Review of 2008

Review of my 5 2008 Resolutions as per my 1st Jan 08 post

1) To achieve stablised income of $3,000/mth or $36,000/yr
* Due to my switch of career, my average income in 2008 is probably only around $1,000/month at the moment
2) To pass CFA Level 1 examination
* I did not pass my CFA in Jun08 and I have no time to retake Dec08 exam
3) IPPT Silver in 2008
* I got my IPPT Silver in August 08
4) Gain weight from 58kg to 62kg thru weights training
* I did nothing at all to make me a stronger person till December
* I think I gain more fats than muscles
5) Toastmasters Competent Communicator
* I drop out from Toastmasters after leaving NTUC Income and I did not join any club

What I feel about 2008?
Health
* No major illnesses except for occasional back pains. I did not exercise much in 2008 and I can feel my energy level dropping.

Career
* I made a career switch in Jun08 to join a Financial Advisory Firm. I lost my clients and commissions overnight and start earning from zero. A lot of time are spent learning and unlearning.
* No regrets in getting out from the tied agency system but a bit of miscalculation by joining a firm whose remumeration system gives better benefits to top advisers and managers. I have no intention to be a manager yet. Perhaps in 2010.

Money
* It took me nearly 4 years to start earning a stable income of $2k/mth and now I started with $0 again. Thats the problem in our profession. We give up our salary when we leave for new firm.

* I'm currently on negative cashflow position. I have been through this stage before and I'm confident to be back in the black within 1 year. Things will only get better.

Lifestyle
* Still okay. Not much time for friends nowadays except for occasional wedding dinners and house warmings
* Cannot work like my unmarried or unattached colleagues. My time are divided equally between work and family now.

Family
* My wife gives me a lot of support. She understand my philosophy in Financial Planning and believe that I will do well one day. I love her and I will not fail her.
* Kids? I have a probia for one. Don't ask me why? Maybe because I worry about insufficient time and money.

I shall write about my Resolutions tomorrow...

Developing your Financial Plan

As Financial Planners, we help our clients in developing a Financial Plan. Many people have no idea what a Financial Plan should constitute. Some of them demanded more complicating stuffs from us and disappointed on how simple it can be. Our roles are not well defined and often misunderstood.

* Financial Plan is not Rocket Science that comes with complicating formulaes. We are not Financial Engineers.
* Financial Plan is not about helping you make lots of money and to analyse all your stock holdings. We are not Financial Analyst.
* Financial Plan is not about scrutinising every stocks in your Unit Trust and answer why was some shares selected. We are not Fund Managers.

If a Financial Plan do not help us analyse all these and let us make lots of money, then why need a Financial Plan?

My work desk and unpresented Financial Reports

I always consider myself more like a Financial Counsellor and not a Financial Professor with complicating formulaes to impress others. My role is to guide my clients in a structured way towards managing their finance and to ensure that they are disciplined enough to hit their financial goals. We are also like cheerleaders, cheering and encouraging them to be focused on their goals through our regular reviews.

So what are the considerations that we, as Financial Planners take when we construct a Financial plan? I can share 10 basic things that I do for my clients.

1. Understanding client’s needs, short/mid/long term goals and priorities
2. Gathering relevant quantitative and qualitative data
3. Hearing first hand on client's problems and concerns and record them into their individual file
4. Informing clients on assumptions used in the Financial Plan and when a review is necessary
5. Analysing Client's Net Worth and Cash Flow
6. Using basic Formulas to guage Client's Financial Health
7. Looking through Client's current Insurance policies and assist them with knowing their insurance numbers. (Hospitalisation, Death, Disability Critical Illnesses, accidents, etc)
8. Understanding Client's Investment Strategy and Philosophy
9. Understanding Client's Retirement needs and if on track with current strategy
10. Income Tax and Estate Planning considerations

After the Financial Plan is completed, we'll proceed with Recommendations and the Implementation process. As FAs, we have another layer of job which is to identify the plan with the best value from the range of companies we represent. Last but not least, Our job is also in reviewing the financial plan as an on-going service.

A Financial Plan is normally not complicated but tedious and time consuming to construct. We recommend according to needs and earns a modest living when we recommend plans of good value for our clients. Majority of us earns a commission and it is a way to compensate our time.

For me, I do more on Simple Cases and I cannot have differing standard as of who I shall charge a fee and who shall not. For simplicity, I keep to one system for the moment.

The Need of Discipline and Convenience

I walked into the California Gym 2 months ago to ask about their Gym membership package. I thought of starting 2009 with a disciplined exercise regime.

Many friends tell me not to sign up because it is cheaper in Sport Councils where it cost only $2.50 per entry and that I can do my own weights exercises and jogging myself to keep fit. Its not necessary to sign up a Gym Package.

I know about the lower cost in Sports Councils and that I can do my own exercise at home but the thing is that “I never do it despite the low cost of keep fit”. My usual excuses are the lack of convenience and discipline.

* To overcome the convenience factor, I had chosen a gym within walking distance to my office and rented a personal locker in the Gym to put my clothes, shoes, bathing stuffs in my locker. I don’t need to bring all these barang barang now compared to the times when I go to sports council.
* To overcome the Discipline factor, I had asked my colleagues to join me so that we can encourage each other. The thought of putting in money monthly will also ensure that I fully make use of their services. This shall motivate me as well.

I eventually sign up the package without waiting for 2009. I'm currently going Gym on a regular basis and I must try to keep it this way...

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This incident reminded me of my investment plan.

In the past, my investment discipline was through setting aside my monthly surplus and target to buy ETFs and shares every 3-4 months because of the lower cost structure compared to Unit Trust.

I encountered a few problems with this way of investment
1) It take rather long before I can accumulate enough money to get into ETF and shares at reasonable cost. I normally buy only after I accumulate $3-4k.
2) I also realized that I do not have the discipline to save because I spend more when I have more money.
3) After accumulating that $3-4k, I become fearful with my money that I will lose it. I was very emotionally with this money and start to punk the market, hoping for quick returns.
4) I become greedy at the height of the bull market like many investors and I got myself burnt with my investments.

To control my greed and lack of discipline, I decided to adopt a very simple and convenient way of investment called RSP (Regular Savings Plan). In the past, I failed to target an amount to save and I tend to spend more when I have more money. With a Unit Trust RSP, I forced myself to invest $XXX/month without trying to time the market. I spend only after setting aside the money for investments.

My investment plan is somehow similar to my new exercise regime. I need the Discipline and Convenience to achieve my fitness target. I also need this Discipline and the Convenience of RSP to achieve my financial target. The cost of Unit Trust is slightly higher and potential returns are smaller compared to the stock market, but it suits me well.

To start an RSP is simple and the cost is reasonable. I strongly encourage you to start one. Don’t need to wait so long!!!

Incontestability Clause

I was recently asked about the Incontestability Clause by one of my client. Below is my reply to him...

xxxxxxxxxxxxxxxxx

Hi Mr XXX,

Below is the actual wording from the i-term Policy Document with regards to incontestability

***
2. INCONTESTABILITY
After one year from the Date of Issue or from the date of reinstatement, whichever is later, this Policy shall be incontestable except for fraud or non-payment of premiums.

***

This clause is to prevent the insurer from contesting or disputing the validity of the policy except on grounds of fraud or non-payment of premiums after policies have been in force for at least one year from the date of issue or date of revival.

The purpose of the incontestable clause is to protect the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued. This is because the insured will be dead and he or she cannot refute the insurer's allegations. As a result, the beneficiary could be financially harmed if the claim is denied on the grounds of a material misrepresentation or concealment.

I have not heard of any legal case with regards to incontestability in Singapore but in my opinion, the insurance company has to prove that there is fraudulent intent, in order to reject a claim after 1 years if they choose to reject a claims.

Fraud is a false representation calculated to deceive another into acting against her or his legal interest. Statements that are inaccurate but made without the intent to deceive are not fraudulent.

Hope my info helps with regards to incontestability. Thanks.

Brgds
Adrian Khiat

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Another close comrade passed away

I write this because 2 close ex-colleagues, coincidently by the name of David, passed away during the past 1 year. Both of them coincidently also joined NTUC Income with me, though different departments.

I joined NTUC Income as a full-time adviser on 1st March 04. A colleague by the name of David Lam joined on the same day. We were quite close in our work. We went Army Camps for talks and he was my room-mate during one of the company retreat. He was diagnosed with nose cancer around Oct05 and passed away around Dec07. I was quite sad over his death at that time but I managed to meet him before he die and have a very long chat.

David Lam on the extreme left during a Company Retreat

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Today. I get to know of another good friend, David Chew, passed away. He joined NTUC Income Business Centre on 1st Feb06 together with me. We worked quite closely together and he was my usual lunch and dinner kaki. I fought for him when I felt he was unfairly dismissed by our manager in Feb07. He was actually a very nice and polite fellow but not well liked by our immediate managers because of his out-spoken nature and he, being not so well groomed.

We met twice for lunch even after he left NTUC Income. We spoke over the phone quite often and we last chatted over the phone in Oct08. As I'm the midst of work when he called, our conversation lasted less than 3 minutes. He seems trying to tell me something.

David's mother called me today. She thanked me for the Christmas card that I sent David. She told me that he will no longer be able to receive my cards anymore because he passed away on 9th Dec. I tried to asked how he passed away but his mum just told me that he was down with depression. She said that he suffered a lot and asked me why people in Singapore are so wicked. I was stunned for words and my mind was totally blank. I suspect that he had ended his own life. I did not probe further.

David Chew on the extreme right during a New Year party.

She thanked me for helping David when he was down during his times in NTUC Income. She said that he mentioned about me often and that he will remember me for life as I'm the only one who stood up for him during that period.

I am very sad, even till now. Tears did appear in my eyes but it was well controlled and I was confused if I should cry at all because we are actually not that closely related. Did David try to seek my help when he called in October. Was he already in depression then? He was in Peoples Association then and probably under a lot of stress. I was actually thinking to meet him after Christmas but its too late.

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Unlike David Lam's case where I managed to have a good talk with him before he passed away. I felt sad that I don't have a chance to meet David Chew for the last time and I could have helped him in some way if I know that he is depressed.

This is to remind me to appreciates the people around me and don't let ourselves be buried in work everyday.

Unit Trust (3) - Constructing a Portfolio

I attended a wedding dinner last Sunday and met my ex-classmates. One of them shouted across the table at me and asked "Hey Adrian, if I got $100k now, what shall I invest and make the most money?" Everyone was waiting for my answer, expecting me to give them some stock tips. I stare back at my friend and replied,"I don't know. Let me know if you have the answer."

I normally help my clients invest via a portfolio. I cannot tell exactly what you should buy today and sell tomorrow. I adopt an investment process and I do not speculate for high returns. Thats one reason I never able to sell to an uncle or auntie in their 50s who just want quick money.

Today, I like to share how I help my clients construct a portfolio. Sounds academic but its what I really do.

1) Going through a Fact-finding
a) Understanding client's short, mid and long term financial objectives
b) Understanding client's current assets and % that will be used for investment
c) Understanding client's abiity and need to take investment risk
d) Understanding client's time horizon and Risk profile

2) Asset Allocation
a) Grouping my clients to their risk level from Conservative to Agressive
b) Setting a target asset allocation to each group. Example, Agressive portfolio is 80%equity;20% fixed income.
c) Setting a band in their asset allocation.
Eg Agressive investor 60%equity - 90% equity
* In economic downturn when our view is bearish in the near term, we will reduce the equity portion gradually from 80% to minimum 60%. We will gradually move back to as high as 90% when economy stablises.

3) Choosing the sectors by Geography and Industry
a) Split the equity portion into Core and Satellite
* My Core Portfolio are normally 2 global and 1 asia fund
* My Satellite is normally 1 Country specific fund and 1 theme fund
b) Split the Fixed Income to Bonds and Money Market
* Normally 1 global and 1 local bond
* The money market fund is kept for tactical allocation in short term

4) Choosing the specific fund manager
a) My selection criterias are:
i) Consistency of performance over 1,3 and 5 years
ii) Fund Size and Expenses Ratio
iii) Comparing the Alpha, Beta, Standard Deviations and Sharpe Ratio with peer funds of comparable performance
iv) Understanding the experience of the fund manager and check his history, if any.

v) I normally avoid new funds with less than 2 years of track record

5) The ongoing process
* After the time consuming part of funds selection, our portfolio are somehow similar for most of our clients. The smaller the investment amount, the lesser the funds.
* We have our regular investment meetings among advisers to share our respective economic views.
* We adjust the clients' portfolio by reallocating the asset allocation within the specified band.

The investment process is to ensure my clients stay invested and avoid timing the market excessively. My role is to help manage risk, emotions and expectations of my clients and not to help them make quick money.

2008 Christmas Tree

I received a Christmas greeting from my banker friend today...

Unit Trust (2) – Why invest and Why not?

Unit Trust, in my opinion, is just another way to invest apart from the stock or property market where many people are already in. Its may not be the best way to invest, but its certainly a good way to diversify our assets and it is made to be so easy and convenient for everyone to invest.

Why Invest in Unit Trust?
1) Suitable for almost anyone on the street
We can start to invest with as little as $1000 or $100/mth. Its so modest that it practically means that anyone can invest.
2) Can Invest big and wide with small money
UT allows us to invest in Securities that we may be unable to access as an individual investor. These securities includes bond that usually required a minimum investment of $100.000. We are able to access into the global stock or bonds market using the Unit Trust way.
3) Its liquid and as simple as ABC
Buying and redeeming unit trust is simple and easy. Most unit-trust allow daily buying and selling of units. We can get updated values of the price of our unit trust from the daily newspaper or Internet. Online investment platforms have made it easier for investors and Financial Planners in giving advices too.
4) Portfolio investment creates flexibility
* With several hundreds of funds available, we are able to construct an investment portfolio based on the individual investment goals, risk tolerances and preferences, etc.
* We determine our % of bonds, Equities and Cash. We determine the region, countries or themes to invest. We determine which fund manager to park our money in. We are so spoilt for choices under a UT investment.

Why not invest in Unit Trust?
1) Additional Layer of Cost
Management and Trustee fees are paid from the pool of money. It can go as much as 3% per year. We pay advisers a Sales charge on a new purchase. It can go as much as 5%. These charges eat into our returns.
2) No Micro-management
We are not able to invest into the specific companies or sectors which in our opinion is bullish. Our investments are solely dependent on the fund manager and we are not properly updated when they change strategy.
3) Not suitable for speculation and trading
Unit Trusts generally move slower due to its diversified nature. Considerable time are required to buy, switch and to sell. Because of the slower price movement, time needed to trade and the initial expenses, it may not be fast enough to make quick money.

What are the Risk when we invest in Unit Trust?
1) Investment Risk
* The Systematic and Unsystematic Risk of investment. Systematic Risk such as inflation and the current economic crisis cannot be diversified away.
* If you invest in the wrong sector or country, you will lose money.
2) Fund Manager Risk
* Even if the sector is supposedly doing well but you select the wrong fund manager, you may also lose money.
* This Fund Manager might be underperforming the benchmark by a wide margin.
3) Trustee Risk
* The worst case is if you select the right sector, right manager but the trustee went bankrupt or run away with your money, you will also lose money. Such cases are very very rare

* That’s why I always advocate diversification and portfolio investment to reduce some of these risk.

Unit Trust (1) - What is it and who are the parties involved...

What is a Unit Trust Fund?
* A unit trust fund is a collective form of investment whereby the financial resources of individuals and corporate investors with the same investment objective are pooled together for the purpose of making large-scale investments in a selected portfolio of securities.

* The pool of money is split into a number of equal parts called units. Each unit represents exactly the same proportion of the value of shares held by the unit trust. As an investor, you "buy into" the pool by purchasing these units. The fund managers then use this pool of money to invest in a wide range of stocks, bonds and other money market instruments.

* The fund is set up under a Trust Deed. The Trustee holds the assets in the fund and monitors the way the fund manager invests. Let me elaborate further...

Who are parties involved?
1) The Unit Holders / Investors
* People like you and me with similar investment objective, combine our money together to buy into the Unit Trust of our choice. We will receive units of which the value is based on the underlying assets.
* Example: 100 people invested $1,000 each. There will be a collective sum of $100,000. The fund manager creates a unit trust of 100,000 shares valued at $1 per unit and each investor will get 1,000 units. Assuming after 1 year, the underlying assets of $100,000 grew to $120,000. As the number of units remains at 100,000, the value of the units will become $1.20 each. If the investor sold his 1,000 units, he will sell it for $1,200, a profit of $200.

2) The Fund Manager / Fund Management Company
* The fund manager job is to act in the interest of the Unit Holders by making the best investment decision with their money. Other than the day-to-day investment management, the fund manager also prepares the semi-annual performance report and the declaration of dividends.
* The fund manager, are supposedly be experienced and skilful enough to devise strategies in picking stock from the universe of companies.

3) The Trustee
* The Trustee is a corporate body approved by the Minister of Finance, independent from the Fund Manager. Their role is to act as the custodian of the Unit Trust and to ensure that the Fund Manager invest the Unit Holders’ money in accordance to the Trust Deed.
* They can be considered as the “watchdog” to protect the interest of the Unit Holder. They will help minimize the risk of mismanagement by the fund manager.

* The tri-partite relationship between the Manager, the Trustee and the Unitholder is legally bound by the terms and conditions specified in the Trust Deed
* The Trust Deed legal document that lays down the terms and conditions under which the Unit holders’ money is to be invested. It also spells out the investment objective and the responsibilities of the fund managers.

4) The distributor
* There are several channels through which an investor can buy a unit trust – The Manager, Banks, Stockbroker, Financial Planners, Insurance Companies and Internet based service providers.
* Distributors of unit trusts would need to hold a financial adviser’s licence or be an exempt financial adviser.
* They will conduct Risk Profiling and design a portfolio based on the investor’s needs and risk level.

I'll talk about why and why not invest in Unit Trust in my next posting...

Down with a back sprain

I have back problem since my Army Days. I injured my back because I often forced myself beyond my limits when I was in Army and did not take adequate care whenever I carry heavy things.

I injured my back again on Sunday night when I was carrying a chair up the stairs. I was in pain over the past 2 days and was simply paralysed. I can't stand, sit and and even sleep well. Visited the A&E ward in Changi Hospital on Tuesday and was given a jab, painkillers and muscle relaxer pills.

I am still in pain as I'm writing in this posting but I really like to share a few things with you.

1) I realised the importance of Health
* My condition was so bad that I was totally dependent on others for my movement such as moving up from bed, taking a shower and even tolieting.
* My wife have to take leave to take care of me. I realised how it feels to be paralysed and how inconvenience life can be under such condition.
* Now I know what Eldershield is meant for ^-^
* Good Health is the most important factor in determining our wealth. If we don't take care of our health, not only that we lost our ability to work, we will have to pay for Medical expenses too.
* I lost nearly $100 over the past 2 days on medical bill and taxi expenses.

2) I realised that Time is Money to me
* I had arranged to meet prospective clients on Monday and Tuesday but are forced to postpone them due to my mobility problem. I may need to postponed my Wednesday appt as well.
* I am not a salaried worker who can take MC. I one day no work, means one day no income generated.
* I was advised not to carry heavy things for at least 1 week. This means I may have problem going for my usual appointments with my 2 bags which weighs 6-8kg.
* I can't imagine if I'm not able to work for 1 month or even 1 year.

3) I realised how time consuming it can be to wait in the public hospital
* I went to Changi hospital and have to wait for nearly 3 hours before seeing the doctor.
* My back was so painful while waiting because I can only stand or sit as I wait over that 3 dreadful hours.
* This is the consequent for trying to save some money. Long wait is a requirement before I can get subsidised treatment.

Its a frustrating and stressful experience over the few days as I realised that I'm not superman. I can fall sick and not able to work too. Having good health is so important and I think this is a message God is passing to me.

To all who read this posting. I urge all of you to "Please take good care of your health"...

Some things about Wills (2)

As mentioned, I will like to share who are the people you need to consider before you write a Will. Most people will only think of who will be the beneficiaries, they normally neglect the many other parties involved. So who are the parties involved? Let me share:

The Personal Representative
* The term Personal Representative refers to the individuals provided with the authority to administer the estates of the Deceased
* The term covers both Intestate and Testate case. If the Deceased died testate, the PR is called an Executor. If the Deceased died Intestate, the PR is called the Administrator
* In the Intestate case, the PR only gets the title of Administrator once he has taken out Letters of Administration

The Executors
* Duties: Locate Will, make funeral arrangements, call in assets, pay or release debts, prepare statement of account and distribution
* Can initiate legal action on estate’s behalf
* Power of Attorney: Implied power to engage professional help or agents to administer estate
* Duty to ensure reasonable returns from investment
* Statutory power to make advances to Beneficiaries for maintenance and education
* To distribute specific gifts

The Trustees
* Duties: Administer estate in cases where properties cannot be distributed. E.g minor Beneficiaries, life interest, Trust expressly created by Will
* Manage estate in accordance with the instructions and powers conferred under the Will or accordingly to the Trustee Act

The Guardian
* Custody of the minor child will be given to the appointed Guardian(s)
* The Guardians basic duty is to prudently administer the minor’s interest
* Make necessary applications to Court to sell, charge, mortgage, exchange possession of any of movable or immovable property of the minor or if they intend to lease land belonging to the minor for a term exceeding 1 year

The Beneficiaries
* People named in the Will to receive Gifts
* If the Testator is predeceased by the Beneficiary, the Testator can either make a new Will, or allow the relevant item to fall into residuary estate
* If the Testator omits dependants as beneficiaries, they are entitled by Law to apply for a reasonable proportion of the estate for their maintenance

The Witness / The Translator
* These are some of the other important people in preparation of the will.
* Witness should preferably not be any of the beneficiaries or those with close relation of the bebeficiaries like spouse or children, etc.
* At least 2 witnesses are required and they must really be present to witness the signing of the Will to be effective.
* If Translator is required, make sure the translator is a competent one with proficient in the 2 languages.

Writing a Will cost nothing if you know how to write it but its nevertheless advisable to seek help from a professional to ensure your Will to be correctly worded and effective. A simple Will cost around $200. My opinion is that its not necessary to save that $200 for that important piece of instruction to your loved ones in event you can no longer tell them so.

Some things about Wills (1)

I have been emailing articles called "Health & Wealth" and "The 3 minutes investment updates" on a monthly basis to my clients and prospective clients over the years. I strive to keep them abreast with the investment climate and Financial Plannings issues such as CPF Changes, Medishield changes, etc. It has been my service and commitment to my clients over the years. Unfortunately, many of my clients who don't have an email will never know that I write all these for them.


In one of my "Health and Wealth" series, I wrote about Will Writing. Its not a new topic in my blog, but I like to beef up my readers knowledge in this area again.

Definition of a Will
* Legal document to provide for the proper administration and distribution of all estate among Beneficiaries after death
* Will includes a testament and an appointment by Will or by writing in the nature of a Will in exercise of a power and also a disposition by Will and testament and any other testamentary disposition
* A Will operates as a declaration of the Testator’s intention only. While he is alive, he can deal with his assets and property in any way he deems fit. Therefore, during his lifetime, his power of disposition remains intact and any Will that he has made does not restrict him

Why make a Valid Will?
* Easier to obtain Grant of Probate
* The Court requires less documentation as the identities of the Executor are already established. There is no need for different Petitioners for the Letters of Administration
* The Court Procedure is simpler as there is no requirement for an Administration Oath, Sureties, etc

Court Procedure after testator dies with a valid Will
a) Will to be produced
b) Petition for Grant of Probate
c) Original Will to be deposited and kept in court
d) Establish identity of Executor/Trustee
e) Call in all assets and property of the Deceased / Testator, in and outside of Singapore
f) Determine amount of Estate Duty payable
g) Executor/Trustee to distribute assets and property accordingly

Where the Deceased has made a Will, the appointed Executor / Trustee will petition to Court for a Grant of Probate. The Deceased’s estate will then be distributed in a manner as directed in the Will. All other arrangements specifically stated in the Will shall also be carried out in the manner specified by the Testator.

In my next posting, I'll write about who are the people you need to think of before you write a Will.

What to do in event of a Motor Accident?

I did quite a fair bit of Motor Insurance, largely for my existing clients. On average, I'll transact around 3-4 cases monthly. On a few occasions, my clients called and seek my assistance when they met an accident. They are normally shocked and confused over what to do.


You can find many versions of "What to do in event of a Motor Accident" in many websites. Its sometime very long and hard to remember. I'm going to help you rememeber in a simplier steps.

1) Exchange Particulars
* Get particulars of parties involved including Name, NRIC, address, contact number, vehicle number and car insurer info. Get particulars of any witness to the accident if there are any.
* If you have a copy of the Singapore Accident Statement(SAS) Form, try to fill up part 1 with the other driver.

2) Take photograph
Take digital photographs of your accident vehicle and accident scene. It can be used for e-filing of the accident report later.

3) Towing Services
Call your respective insurer for towing services and avoid those unauthorised tow-truck operators or repair workshops

4) Report the accident with your vehicle
From 1 June 2008, if you meet a motor accident, you must report with accident vehicle (whether damage or not) to the reporting centres or IDACs within 24 hours or latest, the next working day after the accident, before you send your car to the workshop.

5) Filing a police report
You need to file a police report under following situations:
a) There are injuries
b) Hit and Run case
c) accident with a government vehicle or damage to government property, foreign vehicle or pedestrian/cyclist

6) Last of all, "Do not admit Liability!"

If the above steps are not simple enough, just make sure you store your motor insurer's 24 hours helpline number in your handphone and call if necessary!!!

Incomeshield - Letter of Guarantee

Letter of Guarantee is one of the unique feature of Incomeshield compared to the rest of the Medisave Approved Integrated Shield Plans in Singapore. Incomeshield is a catastrophic medical insurance plan from NTUC Income which offers additional benefits on top of that provided by MediShield.

I am not trying to sell an Incomeshield Plan based on LOG here but I can certainly vouch that the issuance of Letter of Guarantee (LOG) did helped a few of my clients who are cash-strapped and not able to pay a deposit to the hospital.

What is a Letter of Guarantee?
A Letter of Guarantee or LOG is a document issued by NTUC Income for policyholders of Incomeshield plans. A LOG will help to waive partial or full deposits required by the restructured hospitals at the point of the Policyholder’s hospitalization.

How do we get this LOG?
It is not as easy getting this LOG as what your adviser might have explained to you. A lot of information is needed and adequate time are required to get them. Ask your adviser or call the hotline to seek the necessary information needed for this LOG. The generally required information are as below:
Name of Patient:NRIC / Policy Number:
Date of Admission:Length of Stay (days):
Hospital:Ward Class:
Estimated Hospital Bill:
Estimated Medisave Amount:
Deposit Required by Hospital:
Name of Attending Doctor:
Medical Condition:
Surgery Required (Include Surgery Table #)
If day surgery: Subsidised or Private Patient?
Hospital Telephone #:
Hospital Fax #:
Next of Kin:Next of Kin Contact #:

How much will NTUC Income guarantee the hospital in the LOG?
It depends on how much they estimated that you are able to claim from the Incomeshield Plan
based on specific interim admission information.
Example, if the claimable amount after applying deductible and Co-insurance in the Incomeshield is $1,000 but the hospital demands $2,000 deposit, they will most likely only issue an LOG based on Max $1,000.

Do we still have to pay hospital when LOG is issued?
Possible. 3 scenerios I can think of
1) LOG amount is less than deposit requested
2) Deposit is over the $10,000 limits set by NTUC Income
3) Hospital do not accept this Letter of Guarantee due to their Internal Practice. (Important Point)

How long do they need to take to issue a LOG?
From their website, they say 24hrs for restructured hospitals and 1 working day for Private Hospitals. My experience with them is 2-3 working days under normal circumstances. Do note that you need time to get the necessary information for LOG. Don't request from your adviser at the very last minute for LOG.

Can NTUC Income decline to issue an LOG?
Yes. I can say that NTUC Income is not obliged to issue an LOG. There are nothing in the terms and condition to say that they must issue the LOG. Its more like a extra added service by them. We must also meet the eligibility criteria in order to get the LOG.

What are the Eligibility Criteria?
Some of the eligibility criteria for a LOG I can highlight are:
1. The policy and acoompanying riders must be in force for at least 1 year
2. The estimated LOG amount is below $10,000
3. The Medical condition is not excluded under the Incomeshield plan
4. The estimated LOG amount is above the policy deductible
5. The treatments are not at private clinics, outpatient treatments and community hospitals

Disclaimer
I am not a staff of NTUC Income and is not an expert with LOG. I write this merely based on my knowledge and experience about it. I'll advise that you check with NTUC Income or your adviser when necessary.

Reasons for doing fact-finding for our clients

Over the last 6 months in my current FA firm, I had did more fact-finding than my 4 years in NTUC Income combined. Fact-finding is such a routine under the FA platform to such an extent that I find it very hard to give advice without going through it.

Fact-finding seems like a chore to me in the past. I always feel that the KYC(Know Your Client) form that I used previously was too simplified and not detail enough. I always have to use my own designed fact-find form when I meet my clients and the layout of my own form is simply not professional enough.

Anyway, I'm glad to be under this new platform where the forms and programs suit me better. Today, I just like to share with you 10 reasons why we should complete a proper fact-finding for our clients and stop ticking the "Product Advice" column in our submissions.

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1. It helps us identify the client’s actual needs and objectives.
2. It provides a more efficient and orderly way to gather information.
3. It gives us a chance to record what our clients tell us.
4. It can identify multiple needs and can help generate more business for us.
5. It is able to help identify areas of priorities for the clients and recommend what is more important first.
6. It provides us with a good way of explaining our recommendations and shortens our time needed for closing.
7. It forms the basis for future reviews.
8. It helps us project a more professional image.
9. It will help defend ourselves if the client turn around and say we mis-sell.
10. It helps us comply with your “Know Your Client” obligations and don't need to worry about MAS audits anymore.
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This method suits me better because I'm simply not the type who can use my mouth and a piece of paper to sell a concept to close a case.

However, this method is very tedious and be ready to work very very hard if you going for such financial planning route. Fact-finding is just the first step. More time will be taken for preparing the financial plan, formulating recommendations, making product comparisons, making adjustments to clients budgets and the tons of paperwork that follows, etc...

Let’s Live In Balance

This MSIG commercial was aired over TV since Jun this year. I enjoy this commercial very much and find it meaningful. The commercial “Balancing Balls” features people maintaining their balance as they go about with their daily lives.

The message MSIG wants to bring across is that they develop insurance solutions to protect us and to maintain stability in our life. When I saw this commercial, my view is that life is uncertain as if we are balancing on a ball daily. Its easy to fall and we must protect ourselves adequately.

I find this commercial innovative. Hope you find it too.

My 300th Posting

I was in NTUC Income 2 years ago when I started this blog. Tan Kin Lian was our boss then and I visited his blog "tankinlian.blogspot.com" regularly. He made use of his blog to promote NTUC Income and shared his view about Current Affairs and Financial Planning. I found his blog to be educational and was able to reach out to the public fairly effectively.

I'm certainly not as influential or knowledgeable as him but I decided to start my blog in a small way to reach out to my policyholders. I wanted to make it part of my service to them, giving them insurance updates and health knowledge to keep them Healthy and Wealthy.

Its not easy maintaining a blog given my standard of English and limited financial knowledge. Even today, I still need to spend a lot of time vetting through every posting to reduce my language error and to research on what to write next. I nearly gave up within a year because nobody reads my blog and readership can be as low as 1-2 visitors per day. I pondered if I should focus on my work instead. However, whenever I decided to start focusing on my work, I find it hard to stop writing and let this blog dies off. I reckoned that it has become a habit to log in daily and write whenever something strike my mind.

Through some perseverance, this blog started to benefit me in some ways.

1) My Financial knowledge improved because I had unknowingly forced myself to read more and to learn from others. I get to know many other local financial bloggers and gained a lot of insights from them.

2) My English improved slightly. I really regretted not learning my English properly during my secondary school days. Taking up a Grammar or Writing course cost so much and I don't have the money to sign up.

3) Some of my policyholders like my service and starts reading my blog though no referrals from them yet.

4) This blog had generated a few leads for me and help improve my income slightly.

This is my 300th posting. I had changed the theme of my blog and I look forward my 600th posting from today onwards. I'll continue to learn and give my readers practical tips to improve Health and Wealth. I also like to thank all those who had contributed with their comments, whether positive or negative in these 300 postings. Each comment helps to mound me into a better adviser.

Medishield Changes wef 1st Dec 2008

From 1 December 2008, MediShield will be enhanced to increase payouts of up to 80% of large class B2 and C bills, up from 60% previously. This will be achieved through raising the MediShield claim limits.

The main changes are as follows:
1) Daily Room and Board charges raised from $250/day to $450/day and ICU from $500 to $900/day.
2) Surgical Procedure limits increased for Table 2, 3 and 4 Operations
3) Implants and Medical Consumables increased from $2k per treatment to $7k
4) Chemotheraphy limits increased from $700 to $1,240 for a 21/28 days cycle treatment
5) Stereotactic Radiotherapy for Cancer increased from $1k to $1.8k per treatment
6) Deductible increased for those above 80 yrs old from $1k to $2k for Class C wards and from $1.5k to $3k for Class B2 wards.
7) Premium increased by as low as just $3/yr for those 30yrs and below to $418/yr for the highest age band of 84-85yrs old.
8) For those 81 years old and above, withdrawal limit for premiums will be increased to $1,150 per insured person

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My comments:
Its great news especially for those with existing health problems. The most significant improvements are the increased limits for Daily R&B, Medical Consumable and Chemotheraphy treatments. I've been helping my clients with medical claims over the years and I know these are the areas that the current Medishield are seriously lacking.

However, I'm quite disappointed that they had doubled the deductible for those 80 years and above. This is the most vulnerable group of people but logically forms the lowest group of Medishield Policyholders. This increase is very drastic as they are very likely not having sufficient savings to pay that $2k or $3k treatments. I find it unnecessary to double the deductible for them at this stage.

It seems to me that the government is all out to make sure Medishield generate profits for all age groups. I'm not sure if they had taken the effort by passing part of the profits from the younger groups to cover part of the loss in the older groups.

A Grateful Email

I received an email with the heading "Very grateful to your advice" recently.
I'm glad that I managed to help a stranger away from such Regular Premium ILP.

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Adrian

I am a structural engineer, 27 yrs old, and earn a salary of S$4700 per month. Last week, I was determined to have an investment plan as I realize the importance of money management. so, I just went to a well-known bank, HSBC. A senior wealth manager persuaded me to join a ILP, life manager plus. I did not fully understand this plan as she did not tell me how to calculate the projected cash value, total deduction effect and distribution cost. When I asked, she said it's too technical and she did not know as well. and then, I just trusted the expertise of the professional and signed the proposal with a premium of S$2000/month.

After coming back, I read the proposal carefully, as a engineer, I have some mathematic knowledge, so I tried to figure out how to calculate the cash values by myself. Finally I made it and after doing some case studies, I realized how lousy this plan is! I will lose quite a lot investment if I follows this ILP with S$2000/month. The agent will get a very big fat from the low allocation rate of the first three(3) years.

Before I read your blog article 30 minutes ago, I still thought it was not a willful 'mistake' of the wealth manager. I dropped her an email this morning and told her my findings as attached. now, I know those agents know exactly what they are doing. My God! I am too naive and too easy to trust the reputation of the bank.

Now I understood why she emphasized the one-month waiver at the 1st year. It looks like the more premium I pay at the 1st year, the more promotion benefit I can get. Acutally, the big fat 87% of my premium goes to the agent. (allocation rate 1-3yrs: 13%,40%,45%,100%).

Thanks, Adrian, your invaluable advice saves me from a huge loss.

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$2,000/mth is a lot of money. 202% of 1 years premium will not be invested and hence amount to $48,480. This is precisely what is happening on the ground and I feel that such allocation rate is simply unfair to the consumers and too good for the banker.

Is Financial Advisory a Lucrative Job?

I like to ask those young Pru or AIA agents during roadshows on why they joined the industry when they tried to get me to complete their survey forms. I also asked the same question to some of our new advisers in my company.

The common answers are time flexibility, the skies the limit, can earn lots of money, its like our own business. We fail, we can still go back. Financial Independence like my manager, etc... Generally, the largest pull is the money and the time flexibility.

I'd seen advisers top the company by doing roadshow alone, I'd seen advisers specialising in only 1-2 products and memorised all the ways to handle rejections. I'd seen advisers with their "Introducers" bringing in load of policies for them. There are some who did well adopted different business model by targetting only a specific market and some who got promoted to managerial level and just keep training the 50-60 advisers under their belt.

They are capable of earning a lot of money and its proven to be lucrative. Their annual income probably range between $300k to $1million. Don't be surprised that by doing roadshows alone, some agents can earn as much as $30k/month. They are generally specialised in 1 or 2 products during the roadshow.

Just a guide for you. An MDRT earns around $100k in 1st year earned commission alone. We have not considered 2nd, 3rd yr, etc and all the renewal commissions. All these renewal may comes to around 40% of their 1st year commission. This means, they should be getting around $140k/yr or rather $11.5k/month. A COT earns 3 times more, which equates to $420k/yr and TOT is 3 times of COT which means $1.26million.

From a sale point of view, they surely deserve such pay because they are really good in convincing their prospective clients and have the capability to build up a profitable business model. From a professional point of view, I feel that most of them don't deserve a pay cheque of $30k/month for the type of advice they gave. Most of the time, they did not even identify their client's actual needs. For a minority, maybe yes. They probably are able to tap into the high networth market correctly who willingly pay them the money for the premium advice and service.

Financial advisory falls under a very grey area of professionalism and sales. The smart ones will earn all the money they can. They didn't do anything wrong. The financial system is built for them to excel towards sales and the higher cost plans they sell, the more they earns. They did not mis-sell anything because they are licensed to sell them.

The insurance companies love them because they are the geese that lay golden eggs and make the CEO rich. They will honour them and make them role models for all the new agents.

Please don't mistaken me for saying all insurance agents earn lots of money or don't deserved to be paid. There are still many good advisers out there who will look after your best interest and recommend things that are of good value to you. They may not be the one driving big cars or wearing expensive watches. Also, please don't give them too hard a time by making them running round Singapore 5-6 times for a plan that gives you good value or trying to ask for gifts and rebates for the low cost plan they recommended, etc...

Well. I did not answer the above question. The answer will depends if you are able to make it lucrative or to convince yourself that it should be lucrative.

What you may and may not hear about Regular Premium ILP.

I get into debates occasionally with my fellow colleagues or friends in the industry about Regular Premium ILP. It irritates me whenever I saw such plans being recommended. I'll always ask them why was this plan recommended and under what circumstances will the client buy the idea of getting such plan of substantially higher cost.

They will always give their views and I'll present mine but never into a heated argument. They offered valid views but I cannot accept it. Perhaps I can share with you how some people are being convinced into buying a regular premium ILP.

1) Spending more time on the concept of buy term, invest the difference and dollar-cost averaging
* They will focus on this point and the potential returns. A lot of time will be spent in this area.
* As the clients get so focused on the concept and returns, agent is likely able put little emphasis into the charges in the later part.
* The client may not realise how these charges will eat into their so called "Potential Returns"
* However, when client start asking about charges, agent will start justifying by.....

2) Comparing a Life policy with an ILP
* Life policy has no cash value in the 1st 3 years. ILP have cash value from year 1. So ILP better. * Life policy have their charges, ILP also have their charges. The charges are more transparent for ILP and you have the option on how you want to invest your monies. So ILP better
* With Life policy, you can only get $50k with $100/mth, with ILP, you can get $200k coverage. So ILP better
* With Life policy, you have to keep paying premium, ILP, you can take premium holiday and stop as and when you need to. So ILP better.
* With Life policy or Endowment, you need to take a policy loan if in need of money, with ILP, you don't need to as you can sell your units to get the money. So much flexibility. So ILP better.
* They can offer so many reason that it seem foolish not to get an ILP.
* However, if client is slightly smarter and asked about Term policy, agent will justify by saying......

3) Policy will not lapse compared to a Term policy
* If you buy term policy and you forgot to pay premium, Term policy will lapse, ILP will not because there are units in .
* Client also scared after listening that they may really forget to pay premium for whatsoever reason and cover totally lapse.
* As the term plan used in ILP is Yearly Renewable Term riders, the premium will be slightly lower compared to a Level Term plan.
* If client ask why charges seems high, agent will say......

4) Bonus Units after X years
* They focus on the bonus unit after, say 105% of value 7 years. Sounds like they are giving you $105/mth when you give them $100/mth. But after taking so much from you...
* Client always feel good when they feel that they are getting something free in return.
* When client still want to consider, agent can say......

5) We are having some promotion here.
* If charges is not a issue to the client, there may not seems to be a reason to reject the agent.
* The agent can offer them some freebies such as vouchers, MP3, even LCD TVs, etc. We often seen these in roadshows
* This promotion is only for this roadshow. Since you are already planning to save, why not start today?


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Some of the things the adviser will try not to reveal too much...
1) Charges can be as high as 2 times your annual premium over the 1st 3 years. If you put $6,000 over 3 years, as much as $4,000 are paid to the company and agent.
2) Bid-offer spread are normally 5% compared to 2-3% for Unit Trust. For a $100/mth savings, it equates to 2-3% immediate loss to your savings from day 1.
3) Your insurance charges get so much higher, especially when you reach 40 yrs old. They will never tell you how much the same insurance cost at the age of 60.
4) Your monthly policy fees can be as much as $6/mth. If you are savings $100/mth, $6 are taken out and equate to 6% immediate loss to your savings.
5) They will try not to tell you how long your money will take to breakeven.

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My views on the charges issue:
* Ideally, zero charge with all the advices is the best for client. But it will also mean advisers like us can start eating grass. If client pay peanuts advisory fees or not even willing to pay a single cent for all the work and research the adviser did, then its not fair to the adviser as well.
* My colleagues said that I'm guilty of earning money which we rightfully deserve. There are actually nothing wrong with this plan. However, I still find the charges for a regular Premium ILP to be excessive and to be unacceptable. In my opinion, there must be a balance.
* Some company charge a more modest advisory fee like the Ideal Policy from NTUC Income and the achiever plan from AIA. Some are excessive like the Prulink from Prudential or Manulink from Manulife, etc
* IFA platform normally allow 100% allocation from day 1 for RSP(Regular Savings Plan). Lower Bid-Offer spread of 2.5% to 3% and but a wrap fee of 0.5% to 1%p.a. Its a very modest charge and allow most of clients money to tap into the investment from Day 1. Adviser will have a vested interest towards their clients money as well.

Well. I just like to refer to my previous posting. You decide if this is a lemon yourself.

A lemon will always be a lemon

I read the "Weekend Today" and came across an article by Richard Hartung "Behind the Rosy Forecast". He talked about those analysts who need not be held accountable for all the wrong predictions and analyzes made. They can upgrade a company today and downgrade them tomorrow without fear of losing their job.

He has given 2 advices which I really enjoyed reading.

1) Look beyond the sales pitch. Rather than just listening to a rosy story or reading the headlines, ask about the analyst's record with forecast in the past...
No matter how shiny a lemon may looks and regardless of what anyone says about how bioengineering has made it sweet, a lemon is still a lemon, so too it is better to taste the lemon, so too it is better to check out the investment and verify that the story is credible.

2) Do some homework. The basics are to review the overall economic outlook, evaluate the company's industry and assess its financial statements. In considering a unit trust, look at how it held up in the bad times like 5 to 8 years, see how the fund managers have been running it and look at the components of its core investments holding.

Well the conclusion is "Do your homework and invest with your eyes open. If you lose money, its nobody but you to blame."

When news are no longer news

There was market rallies around the world over the past 2 weeks as the world view the end of the credit crisis and in anticipation of Barack Obama’s victory in US General Election. The rallies are pretty impressive and it demonstrated how fast the market can go up just like how fast it can drop. Histories of financial market had proven that bouts of panic selling have often been followed by bout of panic buying.

News in the newspaper or TV are no longer news. When market rallies, they will say "Market anticipate the market is recovering and investors are picking up bargains". When market drops, they will say "Fears of economic downturn prompted selling". These news project very short term view which only make an investor more uncertain of the future.

Markets and investors have become highly risk averse and highly short term. Hedge fund managers are forced to liquidate their positions and fund managers are too eager to outperform the indexes. Regular investors like you and me seems hard to win in this financial market when it looks so volatile.

However, what I’m very sure is that regular investors like you and me do have one advantage over all these hedge fund managers. It is called "TIME". Short sellers and other players who rely on leverage and borrowing cannot sell a company short for years on end -- the nature of such trading is necessarily short-term. We are able to invest through the cycles and wait.

Having said all these, caution remains the order of the day. In my opinion, the downside risk is higher than the upside. Market are expected to trade sideways with higher risk of going down. There are much challenges ahead but we cannot fall into the trap of trying to predict the market too much. I urge everyone to stay invested, stay diversified and focus on the long term. Not necessarily putting 100% of your money in but adopt a strategy that allow you to switch into the equity market if it drop further.

Obama wins the heart of the world

I had followed closely on this US General Election because of Obama’s Charisma. I read the newspaper and watched the debate between him and Mccain. Markets around the world rallied in anticipation of Obama’s victory. There was cheers and celebration, not only in US but round the world. He seems to me like a celebrity than a president. His victory seems like a world-cup victory in USA.

This 44th US President is crucial in bringing fledging US economies back into shape. He is crucial in mending US ties with other countries. He is crucial in fixing the Iran and North Korea nuclear problems. He is also crucial in bringing their troops back from Iraq and Afghanistan. The task is amazingly tough which no US president ever faced.


Is he up to the task? In my view, he is not a superman who is able to turn things round within a year or two. The world is over-estimating his capabilities and set too high an expectation on him. We heard nothing new or fresh on how he wants to lead the country. His economic policies seems to favor the general Americans but not for businesses.. His ideas lean towards a socialist and nothing that will stimulate the country.

The interesting part about him is that the world simply likes him and he becomes a symbol of hope. I also hope he is able to attract capable advisers to help him in bringing America back to shape. His speeches are inspirational and bring a lot of confidence. Hope he is equally able to convince leaders around the world with his capabilities. Well lets see if he is able to perform miracles for the world.

Keeping my salt lamp

I just dug out my Utility Bills over the past 2 years and below are my findings.

May06 to Aug06 - $0.2049/kWh
Sep06 to Oct06 - $0.2115/kWh
Nov06 to Feb07 - $0.2164/kWh
Mar07 to Apr07 - $0.2002/kWh
May07 to Aug07 - $0.1888/kWh
Sep07 to Oct07 - $0.2052/kWh
Nov07 to Jan08 - $0.2138/kWh
Feb08 to Mar08 - $0.2262/kWh
Apr08 to Jun08 - $0.2388/kWh
Jun08 to Sep08 - $0.2507/kWh
Oct08 to ????? - $0.3045/kWh

From $0.1888/kWh in Aug07 to $0.3045/kWh in Oct08 is a 61% increase over 14 months. From the trend, I think the price should come back to $0.23/kWh in Dec08.

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Because of the increase in Electricity Rate, I had decided to give up my salt lamp which brought my house brightness and my family health over the past 2 years.

Salt Lamp is made of natural salt crystal, it works as a natural air ionizer that effectively boosts the number of negative ions in the room. It is scientifically proven to be able to kill bacteria and other harmful organisms thus increasing overall air quality and well being.

As the lamp was on 24 hours over the past 2 years, my Finance Cum Home Affairs Minister insisted that I should keep this lamp temporarily till the eleciticity rate comes down. I reluntantly keep my salt lamp last week because Finance Minister very powerful. She told me to throw away this lamp but I secretly keep it in the store room... (Oops. Hope she is not reading)

Well. Of course we had taken many other measures to reduce electricity recently, like switching off all main switches at home when we left for work in the morning and switching on only our florescent or energy saving lights when we are home.

Hope my salt lamp will start glowing again when electricity rate comes down and my salary stablises.

The Bear The Bull and The Bumble Bees

Anyone who invest or read regularly should know what a Bull or Bear Market means in Financial Term. But have you ever wonder why they are given such names? Why don't we call them a Cat or Dog Market, or Tiger or Lion Market?
They becomes metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market.

Let understand what is a Bull and Bear market.
* A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of future price increases.
* A bear market is described as being accompanied by widespread pessimism. Investors anticipating further losses are often motivated to sell, with negative sentiment feeding on itself.

How does the terms come about?
* Firstly, the use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. * In short, a bull attack upwards and a bear attack downwards.
* Secondly, bulls and bears are very strong animals. They are very agressive and will fight with all their strength and might. This explains why the stock market rises or falls that furiously during a bull or bear run.
* Thirdly, a bull normally charge at a very high speed whereas a bear is normally lazy and sleep most of the time. This explain why people don't invest during bear market.


How Bumble Bees come into the picture then?
* Bumble Bees are investors like you and me who diligently buzz around the financial market regardless its a bull or bear market. This explains why financial market will not die because there will always be people investing. This also explains why it never fails to recover from a bear market.
* Bumble Bees like to follow each other, do the same thing and don't bother to think. It explains the herd behavior of investors. When you buy, I buy. When you sell, I sell. Don't need to think so much.
* When the bee hive or colonies are disturbed, they get panic easily and buzz around to sting people. It explains why investors always get panicky and causes the financial market to fall below rationale level.

Now, you know about Bull and Bear markets. So do you want to be a Bumble Bee???

Principle of Indemnity

Someone asked me the following in one of my posting.

"If you have 2 insurance plans covering the same thing, in the event of an accident, we can only claim from 1? Not 2? Then is there a value in buying 2 similar insurances?"

It is quite true that some people purchased 2 similar insurances that works under the Principle of Indemnity. This principle works in some policies such as Hospital & Surgical Policies, Home Insurance, Marine Insurance, etc.

It is not uncommon to see Singaporeans having overlapping policies because many of them bought their policies via telemarketers, roadshows and never allowing a Financial Planner to go through their policies. Its either over-insuring or under-insuring such as having 2 H&S insurances, 2 personal accident plan that cover medical reimbursement, etc

So what do we mean by Principle of Indemnity?
The principle of indemnity in insurance is to compensate the insured by placing him in the same financial position after the loss as before. Under this principle, an insured person cannot make a profit as a result of his loss.

Does this applies to our life policies?
No. Policies that pay on death from illness or accidents, Critical Illnesses or ptd are benefit policies, not contract of indemnity policies. Generally, a person can effect any sums assured so long as he can afford the premiums and the insurer is prepared to underwrite the risk. i.e, if you have 5 life policies covering $200k each, you are able to claim from all insurers.
* Nevertheless, do note that some insurers may set a restrictions on the total payout from all insurers especially on Critical Illnesses or PTD.

Why the double standards?
I can purchase a $1 million life insurance policy, but that does not imply that my life is worth $1 million. Because I can't calculate my own life's net worth and fix a price on it. For an indemnity policy, a value can normally be attached to it. The actual loss can be calculated and the insurer can control the claims better.

I can afford 2 insurances, why not 2 claims?
If we allow everyone to make a profit out from a Indemnity policy, there will be abuse to the insurance scheme and premium will generally goes up. Eventually the poor and needy will not longer be able to afford an insurance. Imagine that I incurred $50k for a medical bill and 3 insurers paid out $50k each, won't the 3 insurers have to raise premium next year to cover this loss? This is whats happening in US healthcare system where there are so much debate in every presidential elections.

The need for Professional Indemnity Insurance

In our industry, we can get into arguments with our clients especially when money is involved. Just like to quote 2 examples I encountered this year.

1) Client purchased a Personal Accident Plan. He claimed that he was injured and insisted to go for a health screening and CT scan to make sure he is okay. He was not hospitalised. The bill chalked up to about $1.5k after the CT Scan he did in a private hospital. He managed to claim full from his company and tried to claim the same amount from his accident plan. I told him that he cannot claim both to make a profit. He was very angry and alleged me that I did not inform him that he cannot claim from both insurer and company. He insisted that he should be paid because I did not inform him on it.

2) Client purchased an Shield Plan and plan commenced on 1st Feb. He was admitted on 27th Jan and incurred a bill of $60k. I told him that plan commenced before 1st Feb and not claimable. He insisted that I did not explained properly on the commencement date and I was investigated by the insurance company. He insisted that the company should pay the bill from 1st Feb onwards even though the admission is on 27th Jan.

Anyway, my conscience is clear on both cases but I'm not sure what will the outcome be if these 2 clients decided to take me to court. What I want to highlight is the vulnerability of an FA. It is likely a case of our words against their words. They may have forgotten of what we said, our last meeting can be 1 or 2 years ago. Its not possible to document every single thing we discussed. Clients can easily turn against us if they are not happy with us.

I am following closely on the Minibonds issue and interested to see if the banks are willing to refund their customers on these monies. I was thinking what if they agree to pay, must the FA who sold the minibonds need to pay their clients too? The RMs who sold millions of minibonds are protected by the banks. An FA who only sell 1 minibond is enough to make him a bankcrupt.

If an insurance company come out with one product and later found that its not suitable for ordinary folks. I'm believe their agents will be more protected than an FA. An FA who did his job properly his whole life but unlucky enough to meet one client who have enough financial capacity to find the best lawyer to prove that he did not do his job. I think the client can win easily.

I sort of get quite worried after seeing this minibond issue. I dare to say that 100% of these investors will now say that their advisers mis-sell and mis-represent. They cannot remember anything else except that they had lost their money. They will find bones from eggs to prove the adviser is wrong.

I'm lucky not to be involved in this but I'm sure I will go get my own "Professional Indemnity Insurance" soon. The one provided by my company is definitely insufficient.

Market beyond reasoning

It was disastrous for Investors over the past 2 weeks. Our initial estimate of 1,700 stabilizing point for STI was broken and currently trading at 1,600. Our estimate of 8,000 stabilizing point for Dow is near as it is trading at 8,200.

The million dollar question is if the market was oversold? Many thought it was oversold 1 week ago, many thought 1 month ago but it was still coming down. Needless to say, I don’t have the answer either… But what I want to say is that Life is still running and people are still spending money. The mechanism of economy is still there. Its not the end of the world. Why give up on the world?

If we try to use financial formulas and ratios to analyze if the market is oversold, it will not make sense. This is because the market may had dropped to a point and at a speed beyond logic. The STI had dropped to a 5-years low within a short time frame of 1 year. Its irrational when everyone are ignoring any good news and take all news as bad in a bear market as well as ignoring every bad news and take all news as good in a bull market.

I have a crazy idea of trying to find the bottom. We can do a survey on the general population with a good a mix of Uncles, Aunties and professionals. Objective is to find out the ratio of these people who are willing to invest to the ratio of people who won’t now. Maybe, if 60% say “Yes”, the market may rebound soon… Perhaps, if I'm free enough, I may go Shenton way and do the survey.

The current sentiment is still bad. Everyone takes all news as bad because they expect it to drop. But it will come to a point when all these fund managers simply want to invest, they will view small information as good news and exploit on them. Any such unexpected good news may cause the indices to rally faster than we expect. By then, those who stayed out of the market will miss it.

For those going for the long haul, Its a good time to re-allocate more equities proportion into your overall portfolio. Just keep it as per your risk level and capabilities. I'm on a 40E-60BMM portfolio. I'll be switching additional 5% out from Money market into Equity soon.

Sit tight, hope we will ride out the storm soon...

IFA "United We Stand!"

IFAs have been around in Singapore since the Financial Adviser Act was enacted in 2001. We are licensed individually by MAS to advise on Life Policies and Collective Investment Schemes. We represent the clients by ensuring that they get better value and advice. We are very focused on providing proper Financial Planning Services to ensure plans implemented are aligned with needs. We diligently read and analyse client's investment portfolio to ensure that they are able to achieve better returns via constant rebalancing and reallocation.

Having been part of the FA industry, I observed that the IFAs in Singapore don't seems to grow fast enough and they are not able to attract and retain people in it. The market share of businesses brought in by IFAs in Singapore remain small with only around 6%. The growth is slow and the numbers seems to be stagnant.

The benefits of engaging an IFA for long term is so much better than engaging an RM or a tied agent. An RM are more of transactional type of adviser and their concern for clients will not be for long term, an agent is not able to properly adopt the proper investment stragegies needed and that they can only sell what they carry regardless if its of the best value for the client.

What I feel is that IFAs in Singapore are not united and strong enough. We are not able to innovate and reach out to the public. Each of us have limited resources and we aer too scattered. There are so much ignorance and misunderstandings among Singaporeans about an IFA even though we have been around for 7 years. All the FAs in Singapore don't seems to talk to each other, there are no unity, no shared resources, no shared knowledge, no combined efforts, etc.

I really hope that there will be a day whereby all IFAs in Singapore stand up strongly and do things together and bring out the benefits of IFAs in Singapore. Some crazy ideas I suddenly thought:

1) Every adviser in Singapore contribute a small amount into a pooled fund to run a non profit professional IFA association. This IFA association shall market the IFA industry agressively by probably coming up public events or materials to be distributed to public, etc. Their role is to create awareness and will also be a very strong body to protect the interest of IFAs.

2) A centralised compliance and training unit for all IFAs in Singapore. This Centralised compliance unit is run on non-profitable basis and will charge individual IFAs on a yearly average headcount basis. Such compliance unit will have strong knowledge on compliance and is able to free up so much labour and mistakes, especially for the small/medium sized FA firms where turnover rate of staffs are high.

* They are also able to co-ordinate trainings and events on a larger scale basis. Example, a product launch organised for 1000 audiences instead of 100.

3) Standardised forms in all IFAs. By having standard forms, we can use technology more effectively. We can come out with a platform whereby all IFA can do away with papers and submit cases electronically. This way, the administrative work in IFAs will be reduced. No more waste papers, scannings, manual filings, etc Can save a lot of money and time for advisers and company alike.

4) Special softwares created specially for the IFAs industry. Softwares such as Advisers Matrix by i-fast is a very good example. Softwares that can be created include a comprehensive Financial Planning Softwares, powerful Clients Relationship Management Softwares, etc They must be so special and unique only to IFAs and no insurance companies can adopt.

I believe that there are many other innovative ideas out there but no one bothers to share. The IFA of current is like every man an island. Most of us are only concern on survival. We are simply not United enough to do something big. We cannot push the blame that we don't grow to anyone except ourselves. There are simply no strong reason why a consumer will not want to engage an IFA.

Behavioral Finance

I had learnt an important lesson about investment during this bear market. Having started my career at the beginning of the bull market in 2003, I had seen how greed make the stock market go higher daily without reason why it should do down. Uncles and Aunties are boasting how much they made and analyst keep predicting how much further the market can head north. Things always looks so positive that it seems stupid not to invest.

At the start of this bear market last year, greed was still prevalent and many people pumped in more money thinking that the market will rebound very quickly. They take it as a gamble and don't care what company they are buying into as long as trading volume is high and its volatile enough by percentage so that they can profit within days.

Fear started to creep in as bad news emerges from every directions. Market plunged because everyone fear losing money. From here, I had seen the other half of the market and half of what I learnt in behaviorial finance. Today, I just like to share what I had learnt about this topic.

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What is Behavioral Finance?

* Traditional finance theory assumes that investors act rationally to maximize profit.

* Behavioral finance considers how human psychological traits can affect the way the market react and moves over time.

* Having some understanding of Behaviorial Finance, we can try to identify anomalies that can be explained by investor behavioral traits, and to identify opportunities to profit from exploiting the biases of other investors.

1) Loss Aversion

* One of the most common behaviour of investors that affects almost everyone

* Research has shown that the pain from loss is almost twice the pleasure from gain. This will strongly deter people to invest in the bear market due to the fear factor.

* For example,

If there is a 50% chance that one may lose $100 in an investment and 50% chance of winning $100, people will not invest. Unless the rewards increased to $200, then they may start to invest.

2) Escalation Bias

* The tendency to continue putting money into a losing investment to "Average Down" the average prices in the hope that the stock price need to rise lesser in order not to lose money.

* Averaging down is not wrong but it must not be emotional when we put in more money. People who fall under this category feel angry and responsible for the loss and just want to make good as soon as possible.

* Instead, we must evaluate the portfolio to understand why we should put in more money and if this will continue to make a good investment.

3) Mean Reversion

* The concept where people expect a reversal to occur quicker or more frequently than it actually happens. Also called the "Gambler's Fallancy".

* Example

- The indexes dropped for 3 days straight, it will surely shoot up tomorrow.

- The China market performed the worst last year. This year should be the best performing.

* The problem with mean reversion is that you may be fully committed way too early before the reversal happens

4) Overconfidence and Confirmation Bias

* Overconfidence basis happens when investors over-estimate the growth potential of certain sector or company. As a result, they tend to over-emphasize the good news and under-emphasize bad news related to such firms or sector.
* Confirmation Bias happens when they hear more good news about the firm, it will add confirmation to their pre-existing opinion.

* This is what happens during bull market. Nobody believe in bad news. Nobody believes in overvaluation, etc.

5) Herd Behavior / Crowding Effect

* This is a very powerful effect and explain why market can move in such volatility.

* This effect occurs when everybody suddenly agrees with each other at the same time and over-emphasize a positive or pessimistic news about a market.

* This effect is contagious and can spread like wild fire.

An appreciation from Client

It has been a busy and stressful month for me with quite a number of cases pending due to various reasons. It was quite frustrating with all the ding-donging between me, clients and insurers. Together with the piling administrative work, outstanding financial plans and packed schedule, its a challenge indeed.

In the midst of this hectic month, 3 things happened that strengthen my conviction of being a financial planner. Just like to share one that happened today.

I visited a client to help her implement a proposal that I'd recommended few weeks ago. At the end of the session, she and her husband suddenly offered a gift and thanked me. I was caught by surpise and natually rejected the gift because I felt that I was merely doing my job and nothing extra all these while. I don't think I deserve any gift from them. However, they insisted that I should accept and told me to open the box to check my name. I opened the box and saw a pen with my name carved.

I knew that I cannot reject this gift because my name was already carved on it. They gave me this pen as an appreciation for what I had helped them with over the last few meetings. I was really very touched because they even took the effort to carve my name on the pen. I was very happy and can't stop looking at it during my journey back home.

We met nice and nasty people in this line and its all these nice people that keep our passion burning. Thanks Jenm. Thanks Daniel. I'll continue to do my best for you and your family.

Crisis in Japanese Banks

Following the problems with Lehmann Bros and the sub-prime lendingmarket in the USA uncertainty has now hit Japan.

In the last 7 days Origami Bank has folded, Sumo Bank has gone belly up, and Bonsai Bank announced plans to cut some of its branches.

Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikazi Bank were suspended after they nose-dived.

While Samurai Bank is soldiering on following sharp cutbacks, Ninja Bankis reported to have taken a hit, but they remain in the black.

Furthermore, 500 staff at Karate Bank got the chop, and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal.

Confidence Crisis

A mortgage crisis became a credit crisis and a credit crisis turned into a confidence crisis. It was panic and a sea of red everywhere on the street. I had never seen anything like this since I joined the industry in 2003 when it was the end of the last bear market.

I can see my colleagues and private banking friends in a stressful state where their panicky clients keep calling them to surrender their policies and to liquidate their investments. I'm not spared against this with several clients calling me over this weekend. One of them have an AIA endowment policy maturing in January and he is not able to wait 3 months to get his maturity proceeds. He was so scared that AIG will fall and will affect his AIA policy. I'd tried my best to allay his fears but don't seem successful.

The economic situation is a total contrast of what I saw about 15 months ago when everybody simply wants to throw money into the market. Today, it seems everybody wants to get out from the market. I really saw the emotional part of investing. I can understand their worries because there don't seems to be a solution of the problem. There are so many reports in newspaper that highlight how bad the situation is, how much the indexes dropped and how the world leaders are not able to find an answer. It simply looks like a bottomless pit to them.

When the problem hit the confidences of investor around the globe and if everyone don't trust any banks or any companies, they will simply wants to keep hard cash or gold. Where can these companies get their money from when banks refuse to lend them money. These companies need to pay their workers, suppliers, debts, etc.

Is it panic? Is it a crisis? Is it scary? I will say "Yes". I'm glad that we had adopted disciplined asset diversification since our clients invested their money from Day 1 and active reallocation and rebalancing over the past few months. This discipline had significantly reduced the losses compared to one who adopts market timing and pure equity investments. They still have considerably paper losses but fortunately to a lesser extent.

All eyes are on G7, IMF, World Bank and leaders in US and Europe to come out with a coordinated effort to regain the confidence in the people and the financial system. Its a government problem and no longer a cooperations problems. Most people will not expect the market to rebound that fast but bear in mind that nobody knows when it will rebound too. I will still say that its a good time to accumulate gradually and if you are still in it, don't jump out of the ship when we are at the center of the storm.

Good luck and hope for good news in the week ahead...

Subsidies and Mean Testings

Subsidy Rate for Class Wards
You will be eligible for hospital subsidies if you are a Singapore Citizen or PR.
For Singaporeans,
there is a 20% for Class B1, 65% for Class B2 and 80% for Class C
For Permanent Residents,
there is a 10% for Class B1, 55% for Class B2 and 70% for Class C
* Its clear that PR subsidies is 10% lower than Singaporeans.

Mean Testing
In Jan 2009, mean-testing will kick in. You can still choose your ward class and be admitted to Class C or B2 ward. Your rate of subsidy will depend on your income level.
* If you earn $3,200 or less a month, you will enjoy the full subsidies of 65% for Class B2 and 80% for Class C
* If you earn more than $3,200 a month, you will receive slightly less subsidies for Class B2 and C, based on a sliding scale.
* The sliding scale range from $3,200 to $5,200 monthly income, with a reduction of 1% point for every $150.
* For those earning above $5,201 shall continue to enjoy substantial subsidies of 65 per cent in a C-class ward and 50 per cent in a B2-class ward.
* Your monthly income will be based on your total salary received over the last 12 months period and not based on the last month pay.
* For those not earning an income but lives in properties with less than an annual value of $11,000 will still get the full subsidies.
* The subsidies for permanent residents will be 10 percentage points lower than for citizens.

How I feel?
* The essense of this mean testing is not really to decrease healthcare expenses at this stage.
* Firstly, I don't see much difference between a maximum 15% cut of subsidies in B2 and C wards when the medical bill is already low.
* Secondly, it will only affect those earning $3,200 and above, which is probably 20% of the population and most of this group of people are probably staying in B1 wards and above right now.
* I think the government is trying to accustom Singaporeans to this concept and increase the mean testing bandings in future.
* Mean Testing will not be beneficial for people who earns >$3,200 a month but have many mouths to feed. Hence, if you belongs to this group, better go and get a Medical Insurance!!!