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.

**************

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!!!

Choice of Hospital Ward Classes

I am one of those who actively promote the private shield plan to my clients. In my opinion, a good medical insurance is the foundation of all insurances. Some had argued me that Medishield will be sufficient or that they are already well covered by their employers. I will give them my frank opinion and all the reasons why they should not save that few dollars for this insurance.

In my next 2 postings, I just like to share with you on what are the hospital wards and the subsidy rate that you might be eligible for those respective wards

* In an unfortunately event that we require to stay in a hospital, we have to choose a class ward very carefully to suit our needs and budget. This will help us manage our finance when it comes to payment of hospital expenses.

Ward A ==> Single Room

* Air Conditioned room with attached bathroom, TV and telephone

* If you scare to sleep alone at night, then you better don't stay there, but

* Your spouse or parent can choose to stay with you with a sleeper unit with some charges

* Ward charges per day is around $280/day for public hospital and $350/day for private hospital

Ward B1 ==> 4-bed room

* Air conditioned room with attached bathroom, Tv and telephone

* I visit my clients very often in this ward. I always feel its a very noisy ward because its enclosed, with 4 TVs on and with many visitors clamped in a small space. Its noisy and hard to rest well.

* Ward charges is around $170/day

Ward B2 ==> 6-bed room

* Naturally ventilated Room

* Not that bad, but very boring to stay in this ward because no TV to watch. You can see nurses moving around and rather distracting.

* Ward charges is around $55/day

Ward C ==> ~8-bed room

* Naturally Ventilated Room

* As boring and more distracting than B2 wards. Often see old uncle and aunties. Don't be surprise to hear these uncle, aunties making funny noises at night and don't be surprise to see trainee nurses and doctors experiment on you if you stay there.

* Ward charges is around $35/day

** All hospitals are required to provide financial counselling to their patients. They will be informed in writing of the estimated charges for hospital treatment and professional consultation fees, if any.

** In event of emergency, immediate family member may choose the ward class on patient's behalf.

** For myself, my medical insurance is covered under the Private Hospital plan, I can choose to stay in Public or Private hospital. I have a choice in whichever hospital and wards. I hope you will have a choice like me too...

Other Indexes 2007 & YTD

From my previous postings, we observed that US dropped the least compared to other markets like Asia and the smaller Europeans countries despite all the toxic orginated from these developed countries. Lets get into other region today like Latin America, Eastern Europe, Middle East and Africa today.

Russia - MICEX Index
1970 to 853 (Dropped 56.7%)
* It reached it peak of 1,963 on 21st May 08 but subsequently dropped to 853 on 09th Sep.
* Its a whopping 56.5% drop within a short time frame of merely 4 months
Turkey - ISE National 100 Index
58,864 to 30,971 (Dropped 47.4%)
Poland - WSE WIG Index
67,773 to 36,174 (Dropped 46.6%)
Hungary - Budapest Stock Exchange Index
30,118 to 17,876 (Dropped 40.6%)
Czech Republic - Prague Stock Exchange Index
1,944 to 1,137 (Dropped 41.5%)

United Arab Emirates - DFM General Index
6,315 (15th Jan 08) to 3,865 (Dropped 38.8%)
* The highest point for UAE was on 11th Sep 05 when it reached 8,525 points. Hence, based on 3 years track record, it had actually dropped 54.7%)
Qatar - DSM 20 Index
10,277 to 7,680 (Dropped 25.3%)
* The highest point in 2008 was 12,637 on 11th June. Hence, it actually dropped 39.2% in 2008.
* Within a short time frame of merely 3 months
Kuwait - SE Weighted Index
769 to 615 (Dropped 20%)
* Its highest point in 2008 was 817 on 12th Mar 08. Hence, it actually dropped 24.7% in 2008.
Saudi Arabia - Tadawul All Share Index
11,697 (12th Jan 08) to 6,885 (Dropped 41.1%)

Egypt - Egypt Hermes Index
980 (13th Jan 08) to 611 (Dropped 37.6%)
* Its highest point in 2008 was 1,033 on 5th Apr 08. Hence, it actually dropped 40.9% in 2008
South Africa - FTSE / JSE Africa Top 40
28,762 to 20,148 (Dropped 30%)
* Its highest point in 2008 was 30,960 on 22nd May. Hence, it actually dropped 34.9% in 2008.
Brazil - Bovespa Stock Index
66,528 to 43,766 (Dropped 34.2%)
* Its highest point in 2008 was 73,794 on 19th May 08. Hence, it actually dropped 45.1% in 2008.
Mexico - Bolsa Index
32,851 to 22,989 (Dropped 30.0%)
Chile - Stock Market Select
3,512 to 2,369 (Dropped 32.5%)
* The lowest point in 2008 was on 21st Jan and the highest point in 2007 was on 26th Oct.
* The drop of 32.5% all happened within a short time frame of 3 months

Some observations
* The oil and commodity rich country of Qatar, South Africa, Brazil and Russia seems to defy market downturn from Oct07 to May08 and continued its upwards trend. However Russia dropped over 56%, Brazil over 45% and South Africa nearly 35% within a short time frame of 4 months after their respective peak in May.
* The major Middle East and African indexes reaches their peak only in Mar to June 08 compared to Oct07 for the Asian and US Indexes and July 07 for the European Indexes.
* Some Indexes like UAE, Kuwait and Chile, are very unpredictable and don't seems to follow the general market sentiments.
* It shows that some countries in Eastern Europe, Latin America and Middle East do show negative corelation with the Developed Markets like Europe and US during some part of the 2008. However, in general, all dropped to the same level as the US as of today.

Euro/US Indexes 2007 & YTD

We have seen that most indexes in Asia dropped by around 40% and Australia/NZ to be around 31%. China and Vietnam dropped by as much as 70% from their respective 2007 peak to YTD low.

Lets look into the Euro and US market.

USA - Dow Jones Industrial Average
14,280 to 10,267 (Dropped 28.1%)
USA - S&P 500 Index
1,576 to 1,106 (Dropped 29.8%)
USA - Nasdaq Composite
2,861 to 1,975 (Dropped 31.0%)
Canada - S&P/TSX Composite index
14,625 to 10,900 (Dropped 25.5%)

UK - FTSE 100
6,752 to 4,671 (Dropped 30.8%)
Germany DAX Index
8,118 to 5,630 (Dropped 30.6%)
France - CAC 40 Index
6,168 to 3,845 (Dropped 37.7%)
Switzerland - Swiss Market Index
9,487 to 6,343 (Dropped 33.1%)
Spain - IBEX 35 Index
16,040 to 10,639 (Dropped 33.7%)
Italy - Milan MIB 30 Index
44,324 to 25,690 (Dropped 42.0%)
Netherlands - AEX Index
563 to 310 (Dropped 44.9%)
Sweden - OMX Stockholm 30 Index
1,321 to 758 (Dropped 42.6%)

* The US market peaked in Oct 07 while most Euro Indexes peaked in July 07. The US Indexes dropped by around 30% from their 07 peak. They dropped the least despite all the bad news originated from the country.
* The interesting part of North America is the Canadian index which only started to drop in Jul08 from a high of 15,155. I suspect that the index contains many commodity stocks.
* The more developed market in Europe dropped by around 32% with exception of France which dropped over 37%. The smaller economies in Europe such as Netherlands and Sweden dropped around 44%.

Till here for the moment. I'll explore into Middle East, Latin America and East Europe in my next posting. Wish all of you a nice weekend...

Another Max Choice to an elderly

I should be writing about US/Euro indexes today but I encountered some unhappy thing and I like to complain a bit. I admit I'm a whiner but I won't admit that I'm a green eye monster...

It is about a good prospect of mine who is also my Incomeshield Client. She is a housewife in her late 50s. She called in August to seek my advice on a maturing deposit from OCBC that matures in Sep. We arranged to meet up in late August just to chit-chat and to discuss on her options. A simple fact-finding and risk profiling was done during the 1st meeting.
She told me that she like to use half of the money to invest and half for her son's wedding. I went back, planned something for her and met her 2 week later to present my proposal. I prepared something for $25,000 as per her intention. In my recommendation, part of it will be invested and part in a Single Premium Endowment. She told me that she will like to consider.

I called her this morning to follow up on my recommendation. She told me that she had purchased the plan from OCBC of which she will put in $10+k a year for 5 years and possibly get around $63,000 back at end of 10 years. Needless to say, I know its Max Choice.

Asked her how she got into this plan, she told me that OCBC insisted that she has to collect her maturity cheque in Ang Mo Kio Hub and that they are obliged to inform her about their current promotions. She went AMK and was recommended this plan and immediately re-deposit the cheque back to OCBC into this plan. Asked why she didn't consult me about this plan first, she told me she don't want to trouble me.

+++++++++++++++

How I feel...
1) Lousy with myself because
a) OCBC RM is able to convince her $50k within an hour and I'm not able to convince her on just $25k after 2 meetings where I spent at least 8 hours including meeting, travelling and planning.
b) what I planned is easily better than this Max Choice plan. I didn't manage to gain her trust and she gets into something which is not of good value.

2) Lousy for my client because she did not get into a good deal. Why I say that?
a) She will be locked into this plan for the next 10 years.
b) Her $50,000 cannot be invested from day 1. When $10,000 is invested in 1st year, she still have to worry about her $40,000 in the bank which are idling from year 2 to 4.
c) $63,000 on maturity is barely ~3.2% p.a over 10 years.
d) Out of this $63,000, only ~$46,000 are guaranteed. This means technically, she can even make a loss.
e) Any withdrawal before 10 years will means a big loss to her
f) Such plan are probably suitable for those who are working and don't have a lumpsum to save and there is a need to save on a regular basis.
g) It doesn't make sense for a 58 yrs old housewife, with no regular income, already have the lumpsum of money and priority is want to maximise this cash lumpsum, to get into such plan!!!

3) A better deal can be easily planned out for her based on a 10 years time horzion. This client now wants me to plan something for her $40,000 which are must mature between 2-4 years and have the highest interest. I have no idea what I can do for her now based on such requirement. I don't know if I should meet her and probably spend another 8 hours and get nothing in return. I always have this problem when dealing with elderly Aunties and Uncles.

One thing I like to hightlight here is, "If your client visits the bank, the chance that they get something from them is high." The RMs can really pitch a concept and Sales within 1 hour. Its my 2nd time I lost a client to this plan in just 2 months. Both are sold to old Aunties and both are $10,000/yr. What a coincidence...

Asiapac Indexes 2007 & YTD

Just to take a look at the major indexes in Asia over the past 1 year from the peak in 2007 to the current lowest point in 2008.

* Singapore Straits Times Index
3,906 - 2,239 (Dropped 42.68%)
* Hong Kong Hang Seng Index
31,958 - 16,283 (Dropped 49.05%)
* China Shanghai Composite
6,124 - 1,802 (Dropped 70.57%)
* India BSE Sensex
21,206 - 12,153 (Dropped 42.69%)
* Japan Nikkei 225
17,489 - 11,155 (Dropped 36.22%)
* Korea Kopsi
2,085 - 1,367 (Dropped 34.44%)
* Taiwan TSEC Weighted Index
9,860 - 5,530 (Dropped 43.92%)
* Malaysia KLSE Composite
1,525 - 963 (Dropped 36.85%)
* Thailand SET 50 Index
681 - 415 (Dropped 39.06%)
* Indonesia Jarkarta Composite
2,838 - 1,592 (Dropped 43.90%)
* Philippines PSEi Index
3,776 - 2,352 (Dropped 37.6%)
* Vietnam VNIndex
1,158 - 370 (Dropped 68.05%)
* Australia All Ordinaries
6,873 - 4,569 (Dropped 32.21%)
* New Zealand NZX 50 Index Gross
4,334 - 3,001 (Dropped 30.76%)

From the highest point in 2007 to the lowest point in 2008, there was a drop of around 40% for all major Asia Indexes with exception of China and Vietnam of nearly 70% drop.
Wide Diversification of many countries in an Asia fund don't seems to help reduce risk in a bear market like now.

Will go into US and Europe in my next posting...