On Reservist

I'm currently on reservist till 31st July. Will not be blogging during this period. Thank you.

Half Truths???

I received a call from an anonymous lady 2 days ago. I was having a meeting that day and hence not able to talk with her for long. I can't remember her name now but she sounds helpless, disappointed and angry.

She complained to me about her Relationship Manager from one of the bank who sold her an ILP from Company "Z". The RM emphasized that it is a saving plan which she can stop contribution after 18 months and she guarantees a profit because company "Z" gives her XX% bonus units in the initial 12 months. She was thrilled with the bonus units and faithfully put the money over the next 2 years and was satisfied with the returns based on the monthly statements she received.

She probably needs the money and need to partially surrender the cash value. She was horrified to find out that she will be losing tens of thousand of money if she surrender it now as the initial 18 months of premium can only be taken on maturity. She don't know that there is a surrender penalty on this 18 months premium. She thought that the surrender value is based on the monthly statements she received.

She tried to look for the RM and the RM is no longer working in the bank. She looked for company "Z" and they refuse to get back to her, but pointing fingers back to the bank. She was very confused and managed to find my blog and seek me for advice.

I observed a few half truths here
a) Half Truth (1) - This is a Saving Plan...
The RM probably kept emphasizing on "Savings" instead of "Investment" during the presentation. Nothing really wrong with that but consumers may think that they will get a fixed yield on maturity when you emphasize "Savings". If it is an investment plan, tell them so and the risk involved in it.
This "V"plan can be rather confusing to the client because there is a maturity term when most investment plan do not specify a maturity.

b) Half Truth (2) - Can stop contribution after 18 months...
Its true that she can stop contribution after 18 months but she must be made aware on the implications if she is to stop the investment after 18 months or if she surrender the plan after that? There are people recommending this plan as if it is an 18 months savings plan. Some of them may not even remember that there is actually a maturity date which can be 20 or 25 years later.

c) Half Truth (3) - Conflicting Statement on Investment Value...
The monthly statement company "Z" sent shows the exact value of the investment with the bonus units given. They did not show their client that the initial 18 months contribution cannot be withdrawn and be subjected to a very heavy penalty if they surrender before maturity.
The client must be made aware that the surrender value is different from the statements that they see monthly. The surrender penalty is based on a rather complicating formula which client will find it hard to understand...

Poor lady. She don't have a personal financial adviser and the RM had left the bank. I believe that she had put in several thousands every month for this plan and must be really upset to know that the money she see in her monthly statement are not the money that she can take and use today like a normal investment plan.

The Hard and Soft Commodities

In my investment portfolio for my clients, I'd allocated around 10%-20% towards commodities funds. In theory, Commodities are supposed to be able to hedge against inflation and provide some sort of diversification from Equities and Bonds. Some commodities funds gain direct exposure by investing into commodity futures and some invested into shares of commodities related companies.

There are 2 main types of commodities which we termed as hard and soft. For simplicity, we consider commodity that can be grown or raised as soft commodity, and commodity that you have to mine or drill as a hard commodity.

Hard Commodities

* A hard commodity are commodities such as metals, crude oil, or coal. This term generally refers to commodities that are mined, rather than grown.

* They require extensive capital expenditures in order to be retrieved from the earth. These commodities are finite in nature and have limited resources.

* Demand for these resources has rose significantly over the years to service the fast growing global economy, especially in the emerging markets of China and India.

* The demand for hard commodities normally follows economic growth cycles and that prices of oil and industrial metals will pick up fast when the economy booms.

* From the supply side, the hard commodities that are mined and drilled may not fast enough to meet this rising demand. This is because it become more expensive to drill for each drop of Oil or to extract each piece of metal plus the fact that exploration budgets are slashed all over the world resulting in fewer resources from the grounds are found.

Soft Commodities

* A soft commodity are commodities such as coffee, cocoa, sugar, corn and fruit, etc. This term generally refers to commodities that are grown, rather than mined.

* Soft commodities tend to have a renewing characteristic. Crops can be re-grown, and typically in the same spot as the previous crop and meat commodities are the result of animal breeding with accurate forecasting.

* Soft Commodities are non-finite in nature. As long as "Ice Age" doesn’t strike the earth, grains will always be grown and cows, pigs or chickens will never become extinct.

* Soft commodities may be impacted by the rate of growth in the economy. As wealth increases, the demand for meat will increase. When meat demand increase, demand for grains will also increase.

* Food supply can also be influenced by nature such as weather or natural disasters. A drought or a locust attack in a major growing area may affect supply and hence prices. They can also be influenced by political such as trade barriers or even labour strikes, etc

How I view both commodities if a Bull comes around

* In a Bull Market, Soft commodities may not move as fast as hard commodities but at a later stage of a bull market, prices of soft commodities can be affected by the rise in price of hard commodities.

* Some soft commodities which are closely correlated to oil may rise fast during a economic bull. Eg, Sugar for Ethanol, Crude Palm Oil or even corns

* An expected weaker US dollar can also be positive for commodities as they are traded in that currency. From a non-US purchaser's perspective, a weakening dollar would raise purchasing power, theoretically demand should increase as well.

* Speculations will start to create havoc to the world like what had happened in 2007 and 2008 when oil prices reaches $147/barrel. Its in no time that oil will start trading at $100/barrel again.

Comparing Group Term Insurances

It is important that we look into our coverage at every stage of our life. We can look into a few options ranging from Whole Life, Term to Group term plans. Each plans have their merits but the lowest cost among the above 3 are generally "Group Term Insurance".

Group insurance is a plan which individual employees or members are included under one 'master policy' owned by their employers or organization such as Unions and Clubs. A group insurance plan has many contributors of different ages and sex and hence able to provides more coverage at a lower cost per participant. Individual members of a group insurance plan will then receive an insurance certificate to prove their eligibility for benefits.

I had recently increased my coverage in the SAF Group term as I do not like the idea that I must have a membership to something before I can get my group insurance. I like to share very briefly my research findings on the 4 group insurance schemes that I'd done recently.

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Out of the 4 Group Term Plans, 3 of them are offered by NTUC Income

1) POGIS - Public Officer Group Insurance Scheme (NTUC Income)
* This scheme is specially arranged by the Public Service Division and NTUC Income to provide coverage for employee of Government Ministries or Statutory Boards.
* It provides coverage for death and disability with an option to cover 30 critical illnesses.
* There are two plan types under POGIS namely the POGIS Basic and POGIS Basic Plus. The Plus plan provides coverage after retirement from the public service up to age 65.
* For age below 45, a $200k death cover and $100k CI cover cost you only $21/month.
* For age between 56 to 60, the same cover shall cost you $103.50/month.

My comments:
* You need not pay for any monthly or annual membership fee for this plan. You are eligible as long as you remains in service.
* The average cost of a $200k Death and $100k CI POGIS cover based on age 31 to 65 is only $61/mth and $67.50/mth for the Plus plan.
* The con of POGIS is that the risk of losing this coverage is the highest as leaving Statutory Board or Government Ministry like resignation or retrenchment means that your cover will cease at the same time.


2) LUV Plan (NTUC Income)
* LUV Plan is specially designed for NTUC members. Being an NTUC member will means that you pay that $9/month of subscription fees.
* It can provides cover for death/ptd/30 Critical illnesses and a Hospital Income
* For age below 45, a cover of $200k death and $100k CI cost you $29/mth
* For age between 56 to 60, the cost rise up to $86/mth

My comments:
* The memebership cost $9/mth. If you are using the membership actively, then it make sense to apply for this insurance scheme. My opinion is don't apply for membership just because you want to get this LUV plan.
* The average cost of a $200k Death and $100k CI cover based on age 31 to 65 is $66.93/mth. Slightly more than POGIS
* Chance of losing this plan is lower but you will be stuck with your NTUC memebership if you have health problem which disallow you to take up any insurance scheme for your own again.


3) SAF Group Insurance Scheme (Aviva)
* SAF Group Insurance Plan is specially designed for all NSF, DXO, MINDEF Public Officers and SAF Operational Ready NSmen.
* It can provides cover for death/ptd/30 Critical illnesses and a Hospital Income
* For age below 45, a cover of $200k death and $100k CI cost you $35.60/mth
* For age between 56 to 60, the cost rise up to $125.60/mth

My comments:

* The cost is comparative higher if we compare it with LUV and POGIS.

* The average cost of a $200k Death and $100k CI cover based on age 31 to 65 is $78.10/mth.

* Chance of losing this plan is the lowest of the 4 group term because we need not remember to pay any subscription or membership fee like LUV or fear of leaving the organisation like POGIS.

4) SAFRA Living Care and Essential Term (NTUC Income)
* SAFRA Group Insurance Plan is specially designed for all SAFRA members. Membership cost around $3/month.
* It can provide cover for death/ptd/30 Critical illnesses and Hospital Income

* For age below 45, a cover of $200k death and $100k CI cost you $36/mth

* For age between 56 to 60, the cost rise up to $105/mth

* Maximum cover for Living Care from age 61 to 65 is only $50,000 and Essential Term is $150,000

My comments:
* The average cost of a $200k Death and $100k CI cover based on age 31 to 65 is $77.14/mth. Slightly more than POGIS
* The cost is comparative higher if we compare it with LUV and POGIS but slightly lower than SAF Group Term.
* Cost of SAFRA membership is modest compared to NTUC Membership

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* I must clarify that I'm not comparing benefit by benefit on the 4 group term plans above or to look into minor exclusions, etc. You may like to refer to the respective insurers website to undertand more. They are not exactly apple to apple comparison.

* POGIS cost least because there are probably more young people than old in this group due to several reasons. However, the risk of losing it is the highest.

* The LUV plan is the next most cost competitive plan but the idea of paying $9 or more in future of membership fees can put us off. Forgetting to pay for your membership may cause you losing your much needed cover as well.

* The SAF group insurance is the highest cost but fear of losing it seems to the lowest.

In my next posting, I'll write a bit more about Benefits and disadvantages of Group Term Insurance.

My 1st Year as an FA Rep

1st July 09 marks my official first year as an FA representative. It was exactly 1 year ago that I took this difficult decision to step out and start fresh in a new place. I was hoping for a job with NTUC Income then but only to be rejected twice by them to understand that I do not have a position in the company. I felt lousy, thinking that I'm no good and thats why I was rejected.

However, a rejection opens up new opportunity for me. I spoke to a few people and they encouraged me to move on to an FA firm. They gave me the confidence that I can make a viable career in this industry. I was very doubtful about myself and my capabilities at that time. I feared that it will be the end of my financial advisory career if I'm not able to survive the new environment. I'll feel that I failed all my clients whom I served over the years.

Over this year, I worked nearly 7 days a week and many days taking the last train at 12:11am or last bus at 12:17am from Bugis. It was stressful financially in the beginning where I do not know when I'll spend my last dollar in my POSB account. I couldn't share when I'm sad and depressed even to my wife, good friends, family, colleagues or even in my blog, fearing that what I shared will adversely affects them. All thanks to God that I manage to stay positive and breakeven in my 1st year. He is probably the only one who listens to me.

In term of knowledge, I had gained tremendously. I'm certainly not the smartest or most knowledgeable adviser but I do believe that I'm a head above most tied agents and probably above average among the FA industry. I'm certainly not in the top 10%, but probably the top 40th Pecentile. I did a lot of financial plans over this 1 year and I keep learning from every fact-find with my clients even till today. I get to understand the needs and concerns of different people. In NTUC Income, I'd never completed one full fact-finding. I always give excuses that client do not have time or do not want to do it.

In term of recogition, I am excited to be invited by one of the insurer recently to be part of their focus group to brain-storm and give feedback for new products. I get to know many industry veterans and to hear from them first hand on their experience in the FA industry.

I'l continue to work hard into my 2nd year but I really need to work smarter because I want to spend more time with my family and to give my wife confidence that I can support a family. I need to get into the right market where people appreciates my work. I was spending far too much time on those who asked hundreds of questions, make tons of comparisons and eventually buy from fundsupermart or from Group Insurance schemes.

I want to take this chance to thank all my clients and those who had encouraged me to move on. Without you, I will not have survived my 1st year. Half of 2009 had passed. I hope all of us will make use of the next half a year to achieve whatever resolutions that you had set in the beginning. May God bless all of you...

Darling or Burden???

I was referred to Ms Lim recently by one of my existing client. She called me on my handphone requesting my assistance to see through her Insurance Plans. She wants to know what are the insurances that she had purchased in the past.

I dropped by her Seng Kang place in the morning as requested. In the house was herself, her Dad-in-law and her maid. She is in her early 40s and Dad-in-law in his early 70s. As usual, I introduced my company and my range of services. I shared with her about benefits of Financial planning and the type of insurance, etc.

In the midst of our discussion, I smelled something foul, seemingly from the Room and Ms Lim suddenly covered her face and lamented "Not again". I don't know what happened and asked her. She told me that it was her Dad-in-law. She led me to his room and allowed me to take a glimpse of what had happened.

Her Dad-in-law had just shitted on his diapers and dug some shit out from the diapers and rubbed on the wall. I was lost for words and Ms Lim called her maid to clean up the mess and we proceeded to the void deck for further discussion.

Ms Lim later shared with me that her Dad-in-law suffered from Severe Dementia few years ago and turned for the worst recently. He could not remember anything and was acting like a baby since early this year.

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Few things went through my mind today...
a) We will age one day. I can be a burden like her Dad-in-law in future if I'm not careful.
b) We better be prepared for Long Term Care Insurance. I don't think Ms Lim's in law has an Eldershield because it was not available then.
c) We better be prepared for our own retirement. We will be a real burden if we do not save for ourselves now.
d) Severe Dementia is one of the 30 Critical Illnesses. There is no need to be hospitalised but long term domestic care is needed. If you feel that we don't need a CI plan after age 60 or 65, make sure you have enough money to take care of yourself...

My mind is very heavy today. This question keep popping in my mind. Do I want to be a Darling or a Burden to my family one day???

Leaving Peace not Frustration for your Loved ones

When we are alive, we can give anything we own to whoever we like. However, when God calls us to heaven, the law will decide how our Earth assets will be distributed. Writing a Will is important to avoid the hassles and problems that arises when we leave without one.

Will writing is an important part in the Wealth Distribution process. Other areas of concern will be the CPF nominations, NTUC policies nominations, Section 73 policies and establishment of trust, etc. I'm neither a Will Writer nor a Lawyer but as a Financial Planner, I'll help my client in the process when they are ready to get it done.

Currently, I only help my clients with it and not just anyone because its a service and I don't get a single cent for going through the whole thing.

Step 1: Know your assets and liabilities
Certain situations to take note when taking inventory of your assets
a) Take note of assets that have a debt tied to it. Example, Property or Car. It might be your good intention to leave behind some assets for your loved ones but pls don't leave behind a huge debt for them instead. If there is a liability on that asset, take an insurance to protect it.
b) Take note of your overseas assets. Example, Overseas properties or investments. There might be estate duties payable for these investments or property in that country. Your intention might be to leave behind $1million but it may ended up giving only $600,000.
c) Some assets under joint name. Example, Joint Bank Accounts or Joint Investments. They may or may not follow in accordance to your will. Don't assume that the money will go to the other party.
d) CPF monies. You have to make a separate nomination for it.

Step 2: Know who to give
* This can be the tough part especially if you have many assets of different types. Example, Investments, Properties, Businesses, Cash, etc.
* You can give to Charities if you like to. There are many under-privilege people around. Your lawyer or Will Writer can help find out their Charity Registration number.
* A simple will is to allocate all your assets in specific percentage and perhaps 1-2 unconditional and specific gifts.

Step 3: Select your Trustee, Guardian and Executor
* The executor is a very very important person in ensuring your Will is carried out. Select him/her carefully based on your judgement of competency and willingness to take up this challenging job. Consider leaving him a small part of your asset for this poor guy who have to shoulder such big responsibility.
* The natural guardian will be your spouse if you have minor children but you may add a substitute guardian in event of common disaster where spouse do not survive.
* For trustee, find one who is meticulous enough to handle money. Decision in allocating the allowance or to invest the funds etc are things he/she may need to discuss with the Guardian or Executor.

Step 4: Write your Will
* You can actually DIY your Will, find 2 witnesses and get it done.
* However, I will advice you to look for a Lawyer or a Professional Will Writer to do the job. If there are errors or omissions, the whole will can be disputed and become void.
* Don't save this money. A simple Will cost you only $150 to $200.
* If mistakes are made in the Will after our demise, it will be too late...

Step 5: Register your Will and keep in properly
* You may find a good place to keep your Will. Inform your executor about the location.
* Register your Will with the Public Trustee, so that people will know that you had written a Will before.

It is important and actually not that difficult to write a Will but most of my clients often do not have the patience or see the need to write one. They know its important but due to the non-urgency nature, they will procrastinate...

The Perils of Rule 78

Investopedia explains Rule Of 78 as below:

* When paying off a loan, the repayments consist of two parts: the principal and the interest charge.

* The Rule of 78 weights earlier payments with more interest than later ones. If the loan is not terminated or prepaid early, the total interest paid between simple interest and the Rule of 78 will be equal.

* However, because the Rule of 78 weights the earlier payments with more interest than a simple interest method, paying off a loan early will result in the borrower paying more interest overall.

History of Rule 78

* The earliest official use of the Rule of 78s to calculate the unearned portion of a loan’s finance charge was in Indiana in 1935. Most loans then were for small amounts at low interest rates for short period like 12 months during the pre-computer era.

* The number 78 is actually the sum of 1 to 12 (1+2+3.....+11+12 = 78).

* Assuming a 12 month loan with interest of $1,000,

1st month - 12/78 x $1,000 = $153.85 will be your payment on this interest,

2nd month - 11/78 x $1,000 = $141.02 will be your 2nd month payment on this interest

12th month - 1/78 x $1,000 = $12.82 to be your 12 months payment on this interest.

This Singapore Case

* This rule 78 normally applies to Car loans where early settlement of the loan will entitle you to a rebate on the interest, calculated using this “Rule of 78” formula.

* If your loan amount is less than or equal to $55,000, your loan is bounded by the Hire Purchase Act. This requires you to pay the principal and interest that would have accrued over the entire period of financing.

* If the loan amount is more than $55,000, the loan is governed by the Common Law. If the interest is on a flat rate basis, the “Rule of 78” will also apply.

The Formula

R = [n(n+1)]/[N(N+1)] x TC
R represents the interest charges rebate;

n represents the unexpired loan period expressed in months;

N represents the original loan period expressed in months;

TC represents the total amount of interest over the loan period.

An Example

Car loan taken ==> $50,000

Interest Quoted ==> 3% flat rate x 7 years (84 months)

Total Interest ==> $50,000 x 3% x 7 = $10,500

Loan + Interest ==> $60,500

Monthly Instalment ==> $60,500 / 12 / 7 = $720 per month

Decided to redeem the loan after 3 years

Total Instalment paid ==> $720 x 12 x 3 = $25,920

Number of months remaining ==> 48

Rule of 78 rebate ==> [n(n+1)]/[N(N+1)] x TC

==> [48(48+1)]/[84(84+1)] x $10,500

==> 0.329 x $10,500 = $3,459

Amount to repay after rebate

$60,500 - $25,920 - $3,459 = $31,121

You are actually penalised with this formula

* You had paid 36/84 = 42.8% of your tenor but the rebate is only $3,459/$10,500 = 32.9%. This differential will be greater if you choose to repay your loan much earlier.

Lock-in Period and Penalties

Be careful when your dealer or distributor is giving your cash rebate. There might be a catch.

a) Lock in period is the time frame where the bank applies a lock in period as long as 5 years to discourage you to go to another lender.

b) A Penalty charge will be applied if the loan is redeemed within the lock in period. The penalty rate differs from bank to bank, and it can even be a hefty 20% of the unearned interest.

World Blood Donor Day

It is "World Blood Donor Day" today. I was being invited to Jurong Bird Park to participate in this event on Saturday. I donoted my blood 2-3 times a year and even my platelets on 2 occasions. Its my habit to drop by the blood bank whenever I visits my clients in SGH. I'm very happy that they actually appreciates of what I did over the years and gave me 2 free tickets to Jurong Bird Park. I'd enjoyed the day very much.

I will like to encourage you to donate your blood on a regular basis. Not necessarily 4-5 times a year but at least onces a year. The nurses at the Blood Bank are very skilled. I never felt any pain in all my donations over the years.

About World Blood Donor Day

Millions of people around the world owe their lives to individuals they will never meet – people who donate their blood to help others. But millions more still can’t get safe blood when they need it. World Blood Donor Day, celebrated on June 14 every year, provides a unique opportunity to thank those very special people that help and to raise awareness about the need for more support.

Established by the World Health Assembly, this day marks the birthday of Karl Landsteiner, the Nobel laureate who discovered the ABO blood group system. There is broad international support to raise awareness of the need for safe blood around the world and encourage eligible individuals to donate blood regularly so that blood is readily available for all who need it when required.

My Clients(2) - The Families

There were quite a number of arguments in my previous post on whether we should provide for our parents in event of death of a single person. I think it stems down to whether we treat parents as dependents. If we do, then its a "need', if we don't, then its a "want". However, my role is to guide my clients, especially the young singles. As they are semi-dependent on their parents, they may find it hard to understand that their parents can actually be their dependents in the later years. Anyway, this is out of topic for todays posting on "The Families".

Young Families

The Young Families I described here are those with Children aged 12 and below

a) The dependency need is the highest for this group of people. They generally have large loans outstanding such as car and mortgage and probably have several children below 12 years old.

b) The needs are increased especially if the family relies on only one breadwinner.

c) The needs must be met first via term insurance. I always recommend a combination of Level Term, Decreasing Term and even Group Term for the budget constraints families.

d) A mistake they always made is getting additional Life Insurance for themselves and kids at this stage. Life insurance at this stage is not likely able to meet their dependency needs or even retirement or savings needs.

The good and not so good on this group of client

e) This is my core group of clients and the group I love to meet. I will talk to them about medical, disability, critical illnesses and death coverage. I'll make sure they are well covered especially on the breadwinner.

f) They find the urgency to talk to us. They know that they need to do something with their insurance covrage. They know they need to save for their children, etc.

h) Their budget are normally constraint and unpredicatable. Many of them might have purchased too much Life and Endowment policies. They feel that they had spent too much money on insurance and its hard for me to recommend them additional coverage even when the need is there.

Matured Families

The Young Families I described here are those with Children above 12 yrs old

a) Their needs had reduced significantly compared to young families. Mortgage loans are nearly paid off and Children are in a less dependent age of 16 to 24.

b) Their cashflow are predictable and they are able to start a regular investment scheme over the next 10-15 years to accumulate up to 60 or even 65 yrs old.

c) They probably have a sizeable amount of savings in preparation for retirement. Some speculated in shares, some seek our advices for investments.

The good and not so good on this group of client

d) Its not easy to tell them about asset allocation and geographical or sectors diversification. Their mentality towards investments are normally extremes. Penny Stocks or Guaranteed Funds with maturity in 2-3 years.

e) Their health may not be that perfect and if they are still not covered under a medical insurance, the underwriting can get quite tricky.

Finding our own clients

* The beautiful part of our profession is the ability to look for the group of clients that suit us best. My favourite are the young families because I believe in term insurance and regular investments. As for the matured groups, I usually able to help them with their car insurances and investments.

* The group I'm find it hardest to serve are the young singles. They have all the time to research or even meet 2-3 advisers before deciding on a Shield or PA Plan. They read from every internet sources, demanding a lot of comparisons, capable of asking very extract questions and end of the day, they do not really value what we did .

* Having said that, I still need to have young single clients in my portfolio as they will have their families one day and will fall into my favourite category of clients. I just need to grow with them, serve them and be a friend to them.

My Clients(1) - The Singles

Over my 6 years as a financial adviser, my current clientele base is around 20% young singles, 20% matured singles, 50% young families and 10% matured families. Most of them are in the region of mid 20s to early 40s. My age is between them and hence I can understand their concerns quite well when I met up with them. I can perhaps share a bit of my observation about these 4 groups of my clients with you.

Young Singles

The Young Singles I described here are between early 20s to mid 30s.

a) Singles theoretically have lower needs against death. Their parents are probably between late 40s t0 early 50s and are not depending on their children earnings. When I asked them how much they will like to provide their parents on a monthly basis, they will give me a very low figure or even providing nothing at all. I have to encourage them to give to set a higher amount by telling them how much their parents had spent for them over the past 20+ years.

b) Those who are getting married are confused on how much they need to spend for the big day and for their 1st property. They need our help in analysing their situation.

c) Many aspires to buy a car because they have low commitment and able to see good surplus every month.

The good and not so good about this group of client
d) Many are not very concern with insurance and likely miss an appointment when they have slightly more work in the office or when they have a new appointment.

e) They have plenty of time to research and read from Internet and even meet with multiple advisers before they buy their first shield plan. They can ask many interesting questions and quite are quite demanding on us.

f) The good thing is that they are the group which I can see them grow and they will look out for me when they form their family nucleus.

Matured Singles

The Matured Singles group I described are between mid 30s and above

a) The matured singles I met are normally professionals like Engineers, Managers and Lecturers, etc. Their expenses are still low and have good monthly cash surplus.

b) Their parents are older and they begin to see the need to provide for their parents when they are not around, especially on hospitalisation expenses. Their Insurance needs for death is probably lower at this stage because they will have more resources/savings by this age.

c) They are concern about retrenchment, not able to work and hence they like to leave a huge amount of liquid cash in banks for all sort of unknown emergencies

d) Many of them look out for a property. Perhaps a 3 room condominium or HDB flat because they will have quite a bit of CPF monies and they have quite good monthly surplus.

The good and not so good about this group of client

e) They are relatively busy and it is not easy to fix a date to meet them. Many don't even like to reply my sms or emails. However, onces a date is fixed, they will do their best to meet up.

f) They will have many friends in the Financial Advisory industry and they like to look out for their friends first because they don't have the time to do all sort of research. Its usually by referrals that I'm being introduced to this group.

g) The good thing is that this group of client see a more urgent needs towards financial planning as they understand that they are solely responsible for their own retirement in future.

Till here and I will share more about young and matured families in my next posting.

Shield Plan Comparison

I always advocate to my clients on the importance of having a good medical coverage. I don't understand why some people will choose to spend that extra $20/mth on good food or shopping but save that similar $20 on a medical insurance.

However, most of my clients are confused because they have no idea how a shield plan works and what are the difference between the different insurers. I believe many advisers themselves are not sure as well.

I try to provide some info for you today but pls note that these info is not a comprehensive guide and can only be used for your quick reference. The data are updated as of today and I'll try not to clatter too many items and hence summarizes for you as below:

* I'd used the "As Charged" Private Hospital plans as the basis for comparison. I'm not going through every single point but will highlight one or two more significant ones for you.

NTUC Income
* Lowest Premium for most ages
* Provide Letter of gurantee (condition applies)
Great Eastern
* Highest Final Expenses Benefit at $7,000
* Only insurer that did not put a unlimited lifetime benefit
Prudential
* Lowest Day Surgery Deductible. $1,500 for Subsidized and $2,000 for non-Sub. Most insurers deductible stands at $3k for day surgery.
AIA
* Do not cover congenital abnormalities for kids but upto $5k for mother's policy for newborn below 1 yrs old.
Aviva
* Allows for moratorium underwriting
* Free Plan 2 for children below 20 yrs old when both parents on Plan 1 or 2.
* Highest premium for all ages
* Also provide for LOG (condition applies)

How about the Riders?
Riders are added to the main plan to cover the deductible and Co-insurance so that we do not need to worry about the smaller bills below $2k or $3k.
However, insurers have made these riders more complicating by adding many features which we do not know if we really need or not.

Let me try summarise for you below:
a) Prudential, Great Eastern and AIA are able to give 100% coverage because they cover both deductible and Co-insurance
b) NTUC Income covers Deductible but not Co-insurance. Eg. For any bill size, NTUC Income will cover 90% and Policyholder 10%. However Policyholder co-payment is capped at $3,000 for their plan preferred.
c) Aviva covers the Co-insurance but not the deductible. Eg, For any bill size, Aviva will only start to pay provided policyholder pay up to $3,000 first.

Now comparing the 3 companies that gives 100%
* Prudential Hospital Benefit for lower ward stay seems good
* GE and Pru emergency outpatient treatment looks attractive but I wonder what is the chance of emergency yet only outpatient treatment.
* AIA post hospital home nursing benefit is certainly useful for those with mobility problem on discharge.
* In short, AIA provide the basics and you pay the least

e) How about the other 2?
* Aviva is the least comprehensive of all riders. The $3k deductible applies every policy year and if the condition is a prolonged one, policyholder will not lose out.
* Children free under plan 2 when parents under plan 1 or 2. Depends if you really want your children to be under a lower plan when you are on a higher one?
* The $300/day hospital benefit for staying in the lower ward is the highest among all insurer.
* For those who do not mind self-insuring himself or herself a larger portion of the bill and save by getting the free coverage for children, Aviva will be a good choice.
* NTUC Income stands in the middle between Aviva and the rest by covering 90% of a bill capping at $3k.
* The cover is rather comprehensive and premium are reasonable across all age group.

Which one the best?
* There will not be an answer because everyone view each benefits different. Some wants the least, some wants the most, some wants in between. Your adviser will guide you along in your decision.

Disclaimer:
The above information is not a comprehensive guide and may not be 100% accurate. It contains much of my personal opinion and you are free to agree or disagree with them.

One Year Free Term Insurance

Someone giving free lunch
I get to learn of a big IFA firm giving one year free term insurance from a particular insurance company(Insurer A). This is probably a marketing tactic to create new business for the company and their advisers. I get to know about it when one of my prospects went to that IFA firm and took up the Sum Assured that I’d recommended. The premium from that insurer is about 10% - 15% higher than the insurer(Insurer B) I’d recommended. (Example $1,190 Vs $1,060p.a; $130 more expensive).


Analysing that free lunch
On analysing the remuneration structure from Insurer A, they are paying 60% commission and 95% over-riding to that IFA firm. This means that the IFA firm will get 60% + (60% x 0.95) = 117% of 1st year premium. For a premium of $1,190, the firm will get $1,392.30 as first year commission. We have not factored the 2nd to 6th year commission which adds up quite substantially too.

What if Client surrender policy after 1 year
Even if the client surrender the policy after 1 year, the firm will still earn $202.30. Why?
The firm received $1,392.30 from the insurer and premium paid for the client is $1,190. ($1,392.30 - $1,190 = $202.30)

If 100 of their advisers submit one such case, the IFA will get a revenue of $139,230. Even if 50% of such cases lapse, they will still get ($1,392.30 x 50 + $202.30 x 50) = $79,730. Even if 100% surrender the policies, they still get $20,230.

How about Insurer B?
For the insurer B that I'd recommended, it is paying 10% + (10% x 0.45) = 14.5% as first year commission. For a premium of $1,060, the IFA will only get $153.70 commission. If 100 of advisers like me recommended Insurer B, the company will get only $15,370. Even if all 100 clients surrender their policies in Insurer A and all 100 clients keep their policies in Insurer B, the firm that recommend Insurer A will still get $4,860 more than the firm that recommend insurer B.

Whose interest was served here?

I explained to my client that he may save the premium in the 1st year but over longer term, he will incur higher premium. The $1,190 that the adviser paid for him is able to absorb 9 out of the 30 years. He will eventually pay $2,730 more over that next 21 years. He decided to buy from that IFA firm and his reason is simple. He will get the free insurance for this one year and decide next year if he wants to switch back to me. I explained insurability issue and he told me that he’ll take the risk. So was the client's interest served?

The IFA firm is smart
The IFA firm is smart because someone already holding to an insurance may not take the trouble to terminate it and the person with a large term insurance may not seek alternative view from another adviser for comparison. The client will eventually pay $2,730 more over that 30 years for exactly the same cover. There will be surrenders but unlikely to be 100% or even 50%.

I'm angry and disappointed to see how IFAs themselves are undercutting each other in such intense environment. In my opinion, client interest is not served here and this is definitely not true professionalism at work. I hope that this particular IFA firm will stop telling their advisers to do such thing and Insurer A should revise their remuneration structure.

Investing your CPF Monies

I'll like to share some common questions and answers that you may like to know about investing your CPF. Our Govt allows us to use this CPF Investment Scheme (CPFIS) to invest our CPF savings in a wide range of investment products to enhance our retirement nest egg and please take 2.5 minutes to read the 5 points that I'd summarised for you...

1) What Criteria must I fulfil before I can invest my CPF
a) Your CPFOA must have more than $20,000 if you want to invest your Ordinary Account
b) Your CPFSA must have more than $30,000 if you want to invest your Special Account
c) At least 18 years old
d) Not a undischarged bankrupt

2) How can I start my CPF investment?
a) You need to open a CPF Investment Account with DBS, OCBC or UOB to invest your OA. (Compulsory)
b) You do not need to open any investment account to invest your SA

3) What can I invest for my CPF Monies? (Note the 3 groups with different %)
* 100% of investible OA and SA can be invested in:
a) Fixed Deposits
b) Singapore Government Bonds
c) Singapore Government Treasury Bills
d) Bonds Guaranteed by Singapore Government
e) Annuities
f) Endowment Insurance Policies
g) Selected Investment-linked Insurance Products
h) Selected Unit Trusts
i) Selected Exchange Traded Funds (ETFs)

* Up to 35% of investible OA can be invested in:
a) Shares
b) Property Funds (or real estate investment trusts)
c) Corporate Bonds

* Up to 10% of investible OA can be invested in:
a) Gold
b) Gold ETFs
c) Other Gold products (only UOB offers these new gold products)

4) Do I pay tax for my investment returns?
Your investment profits and interest earned from investments are not taxable. However, dividends received are taxable at your individual tax rate

5) How about my discounted Singtel Shares? How much do I have and what will happen when I sell?
* The Special Discounted Share (SDS) Scheme is part of the Government’s asset enhancement programme to make Singapore a share-owning society, thus giving Singaporeans a greater stake in the country.
* Click here to find out how much Singtel Shares you have.

* You can sell your discounted ST shares through any Singapore Post office or if you have a trading account with a broking firm, you may sell your discounted ST shares through your stockbroker.
* When you sell the discounted ST shares, the sale proceeds will be refunded to your CPF Ordinary Account.

Buying on Trust - The Mango Saga

Along my way home last week, I passed by this stall that sell mangoes outside Pasir Ris MRT Station. The mangoes really looks yummy and I decided to buy some back for my family.

There were 2 group of mangoes on 2 different tables. The first group cost $3 for 3 mangoes and the second group cost $5 for 4 mangoes. Both group of mangoes looks rather similar to me. I tried to analyse the mangoes by touching and smelling it. No matter how I tried to analyse, I couldn't spot the difference and it prompted me asking the stall owner.

Adrian: Uncle, may I know what is the difference between the 2 group of mangoes?
Uncle: Same same. 2 group also very nice.
Adrian: Then which one is sweeter?
Uncle: Also same. Both very sweet.
Adrian: If same, why both different price?
Uncle: Price different a bit only mah. You think expensive, then buy $3 one lor.

I couldn't decide which group of mango to buy and started walking off.
Just as I stepped away from the stall, the Auntie beside the Uncle shouted at me.

Auntie: Xiao Di, this one is smoother and the seed thinner.
She was pointing at the $3 for 3 table. Immediately, I buy that group of mangoes...

********************
My lessons from this mango incident:
1) You have to know your stuff when you do sales. If you don't know what you are selling, you may lose your customer.
2) Something that looks exactly the same outside may not be the same inside. We may need help when we are not sure.
3) I am not a mango expert, I relied on that Auntie's statement to buy the mango. I trusted her fully and hope she is not lying to me.

*****************
This "Mango" saga brought me to think about those people who are ignorant about Financial Products just like how ignorant I am about "Mangoes" will tends to trust their Financial Adviser like how I trusted the Auntie about the mango.

Then I remembered reading about how Insurance companies are stepping up their recruitment drive to increase their insurance agency force from the newspaper and a blog article from Mr Eng Tiang Chuan on the implication of such move http://www.ifa-sg.com/career-of-last-resort/

I'm also not very optimistic about more new agents coming into this industry. I had met many new advisers along my career and some of them came into this industry because they saw the success of their managers, the promise of high income and the time flexibility. Some of them treated this job as temporary and was engaged with MLM, Property, Land Banking, Forex trading, etc at the same time.
When they realised that its not so rosy or attracted by other opportunities, they will totally leave the industry. Their clients will suddenly realise that they do not have a agent anymore.

Many of these new agents are told to sell only specific products by their companies and managers. They are enticed with large bonuses, posh holiday trips, etc. Some do not have the relevant knowledge and experience to identify what is good and bad for their clients and they just follow what they company and managers teach them to do.

Any ignorant prospect will have a very high chance of buying what they may not urgently need because they trust their adviser and the brand of the company.

2 things crossed my mind

1) I'm wondering if there is a need to have so many insurance advisers around.

2) Knowledge or experience can be gained over time but Integrity of the adviser is even more important in this field in order that the consumers are really getting the right plans.

Disclaimer:
There are good and bad advisers, whether they are fresh or old. I'm not against any new adviser when I wrote this...