The text-book on risk management says that there are three ways of managing risks, namely:
1. Loss control, i.e. loss prevention and loss reduction
2. Loss financing, i.e. retention, insurance, hedging, transfers
3. Internal risk reduction, e.g. diversification
Retention - set aside a sum of money to meet small or frequent losses, e.g. to pay for visits to the neighbourhood doctor.
Loss prevention - measures taken to reduce the frequency of the loss, e.g. keeping a vehicle in good condition.
Loss reduction - measurs taken to reduce the severity of the loss (if it arises), e.g sprinkler system to reduce the impact of a fire.
Insurance is one way of managing risk. It should be reserved for large and infrequent losses.
Saturday, February 09, 2008
Managing your personal risk
What are the key financial risks faced by a young person?
1. Chance of death during the next 30 years: 2%
2. Chance of critical illness during the next 30 years (not resulting in death): 3%
3. Chance of surviving for 30 years without critical illness: 95%
Many people spent too much money insuring against death and critical illness, which has a 5% chance of occurring. They overlook to insure against the 95% chance of suriving for 30 years and NOT HAVING ADEQUATE SAVINGS for retirement.
It is important to allocate savings to earn an adequate rate of return in a diversified, low cost fund. The savings should NOT be invested in a high cost financial product that takes away more thn 50% of the yield.
For the protection against premature death or critical illness, you can buy a decreasing Term insurance policy with a rider to provide a modest amount cover for critical illness.
1. Chance of death during the next 30 years: 2%
2. Chance of critical illness during the next 30 years (not resulting in death): 3%
3. Chance of surviving for 30 years without critical illness: 95%
Many people spent too much money insuring against death and critical illness, which has a 5% chance of occurring. They overlook to insure against the 95% chance of suriving for 30 years and NOT HAVING ADEQUATE SAVINGS for retirement.
It is important to allocate savings to earn an adequate rate of return in a diversified, low cost fund. The savings should NOT be invested in a high cost financial product that takes away more thn 50% of the yield.
For the protection against premature death or critical illness, you can buy a decreasing Term insurance policy with a rider to provide a modest amount cover for critical illness.
Critical illness
Dear Mr. Tan,
My annual income is around $50,000. Recently, I was recommended to buy a critical illness policy for $300,000 (to cover six years of earnings), but the premium cost about $600 per month, which takes away 15% of my salary. I cannot afford to pay so much, but I need the coverage. I need critical illness to cover my medical expenses and loss of income due to serious illness. What is your advice?
REPLY
You can buy a 30 year Decreasing Term policy to cover $300,000 for about 1% of your salary. If you save 10% of your salary and invest it in a diversified low cost fund to earn a good rate of return, you will be able to accumulate more than $300,000 over 30 years. By that time, you do not need any critical illness insurance.
You can cover most of the expenses of critical illness through a Shield policy, or the group insurance policy provided by your employer.
The chance of a critical illness occuring for a young person is very small. If you wish to cover against the occurence at a young age, you can buy a 20 year critical illness rider to cover $50,000 and pay a low premium. After 20 years, you would have accumulated more than sufficient savings to meet any loss of income.
Thsi is more cost effective than spending 15% of your income ona critical illness policy. This policy is costly due to the high commission earned by the agent, and the high charges levied by the insurance company.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
My annual income is around $50,000. Recently, I was recommended to buy a critical illness policy for $300,000 (to cover six years of earnings), but the premium cost about $600 per month, which takes away 15% of my salary. I cannot afford to pay so much, but I need the coverage. I need critical illness to cover my medical expenses and loss of income due to serious illness. What is your advice?
REPLY
You can buy a 30 year Decreasing Term policy to cover $300,000 for about 1% of your salary. If you save 10% of your salary and invest it in a diversified low cost fund to earn a good rate of return, you will be able to accumulate more than $300,000 over 30 years. By that time, you do not need any critical illness insurance.
You can cover most of the expenses of critical illness through a Shield policy, or the group insurance policy provided by your employer.
The chance of a critical illness occuring for a young person is very small. If you wish to cover against the occurence at a young age, you can buy a 20 year critical illness rider to cover $50,000 and pay a low premium. After 20 years, you would have accumulated more than sufficient savings to meet any loss of income.
Thsi is more cost effective than spending 15% of your income ona critical illness policy. This policy is costly due to the high commission earned by the agent, and the high charges levied by the insurance company.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
Friday, February 08, 2008
Dance: Giselle in the Park
27 to 30 March 2008
Fort Canning Park
Performance from 7.30pm (Gates open from 5pm for picnic party)
Rendezvous with the romantic characters of Giselle under a canopy of stars for an unforgettable and immersive experience of this hauntingly beautiful classical ballet.
Giselle tells the story of a love between a village maiden, Giselle, and a nobleman, Albrecht. Mesmerized by Giselle’s beauty and innocence, Albrecht disguises himself as a peasant and promises eternal love to Giselle despite being betrothed to a Duke’s daughter.
When Giselle discovers his deceit, she loses her mind and dies, turning into a wili (a female spirit). Will Giselle forgive Albrecht for his betrayal or will she seek revenge? Join us as we follow this heart-wrenching love story that is bound to capture the hearts of many.
This special performance of Giselle will also mark the start of SDT’s 20th Anniversary celebrations.
Ticket Prices: $26 (free for children under 6)
Available at:
All SISTIC outlets
SISTIC Hotline: 6348-5555
SISTIC website: www.sistic.com.sg
SDT office at 6338-0611 or ticketing@singaporedancetheatre.com as well as at the door on performance nights.
Sweet Sixteen tickets at $16 per ticket (SISTIC booking fees applies.) available to all full-time students and NSmen. The label on the ticket will read as “Sweet Sixteen”. Sweet Sixteen tickets will not be available at the door.
ICE - In case of emergency
If we were to be involved in an accident or were taken ill, the people attending on us would have our mobile phone but wouldn't know who to call. Yes, there are hundreds of numbers stored; but which one is the contact person in case of an emergency? Hence this "ICE" (In Case of Emergency) Campaign.
The concept of "ICE" is catching on quickly. It is a method of contact during emergency situations. As cell phones are carried by the majority of the population, all you need to do is store the number of a contact person or persons who should be contacted during emergency under thename "ICE" ( In Case Of Emergency).
The idea was thought up by a paramedic who found that when he went to the scenes of accidents, there were always mobile phones with patients, but they didn't know which number to call. He therefore thought that it would be a good idea if there was a nationally recognized name for this purpose. In an emergency situation, Emergency Service personnel and hospital staff would be able to quickly contact the right person bysimply dialing the number you have stored as "ICE."
For more than one contact name, simply enter ICE 1, ICE 2 and ICE 3 etc. A great idea that will make a difference!
TIP BY TAN KIN LIAN: I used the "duplicate" function in my mobilephone to copy the name of my family members into a new contact, and add ICE in front of their name.
The concept of "ICE" is catching on quickly. It is a method of contact during emergency situations. As cell phones are carried by the majority of the population, all you need to do is store the number of a contact person or persons who should be contacted during emergency under thename "ICE" ( In Case Of Emergency).
The idea was thought up by a paramedic who found that when he went to the scenes of accidents, there were always mobile phones with patients, but they didn't know which number to call. He therefore thought that it would be a good idea if there was a nationally recognized name for this purpose. In an emergency situation, Emergency Service personnel and hospital staff would be able to quickly contact the right person bysimply dialing the number you have stored as "ICE."
For more than one contact name, simply enter ICE 1, ICE 2 and ICE 3 etc. A great idea that will make a difference!
TIP BY TAN KIN LIAN: I used the "duplicate" function in my mobilephone to copy the name of my family members into a new contact, and add ICE in front of their name.
Is it necessary to have an adviser?
Dear Mr. Tan,
Is it necessary for me to have an adviser? Can I buy the right product on my own?
REPLY
You have two options:
1. Find a good and trustworthy adviser.
2. Be your own adviser, ie "Do-it-yourself".
If you choose to be your own adviser, you need to be educated about the investment and insurance market. You can read the FAQs in my website and the articles from Dr. Money.
You can choose the simple products, such as:
1. Term insurance
2. Diversified, low cost funds
3. Personal accident insurance
Here are some useful links:
http://www.tankinlian.com/faq/
http://www.tankinlian.com/drmoney/
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
You can get an insurance quotation on your own, by calling the insurance company directly.
http://www.tankinlian.com/faq/termd.html
http://www.tankinlian.com/faq/motord.html
Is it necessary for me to have an adviser? Can I buy the right product on my own?
REPLY
You have two options:
1. Find a good and trustworthy adviser.
2. Be your own adviser, ie "Do-it-yourself".
If you choose to be your own adviser, you need to be educated about the investment and insurance market. You can read the FAQs in my website and the articles from Dr. Money.
You can choose the simple products, such as:
1. Term insurance
2. Diversified, low cost funds
3. Personal accident insurance
Here are some useful links:
http://www.tankinlian.com/faq/
http://www.tankinlian.com/drmoney/
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
You can get an insurance quotation on your own, by calling the insurance company directly.
http://www.tankinlian.com/faq/termd.html
http://www.tankinlian.com/faq/motord.html
A good time to invest in REITs?
When REITs (Real Estate Investment Trusts) were first introduced a few years ago, it provided a yield of more than 6%. The yield later dropped to 4%, giving an appreciation of more than 50% in the price of the REIT. The dividend payout also increased, due to higher rental income. This led to a further gain in the REIT.
The price of many REITS have dropped by more than 20% from its recent peak. It is now possible to find a few REITS that yield more than 5%. This is an attractive yield.
If there is an economic slowdown, there is the risk that rental income may drop in the future, and reduce the yield on the REIT. This risk is worth taking. Even if the rental income drops by 20%, the REIT will still be able to give a yield of more than 4%.
I have decided to invest in REITS at this time. (Previously, I found the price to be too high).
The price of many REITS have dropped by more than 20% from its recent peak. It is now possible to find a few REITS that yield more than 5%. This is an attractive yield.
If there is an economic slowdown, there is the risk that rental income may drop in the future, and reduce the yield on the REIT. This risk is worth taking. Even if the rental income drops by 20%, the REIT will still be able to give a yield of more than 4%.
I have decided to invest in REITS at this time. (Previously, I found the price to be too high).
Investing in REITS
Mr. Tan,
I am curious abt REIT. While I understand what they are, I do not fully appreaciate their risk. How different are they from bonds? Are they riskier than bonds? What are the chances of a REIT paying less dividends in later years. Can a REIT go bust?
REPLY
A bond gives a guaranteed interest payment and returns the principal at the end of the term. A REIT pays out a dividend depending on the net rental income of the properties that are held by the trust, and does not have a redemption date.
Investing in a REIT is like investing in the underlying properties. All the investors of the REIT collectively own the underlying properties in their respective shares.
The rental income is expected to change with economic situation and the supply and demand of properties. The dividend paid by the REIT is expected to fluctuate in the same manner. Over the long term, rental income is expected to increase with inflation and economic growth.
The risk of investing in a REIT is low. It is like investing in a property that you have paid in full. Even if the rental income comes down, you will still get some income.
A REIT may have some risk, if it borrows money (i.e. leveraging) to invest in the underlying assets. A leverage REIT has to pay the interest on the borrowed money, before paying the net income to the investors. In Singapore, the REITS are allowed to borrow up to only a low percentage (maybe 30%) of the asset value, so the leveraging is low. The risk is also low.
I am curious abt REIT. While I understand what they are, I do not fully appreaciate their risk. How different are they from bonds? Are they riskier than bonds? What are the chances of a REIT paying less dividends in later years. Can a REIT go bust?
REPLY
A bond gives a guaranteed interest payment and returns the principal at the end of the term. A REIT pays out a dividend depending on the net rental income of the properties that are held by the trust, and does not have a redemption date.
Investing in a REIT is like investing in the underlying properties. All the investors of the REIT collectively own the underlying properties in their respective shares.
The rental income is expected to change with economic situation and the supply and demand of properties. The dividend paid by the REIT is expected to fluctuate in the same manner. Over the long term, rental income is expected to increase with inflation and economic growth.
The risk of investing in a REIT is low. It is like investing in a property that you have paid in full. Even if the rental income comes down, you will still get some income.
A REIT may have some risk, if it borrows money (i.e. leveraging) to invest in the underlying assets. A leverage REIT has to pay the interest on the borrowed money, before paying the net income to the investors. In Singapore, the REITS are allowed to borrow up to only a low percentage (maybe 30%) of the asset value, so the leveraging is low. The risk is also low.
Shopping Mall or MRT station
Dear Mr. Tan,
Is it all right to buy insurance from an agent outside a shopping mall or MRT station? They promote new products and offer some freebies.
REPLY
It depends on whether the products give good value. You should buy a product that meets the following criteria:
1. You understand the product
2. It meets your needs
3. It offers fair terms, compared to similar products in the market.
4. You can get an independent view to evaluate your decision.
When you buy from an sales person in a crowded place, you are not likely to be able to achieve the above criteria. You can take some information from the sales person, but you should not buy on the spot.
Do not be distracted by "freebies". They take your attention away from the key features (e.g. the cost) of the underlying product.
Make sure that you know the key features of similar products in the market, before you buy. This ensures that you get good value. It may take some effort, but it will save you a lot of hidden cost.
You should try the "independent view". If you speak to your spouse or friend about the product that you intend to buy, you will be surprised to learn about the "gap" in your knowledge of the product. This reflects an incomplete understanding. This is a warning sign that you should avoid the product.
Gong Xi Fa Cai.
Is it all right to buy insurance from an agent outside a shopping mall or MRT station? They promote new products and offer some freebies.
REPLY
It depends on whether the products give good value. You should buy a product that meets the following criteria:
1. You understand the product
2. It meets your needs
3. It offers fair terms, compared to similar products in the market.
4. You can get an independent view to evaluate your decision.
When you buy from an sales person in a crowded place, you are not likely to be able to achieve the above criteria. You can take some information from the sales person, but you should not buy on the spot.
Do not be distracted by "freebies". They take your attention away from the key features (e.g. the cost) of the underlying product.
Make sure that you know the key features of similar products in the market, before you buy. This ensures that you get good value. It may take some effort, but it will save you a lot of hidden cost.
You should try the "independent view". If you speak to your spouse or friend about the product that you intend to buy, you will be surprised to learn about the "gap" in your knowledge of the product. This reflects an incomplete understanding. This is a warning sign that you should avoid the product.
Gong Xi Fa Cai.
Choose a good adviser
Posted in my blog (and edited by me):
Your adviser plays a VERY IMPORTANT part in the advisory process. It is make or break for your financial future.
A poor and wobbly start and you never achieve your goals.That is the reason why many CPF members still licking their wounds from losses because they never got a qualified and competent adviser in the first place. What they got was a salesman who sold them funds but didn't guide and advise on the investment.
Similarly why many people are still under insured is because they got salesmen and women to advise on their insurance. You be surprised that insurance planning is not about selling you a policy and your concerns and fears will go away and you will get peace of mind. It is about getting all your needs addressed.
This is also the conscience of the advisers plays a key role. Check your insurance. I bet you have a load of whole life, limited premium and endowment. Tally them up to see if you have enough despite paying so much premium. What is the point of paying so much premium and yet you have so big a gap.
Do you know why this blog promotes 'buy Term and invest the rest'? It is because there is great concern for you; to educate you so that you will not be bluffed by insurance salesmen; also to let you know this is the best approach to take care of your protection and wealth accumulation efficiently and effectively.
Straight forward and simple, plain vanilla products. If you have a good qualified adviser he or she can help you to achieve your goals because they guide you all the way and not abandon you after a sale is made like the insurance salesmen.
Remember to choose a good adviser. If you do not have one you can go to www.fpas.org.sg to get help to get an adviser who is attached to the company of your choice. Eg. you want one who is representing NTUC.
Z
Your adviser plays a VERY IMPORTANT part in the advisory process. It is make or break for your financial future.
A poor and wobbly start and you never achieve your goals.That is the reason why many CPF members still licking their wounds from losses because they never got a qualified and competent adviser in the first place. What they got was a salesman who sold them funds but didn't guide and advise on the investment.
Similarly why many people are still under insured is because they got salesmen and women to advise on their insurance. You be surprised that insurance planning is not about selling you a policy and your concerns and fears will go away and you will get peace of mind. It is about getting all your needs addressed.
This is also the conscience of the advisers plays a key role. Check your insurance. I bet you have a load of whole life, limited premium and endowment. Tally them up to see if you have enough despite paying so much premium. What is the point of paying so much premium and yet you have so big a gap.
Do you know why this blog promotes 'buy Term and invest the rest'? It is because there is great concern for you; to educate you so that you will not be bluffed by insurance salesmen; also to let you know this is the best approach to take care of your protection and wealth accumulation efficiently and effectively.
Straight forward and simple, plain vanilla products. If you have a good qualified adviser he or she can help you to achieve your goals because they guide you all the way and not abandon you after a sale is made like the insurance salesmen.
Remember to choose a good adviser. If you do not have one you can go to www.fpas.org.sg to get help to get an adviser who is attached to the company of your choice. Eg. you want one who is representing NTUC.
Z
Dividend paid from a Fund
Mr, Tan,
For the STI ETF, what happens when a dividend is declared? How is it distributed to the investors?
I have the same query about the NTUC Combined Fund which i recently bought - what happens to the dividends declared on the shares held by the funds? Do these dividends increase the value of my investments?
REPLY
The STI ETF declares a dividend every six months. Currently, the dividend paid out represents about 3% of the value of the assets. It is the average dividend paid by the underlying shares.
When the dividend is paid, the net asset value of the fund will drop by this amount. The share price will drop slightly to reflect this payment. After that, the share price should increase, in line with the underlying value of the shares..
In the case of the NTUC Income Combined Fund, there is no dividend payment. The dividends that are received on the underlying shares are re-invested. The price of this fund will increase due to the growth of the underlying shares and the dividends that have been received.
If you wish to receive a payout of (say) 5% from the from the Combined Fund, you can encash 5% of the units that you hold. As the underlying value of the shares is expected to grow by more than 5% (on average), the value of your investments should remain intact. You have the choice of deciding on the amount that you wish to encash each year.
For the STI ETF, what happens when a dividend is declared? How is it distributed to the investors?
I have the same query about the NTUC Combined Fund which i recently bought - what happens to the dividends declared on the shares held by the funds? Do these dividends increase the value of my investments?
REPLY
The STI ETF declares a dividend every six months. Currently, the dividend paid out represents about 3% of the value of the assets. It is the average dividend paid by the underlying shares.
When the dividend is paid, the net asset value of the fund will drop by this amount. The share price will drop slightly to reflect this payment. After that, the share price should increase, in line with the underlying value of the shares..
In the case of the NTUC Income Combined Fund, there is no dividend payment. The dividends that are received on the underlying shares are re-invested. The price of this fund will increase due to the growth of the underlying shares and the dividends that have been received.
If you wish to receive a payout of (say) 5% from the from the Combined Fund, you can encash 5% of the units that you hold. As the underlying value of the shares is expected to grow by more than 5% (on average), the value of your investments should remain intact. You have the choice of deciding on the amount that you wish to encash each year.
First Anniversary of this Blog
Dear Mr. Tan,
Wishing you Gong Xi Fa Cai and best of health. Thanks for all the financial advice and education. You have some 200,000 visitors to your blog on the first anniversary of your blog i.e. 8 Feb 2008 . It is a great achievement !!
Best regards
YH
Wishing you Gong Xi Fa Cai and best of health. Thanks for all the financial advice and education. You have some 200,000 visitors to your blog on the first anniversary of your blog i.e. 8 Feb 2008 . It is a great achievement !!
Best regards
YH
Thursday, February 07, 2008
Motor insurance claim
Dear Mr. Tan,
I met with an accident yesterday. It was a small accident. Should I make an insurance claim or try to settle it privately?
REPLY
Read this FAQ:
http://www.tankinlian.com/articles/traffic.html
I met with an accident yesterday. It was a small accident. Should I make an insurance claim or try to settle it privately?
REPLY
Read this FAQ:
http://www.tankinlian.com/articles/traffic.html
Joke - Make a Will
A young doctor and a young lawyer have just set up in private practice. They met in the street one day and the doctor said, "Great news! I have just got my first patient."
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
"Congratulations", said the lawyer. "When you've got him to the point that he wants to make a will, let me know and I will go and see him. "
Keep invested in STI ETF
Hi Mr. Tan,
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
I have $90,000 invested in STI ETF. It was slowly accumulated through POEMS Share Builders Plan over the last few years.
Should I sell the ETF and buy individual blue-chip shares? Will it results in more savings over the long-term? Will selling all the shares in one go have any effects on the selling price?
Looking forward to your reply.
REPLY
It is better to keep you STI ETF. It is professionally managed, well diversified. You do not have to worry about collecting dividends, subscribing to rights issues, etc. These are taken care for you. The expense ratio of 0.3% is small.
Higher cost of Vivolife
Dear Mr. Tan,
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
An NTUC agent approached me to sell the new Vivolife product. The return from this product is lower than a similar product that was being discontinued.
The agent claimed that the commission is not significantly different. Why is the return from the so much lower?
REPLY
I am not familiar with the new product. My understanding is that the charges are higher to cover the following:
a) Higher commission to the agent
b) Higher advertising expenses
c) Higher profit margin
d) Cost of the additional benefits (or frills).
I suspect that the yield for the period of premium payment could be quite low. You should ask the agent to compute the yield, based on the cash value at the end of this period. If the net yield(after deducting all the costs) is still more than 3%, you can invest in this product.
If not, it is better for you to follow the advise in this FAQ:
http://www.tankinlian.com/faq/savings.html
Gong Xi Fa Cai.
Future for Financial Advisers
Mr. Tan,
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Can I say that the days of an insurance adviser is numbered because:
1) An insurance adviser is highly unlikely to transact several term a day as each plan will be for very long term. The adviser have to look for the next person for planning.
2) Commission is low especially for Term insurances. It is difficult and take a lot of time to plan and convince the next person to the Term insurance. The adviser eventually get paid peanuts for the vast amount of time taken.
3) Next comes the emergence of index funds which pay low sales charge and no wrap fees. Adviser may even not earn a single cent to introduce these funds.
4) There is also no guideline on how much an adviser is worth for his time and advice. If the public view an adviser time as $10/hour, how many hours must an adviser works to compensate for his business cost? Is it possible for him to get 10 customers a day in order to earn that $100/day. Is meeting that 10 customers day considered as efficient?
5) Financial planner is different from other professional such as doctors and lawyers. People look for them when they are seriously sick or need legal advice. People don't usually think they will need a Financial planner due to their low urgency towards financial planning.
Financial Advisers took great pains to gain hybrid knowledge ranging from Insurance, Investments, Tax, Estate, CPF, Retirement, etc. They also keep updated on all the changes and investment climate.
Do you think that it is fair that advisers should always get lower paid than other professionals?Should the public get all the advices for free and then buy the cheapest term insurance and ETFs and they pay peanuts to the agent?
In your opinion, do you think that if there are no proper framework protecting the advisers in term of compensation scheme, a too drastic change in the benefit towards the public will kill many good advisers which may subsequently result in more social problem?
REPLY
I am optimistic of the future for a new type of financial adviser who provides good value for the client. The client will look for a trusted financial adviser, just as a patient will look for a good and trusted doctor.
The consumer will pay a fair rate of remuneration for the advice and help in making the transaction. The adviser can earn a good level of income by working efficiently and spreading his remuneration over a large number of clients (i.e. keep the cost low for the customer).
Can the new model give a living for many financial advisers? I believe so. There are so many people that need good advice. Many advisers are needed to educate and give good advice to these people.
In the economy, we need many teachers, many doctors, many nurses, many preachers. They do good work to serve the entire population. We also need many financial advisers to do their good work.
Gong Xi Fa Cai.
Medishield: Cheap and Good
Read this article from Dr. Money, published in the New Paper. It explains how to keep the cost of health care low. It also advises on insuring under Medishield:
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
http://newpaper.asia1.com.sg/columnists/story/0,4136,154148,00.html
More articles from Dr. Money:
http://www.tankinlian.com/drmoney/
Gong Xi Fa Cai.
Wednesday, February 06, 2008
Actuary Joke: Walk half the distance
A mathematician and actuary are in a room. There is a pretty girl at the other end of the room. It takes 10 seconds to walk half the distance to the girl, another 10 seconds to walk half the remaining distance, another 10 seconds to walk half the remaining distance, and so on. How long will it take to reach the girl?
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
The mathematician replied ... "I will never reach the girl. No matter where I am, there is a distance and it takes 10 seconds to walk half of that distance."
What did the actuary say? .... Remember, the actuary is a practical person.
Boosting the US economy
The US Government intends to spend USD 150 billion to boost the economy. President Bush and the Republicans like most of the money to be given as tax rebates in the hands of tax payers to spend. The Democrats prefer the money to be spent by the Government to benefit the people.
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
Which is better?
Surveys have shown that most people will not spend the tax rebate. Instead, they will keep it as their savings. This will not have the impact of boosting the economy.
The Republications argued that individuals know how to spend their money. They do not like other people, such as the Government, to decide how to spend the money.
Generally, I prefer the Democrat's approach. Certain expenditure have to be decided by the Government, e.g. invest in infrastructure, welfare for the poor, or to boost the economy. This is more likely to be effective, compared to leaving it "to the market".
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