Saturday, June 18, 2016

Cheating game

My grand niece, who is now 6 years old, enjoys playing the "cheating game". She asks for this game when she sees me.

I gave her four plastic pieces and asked her to form any of the shapes shown on the card. For example she has to form the house shown as picture #17. It is difficult for her. Even an adult will not be able to form the shape.

I told her that she is allowed to "cheat". She can turn the card over and see the solution which shows the four pieces separately.

She enjoys the game better when she is allowed to "cheat". By "cheating", she learns how to solve problems. It is a fun way to learn.

MAS fail to carry out its duty

I do not blame the consumers for being careless to fall into the trap of unethical sales practices by insurance agents and the marketing officers of banks.

My family members had fallen into the trap a few times. They visited a bank and were told by a marketing officer about a special product. After listening to the presentation, they were convinced that it was a good product.

The trouble was - the presentation was misleading. The marketing officer could be deliberately telling a lie or was innocently giving a wrong picture of the product.

In some cases, my family member was able to cancel the contract after consulting me. In other cases, they were caught in the bad product and had to wait 5 years to get their money back, with hardly any return.

I blame the Monetary Authority of Singapore for allowing the financial institutions to sell these bad products that cheat the consumers of getting a small return on their hard earned savings.

Unethical sales practice

An reinsurance executive told me that his wife met a life insurance agent at a road show. The agent asked to take 5 minutes of her time. He explained to her about a life insurance product. The wife is not familiar with insurance. The agent asked me to sign on an application form in case she is interested. He promised her that the case will not be submitted without her permission.

The following day, the wife received a SMS notifying her that a sum of $15,000 was deducted from her credit card for the insurance policy. The agent did not keep up to his promise. The husband  was familiar with the 14 day cooling off period. He was able to help the wife to cancel the policy and get a refund of the premium.

On my suggestion, the reinsurance executive will be submitting a complaint to the Monetary Authority of Singapore on the bad sales practice.

If this case happened with someone who is totally unfamiliar with the 14 day cooling off period, the policyholder will find it difficult to get a refund of premium for the unwanted policy.

Friday, June 17, 2016

Bernie Sander's message is relevant to Singapore

This message from Bernie Sanders is also relevent to Lee Hsien Loong and all his ministers and political leaders in Singapore. I hope that all of them pay attention to his message.

Thursday, June 16, 2016

Bank finally agreed to compensate the customer

A marketing office in a bank sold a life insurance policy to a customer. He explained that it is a 5 year investment. He explained the product detail in a tablet. The customer signed on the tablet to make the investment of $70,000.

The customer did not realize that the product was actually a life insurance policy which required an annual premium of $70,000 payable for 5 years and the policy will only mature at the end of 10 years.

The customer could not pay the second premium. The policy lapsed. The customer lost the full sum of $70,000. The bank and the insurance company refused to refund the $70,000. They asked the customer to approach FIDREC.

The policyholder came to me for help.

I posted her story in my blog, but removed detail that could identify her.

I advised the policyholder to "fight the case" in FIDREC, to take legal action and also tell the story in the media.

The policyholder waited for mediation by FIDREC. After a month, she told me that the bank had decided to refund the full sum of $70,000 to her and that the marketing officer had been terminated for mis-selling the product.

The bank was probably embarrassed by the strong words in this article:

This was a fortunate outcome for the policyholder. I asked her to make a voluntary donation to FISCA.

Streamline the bus services - reduce travelling time

I have advocated that the bus system should be changed to use express services (with limited stops) to run on the main roads and feeder services to bring commuters from the neighboring areas to connect to these express services.

I have carried out some calculations and found that the travelling time will be reduced quite significantly.

Are you willing to give away $170,000. No?

If you invest $6,000 a year ($500 a month) over 30 years and earn a return of 5% per annum, the accumulated savings will reach $420,000.

Are you willing to give 40% of this sum away, and get back only $250,000? Will you give away $170,000?

No? Are you sure?

Well, most people are giving away this sum - and they don't even realize it.

To understand how all of this work, spend 3 hours to attend this talk. You will learn a better way to invest your savings and keep the $170,000 for yourself.

Act now. If you miss it, you may fall into the trap of investing in the wrong product in the future.

Bernie Sanders is justified to stand as a third party candidate

My American friend, who is a strong supporter of Bernie Sanders, told me this story.

When Bernie Sanders won Washington, Alaska and Hawaii by an overwhelming margin, the Democratic National Committee was in panic mode. They decided to adopt strong measures to ensure that Bernie does not get the nomination. This include "cheating" and rigging the election. They have been rigging the election earlier, but this time, they decided to carry it out more aggressively.

Some of the measures include removing some voters, who are likely Bernie supporters, from the register. This happened in New York. Other Bernie supporters, who were Independents, were not allowed to vote anyway.

In California, the Independents were allowed to vote. But they were given provisional ballot papers and these papers were not counted. Young voters, who were likely Bernie supporters, were told that the voting records got lost. They could not vote.

The Democratic National Committee also stopped the exit polls, which is a gauge of the likely votes. These polls ask the early voters which candidate they had voted for.. These polls are likely to show strong votes for Bernie and could conflict with the final "rigged" results.

There were also report that votes for Bernie Sanders were purged from the records after they were input into the system.

I find it amazing that these kinds of measures could happen in a country that champions democracy and in a party that has the name of "Democratic".

If this account is largely true, it gives Bernie Sanders all the reasons to stand as a third party candidate under the Green Party. I hope that he takes this decision.

Insurance fund adds an additional layer of cost to the investor

Hi Mr Tan,

Whilst I agree that investing through life insurance entails large (and hidden) transaction cost, S’pore REITs also exact multiple layers of fees. However, investors generally overlook this and just focus on dividend yield.

The insurance fund also invest in REITS.  The policyholder has to bear an additional layer of expenses when they invest in an insurance fund. The policyholder can invest directly in the REITS and save on the additional layer of expenses charged by the insurance fund.

You should look at the calculations in this way.

The REIT earn a rental yield of 7% per annum. Their expenses take away 2% from the gross yield. The REIT pays a dividend of 5% to the investors. 

It the investor invest directly in the REIT, the investor gets a yield of 5%. If the investor buys a life insurance policy and the fund invest in the REIT, the fund earns a yield of 5%. However, the insurance fund deducts 2.5% for their expenses, giving a net yield of 2.5% (or less) to the policyholder.

The insurance fund also invest in listed companies. The listed company earns a margin of (say) 7% on their sales. It also has operating expenses that takes away 2% from the gross margin. The listed company is able to give a return of 5% to its shareholder.

However, the listed company may distribute only half of its net profits as dividends. The shareholder then gets a yield of 2.5%. However, the undistributed profit goes back to the company to increase its future profits. This is why the share price is likely to increase over the years.

The investor has the choice of investing directly in REITS and shares and earn a yield of 5% (in my example) or invest through an insurance fund and suffer a further cut of 2.5%, leaving a net return of  2.5% from their insurance policy.

Don't lose your money in an investment scam

The best way to get a good return on your savings is to avoid investing in scams. You can learn this technique by being aware about the scams that are occuring every day, but are disguised so that the unwary will fall for them. You can avoid them by being aware of these scams.

This is discussed in this talk.

Invest in a low cost fund and get 40% more on your retirement

If you invest regularly in a low cost fund, you can get 40% in your accumulated savings compared to investing in a life insurance policy.

This concept of compounding interest is explained in this talk. You will also get tips on selecting the right kinds of low cost funds.

You can still buy your insurance protection separately at a surprising low premium.

Give yourself a head start by making the right investment - starting with investing 3 hours of your time in a talk that is specially prepared for the benefit of the consumers.

Take the step now. Register for this talk.

Wednesday, June 15, 2016

Live video cast from Bernie Sanders

Sisters and Brothers -
Washington, D.C. votes today in the final contest of the Democratic primary. Our staff and volunteers are working hard for every vote and every delegate in the District of Columbia because each is an important declaration of support for the values we share, and the issues that have powered our campaign.
When we started this campaign, I told you that I was running not to oppose any man or woman, but to propose new and far-reaching policies to deal with the crises of our time. And for the past fourteen months, through the entire primary process, we’ve sent the establishment a message they can’t ignore: we won’t settle for the status quo.
After today, the voting is done, but our political revolution continues.
I want to talk to you directly on Thursday night about what’s next for our campaign in a live, online video address at 8:30 p.m. EDT / 5:30 p.m. PDT. I hope that you will join:
This campaign is about more than Bernie Sanders. It is about all of us together. It is about millions of people from coast to coast knowing that we can do much better as a nation.
I hope that you will join the conversation on Thursday night and ask your friends to do the same.
In solidarity,
Bernie Sanders

Need for judgement

AK Tan commented about the HDB rules.

This is not even giving the messy rules that HDB has due credit. As with many government organizations, the rules are not clearly stated. There are stated rules on their web site which are very broad and in some cases, completely useless. And then there's also a set of unstated rules that only God knows what and who has the power to invoke them. And whenever you have a question, the reply is always "write in". The civil service in our country is as secretive as the CIA and unjustifiably so - and is therefore, in dire need of an overhaul.

My comment:
The problem is the confusing instructions given by the political leaders. They give vague instructions, and are not aware about the actual happenings in the ground.
The poor civil servants are lost in implementing these confusing instructions.
We need a system that requires competent people to take judgement, rather than to follow the confusing rules blindly.

Streamline the bus services

Many roads in the city area have several bus stops near each other. They need several stops because more than 20 services have to stop there. They have to separate 4 to 7 services at each stop. Examples are Bras Basah Road, North Bridge Road, New Bridge Road, etc.

Why do we have so many services in Singapore. This is due to the complicated and confusing system. When I could not for a service at a certain stop, I have to walk 10 meters down the road to the next stop - hoping to find it there.
Fortunately, I have a mobile app to guide me. What about other passengers who do not know how to use the app?
It is better to simplify and streamline our bus services. We need a smaller number of long distance services with limited stops which are supported by feeder services to serve the nearby areas.
This approach can reduce the number of services by half and still provide a faster and better service to the public. It will also improve operational efficiency.

How to get a better return for your retirement savings

The short answer is - "Avoid the mistakes that are made by over 80% of the population".

What are these mistakes?

a) Falling for investment scams that promises high returns with low risks. Most of these scams are not regulated. The government does not pay attention to them and do not take steps to stop them. They may act after many thousands of people are cheated, and that would be too late.

These scams include gold bars, land banks, agarwood trees, wine investments and many variations of these scams.

Some of them are ponzi schemes where the money from the investors are used to pay the high returns for the earlier investors, giving the illusion that the deals are credible!

b) Trading in stocks, currencies and other financial products. The investors, who are usually people who have lost their jobs and have some free time, think that they could use the free time to make some money on trading or "investing".

They do not realize that the tradings are actually gambling or speculation. They are gambling against professionals and big funds who can move the market against the small traders. They lose from the transaction cost, spreads between buy and sell price and the manipulated change in trend.

c) Investing in regulated products, such as life insurance plans, with high upfront and ongoing charges. These charges could take away 2.5% or more from the annual yield. If the long term yield is 5% per annum, the net yield after charges is only 2.5%.

Over a 30 year period, the deductions could take away 40% or more of the wealth or accumulated savings. This is why the financial institutions make so much profits and the public gets a poor return.

What do the 20% do?

They learn about the simple, reliable and proper way to invest their savings. These secrets are disclosed in the two talks organized by the Financial Services Consumer Association.

Tuesday, June 14, 2016

A fun way to learn retirement planning

An interesting video on retirement planning

Is it better to invest in a REIT?

Dear Mr. Tan
A friend told me that it is better to invest in a REIT, rather than a life insurance policy. He said that the REIT can give a better return. Do you agree with this recommendation?

The short answer is "yes". Here is the reason.

Over the long term, I expect a REIT to give a return of 5% per annum or higher. But you should invest in a few REITS to diversify your risk. You can also get a return of 5% by investing in the STI ETF, which is better diversified.

The life insurance fund can also earn a return of 5% per annum over the long term. But the insurance company takes away a large part of the return through their high expenses. Typically, the policyholder will have to suffer a reduction of 2.5% or higher on the return. If the fund earns 5%, the policyholder will get a return of only 2.5% (or less).

Over a period of 30 years, a reduction of 2.5% in the return will produce a payout that is 35% lower. This is for an annual investment of $X a year.

The "effect of deduction" that is shown in the benefit illustration usually shows a reduction of 40% or higher. This means that the reduction in yield is more than 2.5% p.a.

The life insurance policy gives you a poor return compared to investing in a basket of REITS or in the STI ETF. Any person who knows the fundamentals of investing will avoid the life insurance policy. The culprit is the "effect of deduction".

If you find this to be difficult to understand, I advice you to register for this talk.

The "Effect of Deduction"

John Thor Wu said:

Just one column! yes just one column! The Effect of Deduction! MAS can provide a simple and clear example on WHAT is this column then MAKE it a compulsory for AGENTS to bring all prospects to this column. This column is THERE...but NO insurance agent will ever BRING YOUR ATTENTION TO it! Why????? Because if they do, you are unlikely to buy the product anymore!!!! So??? Why the column is there but MOST prospects NEVER get to understand it clearly???? Mr. Tan Kin Lian are you able to champion something on this.


I have been writing about "the effect of deduction" for several years. Here is an article written last year.

Regulator need to be more stringent

Raymond Fong said:
May I share my thoughts on this? I feel that our regulator needs to be more stringent and active in the regulating the insurance industry, particularly the low sum assured and payouts for products that have a savings component and the complete removal of the non-guaranteed portion in the illustrations table. Regulators should also look into how agents are pushing products that are high in commissions rather than helping their clients conduct proper financial planning.

Monday, June 13, 2016

Insurance products are poorly understood

Wildy Chia said:

Hi Mr Tan,
My mum was also a victim of such a circumstance (i.e. rejected medical claim). Her medical bills are just overwhelming especially if one has recently graduated from school and fresh in the work force. I have seen various insurance products. Many are poorly understood and sold often on the basis like "because the agent is my friend". Such issues wouldnt go away unless consumers are properly educated on what they are buying and what truly fits their purpose. The mere act of signing on every page of a policy doesnt demonstrate that the principal understand what he or she is purchasing still.

Real effort has to be made from the schools and how agents operate. Till that day, consumers will really have to set aside a conservative sum to meet this contingent risks for which no one can foresee. That in itself also defeats the purpose of insurance because its very purpose is to insure against unforeseeable and yet likely risks. It would be nice if something can be done to educate consumers for the sake of it, rather than for purpose of closing more sales. Then again, who would? It would make certain unprofitable products even more unsellable. Moral hazard just prevails in this business... Indeed perhaps a business which prospers on the presence of asymmetric information flows.

Appreciate your kind sharing

Dishonest business practice

I received an expiration notice from Singtel informing me that my business broadband will expire in 5 days time and the subscription rate will revert to the list price of $496. (My existing contract was for $108.46).

I was given the option to renew/migrate to a fibre broadband plan or to keep my existing broadband plan. There was no mention of what the charges would be.

My staff tried to call SingTel but was not able to get through.

I find this business practice to be dishonest. They did not give sufficient notice to the customer and do not provide clear information of the charges.  They are forcing their customers to sign up the renewal plan under duress and threat of higher fees.

SingTel is a big company. Their practices affect hundreds of thousands of their business customers. I wonder if the Infocomm Development Authority will take complaints over this matter?

Show the sequential stop number in a display in the bus

II checked an app for a bus to go to OCBC Center. It said that I have to take service 166 from Thomson Plaza and alight after 24 stops.

When I was at North Bridge Road, outside of St Andrews Church, I asked the driver:

TKL - how many more stops to OCBC center?
Driver - Sorry, don't know. What street?
TKL - Chulia Street.
Driver - Sorry, don't know.
TKL - Are you from Malaysia?
Driver - Yes.
TKL - How long have you been working in Singapore?
Driver - I was transferred to this service 15 days ago.

I have told the Land Transport Authority several times over the past five years to get the buses to have a digital display to show the Stop No. This should start from 1 at the terminus and increase by 1 for each subsequent stop.

If I get up at Stop 10 and have to drop off after 24 stops, I will look out for Stop 34. Alternatively, I can check the guide to get the the Stop No to alight. (I want the sequential stop number - which is more helpful than the Bus Stop Code).

When will the LTA implement this suggestion?

Get ready for the next wave of enbloc sale

Is your condominium ready for the next wave of enbloc sales? This will come some time in the future. It could be triggered by a change of government policy, relaxation of property financing rules, opening of a nearby MRT station or a global economic recovery.

At that time, many old condominiums will be rushing to organize themselves. The property marketing agents will be tied up.

Your condominium can have a head start, if you prepare early. You can act now to register the co-owners in your condominium who are interested in an enbloc sale in the future. Registration is free. By getting ready now, at no cost to any of you, you will have a head start and momentum when the market changes.

What motivates me to study on my own?

My nephew asked me on what motivates me to study on my own and pass the actuarial examinations? I did not attend any classes or sign up for a correspondence course.

I told him that I have a sense of curiosity. I am interested in subjects that are important to ordinary people - money, investing, finance, probability of loss, law, accounting, computer programming.

For each topic, I can learn on my own by following my sense of curiosity. I learn each subject up to a certain level, i.e. the level that I can understand. If it becomes too complicated beyond that level, I do not pursue the subject further.

My level of knowledge will be better than most ordinary person. Usually, it is enough for me to deal with every day issues that I have to face.

Sometimes, I know more about the practical aspect of a subject that the professionals and experts. The professionals tend to go too deep into the subject that they become confused and are not able to see the big picture.

Using my approach, I enjoy learning about these subjects. I am able to understand the important topics and to apply them. I am able to deepen my understanding by applying what I learn and learning from the results.

This is how I was able to pass the actuarial examinations, which was a big hurdle for most other people. During the 8 years that I took to complete the examinations, I took time off to learn law, accounting and computer programming. Why? I was interested in these subjects as well.

How to avoid a financial disaster

It is easy for young people to fall prey to the same mistake that tens of thousands make every year. Their friend, relative or classmate is now an insurance agent and is sincere in wanting to help them to plan their financial future.

The outcome, in most cases, is a plan that wreck their financial future. In helping their friend to achieve the sales quota as an agent, the insurance buyers will lose a significant part of their future wealth, around 40%, and may even lose their friendship.

The friend, who is an agent, is acting sincerely, because they are also not aware of the flaw in the product. The "effect of deduction" is more than 40% of the wealth, also know as the accumulated premium.

You can learn how to avoid this disaster and, more importantly, a better way to invest your future savings from this talk.

Goals of Bernie Sanders going forward

What are the goals of Bernie Sanders now that Hillary Clinton is the presumptive nominee for the Democratic Party? He is still fighting for the cause - to help the millions of ordinary working class Americans.

Sunday, June 12, 2016

My experience in taking the actuarial examination

I wish to share my experience in taking the actuarial examination over a period of 8 years. It has some important lessons on my unique way of learning.

I left school after secondary four and started work as a clerk. I took the actuarial examination. It was a difficult examination. Few students were able to cope.

I bought the prescribed text books, read the chapters and completed the questions at the end of each chapter. I studied on my own during the evenings and weekends. I had to do a full day job in the office during weekdays and in the morning on Saturday.

The institute provided a tuition cost through correspondence where a tutor would take care of the student. I found it to be too expensive. Even the postage was a burden. In those days, there was no e-mail.

I took one subject every six month for the earlier subjects and once a year for the later subjects. On leaving the examinaiton room on most occasions, I felt that I was likely to fail the subject as I did not know the answers to many questions. When the result slip finally arrived, I was often surprised that I had passed the subject.

On most occasions, it was just a "pass", not a "credit" or "distinction". I did not pay any attention to the actual grade,so long as it was a "pass".

I completed all the subjects over a period of eight years. As I started at age 18, I was qualified at 26.

Recently, I discovered the "secret" why I was able to pass a subject when I did not give the correct answer to many of the questions. I found out that there is a difference between "understanding the question" and "giving the correct answer".

Although I did not give the correct answer, I was able to give an answer that showed that I understood the question well. The examiner must have given points for understanding the question. Perhaps these points, together with the questions where I had given the correct answers, managed to get me over the pass mark.

I wish to compare my experience with the scholars and the top students that are produced by the examination system in Singapore today. I found that the students today knew the answers but do not understand the question or do not understand the fundamentals of the topic. They knew the answers because they were drilled by the tutors and memorized the model answers.

The competion for top grades, and aiming for top marks through memorizing the model answers, is bad. It produces students who do not understand the fundamentals of the subject and are not able to think for themselves.

I adopted a different approach. I understood the fundamentals of the subject and aimed for a pass. It has served me well over the next four decades!

Blog Archive