## Saturday, June 20, 2009

### Puzzle - The Tenth Roll

An ordinary dice (such as used in gambling) has six sides, so the probability that any one side will come out is one out of six, or 1/6.

Suppose your role a certain dice nine times. Each time the 1-dot turns up. What is the probablility that the 1-dot will turn up again onthe next roll? Is it better than 1/6, less than 1/6 or is it still 1/6?

### Puzzles

Here are the puzzles posted earlier in this blog.

## Friday, June 19, 2009

There is an advertisement by Interactive Brokers on CNBC TV. It shows an independent adviser describing her job as helping clients to monitor their investments and trading through a low cost internet platform offered by the advertiser. The adviser gives value to the clients by getting access to the suitable financial products traded on the exchange, at the lowest possible cost.

I hope that independent financial advisers will move to this business model, i.e. give value to the clients and earn a fee for their service. This fee is adequate for the time spent and is not so large as to make the client poorer off.

It is possible for a finacial adviser to make a living with this model, just as a doctor makes a living by giving medical advice for a fee.

Tan Kin Lian

## Thursday, June 18, 2009

### Office Staff in Ang Mo Kio office

I wish to employ an office staff to do admin work. The office is in Ang Mo Kio. The work can be for 4 to 8 hours a day (flexible). Preference to someone living in or near Ang Mo Kio (or 1 direct bus). Interested, please send resume to kinlian@gmail.com.

### TKL Intelligence Quiz, Sudoku

I have received two orders for my TKL Intelligence Quiz book through my website. The books will be mailed, free of postage, to an address in Singapore. This is a new way of selling books, which I am experimenting with. I also have a book on TKL Sudoku (\$7.90). It contain challenging puzzles.

More orders are welcomed.

### Obama's plan for Financial Regulatory Reform

Here are the details of the plan.

Someone said: If USA, which is the center of capitalism, finds it necessary to regulate the financial system, what about the rest of the world?

## Wednesday, June 17, 2009

### Obama to Create Consumer Financial Agency

President Obama has the courage to do what needs to be done. He is creating a Consumer Financial Agency with powers to punish wrong doings by financial institutions. Read this report.

### Reckless behaviour by financial institutions

In the early 1990s, several insurance companies in Scandinavia lost a lot of money on credit insurance. They insured financial institutions from losses on mortgages in the event that the borrower did not pay back the loan. During the economic recession, the property values fell and many borrowers defaulted. These insurance companies had to be recapitalised.

15 years later, other insuranced companies have started to issue credit default swaps. They are like the credit insurance, except that the magnitude of the bets are of an unimaginable scale and they are unregulated entirely.

Could the insurers have forgotten the lessons of the 1990s? I do not think so. These new gamblers are either arrogant (i.e. they think that they found a new way to manage the risk) or reckless (i.e. they wanted to make a lot of profit now, and let the system collapse later).

The regulators were also negligent in not stopping these reckless bets.

Tan Kin Lian

### Survey: Singapore political system

Here are the survey results (based on 54 replies)

### Survey: Singaporean values

Here are the survey results (51 replies).

### Life insurance - indisputable clause

A life insurance policy is likely to have an indisputability clause. This clause states that the insurance company will not dispute any claim after it has been in force for one or two years, except in the case of fraud.

The purpose of this clause is to protect the consumer (i.e. policyholder) from unreasonable rejection of a death claim due to non-disclosure of material information. After a policy has been issued for a few years, it will be difficult to establish if the non-disclosure is intended or an oversight. The indisputability clause states that the insurance company will not dispute the claim on this account.

The claim can be disputed if the premium is not paid.

Some claim offiicers are willing to dispute a claim under the "fraud" clause. They claim that policyholder is commiting fraud by the non-disclosure. This stand is in contraction to the indisputablity clause.

If the insurance company wish to use the fraud clause, they have the burden to prove that fraud was intended by the policyholder. The non-disclosure event does not amount to fraud. Other evidence had to be produced, e.g. that the policyholder knew about the duty to disclose and take steps to hide the facts. This type of evidence is usually not available, probably because fraud was not intended in the first place.

I hope that insurance companies are aware about the intent of the indisputability clause to protect the consumers from unreasonable rejection of claim on weak grounds. If such a case is challenged in court, it is likely that the insurance company is not able to prove the intent to commit a fraud, and that the claim will be paid.

Tan Kin Lian

## Tuesday, June 16, 2009

### FISCA Service

FISCA (Financial Services Consumer Association) has been registered. I will propose that FISCA create a website to allow customers to post their personal experience on the following:

2) Good service

The customer has to be identified to FISCA and should have documentary evidence to back up their statement They should be prepared to face the business entity. FISCA will give the business entity the right of reply.

With this service, I hope that businesses will be encouraged to provide good service and look after their customers.

### Treat customers fairly

In recent times, businesses are not concerned about their reputation, for the following reasons:
a) Bad treatment of customers is quite common among their competitors as well
b) If some customers go away, they can use marketing to reach out to new customers (who may not be aware about their reputation)
c) The newspapers are less active in highlighting bad service, as they depend on the advertising revenue of these businesses.
What can consumers do? They should judge a business according to its record of treating customers well. If the business is too focused on making more profit, then they are likely to neglect their customers.
Tan Kin Lian

### Fail to declare hypertension

Dear Mr. Tan,
I bought a medical insurance but forget to declare that I have hypertension. I went for a kidney operation and the insurance company wanted to reject the claim due to non-disclosure, although the kidney condition is not related to hypertension. Is this fair?

If you had declared hypertension, the insurance company would have loaded up the premium due to this medical condition.

As you have been paying a lower premium, compared to the loaded premium, a fair approach is for the insurance company to pay the claim on a pro-rata basis, i.e. based on the premium that you have paid compared to what you would should have paid, if the condition had been declared.

This approach of paying pro-rata has been applied in many situations, e.g. if a property had been underinsured, and can be applied here. It is fair to the insurance company and to the consumer.

Only great minds can read this.
fi yuo cna raed tihs, yuo hvae a sgtrane mnid

Cna yuo raed tihs? Olny 55 plepoe out of 100 can.

i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg.The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are,the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef,but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuot slpeling was ipmorantt!

### TKL Intelligence Quiz Vol 2

TKL Intelligence Quiz Vol 2 is now available. It can be ordered from the website (with free delivery by post in Singapore) here. It will be available in the major bookstores by end June.

### Smoothing of bonus

Dear Mr. Tan,
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?

These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.

Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).

In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.

Due to the low yield, it is best to avoid investing in life insurance products.

## Monday, June 15, 2009

### Going overseas for further studies

Hi Mr Tan,
I am 20 years old and looking to enrol at a local university. However, I couldn't get into the course I prefer. I am now looking to study in Australia.

1) Based on my calculation, I will probably accumulate a personal debt of A\$60,000at the age of 24. Assuming that I can get a job and pay S\$1,400 toward clearing the debt, I'll be 28 yrs old by that time.

2) If I stay in Singapore to study the course (Maths and Economics) that I am not too keen on. I'll be about 26 yrs old, debt-free.

Which is better?

I usually discourage students from incurring a large debt for overseas studies. I know of many students who are not able to get a good paying job after they get an overseas degree. It will take a long time for them to repay the loan.

If you have a place in a local university, the cost is lower, but you have to like the course that you are taking. I find Mathmatics and Economics to be a good course, but perhaps it appeals to some students and not to others. You may be able to find another course that you like from a local university?

I believe that a hard working, well educated student with a good attitude can do well in the job market without an university degree. I suggest that you consider working as well.

### Accountability in Hong Kong

I have posted several media articles about the process in Hong Kong involving the legislative council and the Monetary Authority.

The elected Lego members (equivalent to our Members of Parliament) have summoned the top officials of the Monetary Authority for questioning regarding their role in approving the credit linked notes for sale to the general public, and the steps that they have taken to rectify matters after these products went bust.

This is the process of holding people accountable to do the job that they are expected to do. It is very educational. It is good for society and will encourage officials to learn from mistakes. It will lead to better governance.

Tan Kin Lian

## Sunday, June 14, 2009

### Puzzle: Send More Money

A young man who is backpacking overseas sends his father the following telegram from Timbuktu:

`  SEND+ MORE------ MONEY`

The father looked at the telegram and, with a bit of logic, he figured out the exact amount of money that his son needed! How much money did the son request? Each letter in MONEY represents a different digit.

Here is the explanation on how to solve this puzzle.

### China Daily:Authority feels more heat on Lehman Bros

13 June 2009

HONG KONG: The Monetary Authority was held to account again Friday for its failure to avert the Lehman Brothers mini-bond debacle.

Deputy Chief of the Authority Choi Yiu-kwan appeared before the Legislative Council (LegCo) Subcommittee examining allegations of malpractice in the sale of the mini bonds. Choi explained that during on-site investigations, the Monetary Authority inspectors "role play" with sales representatives to assess the understanding of reps about the products they sell.

Choi said representatives with records of high sales, especially sales among individuals more likely to be susceptible to manipulation, are given special scrutiny.

Lawmaker Raymond Ho Chung-tai cited the regulator's figures saying that the authority had carried out about 170 on-site inspections at banks between April 2003 and December last year. He wondered why the probes had failed to avert investors' losses on Lehman Brothers minibonds

Choi responded that during its inspections the Monetary Authority checked the materials banks used for training staff to sell investment products and found the materials satisfactory.

Legislator Kam Nai-wai asked why the authority does not reveal its inspection checklist to banks so that the banks could set guidelines for staying within the rules. Choi replied that banks should already be aware of the rules which are set out in the code of ethics and in the answers to frequently-asked questions issued by the authority.

He said his agency found 72 suspected cases of breaches of rules between April 1, 2003, and September 14 last year through its regular inspections. During the same period it had received 106 complaints from bank clients.

He declined to comment directly on whether existing measures to protect the interests of investors are sufficient. He added that the authority is doing its best.

Choi said the manner in which the authority regulates bank securities sales is similar to the Securities and Futures Commission and to overseas regulators.

He said sales personnel who sold Lehman Brothers-related products passed examinations set down by the Securities Institute concerning relevant regulations. However in matters of product knowledge, sales personnel receive their training from the banks who employ them.

Choi said it had so far received over 21,000 complaints concerning Lehman Brothers-related products and is hurrying to examine them. But he said the authority lacks the staff to proceed more quickly. He noted that the department already has about 60 professionals on loan from accounting firms to help with the investigations. He said he hopes to borrow more staff in the near future.

In the future, Choi said his agency intends to send officers posing as customers to banks so as to evaluate sales practices. He said consultation on the initiative will be launched within a time span of a few months to a year.