Saturday, November 17, 2012

Terrible survey form

I had good experience travelling on Thai Air during my recent trip to Bangkok. Their customer service department sent a survey form to me. I looked at the e-form and as it seemed to be just a handful of question, I decided to oblige.

It turned out to be many pages, each of which contained countless questions. The total questions must be more than 100. I sent this message in reply to Thai Air.
I find this survey to be TERRIBLE. You asking me to answer MORE THAN 100 QUESTIONS. I got fedup with the number of questions and decide TO ABANDON THE SURVEY. BE CONSIDERATE!!
But, to be fair to Thai Air, this type of inconsiderate survey is standard practice. The people who design the survey must be mad, besides being inconsiderate!

Bad advice from financial adviser

A financial adviser said, "Investment-linked policies are not design to benefit insurers or agents, as reported by Tan Kin Lian, but is an option for those willing to take higher risks (hoping for higher return, so you have to decide yourself".

Here is my reply to his comment. 

For those who wish to invest in shares, buy the STI ETF, which is an index fund. The fee charges is only 0.3% per annum. If the shares earn 6% per annum (my estimate for the future), you get 5.7%. If you buy a ILP, the insurance company and the agent takes away 4% from what you earn. So, the gross of 6% becomes 2%. 

If you earn 2% per annum (on ILP) over 30 years, compare to 5.7% p.a. on the index fund, the difference at the end of 30 years is 40% (after allowing for the cost of the life insurance protection). You get 40% less from the ILP. 

If the accumulated savings is $500,000, the ILP pays you $300,000. The $200,000 goes to make the agent and the insurance company rich and the consumer poor. 

I do not know why the financial adviser, who was supposed to look after the interest of the client, can advise the client  to invest in such a bad financial product, i.e. ILP?

The financial adviser can continue to give misleading and bad advice, but I will continue to point out their mis-statements. Consumers, beware!

User Guide for Facecard

Learn how to create your facecard and use its various features.

Win a prize (Get Value from Your Life Insurance book) for creating a complete facecard. One prize will be given out each day (up to 30 November) to be selected from all the new facecards created or updated during the day.

Full picture of BTO flats

The Minister said that the price of BTO flats is affordable, as it require 23% of monthly income to service it.

Can the minister give the full picture?

a) What is the duration of the loan?
b)  What is the interest rate used in the calculation?
c)  What will be the ratio of loan repayment to income, if interest rate were to increase to 4% at a future rate?\
d)  What is the ratio of the flat price to the family income?
e)  What is the chance of any of the bread winner losing the job during the duration of the loan?

Friday, November 16, 2012

It is more risky to be safe!

A policyholder invested $42,000 in 3 annual premiums in a life insurance policy 15 years ago. He was given a benefit illustration that showed an illustrated maturity benefit of $82,000. The illustrated yield was 5% p.a.

According to the benefit illustration, the surrender value up to 14 years showed a yield of less than 1.5% p.a. He kept the policy to the maturity date and was shocked to receive a lower payout of $72,000, as the original $82,000 was "not guaranteed".

The reduced payout reflected a yield of 4% p.a., which is quite acceptable, in my view. However, if he had to terminate the policy earlier, he would get a poor cash value - allowing the insurer pocketing the difference. By keeping to the maturity date, he should get back closer to what he was promised, rather than take a cut of more than 10% on the promised amount. This is the case of - tail you lose, but head, you do not win.

If he had invested the same money in the STI ETF for the past 15 years, the average yield was 9% p.a. The accumulated amount would have been $123,000. Even if the stock market had dropped one third from the current level, say STI index of 2,000, the policyholder would still get more than what was paid by the life insurance policy.

This is another example of why consumers should not trust the "non-guaranteed" values shown in life insurance projections. The insurer has been making promising projections and cutting back on the promises too often. Do not trust these projections!

Note: these figures are based on an actual case that was presented to me.

Police told break-in victim to seek legal recourse

If there has to be legal action against every culprit,
wouldn't our courts be over-burdened by ceaseless litigation?
what are we to make of the police
and their duties and responsibilities
in crime prevention and deterrence?
Views from Tan Kin Lian
I agree with the writer. Things are getting very bad in Singapore, when the Police neglect their duty to the citizen.

How much did Singaporeans invest in Genneva Gold?

Dear DPM and Finance Minister
Please report in Parliament, how much savings have Singaporeans put into Genneva Gold? The newspaper report from an unnamed official said that Malaysians have invested 10 billion ringgits in this company. Why is there no news from Singapore?

Buy from bank or insurance agent?

Someone asked me if there is a difference between buying an endowment policy from an agent and from a bank.

There is no difference. The endowment policy is offered at the same price. When the bank sells the endowment policy, the bank keeps the commission. The service provided by the bank is usually not the same as the personal service provided by the agent.

The distribution cost that is suffered by the consumer is usually quite high, so the return on the endowment policy is quite bad, compared to more suitable types of investments.

To find out how to invest your savings to get a better return, you should attend the educational talks organised by FISCA (

Many people claim that they are too busy and cannot find the time. This is highly risky as their financial future is at stake. They are likely to make a bad investment offered by a sales person, and they get stuck for the next 30 years!

Tighten rules on advertising of investment schemes

I am disappointed at the reply of the DPM cum Finance Minister in Parliament. After so many people have been "cheated" in bad investment schemes, he still does not want to get MAS to be more active in policing the suspected schemes. I do not expect MAS to catch every bad scheme, but the high profile schemse can be stopped much earlier, if MAS were to ask the promoters to visit MAS for a "discussion".

Thursday, November 15, 2012

Struggle for the middle class

Read this article by Lucky Tan about the harm caused by high housing prices and health care cost.

World's poorest President

Here is the world's lowest paid President

Who is the world's highest paid?

Promoting gold bar schemes

Recently a friend of mine received this SMS from company X dealing
with Gold Scheme.

"Before you spend your bonus on holiday and shopping, please reserve
your gold bar to enjoy our limited year end offer with total cash
payout of 12% for 6 months"

This is too good to be true in view of the current 'poor' bank interest rates.

He asked me: Mr Tan, I am just wondering what is our authorities doing?

Talented individuals or team players?

Steven Sinofsky is a highly talented person, who was regarded to be the key person responsible for the success of Office and Windows 7 in Microsoft. He has unexpected left Microsoft. Some people commented that he could not get along well with other key executives.

Without going into details of the Microsoft episode, I like to pose this general question. For a large organization like Microsoft, what is more important - talented individuals or the ability to work in a team?

What about the public service in Singapore. Should more emphasis be given to individual KPI or the ability to see the bigger picture, of the public good?

Bring existing systems of banks into authentication framework

12 November 2012

Editor, Forum Page
Straits Times

The Infocomm Development Authority has replied that the "authentication framework for online transactions is already in place (ST, 12 Nov). This framework allows for multiple authentication providers to be registered.

Its strategy appears to be promoting the OneKey security token issued by Assurity Trusted Solutions and to persuade the banks, which are the biggest users of online authentication now, to switch to this system.

My suggestion was to find a way for the existing authentication systems of the banks to be brought into the national framework. This will allow the existing security token issued by a bank to be used for authentication of online transactions from third parties, such as security firms and government agencies.

This will save on the heavy cost of issuing and authenticating new tokens to existing bank customers and to the general public. It also bring in a large number of existing users to the national framework, at minimal cost to the country.

The banks should be allowed to collect a fee that is adequate to cover their additional cost of providing the authentication service and provide a small margin to recoup their investment. Their customers will also appreciate this service.

I look forward to a positive approach from IDA to this suggestion.

Tan Kin Lian

Wednesday, November 14, 2012

Loss on ILP after 7 years

An airline steward, who is in his early 30s, told me that he invested his regular savings in an investment-linked policy for the past seven years. The "investment" is still showing a loss of about 20%, i.e. the value of his investments is lower than the premiums that he has paid.

I told him that his loss is probably due to the following factors:
a) The high distribution cost, i.e. up to two years of his savings is taken away to pay commission and other marketing expenses
b) The spread, i.e. up to 5 percent of the invested sum is taken away up front
c) The expense ratio, which would probably be close to two percent of the accumulated savings each year

He did not realize that the ILP policy has been designed to look after the interest of the agent, agency manager and insurance company, before looking after the interest of the policyholder! Many consumers did not realize this, and when they do, it is too late.

This is why the life insurance companies are making hefty profit now, while their customers have to wait for ages to see a small appreciation in their investment - which hardly keeps up with inflation.

Tuesday, November 13, 2012

Losses due to spread and churning

A friend, who used to work for a multinational life insurance company operating around the Asean countries told me that the company made a lot of profit on their investment linked products.

There is a 5% spread between the bid and offer price of the units, They agents sell large volume of the product when the stock market was doing well. The customers were not aware about the spread.

When the unit prices went above the spread, the agent advised the customers to sell their units to take profit. When the market came down, the agents advised them to re-invest and they earned the commission again. The insurance company and the agent shared the 5% spread.

If the market does not come down, the agent will convince the customers to reinvest anyway, and incur the spread again. The agent and the insurance company made their commission and profits on the "churning".

If the market does not recover and goes down, the policyholder will be taking a big loss on the invested amount. They have to suffer the loss on the spread, on the churning and on the market.

Many investors had approached me about the losses of 20% to 50% on their unit trust that is being held over 5 to 10 years. I wonder if the losses were due to the factors described above? It is sad that many consumers are so naive, and were taken for a ride by the so called "financial advisers".

Facecard - on mobile apps

Reimbursement of discount on policy

Dear Mr. Tan,
I consulted with last year regarding a life insurance policy with critical illness rider. It has been a burden to me every month that I decided to surrender. My agent was very upset saying it tarnished her reputation and she also demanded me to reimbursed her the discount. I have taken several policies for my family members under her. What should I do?

You are not required to reimburse the discount to her. You have already suffered a loss when you surrender the life assurance policy. If the agent harrass you, you can report her to her insurance company or to the regulator (MAS). You can ask the insurance company to remove her as the servicing agent for your other policies.

Tackle the root cause of inflated motor claims

ACCORDING to the General Insurance Association of Singapore,
regulations introduced in May last year
require motorists making property damage claims
to give other motorists or their insurers the opportunity to inspect
the damage to the vehicles before repairs are undertaken
("Pre-repair inspection rule for accident vehicles"; last Friday).
The association should state
the percentage of third-party claims that follow this regulation.
In my consulting work in the region, I know that
the cost of motor repairs in Singapore is several times that in neighbouring countries.
While this can be partly explained by the higher cost of doing business here,
the scale of the difference indicates that there are other contributing factors.

Monday, November 12, 2012

Name card in the cloud

Create your name card in the Cloud, so that your friends can search for you and get your latest contact and other details. You can download your contact details in your mobile device. (iPhone/iPad).

FISCA talk on investments

39 participants have applied to attend the FISCA talk on investments. This talk will advise the participants on how to select investments that can give a good return, and to manage the risk. This talk is free to FISCA members. Non-members pay $30. This is the last free talk for members.

Happy Diwali

Sunday, November 11, 2012

Medical insurance for the Elderly

What is the best medical insurance plan for the elderly in Singapore? Read my recommendation here. Share it with your elderly parents or, for elderly people, share it with your adult children.

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