Saturday, October 31, 2015

Sold a bad policy at a bank

Dear Mr Tan,
I am one of the silly aunts who was being misled into buying this product. I went to UOB with the intention to open a fixed deposit after selling my flat but was recommend to buy prucash max limited pay. They only repeatedly highlight the investment return will be 4.75% much higher than the bank.

After agreeing to buy,they let me sign a stack of forms which are difficult to understand and didnt properly explained to me.Only recently after reading your article then I realise this product is very unfair to policyholder. Only win win situation for themselves. 

My total premium will be $60000 pa for 5year, how come guaranteed return only $43000 after 15 years. I thought of terminating but will lost $12000. Why MAS approved this kind of product. I am at a loss,pls advise. Thank

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Chart the nation's new direction

PM Lee says that Singaporeans must chart the nation's new direction together.…/singaporeans-…/2215450.html

Talk is easy.
But how can it be achieved?
As a first step, the government should make Parliament more active. Get the MPs to ask more questions. They are the representative of the people.
Respect all the MPs including those from the opposition parties.
As a second step, he should be prepared to put some key issues to a public poll. Let the people tell the government what they want for the future.
Here is an example of the issues that the government can ask the people to vote.

A new approach for solving real world problems

Mr. Tan

I read your comment about "book smart" scholars with zero experience running our public transport operators. What's wrong with it?

Where can you find capable people with experience in Singapore? The engineers in SMRT may have the working experience but they are not able to take the top CEO position.

At least the top generals have high intelligence and experience in running a big organization like SAF. They can rely on the engineers to do the engineering work, while they look at the high level decisions.

Don't you agree, as you were a CEO before?

I agree with half of your statement, i.e. that we need capable people to take the high level decisions.

The current approach adopted by the "book smart" scholars, as taught in the text books, is:

a. Prepare a detailed plan
b. Make sure that it work completely, i.e. zero tolerance for failure
c. Write the detailed SOP
d. Train the staff to implement it
e. Implement the plan.

This approach is possible in the SAF because they decide on the goal, give the command and the soldiers have to obey.

In the commercial world, there are a lot of uncertainty. There is also an extreme time pressure. Real problems crop up and have to be dealt with.

This requires a different approach. I call it the "do, learn, adapt" approach. But the "book smart" scholars do not like this "untidy" approach. That is why they have a lot of problem in addressing the real world problems.

Thursday, October 29, 2015

An ugly projection for the stock market

Mr. Tan,
What is the likely impact of a hike in the US Fed Funds rate on the stock market?

My comment applies to the US stock market. The stock markets in other countries will be affected but not to the same extent.

The interest rate in US is extremely low. When the interest rate is increased, the impact on the stock market will be negative.

The 20 year treasury bond now yields 2.5%. When the US increases the interest rate, I expect that the yield will increase to 4%. This will probably occur over a period of two years, rather than immediately.

When the 20 year treasury yield increases from 2.5% to 4%, the stock market is expected to fall by 35%. that is a large fall.

The actual fall will be less, if the earnings of the companies increase. it will be higher if the earnings fall.

I expect the earnings to fall. The current corporate earnings is inflated due to low interest rate. When interest rate increases, the earnings will fall. I expect the total fall of the stock market in the US to be 50%! Is this scary?

The Singapore stock market will fall, but not to the same extent. the PE ratio of our market is lower than the US market. Maybe, our stock market can fall 30%. That would be ugly still.

My prediction may be too extreme. Maybe, it will not be so bad. But it could be a "worse case scenario".

Economic threats to Singapore

Someone who travels widely in the region told me about some possible developments in the near future that could pose a big economic threat to Singapore.

a) Indonesia is taking over the control of the airspace above Batam and Bintan. Previously, they outsourced the control to Singapore.

b) China is helping Indonesia to develop the Jakarta Port. This will reduce the need to use the port facilities in Singapore.

c) China is studying how to help Thailand to build the canal across South Thailand. This will cut down the travelling time and bypass Singapore .While this project had been considered and shelved in the past, the decision may change when China is involved.

All of these economic threats are serious. And if they come at a time when Singapore remain a high cost country, it could have harmful effects on our economy.

Banks waste a lot of money

I prefer the Type 1 token issued by the banks. It is easy to use. The customer press one button to get a number to enter into the website.

Later, the banks issued the Type 2 token. I suspect that they were instructed by MAS to make this change. There are many buttons. I get confused, Many customers face the same issue, especially the older ones.

The Type 2 tokens are bulky and cannot be carried around. To make matters worse, different organizations issued their own tokens. How wasteful.

Although the Type 2 functions have several functions, one must remember that most customers do not need these functions. They only need to get a token number to authenticate themselves to enter the website.

The token manufacturers probably make millions of dollars by helping the banks to issue the Type 2 tokens. The money spent could have been saved.

Wednesday, October 28, 2015

Economy diversifying into new sectors

The economy is diversifying into new sectors. It will be challenging.
In the past few years, the economy grew due to infrastructure - MRT lines, public housing, roads. When these mega projects are completed, they have to be replaced by new economic activities.
The infrastructure projects are domestically driven. The government pumped in the money.
But the new initiatives require international competition. It will be difficult and challenging.

Tuesday, October 27, 2015

Fees for financial advice

Dear Mr. Tan
How are you doing? Found an article from a U.K newspaper - The Telegraph, which i think you may find interesting. U.K banned commissions from financial products a few years ago, and this is an estimated figure on how much financial advice costs over there.

Sunday, October 25, 2015

Win a e-book prize

Cast your vote on 5 issues and win a e-book prize worth $4.

Review a life insurance policy taken 20 years ago

Hi Kin Lian,
I would like you to review my insurance policy with AIA. It was bought many years ago and I'm still paying it via a monthly deduction. Its been going on for more than twenty years. Can you tell me what documents I'll need to prepare and HOW to obtain them?

You have to get the "Post Sale" Benefit Illustration from AIA regarding your policy.
You can register your case here:

Difference between distribution cost and effect of deduction

Mr. Tan
Please explain the difference between the "distribution cost" and the "effect of deduction" in the benefit illustration for a life insurance policy. Why is the figure so much different?

The "distribution cost" is the amount taken away from your premium during the first few years. Most of it is taken away in the first and second year. The distribution cost is usually between 1 to 2 years of the annual premium.

If your annual premium is $5,000, the distribution cost can be between $5,000 to $10,000. This is the amount taken from your savings to pay commission to the agent and to the agency's manager and other marketing cost of the insurance company.

As it comes out from your savings, it is painful when the consumer realize that he or she is giving so much money away. But at the time of purchase, they did not know about it.

The "effect of deduction" includes the distribution cost, the cost of insurance and other expenses of the insurance company. It also includes the "interest" that could have been earned on these deductions in the future.

Typically, the "effect of deduction" at the end of 25 years could be 10 to 20 times of the distribution cost, This is the powerful impact of the compounding of interest. I have seen "effect of deduction" that amounted to $100,000 to $200,000.

If the policyholder invest his money wisely, he or she will be able to save a large part of the "effect of deduction". This amount could add significantly to the retirement savings of the policyholder.

The cost of ignorance can be extremely high. Read this book to find a better way to invest your savings.

You can order a few other related books as well from the Pearl website.


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