Saturday, June 25, 2016

An unnecessary referendum

Mr. Tan
One of our super ministers described the UK referendum as "an unnecessary referendum".He had implied that many of the voters were ignorant and cast their votes without understanding the harmful consequences. The referendum has backfired and the global economy is in turmoil. Do you agree with this view?"

Of course, to the people in power, it is an unnecessary referendum. These people like to stay in their ivory tower and to enjoy the privilege of power without being accountable to the people who are affected badly by their decisions.

They are so obsessed with their arrogance and self-perceived wisdom that they do not need to listen or act on the feedback or suggestions from the ordinary people.

They already know best, so why bother to hold a referendum? If they get their way, they will like to dispense with the regular general election as well.

They may be a significant proportion of the voters who voted without understanding the big picture of the global economy. However, we must not ignore the "wisdom of the crowd". Many of the voters voted based on how their daily lives were affected by the issues that concern them.

The people who voted wisely (even though they voted differently from what the establishment leaders would have wished them to) outnumbered those who voted ignorantly.

The conditions affecting the ordinary people in the UK, and in many other countries in the world, are unsatisfactory. The surprise vote to leave the European Union is a reflection of the anger of the ordinary people at these unsatisfactory conditions.

Friday, June 24, 2016

Google Map is more useful than our million dollar transport minister

I visited a friend in Oxley Biz Hub and took bus 70M to my home late at night. I could not see the roads and stops as I pass by, because it was dark outside. My eyesight was not good.

I am reminded again of how useless is our super transport minister KBW. He expects the commuters to be able to see at night and to know the roads and where to alight the bus.

He refused to provide any digital display on the bus or give any voice announcement.

I took out my mobile phone and looked at Google Map. It showed me where I was on the map. Being familiar with Singapore, I got my orientation and was able to know where to get off. What about other passengers who are not familiar with Singapore or with Google Map?

Maybe most of them will take a taxi and complain about the high cost of taxi fares and the high cost of living in Singapore.

If Google Map can give be so useful, why do we need to pay a million dollar salary to a useless transport minister?

Peer to peer lending - another ponzi scheme?

An IT expert told me that many people are losing their capital on peer to peer lending. This was supposed to be a platform to allow
small businesses to borrow working capital and provide a good interest rate to the investors.

The promoters were able to pay a good interest rate on the lending at the initial period. After a while, the promoter disappeared and the investors lost their money.

TKL - This sounds like another ponzi scheme. The promoter took the investments of the later investors to pay the attractive return to the early investors.

As more people pour in money to invest in this scheme, the promoters were able to pay the high interest rate, while siphoning off a significant portion of the investments.

Another ponzi scheme in the making. Wow!

Thursday, June 23, 2016

MAS Balanced Score card

Raymond Fong read the "balanced score card" guidelines from the Monetary Authority of Singapore set out here. He made this comment.

I can tell you that none of the few agents who sat me down over the years did even a quarter of those listed in the guidelines. They only pushed me products and did not explain the products in breadth nor depth to me. 

When I started commenting about the low rates of return and upon my pointing out that the low rates included the non-guaranteed portion, they would then ask me how much I expected the rates to be. When I said 10% pa, they told me they were not investment but savings that were better than banks'. 

I replied that the time horizon was too long at 20-25 years and the exclusion of non-guaranteed rates made the returns even lower and which couldn't even cover inflation rates. That was when they would show their disinterest in me and started to leave me alone. 

What kind of professionalism and attitude were those? How many parts of the guidelines have they not adhered to? How were they regulated for their treatment of me as their potential client?

My view:
The balance scorecard is MAS's approach to solve the problem of mis-selling of insurance products. It does not seem to achieve its purpose. The mis-selling continued to be rampant.  MAS needs a new approach to address the problem, rather than rely on impractical guidelines.

Lost retirement savings on bad investment

Many years ago, John (not his real name) met me. He worked as a security guard. He looked sad. He told me that he had invested $300,000 in buying several plots of land from Profitable Group. It was supposed to give him a retirement income. His investment was stuck. He had to work as a security guard to earn an income. His health was not good, but he had no choice. He had made a big mistake.

A few years later, he saw me again.

John - Mr. Tan. What do you think about my investment in the land plots. Do you think that I have a chance to get my money back?

TKL - Honestly, there is no chance. The company had been raided by the police. You had the titles to the land plots. You have to look for a buyer. Nobody is interested to buy the land plots at the price that you had bought.

John - (really sad face). Why does MAS allow this type of company to sell the investments to ordinary people?

TKL - I don't know. Sorry.

Recently, John saw me again.

John - Mr. Tan, my wife and I voted for you during the Presidential election. Are you able to help me to get my money back?

TKL - I really don't know how.

Over the years, John had become more angry and more desperate. I felt pity for John, although it was unfair of him to harass me over his financial problem.

Is an annuity good for retirement?

Mr. Tan,
Is an annuity good for retirement?

It depends on the annuity terms offered to you, the investment options that you have, and what your needs are.

If you are talking about the CPF special account, you do not have any choice. You have to buy CPF Life.

If you are talking about your own savings, you can compare the terms offered by the insurance company with the terms offered by CPF Life. If the insurance company can offer terms better than CPF Life, then you can consider the deal, If the terms are far worse than CPF Life, you can forget about it.

You also have the choice of investing the savings in the STI ETF and draw out the dividends each year. If this is not sufficient, you can sell some of the units every year to supplement your income.

There is no simple answer to your question.

The best approach is for you to find a financial adviser and pay for his or her advice and time. Maybe you can set aside $200 to $500 for the advice. If you are investing $50,000, the advice of $500 represents only 1% of your investment. You should pay for it.

If you do not pay for advice, and you invest $50,000 in an annuity, and the insurance company takes away 5% for its expenses and profit, you are actually spending $2,500 on the purchase. If the front end charge is 10%, you are spending $5,000.

Many people make the mistake of buying a bad product and suffering a high front end cost. They can spend much less for good advice, but they have to pay for the advice.

When you are sick and see the doctor, you have to pay the doctor's consultation fee, right? If you do not pay the fee and the doctor makes his margin by selling medicine to you, will they sell you the most expensive medicine, which is not necessary for you, to make a living?

Visitor to the Singapore Cricket Club

I have been a member of the Singapore Cricket Club for 40 years. This was the first club that I joined. I continued the membership up to today. If you are interested, I don't play cricket. I also do not use the sports facilities.

The club is located at one end of the Padang in Singapore. It has members (like me) and guests (people who are introduced by members to dine at the club). It had one person called "the Visitor".

Who was "the Visitor"?

He was Mr. Lee Kuan Yew. When LKY was the prime minister and had his office in City Hall, he visited the club once a year and had dinner with the committee. He was given the title of "the Visitor".

I did not know how long he continued the practice and if this practice was passed to other prime ministers during the years.

Now that Mr. LKY is no longer with us, I wonder if the club still has "the Visitor".

Perhaps I should apply to get this special title. During the past 40 years, I visited the club an average of one time a year. Unlike Mr. LKY, I did not dine with the committee and have to pay my subscription as a member.

However, my application is likely to be ignored. This is the standard operating practice in Singapore. Perhaps there are many other members who have the same qualification as me. Hahaha.

Pay for proper advice and make the right choice

A young graduate was advised to buy a Term Insurance policy with a premium of $1,700 a year.

If the graduate had approached an adviser who does not earn commission on the sale, the adviser would have given her the options set out in this PDF. The information are available from the MAS Compare First website:

If you were the graduate, which option would you choose?

a) 20 year term insurance for $400,000 - $224 a year
b) 37 year term insurance for $400,000 - $338 a year
c) 37 year term insurance for $400,000 with critical illness cover - $990 a year
d) The policy recommended by the agent - $1,700 a year

Are you prepared to pay $100 to an adviser to prepare the information to help you make a proper decision and save more than $1,000 a year for the next 37 years?

MAS approach is to use the "balanced score card"

Raymond Fong said

I wonder how agents are regulated at the operational level. Commissions based work in any field has been argued to be not in the interests of consumers due to the conflict of interests.
There should be a ban on commissions model and move on to consultation fee model instead. If the argument is that products need to be pushed to enable those industries to survive, then it is very telling that either the consumers are not familiar with the need for those products and/or the industries are not doing enough to create awareness and knowledge of their needing them.

It's time to move on to increase the awareness and knowledge of consumers rather than to rely on agents' monetary motivation to push products via commissions.

My sarcastic reply is that MAS solved the problem by introducing the "balanced score card". It is a hogwash. It does not address the root of the problem, which is the payment of commission. The bigger the premium, the higher the commission.

Dishonest practice by Sing Tel (2)

I complained about the low speed of my fibre broadband connection. I signed up for 100 Mbps but the speed test for Wifi showed only 10 Mbps to 15 Mbps.  Sing Tel finally sent a technician to my office.

He checked and said that the speed is now 40 to 50 Mbps, which is quite good for Wifi. The usual speed should be 20 to 30 Mbps.

I checked on my desktop and found that the speed had increased to 40 to 50 Mbps.

I told him that it showed only 10 to 15 Mbps yesterday. My colleague also reported the same low speed.

Technician - Most likely it was the problem with Sing Tel backend.

TKL - How does this affect the speed?

Technician - When you upgrade the speed, the backend profile might still be showing the old speed, or there could be some conflict. Perhaps they have rectified it now.

The technician is an ITE graduate. He knows his job and is honest.

Why can't Sing Tel approach this problem in an honest way? If the customer reports a low speed, and if the backend could be an issue, they should have given the correct information to the customer and fix the issue in a transparent way. Perhaps the staff at the help desk does not really know what he is doing. Perhaps, he is based in the Philippines (he spoke with that accent).

They make things more complicated by trying to deceive the customer, or by refusing to look at the root of the problem.

Wednesday, June 22, 2016

Fight to get back her money

A few months before the collapse of Profitable Group, Sally (not her real name) sent an email to me asking for help. She had invested a large sum of money in the products of that company and had an inkling that there was something wrong. The payment that was due to her on maturity was delayed by a few months.

I asked Sally to meet me to discuss the problem that she faced and the strategy to get her money back. She did not respond. Later she told me that the will take action on her own first, before approaching me again.

I learned from her later that she went to the office of Proftable Group, which was located near her office almost every day during her lunch hour and created a scene. The director of that company got her aside and discussed with her. To get rid of his problem, he paid her off.

Sally was one of the few people that managed to get her money back. She was prepared to fight to get back her money, and take whatever action was needed. She was prepared to become a nuisance to the company.

Most other people expected other people to fight for them After getting back their money, they are not prepared to pay for the time spent and the service rendered. They disappeared without a trace.  They had achieved their goal. They do not believe in compensating other people for their effort. 

Display of Next Bus Stop

I took the bus home late tonight. I could not see the landmarks on the road. I was reminded that our super transport minister KBW had been in the job for more than 6 months. He has still not done anything to improve the display or voice announcement in the bus to tell commuters which is the next bus stop.

KBW probably thinks that every bus commuter, including the elderly, have super eyesight that allowed them to see the landmarks at night. Perhaps he thinks that we could be morphed into owls.

I was hopeful that Tower Transit, being new in Singapore, would have acted differently from the other two bus operators and taken my suggestion to introduce the display or voice announcement in the bus.

I was sadly mistaken. Tower Transit had embraced the local culture within the first week. They do not reply to suggestions sent by email. When they received some negative publicity in the social media (from me), they immediately replied and said that they would look into the matter.

Nobody contacted me or gave a reply for the past month. They are plainly not interested. They have even adopted the standard operating procedure of giving a nicely worded reply and filing the matter away. They have already achieved their target. This must be the SOP adopted in the civil service under our dear PM, LHL.

I resorted to using Google Map to get my location. I managed, with effort, to get down at the correct stop.

I will be developing a mobile app with the sole purpose of showing the Stop Number of the next bus stop. The three transport operators can download the app from Google or Apple for free into their tablet and use it as a big display in the bus. Maybe, they are wating for the free app to be available.

Compare First website

For someone who is familiar with insurance, the Compare First website launched by MAS provides excellent information.

I am able to find the information that I needed easily. However, the ordinary consumer may not know what to look out for.

The solution - go to an insurance agent or a independent financial adviser. Ask them to search for the information and explain the results to you. Pay them a fee for this service. Be prepared to pay $100 to $300 for the service.

You will be able to save s thousand dollars or more by buying the insurance cover that you do not need. You can also watch out for which companies are overcharging you for the product that can be bought cheaper from another company.

A dishonest way to run a business

I am quite fed up with the dishonest way that SingTel runs its business.

Recently, I upgraded my fibre broadband speed to 100 MByte. I observed that the speed does not improve. I contacted Sing Tel to ask if they needed to change some of the configuration to allow me to enjoy a higher speed.

SingTel replied that there is no need to change the configuration. They do not bother to find out if I am getting the higher speed that I paid for.

I complained about the slow speed. They help desk called me to help me to go through a speed test.

I carried out the speed test according to instruction. I get a reading of 10 MB to 15 MB.

Help Desk - But sir, you are using Wi Fi. You will get a correct speed if you make a direct connection to the router.

TKL -  I know that Wi Fi is slower than direct connection, but should be difference be that much? Surely, you know what the difference should be? Is 10 MB accepted for Wi Fi when I am supposed to get 100 MB"?

Help Desk - Okay sir, we will send someone to your office to check tomorrow.

Clearly, the Help Desk staff was trying to deceive me. If they can get away with it, why not? This seems to be the dishonest way that Sing Tel runs its business.

Easy to scare consumers into paying big premiums for risks with low claim ratios

Many consumers, especially ladies, pay a big premium to be covered for critical illness. They are helping the insurance companies to make tens or hundred of millions in profit each year.

The following table shows the obscene profit margin made by the insurance companies offering this type of cover.

It is easy for the agents to frighten the consumers to pay a large premium because nobody likes to be struck with cancer.

The consumers should also be aware that there are also many people who are injured through traffic accidents each year, and they are not paying humongous premiums to be covered for this risk.

Paying too much for a Term Insurance policy.

A 28 year single lady told me that she just bought a term insurance policy with an annual premium of $1,700. I said that the premium is too high. I checked the MAS Compare First website and found that she could be adequately insured for a premium of only $224 a year.

The agent wanted her to buy a bigger policy than she really needed and to cover for a longer period and also to include critical illness cover, which produced a high profit margin for the insurance company.

The detailed figures are shown in the PDF attached to this article.
The figures can be obtained from the MAS Compare First website.

The life insurance landscape has changed considerably

During the 30 years that I was CEO of NTUC Income, I followed a simple but very important principle - the insurance products that are sold by NTUC Income should give good value to the policyholders, i.e. that they should get insurance coverage at a lower cost and an investment return that is higher than what they can get from other types of investments.

I was not only giving them a better return compared to other insurance companies, but I aimed to give a better return compared to other types of investments.

I was focusing on the investments that are available to ordinary people, e.g. unit trusts, fixed deposits and bonds. At that time, the low cost index fund (such as the STI ETF) was not available. If someone is an expert in investing in shares, he or she is not "an ordinary people" and can do better than buy a life insurance policy from NTUC Income. I was not focusing on these investment experts.

I was not focusing on how much profit could be made by NTUC Income. It has to make a profit but the maximizing of the profit was not the objective. The objective was to provide insurance products that the buyers can get good value, i.e. low cost insurance coverage and a good investment return.

I was able to achieve this goal by operating efficiently and at low cost. At that time, NTUC Income was operating what can be described today as a "low cost index fund".

Due to competition, the other life insurance companies had also to provide returns that are not that far short of what was available from NTUC Income.

The environment today is different in many significant ways.

First, most life insurance companies how have the goal to generate as much profit as they can. They do not care much about the return earned or the losses suffered by their policyholders.

Second, the regulator, namely the Monetary Authority of Singapore, does not pay attention to the fair treatment of policyholders. They expect the policyholders to be educated to look after their own interest. This is a mistaken concept, but it has been operating for the past two decades.

Third, NTUC Income, under its new management, does not seem to be keeping its expenses at the low level in the past. It is also offering new insurance products that do not provide better value to the policyholders compared to other types of investments.

Fourth, ordinary people can now invest in a low cost index fund, such as the STI ETF, to enjoy the benefit of diversification and get an attractive return over the long term.

Under the new environment, I advise consumers to avoid investing in all types of life insurance products. To get the insurance coverage, they should buy term insurance or personal accident insurance.

Friends in life insurance

Tan Choon Hong said:

When I started out in my working life, I had several friends in life insurance, which in those days, was a highly lucrative career without professional qualifications like a degree and such. All that was needed was the gift of the gab and persistence.

I was closed out by two classmates. One sold me an endowment policy which upon maturity was not particularly profitable as its value was eroded by inflation especially in the last 3 decades. The second policy was a whole life plan and it turned out to be a dud too. Somewhere along the way I used the deemed proceeds to pay the premiums and eventually discovered I could surrender as fully paid for a reduced sum assured. Of course one should look upon insurance as protection first and investment second, and understand the protection part is a bell curve that rises as one heads towards middle age with family and responsibilities, and drops thereafter.

Thanks to your incisive and insider information on the workings of the insurance business I have advised my children not to make the same mistakes as I did.

My comment:
To understand a better way to plan  your financial future, without being ripped off by bad financial products and sales practices, attend this talk

All NS men will be covered by insurance paid by SAF

This is a sensible decision. But it took the PAP government 50 years to realize it.

This is better late than never, but it shows that Singapore needs a better way of making government policy decisions.

Monday, June 20, 2016

Do not fall into this trap

Many people are likely to fall for this trap, if they are not careful. There are many agents who go around to mislead people and get them to invest in a life insurance policy - which will lead to a big loss of their savings.$2,000

To avoid this trap, I advise consumers to attend this talk. Spend 3 hours and learn some knowledge that will prevent them from falling for this kind of trap or other similar trap.

Act now. Failure to act can lead to disaster!

A generous donation of $2,000

Five years ago, a Chinese educated woman asked for my help. She was persuaded by an AIA agent to invest $50,000 in a life insurance policy. He told her that she could earn much more than leaving her money in the CPF. She made the investment with her own savings (not CPF).

After making the investment, she received a regular statement showing that the value had depreciated a lot. She could not understand the statement. She asked the agent for explanation. He was evasive and difficult to reach.

A year later, she received a letter for AIA asking her to pay another $50,000. She asked the agent why she had to pay this additional sum. The agent told her to ignore the letter.

Afterwards, she was told by AIA's office that the policy had lapsed and is does not have any value now.

She approached me for help to get back her money.

I told her that she had bought an policy that required her to pay $50,000 in premium every year. She was shocked. She did not have the means to pay this kind of annual premium. All along, she thought that it was a one time investment that was supposed to give a return better than a bank deposit.

There are many people in Singapore who do not know the difference between a one time investment and a regular premium policy. Surely, AIA should have known that an annual premium of $50,000 is outside the reach of many people. Don't they care?

The policyholder's request for a refund of her premium was rejected. She was supposed to be aware of the policy that she had taken. I helped her to write two letters, in strong language, to be sent to AIA.

A few months later, she told me that the received the refund of her $50,000. I asked her to make a donation to FISCA. She asked, "how much?". I said "Up to you. Maybe $200, $500 or $1000". She gave me a cheque for $2,000. That was the most generous donation received by FISCA.

A convoluted system

The headline says, "1.54 million Singaporeans to get GST vouchers and Medisave top-ups this year. "

Here are the thoughts that crossed my mind.

a) Are there so many people in Singapore who need financial assistance from the Government?

b) Are there many people who deserve financial help but are cut off due to the "calibrations" by the Government? For example, low income pensioners living in landed property are not given the vouchers?

c) Surely it is better for the government to pay a pension to the elderly, rather than to go through the "some get" and "some don't get" vouchers?

d) Are there people who have migrated to other countries and left a mailing address with their parents in the smaller HDB flats? Do they get the generous vouchers from the Government?

I do not like the system of the vouchers. I prefer a simpler and more comprehensive approach, such as:

a) A minimum income to ensure that all those who work full time earn enough to support a family.

b) A pension to people above a certain age.

c) Lower the cost of living by removing levies, wastefulness and inefficiencies.

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