Monday, August 31, 2009

Money not equal to guaranteed insurance cover

In an application form to get more insurance coverage, it contains many questions ranging from personal particulars, existing insurance coverage, current health condition, past medical history as well as family health background, etc.

I'm always worried whenever I encounter a client with pre-existing conditions, negative family health background or client having some sort of surgeries before. There can be a lot of work involved ranging from applying with different insurers, arranging client for medical check-ups, insurers requests for questionnaires and medical report from specialist, etc. End of the day, the chance is high that we don't get anything for all the time spent.

Many clients will give up the application along the way as there can be a lot of inconvenience caused over a period of time. It can also be a challenge to convince the client to take up the plan with a loading or exclusion.

There are a few reasons that they give up.
* They don't believe that their condition is an issue and its an over-reaction by the insurance company to request for this and that.
* They do not see the urgency to get the insurance done. They feel that it is too troublesome and time consuming.


I just like to share a few of my recent cases:
a) Mr "A" got an insurance plan for his daughter many years back but not convinced to get his own coverage at that time.
* When he is finally convinced and sign up some plans with me, I got to know that both his parents contracted Colon Cancer at the same time few months prior me meeting him.
* As he had automatically fall into a high risk group for colon cancer due to family history, the insurer excluded Colon Cancer for his 30 Critical Illnesses Coverage even though he went to check-up to prove that he is perfectly healthy.
* Mr Lim decided not to take up this plan with me as he feels that he is healthy and not convince with the exclusion.

b) Mdm "B" applied for a health and term insurance with me. She has fibroid at her ovary and she go for check-ups yearly to monitor the fibroid.
* As her fibroid is still in her ovary and there is a need to monitor the situation regularly, the insurer decided to exclude Ovarian Conditions for the Health plan and to exclude Ovarian Cancer for her term plan.
* She is not fully convince and deciding if to try more insurers. I don't think any prudent insurers will want to put her as a standard case.

c) Mdm "C" applied for a Savings Plan for her Son. A premium waiver rider is attached to it. She has thyroid problem since 2 years ago.
* She was asked to go for a medical check-up and subsequently had a premium loading of $2/mth to the current $4/mth premium.
* She insisted that Thyroid is very common and minor and the insurer should not load her. She is not very happy with the insurance company and deciding to carry on with the plan despite it is a very small loading.

d) Mr "D" applied for a term insurance with 2 insurers. He is a Hep B carrier.
* He was asked to fill up several questionnaires, to go for check-ups by 2 and to extract medical reports from his specialist, etc. It was a lot of work.
* The 1st insurer had rejected his case and he was very upset as he claims that Hep B is common and there is absolutely nothing wrong with him.
* He seems very frustrated with all the forms the insurers sent him and he may give up anytime soon with the 2nd insurer.


These clients, when encountered with resistance from the insurers are normally quite upset and disappointed with the insurer. They feel that there are nothing wrong with them and their problem is a common problem. They feel very troublesome to buy insurance when asked to go for medical check-ups, requesting for reports and ended up having an exclusion or premium loading.

I know all these problems are common and seemingly small, but the insurance underwriters normally look at a more statistically point of view and over a longer term period for consideration. If they see the condition to be an extra risk, they have to do something.
Of course, when it seems unreasonable, I'll try to fight for my clients rights but when it simply seems too logical, I have to try explain to my client on the needs or to find an alternative for them. I represent 10 insurers, I can't be submitted 10 insurance proposal for them.

Pls don't take insurance for granted. Its can be a lot of work before you can be insured. Its not something that you can buy even when you have the money. Your health condition probably looks small to you but you may not know how the insurance underwriters look at it. Get it when you are in the pink of health!!!

Thursday, August 27, 2009

Diversifying Advisers?

As Financial Planners, one of our responsibility is to help our clients in re-organising their finance through consolidating what they have and crystallizing what they need. In the process of doing so, we also educate them on the various instrument available and guiding them towards their preferred options.

There are some standard guidelines that we adopt based on their today's needs but we also highlight to them about the likely changes in their Financial Plan as they reach the different life stages. As every client is different with different needs and belief, we will try our best to guide them on what is suitable for them.

I began actively helping clients with financial planning since I joined the FA business. I noticed one common trait among many of them. They did not really go through a proper financial plan and they got their plans from all different sources such as friends, roadshows, call centres and banks. Unknowingly, they had achieved one thing; “Diversifying their advisors”.

It is a challenge whenever I meet up with such client because they seem to adopt different financial planning concepts and standards from different advisers. The advisers who helped them with the different plans either did not plan or did not plan on a overall portfolio basis.

One common example is the duplication of investments where the clients get their investments from everywhere ranging from banks, insurance companies, online portal and different Financial advisers. When we consolidate all these investments, it is common to see a large number of funds yet lacking proper diversification and direction.
Another challenge lies with the investments that are taken up via different platforms. it can be hard to reallocate and rebalance the portfolio unless they focus on only 1 or 2 platforms.

Another common case is when they had purchased all sort of insurances to the extent of not knowing how much they are paying and what they are covered for. They do not seems to remember their objective in getting all these insurance plans.

My advice is not that we should use only 1 adviser to manage your financial plan, What I’ll like to advice is to allow your planner to go through what you already have before allowing him to plan what to do for you. Those who try to sell you a lifestyle concept without knowing what you need and what you have may not be doing a good favor for you.

Having said all these, I know the difficulties that many planners faced. There are many people who are still very resistant towards us and refuse to divulge much info to us as they are so used to buying investment or insurance on a product advice basis. Do give your adviser the necessary info. He or she needs your help in order that they can help you.

Monday, August 24, 2009

Purchasing power using Burgernomics

I had written about the Big-Mac index(Burgernomics) in February this year.
Click here to view.

Recently, I happened to see a picture about this index in The Economist website.

A UBS report published recently offers a handy guide to how long it takes a worker on the average net wage to earn the price of a Big Mac in 73 cities. This picture is used to guage the purchasing power of a worker in these cities.

Singapore falls near to the global average. We take around 38 minutes of work to buy a big Mac. A big Mac in Singapore cost around S$3.95. If we pro-rate to 60 minutes, it means our average wage is around S$6.24/hr.

For those working in Jakarta, they need nearly 1hr 20 minutes of work to earn a big mac. I remembered a trip to Jakarta nearly 10 years ago where I had a meal in MacDonalds. I remembered vividly that there were quite a number of children standing outside the resturant. When we finished our meal and walked out, these children ran into the resturant to see if we left behind any fries or burgers. I think, to them, eating in MacDonalds must be such a luxury.

For the same big mac, the American in Chicago only need to work 15 minutes. This really illustrates the strong purchasing power of the Americans. If the US economy do not turn round fast, who shall buy our Asian manufactured goods? Many Americans are still jobless, don't be overly excited with the economy yet. It will be a long way before we see normal growth in these developed economies.

Tuesday, August 18, 2009

Property as Limited Resources??

I watched the Channel 8 news recently and saw an old lady being interviewed when she happily got her unit after balloting for the new condo. She proudly said "My retirement depends on it. I shall use the rental to fund my retirement." In my mind, I was thinking hard if this is a good way to plan for retirement?

Today, URA website showed developers sold 2,767 private homes in July, smashing the previous monthly record of 1,825 units that was set in June. This news makes me wonder if we are still in recession. Is this property boom a bubble or an opportunity? I don't have an answer as only time will tell. I only know that the risk is very high for those who enter the property market now.

A lot of people had discussed on the topic of property investment, I like to take this chance to share my 2 cents worth of thoughts and to analyse why Singaporeans like property so much?

1. They view property as Resources
* Not only they feel that its a resource. To them, its a limited resource. "You missed it? Thats it!!! You lost a great chance to own that resource that will surely rise in value."
* To them, Singapore have limited land and population will keep increasing with the influx of foreign talents. Demand will always exceed Supply.
* They probably didn't notice that the houses built are getting taller and more supply are coming in the next 1-2 years.

2. They only look at the positive side of Leverage
* Leverage is a double edged sword. Presuming that you borrowed $400,000 for a $500,000 property. You only pay $100,000 upfront. If the property value increased by $50,000 and you sell at $550,000. You would have made 50% from your $100,000 that you put in. Sounds good. Isn't it?
* What if the property value drop to $450,000? Maybe they din think of that.

3. They don't know how to calculate the Rental yield
* They know that they will get rental but do they really know what rental yield is about? Their rental yield not even be even enough to cover the mortgage interest.

Rental Yield = (Net Annual Rental / Total Property Cost) x 100%
* Net Annual Rental = Your total rent collected minus off the cost of obtaining the rent such as maintenance, conservancy, property tax, income tax, agent commission, vacant cost, etc
* Total Property Cost = Property price + Stamp Duties, Legal Fees, Furnishing cost, renovations, etc.
* Many people probably just use the (Yearly Rental/Property Price) x 100% without deducting all the other expenses.
* The fact now is "Rental Yield is down, Property price is up". In my opinion, not logical and is more of a sign of speculation.

4. Their Capability to view property as Long Term Investments
* Buy property, they are capable of viewing it as a long term investment because even when market is down, the property is still there. They will not feel so painful if they don't sell the property.
* Compared to Shares or Unit Trust, very short term view, very emotional. Drop a bit only, feel very painful.
* They are just different asset class. Financial market have their distinct market cycle but Property cycle? Wow. Hard to say leh. Remember the property crash in 1996? It took nearly 10 years before the prices pick up to its near original prices.

5. The Teaser Housing Loan Rate
* Some of the housing loan was as low as 1.6% for the 1st year and around ~2.5% for 2nd and 3rd year. If a loan of $400,000 was taken over 30 years, the monthly instalment is as follows:
*1st year - ~$1,400/month
2-3 year - ~$1,570 / month
Sub years(Assume rose to 4%) - Can go up to as much as $1,850/month
* Does the Sub-prime issue rings a bell to you? Affordability becomes an issue when interest rate rises.

Other points to note:
* Property investment is not for everyone. We got to be very prudent in putting such a huge sum of money into it. Invest within your own means. Leveraging can cut a watermelon but it can cut yourself if you are not careful.
* Property cycle can be a very long cycle. If you catch at the wrong part of the curve, your property will age with the curve. When new launches comes out in the new cycle, your property may not be in favour anymore.
* We are still not out from recession, the US economy is still bad. No one knows the full effect of a prolonged poor US economy. We see shoots but how long will these shoots matures into a forest again? The property cycle might comes a bit too early.

Friday, August 14, 2009

Some points on the recent LIA media release

There was a media release by LIA on 12th August about the Life Insurance industry bouncing back after 2 dismal quarters.
I'm actually not so concerned about how many millions of new regular or single premiums and the long statements about new CPFIS monies, etc. There are a few points that catches my attention...

1) The average claims payout under the death benefit worked out to approximately $39,521 per policy in the second quarter of 2009.
* I know that this figure is freaking low and many people are probably cursing insurance advisers for such low death benefits being paid to beneficiaries of the deceased. But to be a bit fair to the advisers, we must also note a few points
a) Those people who get the claims could possibly be the more elderly ones who purchased the insurance many years ago and a $50,000 coverage may seem reasonable at that point of purchase.
b) This figure do not mean that each deceased get $39,521. He or she may owns 2-3 policies, then the payout could be $120,000 and with DPS, it could comes up to $165,000.
c) Not all insurance advisers recommend such low Sum Assured policies...

2) In the second quarter of 2009, the average sum insured worked out to approximately $48,708 for regular premium policies.
* $48,708 is still low. I'm sure a lot of whole life and endowment policies are being marketed everyday. Hence the Low Sum Assured even till today.
* I tried to defend point number 1. But this one hard to defend... No one want to recommend term insurance, what to do?

3) Sixty-one per cent of life insurance applications were received on the basis of a full fact-find or partial fact-find.
* This figure is so contradicting. 61% did fact-find, why still average sum assured still $48,708? Is our need so low? I doubt the quality of these fact-finding...
* My company now have 23 pages of fact-finding forms. Some companies maybe more. With so much admin work, did the situation really changed over the years?

4) The tied agency channel contributed to the bulk of new business, with 59 per cent of new weighted business sales, the bank distribution channel accounted for 24 per, Licensed Financial Advisers contributed 12 per cent whilst other channels, including direct sales, accounted for the remaining 5 per cent
* Only 12%. So sad... Got some improvement but still quite slow. Why are people not joining the Licensed Financial Advisers? Maybe...
a) Not many people heard about us yet especially those who are new.
b) Its tough to give up all renewal commissions earned as a tied agent to move on.
c) Comparatively, FA earns lesser for the same plan that the tied agent sell because FA have to pay for own rental, administrative, marketing, etc
d) FA have to work harder because expectation on us are more. We need to learn about different insurance companies systems and plans. We are probably expected to do more Financial Planning.
e) FA have to be freaking clean before you are able to join the industry. My colleague's MAS license application was delayed for many months due to a jay-walking incident many years ago which he can't even remember...

Sunday, August 9, 2009

The 3 fraudsters near my office

1) January 09 - Outside Fish & Co at Bugis Junction
An Indian man with a Turban stopped me and told me that my luck seems to be good but my fortune could not be materialised. He quickly introduced himself to be from India specialises in fortune telling and Horoscope. AsI was not rushing, I stopped and listened to him. He told me a lot of things about fortune and even analyse my weaknesses in life, etc. He then asked me to write the name of a flower and he claims that he knew what I wrote. True enough, he really managed to guess the name of flower correctly.
I was more puzzled on how he guess it right and started to listen more from him. After saying another 5 minutes, he suddenly asked for $10 from me, saying that this is the cost of consultation. His demand surprises me and I quickly walk away. He tried to stopped me but I don't dare to turn my head around...

2) June 2009 - Outside Opera Institute
A chinese man in his later 40s stopped me and told me that he lost his wallet and need some cash to take bus home. I asked how he lost his wallet and he said that he was having lunch in the hawker centre and his wallet got missing. I gave him $1 and he told me not enough. He asked for another $2. As I was rushing to work, I relent and gave him a total of $3.
Today, I saw that same man, saying the same thing with another young man near bugis junction. I realised at that point that I was conned the other time. I walked past them, turned my body and shake my head to that young man. I quickly walked away and heard vulgarities hurled at me. Everyone was looking at him. I then heard that the vulgarities coming nearer and I ran into Bugis Junction to hide into the crowd.

My heart nearly popped out when the voice got nearer. I was really scared that he will come fight with me. I really don't feel like fighting or quarrel with anyone.

3) August 09 - Outside St Joseph Church at Queens Street
A man was limping outside the Church. He seems to be in his mid 40s and had tatoos on his hand. I asked him what happened and he told me that he had fallen from a kerb and injured his leg. He was limping and seems to be in great pain.

I offered to call an ambulance and he told me that it is not necessary. I offered to call a cab for him to bring him to KK hospital or SGH, he told me that he don't have the money.
Then I asked how I can help, he said that he just need to take a cab home and rest. I asked where he stay, he say Sembawang and need around $20 to get a cab.

I sense something was not right and told him that if he got no money, then rest a bit longer in the Church and ask his friends or family to come fetch him. He pleaded with me to help and to pity him but and I quickly walked away.
After the 3 experiences, I am actually quite scared in offering help to a stranger again. Haizzz...

Wednesday, August 5, 2009

Why invest in China?

China is one country that I always tell my clients to invest. This advice is nothing new or fresh as everyone might be telling them the same thing. But why are they saying this? I might be able to share a bit about the potential of the Chinese Economy here.

1. The Robust Growth Rate
* 2003 - 8% / 2004 - 9.1% / 2005 - 9.1% / 2006 - 10.2% / 2007 - 10.7% / 2008 - 11.9%
* On July 15 this year, China reported a 7.9 percent growth rate for the second quarter of 2009 compared to the same period a year earlier. IMF forecasted that China will continue to grow 8.3% into 2010.
* So do you want to invest in a country that grow or one that remains stagnated?

2. The strong Foreign Reserves
* China is the country with the strongest Reserves standing at $2,132 billions USD as at 30th June 09.
* Singapore has $173billion and USA only $42 billions.
* Do you want to invest in a country which has more money in its pocket to spend or a country that just print money to spend?

3. The middle class and the mass affluent
* Before 2000, most of the Chinese belongs to the poor or the lower middle class.
* Today, many of the chinese had entered into Mass Affluent earning ~200k RMB yearly.
* These are the people who are going to spend and develop the China consumerism story into the future.

4. Urbanisation and development of rural areas
* The Chinese governemnt spend a fair deal of their reserves to reinvigorate its economy of which one way is to build infrasture and developing the rural areas.
* The $585bn USD stimulus package is expected to boost investment and consumption.
* The $700 million rural population receives subsidies for buying household appliances such as washing machines or refrigerators, etc.

5. The Chinese Character
* A typical chinese has 2 sides. He can be a saver for a moment and become a gambler the next.
* They can save and save but when it comes to seeing others making money, they will not want to miss the chance and jump right in.
* This is one reason the stock market is able to rise to a point of high PE and yet people are opening up new investment accounts at the same time.
* It has a high beta if compared to developed markets. US market goes up 1%, the chinese market may goes up 2%.

China is not perfect and have their problems too.
* There is a big imbalance between the rich and the poor which may cause sociology problems.
* The pressure to revalue their yuen to make their exports more expensive.
* The overheating situation in certain provinces especially on properties.
* The large amount of USD bonds they are holding, etc etc...

Having said all these, I'll never recommend anyone putting all eggs into one basket. I'm a believer of discipline investment using asset allocation and geographical/sector diversification. A single country fund should not take up more than 20% of your overall investment portfolio.

Sunday, August 2, 2009

The New Economy

It was a tiring 2 weeks of reservist trainings. Could not get to sleep well over the 2 weeks and had lost the momentum to work. Going on reservist always mean a loss of time and opportunities for me. Its also a time to get fat due to the 6 meals that I had per day in the camp.

Rest for a day and be back at work tomorrow. I like to post a story about the New Economy...


It is a slow day in the east Texas town of Longview. It is raining, and the little town looks totally deserted.

Times are tough, everybody is in debt and everybody lives on credit.

On this particular day, a rich tourist from the East is driving through town.

He enters the only hotel in the sleepy town and lays a hundred dollar bill on the desk stating he wants to inspect the rooms upstairs in order to pick one to spend the night.

As soon as the man walks up the stairs, the hotel proprietor takes the hundred dollar bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to pay his debt to the pig farmer.

The pig farmer then takes the $100 and heads off to pay his debt to the supplier of feed and fuel.

The guy at the farmer's co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has lately had to offer her "services" on credit.

The hooker runs to the hotel and pays off her debt with the $100 to the hotel proprietor, paying for the rooms that she had rented when she brought clients to that establishment. The hotel proprietor then lays the $100 bill back on the counter so the rich traveler will not suspect anything.

At that moment, the traveler from the East walks back down the stairs after inspecting the rooms.

He picks up the $100 bill and states that the rooms are not satisfactory, pockets the money and walks out the door and leaves town.

No one earned anything. However the whole town is now out of debt and looks to the future with a lot of optimism.

That, ladies and gentlemen, is how the United States Government is conducting business today.