Dear Mr. Tan,
I purchased a Secure Retirement Plus (SRP) plan last year. This is a variable aunity which buys into one of the insurer's unit trust and offers lock-in of the unit trust value every 5 years (up to 85 years old). I have the option to top up my deposit within 1 year. This is a rather complex scheme, with 50% "virtual" bonus after 10 years, and 'virtual' lock-in of the account value of the unit trsut every 5 years.
'Virtual' means that the insurer is committed to honour the payout based on the 'virtual' account amount, but if client wishes to close the account, he/she will get back only the actual value of the unit trust. It sounded like a good deal since the downside risk is the survivability of the insurance company itself (which I think is finanically sound) and the upside is growth of value of the unit trust that the funds is invested in, thereby indirectly assure that the payout grows with inflation (inflation likely to flollow market growth).
I have the following question.
1) Is this SRP annunity better than the annuity offered by other insurance companies?
2) I wish to invest 40% of my retirement fund in this scheme (remaining money in unit trust, stocks and cash) Is this a good proportion?
3) Does MAS mandate that insurance company in Singapore must maintain a certain amount of capital to honor the annuity payout?
REPLY
I avoid complex financial products that are designed with features that are not clear to the consumer. This allows the product issuer to interpret the features to its advantage, and take a large share of the investment gains from the consumer. The product that you described falls in this category.
If you wish to invest in a variable annuity, you should just buy into the STI ETF and make a monthly withdrawal to meet your needs. If you withdrawal is modest, relative to the amount that you have invested, it is likely to last for your lifetime, and leave some balance remaining for your children. You will get the average market return, which is likely to be around 6% per annum. I am not sure how much you can get from this complex product after deducting the charges.
Saturday, March 27, 2010
Expensive Telephone Charges
I received this SMS: Welcome to Tunisia. To call Singapore, dial +65phone no. Voice @$5/min. SMS S$0.60/sms. Data S$20/MB.
Wow! I called home using Skype! But if I make a mistake and accept an incoming call on my mobile phone, I have to pay this high charge. This is how business make profits - catch the unwary customer!
Wow! I called home using Skype! But if I make a mistake and accept an incoming call on my mobile phone, I have to pay this high charge. This is how business make profits - catch the unwary customer!
Bank staff mis-selling to be scrutinized under government plans
http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=390355&re=8921&ea=138574
Bank staff mis-selling to be scrutinized under government plans
By Victoria Bischoff 25 March 2010
Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.
The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.
This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers. The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.
Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.
Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’
‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.
Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.
Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.
A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.
Bank staff mis-selling to be scrutinized under government plans
By Victoria Bischoff 25 March 2010
Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.
The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.
This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers. The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.
Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.
Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’
‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.
Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.
Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.
A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.
UK ban on commission to take effect from 2013
http://www.citywire.co.uk/personal/-/blogs/money-blog/content.aspx?ID=390639&re=8931&ea=138574
Is it right to ban financial advisers from taking commission?
By Tony Bonsignore 26 March 2010
The Financial Services Authority today finally banned financial advisers from taking commission on investment products such as ISAs, pensions, life insurance and the like
The move has been on the cards for a couple of years, and follows a major regulatory review of the sector. But still it is likely to come as a shock to those old-school advisers who pick up a tasty commission for every product they flog.
Certain voices within the advice industry have long argued that forcing consumers to pay upfront will deter them from seeking financial advice together. Others, meanwhile, argue that the FSA has no business intervening in the market in this way.
Other observers, though, note the way ‘independent’ advisers are swayed in their recommendations by the amount of commission they earn, both in the products they pick and the providers they choose.
They also remember a wave of outrageous mis-selling scandals within the sector, from personal pensions to endowments in the 80s and 90s to precipice bonds and split capital investment trusts in the noughties.
Commission-based advisers cannot but help but be biased, they say, and for that reason they should be banned.
The regulator obviously agrees.
From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product, an FSA statement said
‘In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.‘
Firms offering independent advice will now have to demonstrate their recommendations are based on ‘a comprehensive and unbiased analysis of the market and that any product selection is made in their clients’ best interests,’ it added.
As for those who are unable or unwilling to pay for financial advice, the cost of the advice can be bundled with the product; however it must be clear exactly how much is being charged for advice.
‘It is vital that consumers know not only the cost of financial advice, but also its value,’ Sheila Nicoll of the FSA says.
‘There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.’
So what do you think, then, has the FSA made the right decision? Will it boost demand for financial advice or reduce it? Does commission have any place in modern retail financial services? And will it stop the next mis-selling scandal?
Is it right to ban financial advisers from taking commission?
By Tony Bonsignore 26 March 2010
The Financial Services Authority today finally banned financial advisers from taking commission on investment products such as ISAs, pensions, life insurance and the like
The move has been on the cards for a couple of years, and follows a major regulatory review of the sector. But still it is likely to come as a shock to those old-school advisers who pick up a tasty commission for every product they flog.
Certain voices within the advice industry have long argued that forcing consumers to pay upfront will deter them from seeking financial advice together. Others, meanwhile, argue that the FSA has no business intervening in the market in this way.
Other observers, though, note the way ‘independent’ advisers are swayed in their recommendations by the amount of commission they earn, both in the products they pick and the providers they choose.
They also remember a wave of outrageous mis-selling scandals within the sector, from personal pensions to endowments in the 80s and 90s to precipice bonds and split capital investment trusts in the noughties.
Commission-based advisers cannot but help but be biased, they say, and for that reason they should be banned.
The regulator obviously agrees.
From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product, an FSA statement said
‘In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.‘
Firms offering independent advice will now have to demonstrate their recommendations are based on ‘a comprehensive and unbiased analysis of the market and that any product selection is made in their clients’ best interests,’ it added.
As for those who are unable or unwilling to pay for financial advice, the cost of the advice can be bundled with the product; however it must be clear exactly how much is being charged for advice.
‘It is vital that consumers know not only the cost of financial advice, but also its value,’ Sheila Nicoll of the FSA says.
‘There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.’
So what do you think, then, has the FSA made the right decision? Will it boost demand for financial advice or reduce it? Does commission have any place in modern retail financial services? And will it stop the next mis-selling scandal?
FISCA website
The FISCA website is being updated daily with new articles that are relevant for consumers. You can visit it by clicking on this link or the link on the right panel of this blog.
Many Singaporeans are migrating
Read this article by Seah Chiang Nee.
http://thestar.com.my/columnists/story.asp?file=/2010/3/27/columnists/insightdownsouth/5936468&sec=insightdownsouth
Testimonial to my Financial Planning book
I received a wonderful testimonial from CJ. I like to invite other people who have read my book to give their views here.
Hi,
Just want to say thank you, for sharing your knowledge on your blog. I am married with first baby expected to deliver on june, and i have just read your book I learnt a lot regarding the insurance that i should bought to protect my family, and the correct saving investment method, etc. Hope more people can learn from you, and do not fall into the trap ever again.
CJ
Hi,
Just want to say thank you, for sharing your knowledge on your blog. I am married with first baby expected to deliver on june, and i have just read your book I learnt a lot regarding the insurance that i should bought to protect my family, and the correct saving investment method, etc. Hope more people can learn from you, and do not fall into the trap ever again.
CJ
Friday, March 26, 2010
Simulation game: Pro-Investor
This simulation game gives you a chance to practice on selecting the right stocks. Read this guide on how to play the simulation game.
ST Online: Premium questions for motor insurers
MR PAUL Chan's Forum Online letter on Wednesday ('More accountability needed from motor insurers')
raises two less known points about the motor insurance industry.
The first.. There is no mandatory insurance required for property damage, including damage to motor vehicles... So it may be timely for the Government to step in and provide the necessary regulation.
It is unfair to consumers who are required to take up third-party injury insurance by law, and are taken advantage of by insurers who build and bundle an expensive insurance product because they know consumers have no choice but to buy it.
Second....motor insurers should factor in and disclose the investment income derived from premiums collected
when justifying premium increases for a better understanding among consumers.
Peter Lo
http://www.straitstimes.com/STForum/Story/STIStory_506672.html
raises two less known points about the motor insurance industry.
The first.. There is no mandatory insurance required for property damage, including damage to motor vehicles... So it may be timely for the Government to step in and provide the necessary regulation.
It is unfair to consumers who are required to take up third-party injury insurance by law, and are taken advantage of by insurers who build and bundle an expensive insurance product because they know consumers have no choice but to buy it.
Second....motor insurers should factor in and disclose the investment income derived from premiums collected
when justifying premium increases for a better understanding among consumers.
Peter Lo
http://www.straitstimes.com/STForum/Story/STIStory_506672.html
Price of HDB flat
Dear Mr Tan,
Will HDB Minister Mah Bow Tan and all other PAP Ministers again defend that this is an exception rather than norm... That PRs are NOT driving public housing prices in Singapore? Today's Asiaone article:
---------
A TAIWANESE couple have paid $650,000 for a four-room flat in Bain Street - smashing Housing Board (HDB) records and reflecting the strength in the red-hot resale market.
The sale price works out to be $736 per sq ft for the 30-year-old flat on the 25th floor of a block at Bras Basah.
That is the highest psf price paid for an HDB property and is on a par with prices of private homes in suburban areas.
----------
Regards,
Concerned but feel hopeless Singapore Citizen
COMMENT BY TAN KIN LIAN
The problem is the use of the "market price" as the benchmark for deciding on the price of new flats. If the price of new flats is based on cost and there is adequate supply to meet demand (and the state has a lot of land and airspace that can be developed) the people will not need to fear and drive up the prices further. It is better to have property based on "cost plus" rather than "market".
Will HDB Minister Mah Bow Tan and all other PAP Ministers again defend that this is an exception rather than norm... That PRs are NOT driving public housing prices in Singapore? Today's Asiaone article:
---------
A TAIWANESE couple have paid $650,000 for a four-room flat in Bain Street - smashing Housing Board (HDB) records and reflecting the strength in the red-hot resale market.
The sale price works out to be $736 per sq ft for the 30-year-old flat on the 25th floor of a block at Bras Basah.
That is the highest psf price paid for an HDB property and is on a par with prices of private homes in suburban areas.
----------
Regards,
Concerned but feel hopeless Singapore Citizen
COMMENT BY TAN KIN LIAN
The problem is the use of the "market price" as the benchmark for deciding on the price of new flats. If the price of new flats is based on cost and there is adequate supply to meet demand (and the state has a lot of land and airspace that can be developed) the people will not need to fear and drive up the prices further. It is better to have property based on "cost plus" rather than "market".
Public administration
The UK Government spends about 50% of the GDP (a proportion higher than the other countries in Europe and the USA) to provide welfare benefits, such as free or highly subsidized health care, education, unemployment and old age pension. This spending is funded by a high rate of taxation. While a certain proportion of the spending is abused by the recipients, this system has been well received by the population who prefer the security that comes from the welfare state.
The USA is in the other extreme among the developed nations. It spends less on the social benefits and collect less tax. However, the public have to pay a large part of their income on health care and education. The total cost to the public may be higher, if the private spending is added to the tax.
Many people considers the welfare state to be wasteful, due to abuses and inefficiency. This is only one side of the situation. The private spending system used in the US also have negative points, as is seen in their health care system. There is high administrative and marketing costs and the abuse of profit-driven enterprises, such as denying coverage to the people in poor health or denying legitimate claims.
It is better for a country to rely less on private spending system. Even the US is making reforms to its system.
However, we do not need to go to the other extreme of the welfare state that is practiced in the UK.
We can implement a form of welfare that is not abused and not wasteful. This approach recognizes the benefit of collective purchase by the state for essential services on behalf of the people. It allows the state to find the most efficient supply, at a determined level of quality, for the majority of the people and still allow the higher income to spend their own money to get a higher quality of service. It requires a public administration that is run by honest and competent people, who have a feel for the public that is being served. Singapore used to have this type of approach in the past. We can go back to this approach.
Tan Kin Lian
The USA is in the other extreme among the developed nations. It spends less on the social benefits and collect less tax. However, the public have to pay a large part of their income on health care and education. The total cost to the public may be higher, if the private spending is added to the tax.
Many people considers the welfare state to be wasteful, due to abuses and inefficiency. This is only one side of the situation. The private spending system used in the US also have negative points, as is seen in their health care system. There is high administrative and marketing costs and the abuse of profit-driven enterprises, such as denying coverage to the people in poor health or denying legitimate claims.
It is better for a country to rely less on private spending system. Even the US is making reforms to its system.
However, we do not need to go to the other extreme of the welfare state that is practiced in the UK.
We can implement a form of welfare that is not abused and not wasteful. This approach recognizes the benefit of collective purchase by the state for essential services on behalf of the people. It allows the state to find the most efficient supply, at a determined level of quality, for the majority of the people and still allow the higher income to spend their own money to get a higher quality of service. It requires a public administration that is run by honest and competent people, who have a feel for the public that is being served. Singapore used to have this type of approach in the past. We can go back to this approach.
Tan Kin Lian
Thursday, March 25, 2010
IHT settle defamation claims in Singapore
http://www.nytimes.com/2010/03/25/business/media/25times.html
Singaporean leaders have a history of taking the offensive against news organizations
for language that would be legally protected — or even considered relatively innocuous — in the United States, threatening legal action or restricting the sales of publications
“Nobody in most of the world would bat an eye about” such a piece, said Stuart D. Karle, a former general counsel of The Wall Street Journal, who has handled disputes with Singapore’s leadership but was not involved in this case.
But in that country, he said, there is often “the presumption that there’s a hidden message”
about nepotism or corruption in news coverage, and if that turns into a libel case, a news organization faces
“a near-certainty of losing.”
Singaporean leaders have a history of taking the offensive against news organizations
for language that would be legally protected — or even considered relatively innocuous — in the United States, threatening legal action or restricting the sales of publications
“Nobody in most of the world would bat an eye about” such a piece, said Stuart D. Karle, a former general counsel of The Wall Street Journal, who has handled disputes with Singapore’s leadership but was not involved in this case.
But in that country, he said, there is often “the presumption that there’s a hidden message”
about nepotism or corruption in news coverage, and if that turns into a libel case, a news organization faces
“a near-certainty of losing.”
Why labour mobility may be difficult
At a tripartite dialogue Lim Swee Say cautioned businesses against depressing wages.
He pointed out that workers could and would change employers if their wages fall below the market rate. In reality, however, labour mobility remains a luxury, not a given. For one thing, unskilled and low-skilled elderly workers do not have the bargaining power. Foreign workers constitute another group who can ill afford to walk out on their bosses. Also, the current work permit system allows foreign workers to work only for the employer stated on their work permits.
Labour mobility thus rings hollow in the absence of stronger enforcement measures and reforms to the work permit system.
Ong Yanchun (Ms)
He pointed out that workers could and would change employers if their wages fall below the market rate. In reality, however, labour mobility remains a luxury, not a given. For one thing, unskilled and low-skilled elderly workers do not have the bargaining power. Foreign workers constitute another group who can ill afford to walk out on their bosses. Also, the current work permit system allows foreign workers to work only for the employer stated on their work permits.
Labour mobility thus rings hollow in the absence of stronger enforcement measures and reforms to the work permit system.
Ong Yanchun (Ms)
SCMP:The crisis lesson that the HKMA still hasn't learned
http://www.lbv.org.hk/content/pages/posts/the-crisis-lesson-that-the-hkma-still-hasnt-learned7511.php
This is worrying, because if there is one lesson the HKMA boss really should have learned from the financial crisis, it is that while Hong Kong's supervision of banking system stability is relatively solid, our regulatory protection of bank customers is woefully inadequate, as the Lehman minibond scandal demonstrated.
In fact, the HKMA's over-emphasis on systemic stability proved actively harmful to ordinary bank customers. It was because of concerns over the financial strength of Hong Kong smaller banks' following the dismantling of the interest rate cartel in the late 1990s that the HKMA encouraged them to increase their fee income, for example by selling complex structured products to depositors
This is worrying, because if there is one lesson the HKMA boss really should have learned from the financial crisis, it is that while Hong Kong's supervision of banking system stability is relatively solid, our regulatory protection of bank customers is woefully inadequate, as the Lehman minibond scandal demonstrated.
In fact, the HKMA's over-emphasis on systemic stability proved actively harmful to ordinary bank customers. It was because of concerns over the financial strength of Hong Kong smaller banks' following the dismantling of the interest rate cartel in the late 1990s that the HKMA encouraged them to increase their fee income, for example by selling complex structured products to depositors
Facilities at Dubai Airport
At terminal 3 of Dubai International Airport, there is a mobile charging station where travellers can charge their mobile phones and laptop computers. It can accomodate many users. There are also ample seats at this station. There is free wireless connection, although the speed is slow, possibly due to heavy usage. This is useful and thoughtful design.
Wednesday, March 24, 2010
Earn back the public trust
Business has to change to earn back the public trust. Here is an article from Jeff Kindler, CEO of Pfizer.
At Pfizer, we’ve begun to change.
We know we need to be straight with people...
The stakes are high.
We know we will be measured not by what we say, but by what we do.
If we don’t do what we say we will, then we’ll lose trust even further.
Then we could lose customers or face more legal problems.
This is true for all leaders, whatever industry or public office they’re in.
At Pfizer, we’ve begun to change.
We know we need to be straight with people...
The stakes are high.
We know we will be measured not by what we say, but by what we do.
If we don’t do what we say we will, then we’ll lose trust even further.
Then we could lose customers or face more legal problems.
This is true for all leaders, whatever industry or public office they’re in.
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