen. Over 80% of the comments were strongly against the suggestion. Many of the comments were rude and abusive. They called the minister inappropriate names. I was shocked at this behaviour.

First, it was not necessary for people to give their views in a rude manner. They should show respect to the views of other people. I am not suggesting that a minister deserves more respect than any ordinary people. But he should not be given any less respect either.

Second, there is a strong perception that any suggestion by a minister will be implemented as government policy. If the reaction is likely to be irrational and negative, the government may decide that it is better not to engage the public. Surely, as citizens, we like to have the chance of giving our views before any decision is taken by the government leaders? Can we give our views in an objective manner, rather than behave badly?

Third, there seems to be a strong dislike and distrust of the government.  This is unhealthy.

The Online Citizen

Recipe for Disaster: The Formula That Killed Wall Street

Read this article.

Actually, the top people in Wall Street don't care. This formula allows them to show billions of profit, on which their bonuses are calculated. When the global financial system collapsed, they disappear with their big bonuses. They don't have to pay back or suffer the loss, which is borne by the rest of the world.

What greed!

Reuters: In Asia, suicides rise due to financial crisis

Read this article.

A truly inspiring speech from a great leader


In his speech, President Obama said that Americans do not like to see the tax payers give money to the banks. The President said that it is necessary to allow the banks to continue to give credit for businesses and consumers.

There is another way to achive it, without giving money to the banks. This is to give the credit directly to the borrowers through another agency (other than the banks). It ensures that the money is properly used and does not give the profit to the banks.

I shall be talking more about this idea in another article.

SCMP:Risk-assessment tests are investment traps

24 Feb 2009
Enoch Yiu

'How much do you earn every month?" "How many overseas trips do you take with your family every year?" "Are you living in your own apartment?"

These are the typical questions asked by your banker or broker before you open an investment account. While the stated purpose is to ascertain risk levels, White Collar believes they can be a tool to sell high-risk products to those who can least afford them.

The experience shared by our readers is that these tests are not in any way standardised, with different questions and rankings set by the banks or brokers themselves.

With the Lehman Brothers minibonds scandal still fresh in our minds, these tests need to be more tightly regulated by the Securities and Futures Commission and the Hong Kong Monetary Authority to avoid mis-selling of risky products. Three readers with different backgrounds relate their experience with these tests.

A fund manager with more than 20 years of experience was asked to do a test as the banker wanted him to invest in risky equity-linked notes - an investment product linked to the performance of some stocks.

A judge who only put his money in time deposits was also asked by his banker to do the test and buy into these notes.

And a retiree, aged almost 80, was asked by his banker to do the test and buy these products.

The fund manager left without finishing the test, as he thought the questions were only intended to find out how much money he had.

"This was an infringement of my privacy. No matter what answers I gave, I believed the results would be the same - I would be sold the products the banker needed to meet the quota for that month," he said.

The judge was ruled capable of buying the high-risk product. But he insisted on putting his money in time deposits as he did not believe in complicated investment products.

"The time deposit does not offer a high interest rate but it is better than losing your money," he said.

The retiree did the test and was judged as someone who could afford low-risk investments. Even so, he was able to buy those notes and believed the products would be "safe". The result: his investment lost 85 per cent of its value.

"Why should an investor adjudged as being only able to afford low-risk investments be sold something that loses 85 per cent of its value?" the retiree said.

This is obviously a case of mis-selling. It is not rocket science and it really does not need any test to confirm an 80-year-old is not suitable for any risky products.

It appears that no matter how these tests are formulated, the result is the same. The bankers are selling products to meet their quotas. Our regulator friends at the SFC and HKMA should immediately curb this type of test to stop people from falling into investment traps.

At the very least, regulators should have a single, standard test for banks and brokers to gauge investors' risk appetite, or we are going to see mis-selling similar to the Lehman minibonds again.

The Standard:Minibonds saga hurts Yam

24 Feb 2009

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said he is sad that the reputation of Hong Kong banks has been tarnished by the Lehman Brothers minibond fiasco, which remains unsettled.

``What banks are doing in their banking business has been acceptable and the banking system is rather robust,'' Yam told legislators yesterday. ``Only this issue has left them with a black mark, and I feel very distressed.''

However, he revealed that in early 2008 some banks did not follow the HKMA's guidance to adjust the ratings of investment products when they turned more risky.

Abraham Shek Lai-him, who sits on Legco's financial affairs panel, accused the banking regulator of failing to warn Lehman minibond investors.

``If you already knew there were problems, why didn't you remind the more than 30,000 investors about redeeming the products when they became high risk from low risk in 2008?''

Yam responded: ``As a regulator ...we can never warn that a specific product or a specific financial organization is not doing well and [ask investors to] sell their products right away. How can we do that? It's not possible.''

He said the HKMA told banks they must inform clients when the rating of a certain product has changed.

Civic Party legislator Ronny Tong Ka-wah lashed out at regulators. ``It's unbelievable that you still can't tell if any bank broke the rules after investigating for five months.''

Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung replied: ``It may harm the investigation results if we release the report before the Securities and Futures Commission completes its investigations.'' Yam added that some Lehman investors could not provide enough information for investigation.

He also said banks have generally agreed with the proposal to physically segregate ordinary banking and securities business.

Chan said the government is studying whether to boost the SFC powers to punish financial institutions engaging in improper marketing practices.

Economic slowdown in Dubai

Dubai is hit by the low oil price and the global economic slowdown.

Many construction projects have stopped and the workers are sent back. Price of real estate has dropped by 40% to 60%. Many investors have lost money. The projects under development have been shelved.

Hotel occupancy is down to 50% on most days (except where there is a major exhibition organised in Dubai. Although this is the peak season, the hotel rates reflect the off-peak season (about half of the peak season rate).

On my way to Dubai, I observed that Changi Airport is rather quiet and the SIA plane is half full. The stewardess said, "economy slow".

Atlantis Hotel, Dubai

I visited the newly opened Atlantis Hotel in Dubai. It is located in Palm Jumeriah, which is a large real estate created through land reclaimation (in the shape of a palm tree) on the Arabian Gulf. The first metro line in Dubai will be opened in April and will serve Palm Jumeriah.

Several restaurants and rooms in the hotel are built below sea level. The guests can see the fishes swimming under the sea. However, I was not able to visit this part of the hotel.

There is a large shopping mall with several restaurants showing fishes swimming in large acquariums. They give the impression of being in the lost city of Atlantis.

Sunday, February 22, 2009

Special report on Financial Advisers

Read this report in Business Week.

China Daily: Regulator unaware Lehman minibonds existed

21 Feb 2009

HONG KONG: Financial services chief Chan Ka-keung told the first Legislative Council hearing on the minibonds saga Friday that he was unaware of Lehman Brothers ill-starred minibonds before the collapse of the investment bank in September.

Chan's testimony, offering the first official account of the investment debacle, drew criticism that the government is concerned only with helping financial institutions weather the financial storm, while ignoring the interests of small investors.

The Secretary for Financial Services and the Treasury said he is concerned about the turbulence in the financial market and that he's been concerned about structural investment instruments such as Accumulator, since early 2008.

Legislators at the hearing referred to a speech made by Chan last May in New York. He told his New York listeners that the roots of the sub-prime crisis arose from credit rating agencies and the system of risk control. The Lehman minibonds somehow escaped his radar. Minibonds and other Lehman-related instruments chewed up HK$20 billion involving more than 48,000 accounts.

"The earliest I knew about minibonds was after the collapse of Lehman Brothers," he testified, in response to questions from legislator James To.

Chan did not elaborate.

The regulatory bodies, the Hong Kong Monetary Authority and the Securities and Futures Commission, raised no alarm to government as financial derivatives and structural investment instruments entered a period of severe turbulence in early 2008, he said.

Chan paused before responding to a question from wholesale and retail sector legislator Vincent Fang. Chan was asked the reasons for his lack of awareness of minibonds before Lehman Brothers collapsed.

"It is impossible to have a regulatory system that ensures no single incident of irregularity can happen," he said. "The close of Lehman Brothers was all of a sudden. It was a major incident. We are determined to improve our system."

Chan, admitting that some investors were misled, said the government has "no role" in deciding whether investment products should be banned from the market.

Regulatory bodies are responsible for determining whether financial institutions have made accurate disclosures concerning financial instruments. Agents for these products have responsibility to assure the products are suitable for the market, especially for investors in positions of vulnerability.

"The role of the government is to give statutory power and resources to regulatory bodies to perform their jobs," he said.

The government is not involved in day-to-day operations of the regulatory bodies, he added.

Labour sector legislator Ip Wai-ming criticized the government for not even being aware of the minibonds until they surfaced as a huge problem.

Legislator Regina Ip said the government should ban the sale of high risk products to individuals. She pointed out banks were still selling the disaster-bound instruments as late as August.

Real estate and construction sector legislator Abraham Shek criticized Chan for giving unsatisfactory answers before the hearing.

Hearing chairman Ho Chung-tai said he is satisfied with progress of the enquiry, though he noted that Chan "was not used to giving evidence under oath".

Chan will return to give further testimony before the hearing on Tuesday.

When consumers cut back, a lesson from Japan

Read this article.

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