A Simple Principle

I have a simple Principle which may not be good for a Sales Person like me. (Whether I like it or not, I have to admit that my income comes from the sales that I made, not the advice I provide)

When I recommend a proposal to my clients, I always asked myself if this is the best value that my clients can get and am I able to return him with good value with what he pays me for.

When my heart is able to give me 2 "yes" answers, I can talk very convincingly. If there is a "No", I will talk confusingly.

In order to get 2 "Yes", I will likely be paid lesser for the benefit of the client. My only hope is that my clients and prospective clients understand and appreciates this.

I hope you like the Cards and Calendars

Its another 10 days before the year ends. It took me several days to write my messages, organise and print all the cards and calendars for my clients and friends. I took a picture before I put them into the envelopes.

I sent 400 cards and 100 calendars this year. I believe most of them had reached their respective owner. If any of you who receives the cards or calendars and saw this posting, I hope that you find the cards lovely and will like them. I'll like to wish you a very Merry X'mas and Happy New Year again. May the best of Luck, Health and Wealth accompany you into 2010.

Without all of you, I'll not have survive this industry for 6 years. I'll be into my 7th year in February 2010 and I look forward to your continual referrals, trust and support. Just to take this chance to express my gratitude and thank you once again...

Views from Warren Buffett and Bill Gates (1)

On November 12, 2009, Warren Buffett, MS ’51, and Bill Gates met with more than 700 students from Columbia Business School in a town hall event, which was filmed for global broadcast by CNBC. Buffett and Gates responded to questions from the student body about the economic crisis, capitalism and areas of economic growth in the United States.

They also gave career advice and discussed the mentors and habits that played a role in their success. I just like to share with you some of these questions and responses that cover topics such as their immense wealth, optimistic attitudes, success and business philosophies.

Over the course of last year, was there ever a time that you had doubts about capitalism and about our way of life?

Warren Buffett Response
No, there was not a time. If there had been, last September when we invested a lot of money, that was when the country was looking into the abyss. The money was flowing out of money market funds. The commercial paper market died and everything.

We put $8 billion to work in just a matter of a few days then. So I never lost confidence in the system. This country works, you know. We got 200 years of proof. And it’s going to continue to work.

Bill Gates Response
Well, we have a complex financial system which we have proven that we can make mistakes. But more fundamental than that is the innovation, the fact that you can create new companies, that people are willing to take risk and invest, that there’s great science going on.

This country still has the best universities, the best science, and we’re going to tune our system of capitalism, you know. The idea that you have a lot of short-term loans covering long-term needs, the amount of leverage that was there, there are definitely some lessons. But the fundamentals of the system, a marketplace-driven system where we invest in education and a great infrastructure for the long-term, that’s continued.


And you know, I’ll bet there are some inventions that took place in that fall in the darkest hour: People were working on new drugs, new chip, new robots and things to make life better for everyone in the decades ahead.

Source: Warren Buffett and Bill Gates - Keeping America Great Interview / 12 November 2009 at Columbia University

System and Discipline

My non-investment clients or friends always pop 2 questions for me “Should I buy or sell now? or “What to buy and sell now?”

They always expect that I have inside information and able to give them “Tips” on making quick money. When they realise that I don’t have any inside information to fulfil their expectation, they will go back into the stock market and look for their quick money investments.

Clients often have an unrealistic expectation of advisers and advisers who are able to make them believe that they are able to fulfil their expectation will make a sales. However, are advisers who are not able to create such impression deems as incompetent?

Some advisers who focus on returns can invoke greed of the client. Some adviser who warns on the volatility of the market will invoke fear of the client. The fear factor is frequently stronger than the greed factor and many will choose not to invest. As more people around them makes money, the greed factor will over the fear and start chasing the hot trend.

You can call me a boring adviser but I believe that the crux of investment lies in having the discipline and system in place. My value as a financial planner is to create an environment where I can instil the right attitude towards investment into my clients.
I’m not able to predict the future nor time the market but I’m able to create a system whereby risk and returns are better controlled. I let them see the 2 sides of investments which is risk and returns so that they go for sustainable yield and not extraordinary yield.

As we comes to the end of 2009, I really like to say the following again.
1) Look Long Term
If you invest into a business or property, you will look long term and willing to accept some volatility. As an investor, you align your time horizon accordingly and don’t let the short term noises affect you from investing.

2) Know the difference between gambling and investing
When you gamble, you look forward to returns day after day and hope it can doubles in as short time as possible. When you invest, you look towards a sustainable yield and with a target in mind.

3) Invest with a system and with discipline

Successful investing is often dull, requiring discipline and lots of studies. It is the system in place that gives you the assurance of risk and returns.

I have the relevant knowledge of the market and economics. I am able to help control risk, select suitable products and impart some knowledge that you may not been looking into such as fund expenses, consistency and performances among its fund group peers, etc

Having said all the above, I'm have to disclaim that I'm clueless about any specific hot stocks, hot properties, hot business. Do not have unrealistic expectation about me and my ability.

Martingale Betting System

I remembered teaching a friend about the Martingale System over a casual chat sometimes back before he went Genting. I only thought about it and never tried it.

I told him that a roulette will produce odd numbers, even numbers or Zero (18-18-1)
It can also produce Red numbers, Black numbers or Green number (18-18-1)

The probability of odd, even, black or red is almost 50% if we disregard the green zero.
However the probabiliy of straight odd, even, black or red get lower as they appears more times in a row.

Probability of 1 odd/even is 50%, Probability of 2 straight odd/even is 50% x 50% = 25% and 3 straights are 0.5 x 0.5 x 0.5 = 12.5%, and so on.

I told him that he shall not place any bet until there are 3 straights odds/evens or blacks/reds. i.e, he shall only place from the 4th bet onwards which means at the point when probability is supposedly 6.25%. He shall bet strictly only when any of the above conditions is fulfilled.

He shall start with the lowest bet which is $10 on the 4th set. If the outcome is same again, he shall put in $10 x 2 = $20 in the 5th bet. If he wins the 5th bet, he will win $20. This $20 will cover the initial $10 that he lost. If the 5th bet turns against again, he shall put in $20 x 2 = $40 in the 6th bet and subsequently $80 in 7th bet, $160 in 8th bet, $320 in 9th bet, $640 in 10th bet, etc till the limit set by the table.

The probability of 5th straight is actually only 3.125%, 6th straight is 1.5625%, 7th is 0.78125%, etc

My friend called me when he was in the casino. He thanked me for teaching him this method, he told me that he had won nearly $200 from the system and his highest bet was $160. I told him that if he win, he beter leave the place.

Too bad that my friend continued and his losing streaks came unexpectedly with 6 times odds, 1 times zero and 3 times odds again until he have to put in $1,280 in the 11th bet. He gave up as he had lost all his chips and not williing to use his credit card(Glad he did that) for this 11th bet which turns out to be odd as well. He had lost $650+$640 = $1,290 on that table and spent nearly 4 hours there. If he put in that $1,280, he will have lost $2,550 in hope of winning only $10.

You can consider this as a freak or normal incident. The probability of 12 straight is actually 0.5^12 which is 0.0244%. Its equivalent of getting 1 number correct out of 4,096 numbers. However, if you look from the angle of the next odd or even, the probability is actually still 50% regardless the numbers of times it appears prior that. I'm not going to elaborate on how ineffective this system is but you may google the word if you are keen to know more. There is also a system called "Anti-Martingale" fyi.

I will befriend Mr Pareto from today.

The Pareto Principle is nothing new to me but I had never seriously apply it in my life. I get to realise that I had spent far too much time doing things that are not beneficial to my life and career. I was trapped with all the daily mundane work and had stopped to see who are the more important people and clients around me.

Its not easy to get out of this trap that easily but Parato will be in my mind when I do it.

I had just google about Mr Pareto and found the below description:

++ Qte ++

...better known as the 80-20 rule, is based on the fact that 80% of what we achieve well is from 20% of what we do. This principle is more commonly applied to business efficiency but can be applied just as easily to any aspect of our day to day lives.

Successful people achieve more by concentrating on the 20% that matters. This means that we can eradicate up to 80% of activity during our daily routine that does not contribute towards our success by starting to do less. If you look at most successful people in the workplace, they are not the ones running around chasing their tail, staying all hours and making sure everyone else around them knows exactly how much they have to do. These people are successful because they concentrate on what matters. People who are always 'busy' are not necessarily effective. We often create a lot of work for ourselves because we don't stop to focus on what’s important.

The same is true about the rest of your life. Consider the things you do each day and think carefully about whether they need to be done or are adding any value to your life. If things are adding no value whatsoever, think about why you still do them? Maybe it's just a habit or maybe it seems important on the surface but is not really benefiting you or anyone else when you take a closer look? The best question to ask yourself is 'what is the positive or negative impact on myself or others if I stop doing this task / activity?' If the answer is 'none' then it is adding no value whatsoever.

Don't get me wrong - sometimes we all enjoy doing tasks or activites that don't seem to produce any real significant benefits but there is a benefit nonetheless and that is the fact that we are enjoying doing it! Spending time doing things we enjoy, no matter how trivial they may seem is always a benefit!

Don't underestimate the power that the awareness of the 80-20 rule can have on your life. Anyone who cuts out everything that has no benefit is one hellava disciplined person but if freeing up just some of your time each day from the mundane and insignificant means you can spend more of your time on the things that will benefit you and those around you then it is well worth considering!

++ Unqte ++

Extracted from

http://www.zimbio.com/Self+Improvement+and+Personal+Development/articles/79/The+Parato+Principle

2 lessons learnt

I received a call this evening and saw an email when I reached home. Both of them saw my blog articles.

Mr Chew called and lectured me that I did not follow up on his proposal and expect him to remind me that he is interested to buy some insurance. No matter how good my advisory ability is, if I lacks the sales instinct, I'll not survive. He reminded me to remember the parato principal and categorise my clients.

From the call, I realised that I had spent too much time fighting fire without realising that I had forgotten to harvest my corps. What he lectured about me are right and I must wake up.

As for the email I received, it had hit me hard too. "Confidence" is the word.

++ Qte ++

Dear Adrian,

I chanced upon your blog and decide to invest 5 minutes on you.

I will not comment on your capability or intelligence but I think you lack self esteem. You can read some motivation books to change your mindset and to regain confidence.

Only when you start believing in yourself, your career will pick up and attract positive people to buy insurance from you. I think your industry is about building trust and with confidence, people will feel it and will trust you more. Successful people are not necessarily intelligent, they can be simple people who are just more confidence than the rest.

You don’t looks very old to me. Try 2 more years and see if this industry suits you. Find successful agents, stick to them and learn from them. Be a child again and find out when you lost your self esteem. Start loving, believing and trust yourself.

God bless.

Vincent

++ Unqte ++

(I shall close on this topic and keep this article to remind myself what I went through. I will do well and 2010 will be the year.)

One terrible client I remembered

Writing the previous post reminded me of one client that I met few years ago. From this, you may be able to see how stupid and easily bullied I am.

James(Not real name) had taken up a $32.50 endowment policy from me through the Army camp talks that I went. 2 months later, the policy went through and policy sent to him.

3 months later, I was on duty in NTUC Income Centre and a man rushed in to find Adrian Khiat. I went up to meet him and to understand what the problem was as I had never met that guy before. I got to know what he is Jame's Father.

He was shouting at me at the NTUC Income counter over "Why I did not help James apply for a NTUC Link Card after the policy was approved." He really scolded me and said that I had caused him inconvenience over his inability to get the linkpoints when he do his shopping the next day. I was quite sad and I put all blame on myself as if I'm wrong. I blamed myself for being incompenent and for not calling all those Army Boys from that particular BMT Company if they wants a linkcard after policy approval.

I remembered that it was a Friday and he wanted me to get down to his place at Whampoa Drive early Saturday morning 9:30am and wants me to go shopping with him. He wants to use my linkcard with my presence and I have to reimburse whatever linkpoint savings I got from his purchases.
I thought I was in the wrong for "NOT HELPING JAMES APPLY NTUC LINKCARD" and I really make my way down to Whampoa at 9:30am sharp. I called his hp and he told me to wait downstairs. I waited for more an hour and called again. He told me that he decided not to go shopping already and tell me to go back home.

Thinking back, I know I'm stupid but back then, I was depressed as if I'm such a lousy adviser for not helping James with the Linkcard. I think I take too much responsibility upon myself most of the time and I will feel very sad when I disappoint someone else. I'm not surprised if the next person use the same tone to shout at me today and I'll do the same thing because I may not know how to reject the person when they insist their way. Is it true that nice people will just get bullied or I'm simply stupid?

Getting complained

One Client just called me and passed a lot of negative remarks on me. I felt so lousy now. Why I always allow others to scold me again and again.

Her son was borned prematured on 19th October. She called me to sign up an Shield Plan for her son on 1st November. The case was submitted on 4th November and insurer acknowledge it on 10th November. Probably that her son was borned prematured and his weight was very low, the underwriting took a bit longer and cannot be approved by 15th of November and hence policy cannot be commenced by 1st December. The earliest date of commencement will be on the 1st January.

She insisted that I told her that the policy will commence on 1st December and now probably going to complain against me for misrepresentation that I'd promise a 1st December commencement date for her baby.

I felt sad and frustrated with all these Shield Plans. Heavy Administration work, Very problematic and stringent underwritings, very easy to claim, earn peanuts and get scolded. I also lost a prospect as I look forward helping them with a more detailed planning.

B1 or A1 ward?

I was talking to one of my client last week whose teenage son was discharged from KK Hospital recently. His son stayed in B1 ward over 3 days, which is 4-beds per room ward.

He complained that he really regretted choosing the B1 ward and wants to upgrade his Medical Insurance asap. I told him that it will be very very tough for his son to get a shield plan upgrade considering that he was just discharged from hospital and need months before full recovery. He was more disappointed that he could not claim a single cent because the bill was within the deductible of $2,000.

Beside his son's bed was another boy. The boy comes from a Malay Family. They have 4-5 siblings sitting around, even on the floor day to night, making a lot of noises. The parents bought nasi lemak to the hospital room for the kids and the room was filled with smell of food and chilli. During the night, they have large group of friends and visitors coming to the room as if there is a party. My client and son was very irritated.

Well. I think this is one difference between a A1 and B1. I think C wards can be even more interesting if you are lucky. For me, I have the choice to stay wherever I like if I'm really hospitalised, including going to Private Hospitals if there is a famous doctor or surgeon there which I want to seek treatment.

Do you have a choice?

Is regular premium policies affected by 1st Apr 08 CPF ruling?

Just some sharing of a question that I was asked today.

"I have only $12,000 left in my Ordinary Account now and I have a regular premium Endowment plan which I used CPFOA since 1995. Will I be affected by the $20,000 cap set by CPF Board in April 2008? Must I use cash to pay for the premium if I am to continne with this plan?"

The answer is "No". You can also continue to pay for your agent bank fee and to service the future premiums of your regular premium insurance policy even if your Ordinary Account balance falls below $20, 000 after the 1st April 08 Ruling.

However, this does not apply to recurring single premium insurance policies or regular savings plans for unit trusts.

6 claims this week!!!

It was a busy and stresful week for me but unfortunately nothing to do with income generating but time taken away from me to generate more income.

I don't know what happened this week. I normally receive one to two claims per month but this week, I received six!!! My zodiac star probably went out of position.

4 Incomeshields, 1 Personal Accident and 1 motor.
For the Shield Plans,
1 due to H1N1 in Malaysia (2 yr old boy)
1 due to Piles Removal
1 due to Prostate Enlargement
1 due to a 3 days Observation (Weak Heart and bloated stomach)
For the Accident Plan, the child fractured his finger
For the Motor Plan, its a 3rd party claim against another driver.

For the H1N1 case, I received so many calls from the worried mother in Malaysia asking if his insurance is claimable, asking what I need to get from doctor, asking if I need to send her form, etc. For the rest, they all called me to ask if the insurance is claimable.

I was very stressful to be asked "My insurance can claim or not?" because I cannot be absolutely sure everytime and I'll be stress until the payout is made.

Once payout made, I'll need to help clients with the pre and post hospitalisation bills. This is when the busy time comes. For some cases, I will need to bring claim form, fill up for them and monitor the claims process.

For the Motor case, I'm also stressed because the accident happened in the early morning 7:30am when I'm still in bed. My client sounds agitated and asked me what to do at the scene of accident. I had a very late night and was very tired. It took half a day before his car are sent to the workshop and he kept calling me from time to time.

Claims is part and parcel of our profession and I very sure that I'm probably doing more claims than other advisers due to the large no. of Shield and PA clients that I have. I know the type of common claims and I have a good idea on the type of bills to be expected. For certain medical conditions, the bill can still be sizeable even when you choose the B2 ward. Medishield alone might not protect you adequately. I'm speaking from my personal experience and I hope you can be proactive in ensuring that you get protected early.

Unburden those bills!

I received an email from a lady called "Jennifer Lohan" indicating that she like to share this article via my blog. I feel that its a good read and I hope to share this with you guys too.

++ QTE ++

How to pay off bills is a common question that haunts the minds of almost everybody. Paying off your bills fast needs both effective planning and discipline. If you owe more than what you earn every month, then it is really something to worry about.

However, there is hope for you. You can slowly pay off all your bills by following some useful tips. You just need to remain patient and careful.

The following tips would help you get an idea about how to pay off bills without troubling your finances:

Step 1: Work out the total amount of your debt.
Using credit cards carelessly frequently keeps you out of touch with your finances. You would require a clear understanding of your financial condition if you wish to create a feasible plan to come out of debt quickly. Assemble all your bills (loans, credit cards and so on) and sum up the amounts due to work out how much debt you have.
Take a note of the minimum monthly payments, the interest rates and due dates for every bill. Talk to your creditors for bargaining reduced interest rates. Your debt burden is lowered by reduced interest rates and then it becomes simpler to pay off your bills soon.

Step 2: Create a repayment strategy.
If you owe money to numerous creditors, pick out the one with the minimum balance owed. You must try to pay them in the beginning. At the same time, you must continue making the minimum payments to all other creditors barring the one you've chosen for payoff.
While creating a repayment strategy, research your needs why you wish to pay off your debts soon. Usually, working on something with a particular goal would better your odds for success.

Step 3: Evaluate your income and expenditures.
Note down and analyze your income and expenditures cautiously to get the money you would require to make additional payments on your targeted debt. Search for areas where you can reduce your expenses. Cut off your vouchers, carry coffee and lunch from home, choose basic rather than premium cable and so on.
Seek opportunities to save and raise your income (selling items on eBay, carpool, delivery business or switching a pastime into an income-producing activity).

Step 4: Put all your money that you save towards your targeted debt.
If you can, make weekly or bi-weekly payments to lower your average daily balance. Finance charges are calculated on the basis of this balance. You can make this payment arrangement simply through adding your creditors to your online banking service. Once the money is available in your account, you only have to click and the online payment is made.
Just keep on doing this again and again till you get out of debt. Select the debt with the next lowest balance and utilize your funds (including the funds that you were using to pay down the debt with the lowest balance) for paying this bill.

++ UNQTE ++

When I tried asking who she was, she replied:

Very nice of you too have checked my domain. Honestly, I would't care much to mention anything about myself but I would rather be glad to give all the credit to my friend Jason Holmes. We worked out the post together and I am from the United States of America . Singapore is a wonderful place to be in.

Author : Jason Holmes is one of the financial writers associated with the Debt Consolidation Care Community. With his in-depth knowledge and vast experience, he has made a profound impact through writing and advising on all debt issues and has presented useful tips on debt. His remarkable guidance and support has improved the community into a global hub for the debt related situations.

Starting an Investment Plan(3)

Step 5: Funds Selection
As Financial Advisers, one of the thing we can do is to help select funds for our clients. There are hundreds of mutual funds in Singapore and it is a challenge to find reliable fund managers to be included in our portfolio. Other than the recommended funds from our i-fast and Navigators platform, I try to find out more about other funds as well if they deserve recommendations.

I will first get to http://www.fundsupermart.com/ website to download all the funds info by asset classes and geographical allocations. The usual ones I download are Equities: Global, Asia Ex-Japan, BRIC/Emerging Markets, China, Latin America, Bonds: Global, Asia, High Yields.

I’ll transfer the funds information to my excel spreadsheet and use a colour coding system for 4 criteria namely 1,3,5 years returns, Sharpe Ratio, Expenses Ratio and Fund Size to select up to 4-5 funds. For those without long term track record, I’ll check out its mother fund in http://www.trustnetoffshore.com/ for guidance.

With the 4-5 funds available, I’ll check out the Lipper Website http://www.lipperleaders.com/ to check out their Returns Consistency and Preservation Score. I’ll then check out the Morningstar website http://sg.morningstar.com/ to check out the Alpha, Beta, style box, PE and PB ratio.

On completion, 2 or 3 funds will remain in my respective portfolio and the same process of review will be conducted 6 months later.

Step 6: Review and Rebalancing for Clients
I’ll print all my clients statement and manually key in the returns into my excel monitoring system. I know exactly how much their equity allocation and return is as per beginning of each month. I also set alarm function into my funds monitoring system to inform me when my clients portfolio reaches specific profits or loss. When this happens, I’ll evaluate if action is necessary at that stage to review allocation or to rebalance. For some clients, I also set alarm function for specific funds where I’ll be prompted when it reaches certain price.

For my clients, I email them my views on the global economies every 1st week of the month. I'll try to email specific report to some clients on a quarterly basis and to meet up at least every half yearly or yearly. For those with smaller investments, the meeting shall most likely be on a yearly basis.

The process of Funds Selection and Funds review are very tedious processes. I hope I'll be able to engage a part-time staff to help me with these 2 steps in future.

Hai Sing Golden Jubilee Dinner

Hai Sing Catholic School celebrated her 50th Birthday yesterday at Suntec Convention Hall. I am always proud to tell others that I belong to the 1st batch of boys in the school when it moved from Hougang to Pasir Ris in 1990. Thinking back, 19 years had passed and its really great to see many friends and ex-teachers who had left deep memories for me and my fellow classmates. For my batch, we had nearly 2 tables filled where we arrange via "FaceBook". Facebook is really powerful and it had keep quite a number of us in touch.

At the entrance, this picture caught my attention. I was standing on the top right corner and I have a good laugh with my friends just to see how much we had changed. Its probably one of the sports day in Secondary 2 or 3.

The dinner was quite boring with all the talks and slideshows initially but things get lively when all these ended. Our table became noisy and we joked about old days again. We quickly walked around and meet our ex-teachers.

The one in the picture is my ex-Chinese Teacher who taught me from Secondary 2 to 4. I was really happy to know that she still remembers me and her impression about me is that I'm a very quiet boy sitting at the corner of the classroom. There are many other photos taken but with my friend's camera. We are very proud to tell all our teachers that almost all of these first batch of boys are well established in our career.

The dinner ended with our school song and one Catholic song which we sang every Moday over my 4 years in Hai Sing. I really sang it loud and clear with my heart.

I encountered something more juicy today. A lady, one year my junior, approached me and asked if I'm Adrian. I replied positively and she told me that she remembers me quite vividly. I was puzzled because I don't know her at all and she is one year my junior. I tried to probe further by asking which CCA she was from and she replied "Choir".

I was more puzzled because I never even know that there is a Choir in my school. She can even tell me that I'm from NPCC. I again probed why she can remembers me, she din give me a direct answer and the conversation stopped shortly as we get busy with other stuffs.

I may never have an answer as of why she remembers me as I din get her contact and I very sure I'll not recognise her if I'm to meet her again. However, its quite a nice feeling to know that Adrian Khiat, being such a low profile guy in Hai Sing Catholic School, so many years ago, actually have a lady, one year his junior, who remembers him. I always thought that I'm such an insignificant guy that nobody will ever even notice me in the past.

Starting an Investment Plan? (2)

Step 3: Agreeing on the Asset Allocation
Determining on the asset allocation is the foundation of my client’s investment plan. The 3 asset classes are Equities, Fixed Income and Money Market.
Equities are more risky but offers potential to get higher returns while Bonds are able to get reasonable returns with lower risk and money market are shorter duration bonds of as short as 1 year which are even more stable than normal bonds.

We’ll agree on the percentage band of equities in the portfolio depending on the client’s risk profile.
For example, Growth Portfolio (60% to 80% equities),
Aggressive (70% to 90% equities), etc.

I adopted some suggestions from Larry Swedroe’s book “What Wall Street Doesn’t Want You to Know” as a guide on the maximum equities allocation to be recommended on top of what my company suggested.

a) Investment Horizon ==> Maximum Equity Position
<3 yrs ="=""> 0% Equity
4-6 yrs ==> 30% Equity
7-10 yrs ==> 70% Equity
11-20 yrs ==> 90% Equity
>20 yrs ==> 100% Equity

b) Maximum Tolerable Loss ==> Maximum Equity Position
5% ==> 20% Equity
10% ==> 30% Equity
20% ==> 50% Equity
30% ==> 70% Equity
40% ==> 90% Equity
50% ==> 100% Equity

Step 4: Designing Core and Supplementary Portfolio
I’ll separate the Equities portion into Core and Supplementary Portfolio. The Core Equities position will mainly be global and regional diversified. The Supplementary portfolio will normally be more speculative such as single country, futures or sector funds such as technology and financials, etc. The rest will be in Fixed Income and Money market.

I believe in diversification with bias towards specific sectors or countries instead of diversification to the extent that I’m forming a fund for global equities or global balanced fund.100% of my clients are managed via a portfolio manner.

Example of a Core and Supplementary Portfolio

Core Funds
Global Equity - 20%
Global Resource Equity - 10%
Asia Ex-Japan Equity - 30%

Supplementary
BRIC Equity - 10%
Asia Financial Equity - 10%

Fixed Income
Global Corporate Bond - 10%
Singapore Money Market - 10%

There are so far none of my client whose money are parked in just 1 or 2 funds other than those under RSP (Regular Savings Plan).

(To be continued...)

The people who will pull you up

I received this package in my office this afternoon. I met this person once for a cup of coffee. He subsequently referred his daughter and son-in-law to me for Financial Planning.

What I want to say is that "There are people who will pull you up when you are down". Its always the little thoughts from someone else that will make your day.

Thank you, Mr Foo...

Starting an Investments Plan?

I was questioned some clients on my capabilities in investment and asked to view my portfolio before they are willing to part their money for investment. I’m a very straight talking person and tell him that I’m a poor man. I don’t have much to invest; I don’t have a fantastic track record of investing on my own. I also don’t have a long track record of managing client’s fund.

I’m honest about my own capabilities that I’m not an investment guru or genius who can promises high returns without taking significant risk for my clients. I can't spot the top or the bottom and I’ll not switch funds as often as they buy shares and I shall follow a systematic and disciplined methodology towards investments.
For those who feel that I'm not capable, I’ll wish them well in looking for the adviser with the crystal ball. They are very likely do better than me. I help those who don't know or have no interest to know what to do.

What are the steps I took before investing my clients’ money?

Step 1: Letting them understand why they need to invest
After completing their financial plan, I’ll get to understand their assets available and their short to long term financial goals. This is important in the time horizon point of view and the necessary rate of returns to achieve their goals. We will discuss if taking some risk is necessary for them.

On segregating their assets and accumulation plan meant for specific goals, they will appreciate that this particular investment is meant for what purpose and for how long. I must manage their expectation that I’m not trying to make as much money in as short time as possible. My objective is to remove the fear and greed element towards investment.

Step 2: Going beyond Risk Profiling Survey
The questions set by the insurance company or financial advisory firm may not be sufficient to determine the risk profile of the person. I cannot simply use 5 or 10 questions to determine what my client should invest. I need to apply some judgment and commonsense to understand him beyond that 5-10 questions. If the survey shows him to be a particular investor type, it doesn’t mean that he will belongs to that group automatically.

3 aspects are normally surveyed in a Risk Profiler namely
a) Time Horizon and Ability to take Risk
b) Experience and Willingness to take risk
c) Objectives and Needs to take Risk.

Example (1)
A 35 years old man, having strong positive cashflow, desiring a specific retirement lifestyle but not willing to take risk and the questions he answered show that he is conservative. If I am to recommend a conservative portfolio, he may never achieve his retirement goals.
Example (2)
A lecturer, retiring in 2 years has moderate ability, highly willing to take risk and desiring a moderate retirement lifestyle, but had and agressive score for his risk profiler. The point here is that he may not have the need to take high risk in the first place, why go aggressive?

(To be continued...)

Busy busy with many shield plans lately (34 pages of paperwork including a story from how I meet him and how I convince him to buy a shield plan + 1 hardcopy file open for each case + photocopy and scanning before filing + chasing underwriters + data entry + send, deliver, explain policy etc all for peanuts earnings)... no time to write...

Meet and Greet Breakfast with Financial Times

I accepted an invitation from Financial Times PR Agency Fleishman-Hillard for a Meet and Greet Breakfast with Financial Times late last month. I believe that they had invited many bloggers who write about Financial issues for the breakfast session. I accepted the invitation because I was pondering "Why not"? Free breakfast, free talk and force me to start the day early.

The breakfast serves as an introductory meeting for bloggers and FT Regional Online Director Hiroko Hoshino where she updates up FT.com's new initiatives and the recent launch of http://www.howtospendit.com/. Her objective is to help bloggers get easier access to search for credible news, information and commentaries via the FT platform so that we can write better and quality articles.

Mr Kevin Brown, FT Southeast Asia Bureau Chief was also present to showcase the strength of Financial Times and their articles. He also briefly shared on the trend of readership locally and worldwide and reveal why they are able to achieve the unprecedent rise in readership.
I gave my comment about the readerability of the howtospendit.com and that it is not suitable for the local market in Singapore. I also commented that most people will be contented with the Bloomberg and Thomson Reuters news where they provide news for free. Financial Times only allow 2 articles for public and 10 articles per 30 days for registered readers which is far too little.
Kevin replied by giving a lot of examples on how different FT is from Bloomberg and TR and cited that to enable quality articles to be written, good and sharp editors should be retained.

I was sceptible with what he said and I registered myself in FT.com and started to read some of their articles. I noticed that it contains many analysts who write without vested interest compared to those written by Fund managers. I can find investor's view on all regions and even commodities and currencies.

I was given a 6 months free subscription to FT for attending the breakfast session. Good chance for me to use their info for my future postings.

Financial Plan for Charity Program

I had did about 6-8 financial plans per month of which I had never collected a single cent for the hours of analysis, comparison and thinking which adds up to nearly 10 hours for each plan. I had tried asking if they will be willing to pay for what I did and most will reluctently say "Maybe".

It might be that my work is indeed not good or I'm simply not good enough to project what I did for them is worth paying for.

I decided that my time should not comes to nothing. Even if the person don't pay me, I must let the recipient of my financial plan part with some money for the time I spent. I had tried the "Financial Plan for Charity" program for a month and I think its quite successful. I'd managed to convince 4 people to donate last month. I am happier and more motivated to do my planning now.

In my first meeting, I'll let my client know about my initiative for the less fortunate. I inform them that they can select any of the 3 charitable organisation to make a donation after I presented my financial plan. I will emphasize that any donations will be voluntary.

Donation can be as small as $10 via cheque or Credit Card. There will a self-enclosed envelope so that I'll not be kept in the loop and Credit cards details will not be revealed to me.

The 3 charitable organisations I'm helping now are:
Children Cancer Foundation - http://www.ccf.org.sg/
Home Nursing Foundation - http://www.hnf.org.sg/
Society for the Physically Disabled - http://www.spd.org.sg/

Its a win-win-win case. I win because my time are not totally wasted. The charity win because they gain a bit of funds from the public and my client wins because they will get 2x tax rebate for the donations made and hence a reduction in tax payable.

Cost of surrendering an insurance policy(2)

I'm not against surrendering a policy if necessary but we must understand why we do it and one least likely reason should be terminating current plan to buy another plan.

I like to share the steps to take before you finally decide to terminate any policy.
1) Compile all your insurance policies and go through a risk management analysis
* We must first know what we have and know what we need before we can evaluate if that policy should exist in our portfolio.
* We should understand if this plan is able to give us the necessary protection or the necessary savings component.

2) Understand the benefits of your current plan
a) The potential returns?
* Ask for the latest Benefit Illustration from the Insurance company. If you are not looking for the protection component, are you looking for the wealth accumulation part?
* If the policy have been around for many years, the cost of the policy would have already been incurred many years ago and the yield looking forward can sometimes be very attractive.
* There are some policies that gives attractive anniversary bonus which can be worth waiting for if its only 2-3 years down the road.
b) The terms and conditions?
* Some older policies have terms and definitions which are beneficial to the policyholder.
* It can be such that the TPD or CI definition be less stringent on the insured compared to current definition.
.* If one is to surrender the plan for a new one, he/she will have to adhere to new definitions
c) The cost of protection?
* As the policy could have been purchased many years ago, the cost of protection could have increased compared to if you get the same coverage today.

3) Are ILPs really that bad?
I do not recommend regular premium ILP if the person do not have it now but if the person already have it and already have it for a couple of years, I'll not tell him/her to surrender it? Why?
a) The high cost of an ILP is already paid in the initial years
Since the future cost is considerably low, then we should reap on the benefits of what an ILP can give us and not to just terminate it.
* Some ILPs gives as much as 108% allocation after X years, this will help you accumulate funds faster
* Most ILPs offers yearly renewable term insurance which gives very high coverage at very low cost. If the insured is still young and have a high dependency needs, why not just let it continue to enjoy the low premium?
b) How about the high mortality cost in later years?
* It will be tricky if the insured purchased the ILP in his/her lat 40s or 50s because they would not have accumulate much fund in the policy and yet have a high mortality cost to pay.
* For such circumstance, they have to evaluate if their current needs warrant a high insurance coverage. If yes, then they may have to review their policy more regularly to reduce the Sum Assured when their investment value increases.
* There are some ILPs that take into account the accumulated investment value to reduce the insurers "Sum at Risk". When the Sum at Risk reduces, the cost of insurance will reduce as well.

Is there a need for a Limited Premium Whole Life policy?
* I dislike the idea that the policyholder is told to buy another whole life policy simply because the current Whole Life plan is not a limited premium one.
* The concept of a Limited premium whole life plan is to ask the insured to pay XX% higher premium compared to a regular premium plan so that the XX% extra premium collected can be used to fund for future premium payment.
* This concept can actually works for many regular premium whole life plan because they can be converted into a "paid-up" value policy where the insurer use the current cash value to calculate the sum assured that the insured can enjoy even if he/she stops the premium today.
* It is unfortunate that it is difficult to calculate the "paid-up" Sum Assured if the insured is to continue the premium payment many years down the road and many people will eventually prefer to buy another whole life policy as they would have the numbers to see.

Is your needs the highest when you are old?
* Many advisors like to say “When you are old, this is the time you need insurance most because you have the highest chance of contracting it”.
* Highest chance = Highest need? In my opinion is flawed. It actually the reversed, the needs are lower when we are old because its very likely that
a) Our dependents are independent
b) Our liabilities have reduced
c) Our assets have increased
d) The person might have already retired and not necessary to protection the loss of income
e) Risk appetite for investment reduced with lower risk of major investment fluctuations, etc
* We should be concern with accumulating that asset to self-insured into our older age instead of getting more whole life policies to achieve it.
* We should be concern if we have a good medical and "Long term disability care"coverage into our retirement years.

Restructuring of insurance portfolio can be necessary at times but do not fall into the situation whereby you terminate your ILP or Whole Life plan unnecessarily or worst, buy another whole life plan simply because it is limited in premium.

Cost of surrendering an insurance policy

I get disturbed if I get to know of any advisers asking their clients to terminate their Whole Life Plan or ILPs for certain reasons. I'm not against terminating an insurance policy if due diligence been made but my observation is that some advisers do not advises properly before asking their client to terminate their existing policy.

One common objective of these advisers who asked their clients to terminate their Whole Life plan or ILP is by asking them to buy another Limited Premium Term Whole Life Plan. Even if they can’t convince them to surrender the existing policy, they will still tell them to get one more whole life plan as if a limited premium term whole life plan is a “must have” type of policy.

When these advisers see a regular Whole Life Plan, they will emphasize to their client that they have to pay whole life for their whole life plan and why not switch to a limited term one? They will also harp on the point that it will tough to pay when you are retired and you may have to surrender the policy when you do not have money.

When they see an ILP, they will keep emphasize to their client that they will have to pay a high mortality premium when they reaches 60 or 70 years old and focus on the fact that the mortality charges will exceed the premium paid at certain age. They will further harp on the point that they will not get the necessary cover when they are old. They will also like to say “When you are old, this is the time you need insurance most because you have the highest chance of contracting it”.

What they said are not entirely untrue and some of them sincerely do have client’s interest at heart but they may not realize the implications for doing so.
Some of these advisers did not bother or do not know how to analyze that existing policy’s future projections or failed to see the benefits of the existing plan in their current situation. They simply harp on the “Whole Life” premium payment and “High Mortality cost” issues.

The above are often said by newer advisers who were taught by their manager to say all these things. The new adviser may innocently do what he/she thought is right and best for client based on what their managers teach. It is even more unfortunate that some of these managers may be practicing the above themselves and passes the wrong message to all their new advisers.

I want to reiterate that I’m not saying that all advisers or managers are what I described above but these are things that I had observed over the years on some advisers. I’ll write more in my next posting about this issue.

(I’ll not accept any comments that are not constructive)

Outing with grannies at the Zoo

I had an outing with my colleagues to the Zoo 2 weeks ago. This time was not as a young schoolboy who visits the zoo as part of school excusion but to lead a group of 50 grannies and grandpas for a day of fun. The grannies and grandpas are from the Thye Hua Kuan Moral Society (Telok Blangah Branch). I was part of the committee who organised this event.

We chartered 2 buses and we set off to the zoo at around 9:30am. The Zoo provided breakfast on arrival and we took this time to mingle with the old folks. After breakfast, we queue up for the tickets and started our walk where the old folks were happily taking photos.

We then boarded the tram to watch the animals comfortably without sweat

After the tram ride, we had a short walk to the site for Elephant Show

We proceed for lunch thereafter at the Ah Meng Resturant

It was a very simple 3 course lunch with chicken, vegetable, toufu and rice. It was simple but the old folks really enjoyed themselves.

We had a stroll again after lunch and waited for the SeaLion show which I admit was fantastic. It was around 3pm when everything ended but the rain started to pour and all of us have to scramble for umbrella and bring every old folk to the carpark where the bus was waiting for us.

The old folks was very happy after the event. They kept talking to us though I don't understand all that they said. Everything was perfect except for the rain and an incident where 2 old folks fight using their tongkat. Can't imagine old folks at 80 yrs old also fight.

Email me if you like them

I had adopted a few "President Star Charity" Bears at $10 each. I'll willing to deliver to your workplace or home personally or by despatch if you like them, even for 1 bear. But I will sell it to you at cost price. You don't need to pay me for delivery charges or my time. I'll be just happy to meet the next kind-hearted person. (Whilst Stocks Last and priority to be given to my own policyholders)

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

Breaking Barriers Carnival
A fundraising and public awareness event by Society for the Physically Disabled)

Date: 14 November 2009, Saturday
Time: 10.00am to 9.30pm
Venue: Ngee Ann City, Civic Plaza
For every $2 donation for the "Breaking Barriers" Voucher, you can look forward to getting yourself a balloon sculpture, playing the fishing game scampering on water in a giant plastic ball, getting a chance to win fabulous prizes, taking control of a powered wheelchair to complete an obstacle course and having a fun picture taken by SPD’s clients.
Also at the carnival will be a charity bazaar by SPD’s staff and volunteers as well as all-day song and dance performances and special appearances by MediaCorp artistes!

Let me know if you are interested. I can send up to 2 vouchers free of charge to your house but will appreciate if you can be there to support the event. Your contribution will play a part in empowering people with disabilities to become self-reliant and independent.

Crabby Land and the Crystalbelle Crabs

Once upon a time, a group of fishermen started to sell "Crystalbelle Crabs" in Crabby Land. These Crystalbelle Crabs are able to bring happiness and health to the people of Crabby Land. These crabs sold are based on weight and the acceptable price is $30/kg. The Crabs are sold via distribution agents and a agreed commission is paid for each crab sold.

Over time, this crab business became competitive and the fishermen decided to differentiate their crabs. They decorated the shell and increased the price to $40/kg. The distributing agents were good and were able to convince people that crabs with decorated shells should cost $10 more than the one without decorations.

Over time again, every fishermen started to decorate the crabs shell and they see a need to differentiate themselves again. They decided to "Re-brand" and called themselves "The Hip Generation" crabs producers. They spent millions to advertise and promote their crabs and raise the price of the crabs to $50/kg. The fishermen also started to pay a higher rate of commission to the distributing agents because it is harder to sell a $50/kg crab than the $30/kg crab.

The distributing agents were good and still able to sell the crabs at $50/kg by telling their customers that the decorated crabs with rebranding gives more benefits. Some were even awarded with Million Crabs Rattan Table (MCRT) for every $100,000 worth of crabs they sold in a year. The fisherman's affliated Associations then brand MCRT as if they were more professional just because they are able to sell more $50/kg crabs.

Some of these distributing agents are very well trained and started to earn a lot of money compared to the fish sellers. Some of them do not care whether the Crabbylanders need a $30/kg crab or the $50/kg crab. Younger agents are then roped in to sell more $50/kg crabs.

Some people started to realise that by buying the $50/kg crabs, they are able to eat lesser of the Crystalbelle crabs and hence resulted being less happy and healthy. These people started to query the National Crabs Association if they should stop the sales of the $50 crabs. Instead the National Crabs Association now requires the distributing agents to file a 20 pages reports as of why the consumers need to buy the $50/kg crabs and not that $30/kg crabs. However this move is not successful because the agents are trained by the fisherman to justify that the $50 crabs are better. Therefore the sales of the $50 crabs continue to soar and people pay that extra $20 for less happiness and health.

Today, there are 3 groups of people who feel that the practice need to change.

1) The first group feel that the fisherman should stop selling the $50/kg crabs and start to re-focus on the $30/kg crabs which the people needed, just how things are when the trade started. They believe that decorated crabs or non-decorated crabs brings the same health and happiness to the crabbylanders.

2) The second group feel that they should be paid a $100/hr to advice crabbylanders on how to source for the $30/kg crabs or even a $25/kg crab as they can save $5 on the distributing agents commissions. They feel that the agents will always sell the more expensive crabs because they want to earn more money. They may not need to bother if the person buy crab eventually.

3) The 3rd group feel that the shells should be removed before they are being weighed. They feel that it is not fair that people pay for the shell that they don't eat. They feel that the fisherman and agents are not ethical by selling the crabs with shell.

The 3 groups of believers faced a lot of challenges.
1) No fisherman dare to sell only the $30/kg crabs again because the sales of the $50/kg crabs are still going well. If they start selling the cheaper crab again, no distributing agents will want to work for them and their bottom line will be affected.

2) There are not many people willing to pay for crab consultancy. There was no guideline as of how much crab consultants should be paid. Crabbylanders are known to demand for a $100 job for each $10 paid.
If the National Crab Assocation is to ban commission, many crabs distributors will go out of job because they cannot be paid $10 for a $100 job. When there are less crab distributors, less people will be told the good benefits of Cystalbelles Crabs.

3) The fisherman cannot just sell the meat without the shell as their profit margin will be greatly reduced. Over long term, these fisherman will find that the business is not viable and get out of Crabbyland. When this happens, Crabbylanders may not be able to enjoy the benefits of Crystalbelle Crabs anymore.

Many supporters of the above 3 groups started to put the blame on the distributing agents without realising that it started from the fisherman. There are good and bad distributing agents but they are often grouped together to be called unethical. They did not realise that the distributing agents had played an important role in convincing crabbylanders to eat Crystalbelle crabs and are needed serve their long term interest of health and happiness into the future.

The National Crab Association don't seems to do much except designing more directives for the distributing agents and spending more money to audits them. They probably need to put more pressure on the fisherman instead on why the $50/kg crabs are there in the first place. The fisherman should design a more innovative payout schemes for their distributing agents and yet able to serve Crabbylanders' interest over the long term.

Its perfectly fine if you don't know what crab I'm talking about. Crititize me as crap if you like it because what I wrote is indeed crap. I got the idea after eating Yummy Crab along Changi Road last Sunday.

Earnings from a Term Plan

I was tempted to write about something else but since I started this topic about earnings, I might as well continue on it. Lets talk about term plans today.

I will not be using term plan to directly compare with WL plan because the Sum Assured that I normally recommend to my clients are not the type of small sum assured from Whole Life plan.

I'll take a few examples of the good Term plans around namely NTUC Income Family Insurance Plan, HSBC Mortgage Reducing Term and the AXA decreasing term plan. These 3 plans are very competitive in premium for their own class.

NTUC Income Family Insurance Plan
Example - Male age 30, $200,000 Living Rider, $300,000 Term Rider, $200/day Hospital Benefit Rider (30 years coverage)
Premium - $1,549.30/yr

First Year Comm
$1,549.30 x 10%(Commission Rate) + 45%(Overriding) = $224.64 (Paid to Company)
$224.64 x 59% = $132.54 paid to me for the 1st year.
$132.54/12 = $11.05/month for the 1st year
Renewal Year Comm
$1,549.30 x 10%(Commission Rate) + 30%(Overriding) = $201.41 (Paid to Company)
$201.41 x 59% = $118.83 paid to me from 2nd year onwards
$118.83/12 = $9.90/month average for the renewing year
________________

HSBC Mortgage Protector (Joint Cover)
Example - Male + Female age 35, $500,000 x 25 years at 4% interest
Premium - $946.40/yr

First Year Comm
$946.40 x 12%(Commission Rate) + 50%(Overriding) = $170.35 (Paid to Company)
$170.35 x 59% = $100.50 for the 1st year paid to me
$100.50/12 = $8.37/month for the 1st year
Renewal Year Comm
$946.40 x various rate for next 4 years = $189.28 Paid to Company over 4 years
$189.28 x 59% = $111.67 from 2nd year to 5th year
$111.67/12/4 = $2.33/month average over 2nd to 5th year
_______________

AXA Decreasing Term
Example - Female age 35, $1,000,000 x 30 years at 0% interest rate
Premium - $910.00/yr

First Year Comm
$910 x 16.80%(Commission Rate) + 0%(Overriding) = $152.88 (Paid to Company)
$152.88 x 59% = $90.20 for the 1st year paid to me
$90.20/12 = $7.52/month for the 1st year
Renewal Year Comm
$910 x various rate for next 5 years = $633.36 Paid to Company over 5 years
$633.36 x 59% = $373.68 from 2nd year to 6th year
$373.68/12/5 = $6.23/month average over 2nd to 5th year
_______________

As you can see above, we can hardly earns $10/mth for each of above term cases. When we do proper comparisons for our clients, these are the type of policies we will eventually recommend and it is hard to convince ourselves for other plans that pay us better. It is normal that the lowest premium for clients frequently translate to lowest comm for us.

Simple Mathematics: Calculate how many of such cases we have to do before we can earn a simple wage of $2,000/month.

In reply to Mr Tan's online forum letter

I'm not a fan of ILP at all but I like to present the other side of it and write something fairer about insurance agents. I had sent to reply Straits Times Forum. I'm not sure if they will publish it as they had rejected me before on other topics. No harm trying again.

**********

I refer to Mr Tan Kin Lian’s Forum online letter “Hidden Charges in Insurance Policies” on 13th October.

Mr Tan seems to highlight only the disadvantages of an Investment Linked Policy without writing on how the policyholder may benefit from it.
There is a yearly renewable term assurance coverage incorporated into an ILP which allows the policyholder to get the necessary coverage at a very low premium which is normally lower than a level-term plan. This will allow the policyholder to direct a larger portion of the premium into investments compared to the policyholder who gets a pure term plan.
When the policyholder is to reach near retirement age where the mortality charges increase significantly, the policyholder will be advised to reduce his coverage as his investment should have accumulated to a level where he can self-insure a larger part of the original Sum Assured and the fact that his insurance needs should have decreased by then.

Mr Tan also seems to emphasize that the unallocated investments during the initial years are used to pay a high commission to the agent. I’ll like to highlight that not all insurance companies pay a high commission. There are companies that charge the policyholder reasonably and pay the agent reasonably.

There are commissions paid to an agent for whatever plan that he or she recommends under the current environment where most Singaporeans are seemingly not willing to pay a fee for advice. Whether it’s a term, Medical or Accident plan, there are commissions paid and ILP is of no exception. The agents should be compensated for the advice, time and the years of service that he/she have to provide for the policyholder.

Mr Tan’s letter might create an impression that all Insurance agents have intent to hide charges from their customers. There are certainly black sheep in the industry but they should not be grouped together with the honest group of advisers who are transparent with their clients.
The letter might also create another impression that the insurance agent gets 100% of the unallocated investments. We must not forget that there are many other departments in an insurance company, including the CEO who are direct or indirect beneficiaries of all these funds.

I agree with Mr Tan that the current charges for ILP are generally high. I will encourage buyers to make comparison before making a decision to get into such plans. I also like to propose to MAS that they can consider setting a cap on how much the insurance company can charge for all such policy and I also look forward on more innovations from the insurers on how they can design a plan for the benefit of the policyholder, company as well as the adviser.

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Earnings from a Whole Life Plan

After sharing about earnings from a Shield Plan, I like to share about the supposedly lucrative earnings from Whole Life Policies. I like to use the word "Supposedly" because I like to share that not all whole life policies pays an advisor very well.

I like to quote 2 examples of a Whole Life plan from TM Asialife that I marketed more based on a 5 years limited premium and a 20 years limited premium plan of $100,000 for a baby girl.

I used this example because I did a few 5 years limited premium TM Legacy this year. Not because I purposely propose this plan but they requested for it after due calculation and research and their family circumstances allows them for such purchase. I pretty like this plan because it allows a very competitive premium for a larger cover under such class of insurance.

TM Legacy - 5 Yrs Limited Premium
TM Legacy Premium - $1,978 /yr + CI Accelerator - $433/yr

First Yr Comm
$1,978 x 10%(Comm Rate) + 85%(Over-riding) = $365.93
$433 x 10%(Comm Rate) + 25%(Over-riding) = $54.13
Total 1st Yr Comm = $420.06 (Paid to Company)
Renewals Comm - 2nd to 5th Yr = $316.24 (Paid to Company)
What I gets over 5 years = ($420.06 + $316.24) x 59% = $434.42
Average over 5 years, I get $86.88 / year or $7.24/mth.

TM Legacy - 20 Yrs Premium Term
TM Legacy Premium - $682 /yr + CI Accelerator - $171/yr

First Year Comm
$682 x 40%(Comm Rate) + 85%(Over-riding) = $504.68
$171 x 40%(Comm Rate) + 25%(Over-riding) = $85.50
Total 1st Yr Comm = $590.18 (Paid to Company)
Renewals Comm - 2nd to 6th Yr = $463.96 (Paid to Company)
What I gets over 5 years = ($590.18 + $463.96) x 59% = $1,054.14
Average over 6 years, I get $175.69/year or $14.64/mth.

(Above are based on a 60% banding that I'm receiving from my company right now. My earnings will drop to 55% banding by next year if I'm not able to bring in $60,000 for my company. This means all will multiply by 54% next year which translate to a drop in earnings for future comm.)

I like to put a disclaimer for myself that my priority for my clients are Term coverage for the maximum needed protection first and I have my conditions before I recommend a Whole Life plan which have never been above $100k.

Earnings from a Shield Plan

I am quite disappointed when someone wrote in his blog as if agents are unethical by selling Shield Plans. I like to be transparent as of how much I will earn from a Shield Plan to illustrate that no adviser of sound mind will wants to be unethical using Shield Plans.

I hope those who read this posting understand that the adviser who took hours to patiently explain the features, who filled up 30+ pages of documentation works in compliance with MAS regulations, who negotiate with the underwriters for substandard cases, who helped with all type of queries, who helped with claims, who update on changes, etc are NOT earning a lot of money. He is really helping people and not trying to be unscrupulous by scaring people to buy a medical insurance. If he is unethical, he will rather spend his time telling them about ILPs or Whole Life policies.
I swear that it is a lot of work for an adviser who have hundreds of clients under Shield plans.

I take the Enhanced Incomeshield as an illustration based on age 1 and 55 for Plan Basic and Preferred.

Premium for Age 1
Medishield - $33(Not sure if they include GST)
Basic - $70 ($65.42 before GST)

My 1st Yr Earnings - ($65.42 - $33) x 30%(Commission Rate) x 145%(Over-riding) = $14.10 (Total paid to my company)
59% of earnings from my company will be paid to me which equates to $8.32.

My Renewal Earnings - ($65.42 - $33) x 5%(Renewal Rate) x 130%(Over-riding) = $2.11 (Total paid to my company)
59% of earnings from my company will paid to me which equates to $1.24

Premium for age 55
Medishield - $225
Basic - $340 ($317.80 before GST)

First Year Earnings - ($317.8 - $225) = $92.8 x 30% x 145% = $40.36
My Earnings = $40.36 x 59% = $23.82

Renewal Earnings - $92.80 x 5% x 130% = $6.03
My Earnings = $6.03 x 59% = $3.56

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If based on Plan Preferred, I'll get more. Using the same calculation, I'll get
Age 1 - $22.95 First year / $3.42 Renewal
Age 55 - $90.72 First year / $13.56 Renewal

I have many clients below age 40 who like the plan preferred but very rarely for those above 50 who are willing to pay such premium.

Not only we don't earn much, our chances of not earning a single cent is very high, especially for clients above 50 as they would have many pre-existing conditions which make underwriting very difficult. The client may give up in the end.

I hope when you look at the advisor who are just doing your Shield Plan, treat him nicely and don't look at him as if he makes a lot of money from you. But of course, he must do his part as an adviser too.

Pre-existing Illnesses - Shield Plans(2)

The most common exlusion in Health Insurance is a "Pre-existing condition" exclusion. This exclusion means that any illness or disability that you have, or have had, when you sign up for the plan will not be covered. We have to also bear in mind that the definition of "Pre-existing condition" varies among different insurer.

Let us go through the definition of "Pre-existing Illnesses" clause of our Shield Plan providers.

Aviva - MyShield

means any Injury, Illness, condition or symptom:

(a)for which treatment, or medication, or advice, or diagnosis has been sought or received or was foreseeable by You or the Insured Person prior to the Insured Person’s Effective Date or the date of Upgrade or the date of the last Reinstatement, whichever is later, for the Insured Person concerned, or

(b) which originated or was known to exist by You or the Insured Person prior to the Insured Person’s Effective Date or the date of Upgrade or the date of the last Reinstatement, whichever is later, whether or not treatment, or medication, or advice, or diagnosis was sought or received.

NTUC Income - Incomeshield

Pre-existing Illnesses, Diseases or Impairments shall mean any illness, disease or impairment:

a. for which treatment, medication, advice or diagnosis has been sought or received or which ought to have been sought or received;

b. which was known to exist, whether or not treatment, medication, advice or diagnosis was sought or received; or

c. the conditions or symptoms of which existed and would have led a reasonable and prudent person to seek medical advice and/or treatment, before the Commencement Date.

Great Eastern - SupremeHealth

Any pre−existing illnesses, diseases or impairments ("Pre−existing Conditions") from which the Life Insured is suffering prior to the Commencement Date of Insurance of the Life Insured are excluded, unless declared in the proposal for (or in the application for reinstatement of) insurance of the Life Insured and expressly accepted by the Company.

Prudential - Prushield

A pre-existing condition is the existence of any signs or symptoms for which treatment, medication, consultation, advice or diagnosis has been sought or received by the life assured or would have caused an ordinary prudent person to seek treatment, diagnosis or cure, prior to the Cover Start Date of this benefit or the date of reinstatement (if any), whichever is later.

AIA - Healthshield

Pre-existing conditions which mean any physical condition or existence of any sickness or disease that was diagnosed, treated, or for which a Physician was consulted, at any time prior to the Effective Date or the last Date of Reinstatement, whicheer is later.

My observations

These are my observations about their contract wordings about "Pre-existing Conditions" as a non legal professional.

Prudential specify it as "Existence of any signs or symptoms..." and "...caused an ordinary prudent person to seek treatment". If there are clearly no signs or symptoms for an ordinary prudent person to notice it, the insurer probably may not treat it as "Pre-existing Illnesses"

AIA specify it as "Existence of any sickness or diseases...", "...that was diagnosed, treated, or for which a Physician was consulted". If the policyholder never seek a physician advise or was diagnosed with the condition, the insurer probably may not treat it as "Pre-existing".

GE don't seems to even describe the condition of Pre-existing condition properly. It only specify "Suffering prior commencement date" It do not specify clearly whether aware or not aware.

NTUC Income define quite clearly for this clause. They indicated "ought to have been sought or received", "which was known to exist" and "a reasonable and prudent person to seek medical advice". It seems to shows that if the person really are not aware of the condition or that the condition is not significaant enough for him to reasonably seek treatment, the insurer should not treat it as "Pre-existing Illnesses".

Aviva wording of "which originated or was known to exist" is not very good for the policyholder. It seems to imply as long as the condition "Originated" regardless aware or not aware, the person will not be covered.

As mentioned previously, there will be a lot of other factors to look into when an insurer decides to dispute any claims as "Pre-existing Illnesses". The wordings should not be viewed in isolation.

They have to protect their existing pool of policyholders against "Anti-Selection" whereby people with "Pre-existing Illnesses" enters the pool without declaring them properly.

Expensive Chicken Rice

A friend came to Singapore for a one day Business Trip and told me that he really craves for the Chatterbox Chicken Rice at Mandarin Hotel. He heard from a friend who came Singapore years back about this famous chicken rice joint.

I'm a Chicken Rice lover too but I know the Chatterbox Chicken Rice is super expensive and not that fantastic. I tried to persuade him to other Chicken Rice joints but failed. I eventually also feel like eating it and met him for dinner.

We went to level 39 of Mandarin Meritus Hotel that evening. The ambience is very good and we have a nice view of the city. But when it comes to the moment to order the food, I found it hard to accept that I'm going to pay $25.50 for a plate of chicken rice. I thought that it will probably cost lesser if I leave the place immediately and take a cab to Balestier Road for Boon Tiong Kee. Nevertheless, we still ordered.

The dish taste decent to me. The fragrance of the rice is up to my standard. The chicken was sufficient tender as I ordered the Drumstick and the chilli + ginger sauce are still my favourite. The letdown is the soup which taste a bit too salty as if there are are lot of MSG. The serving is also a bit too little for me. I believe a plate of plain rice will cost me a bomb and and hence did not order another bowl of rice.

I don't think I'll come back here again unless I have a lot extra cash to spend. I treated my friend as he is nevertheless a guest to my country. With GST and Service charge, 2 plates of chicken rice cost me $60+. I can never imagine that I'll spend so much money just to eat "Chicken Rice"...

Pre-existing Illnesses - Shield Plans(1)

Someone emailed me recently to seek my opinion about Pre-exising Illnesses for her Shield Plan. She was advised to switch out from Aviva Myshield to GE SupremeHealth. The adviser claims that she was in a vulnerable position due to Aviva's definition about "Pre-existing Illnesses".

I replied to her that she should look into other benefits in the long term other than this "Pre-existing clause. It is a bit too extreme to say that she is in a vulnerable position just because of the "Pre-existing Illnesses" definition.

a) Her policy was already been inforce for several years. It is very difficult for the insurer to prove that a Pre-existing condition exist prior commencement of the policy. If the insurer is to refuse the claim, they have to prove this point.

b) It is not the responsibility of the insurer to refuse a claim when it happens. The pre-existing condition clause was present to largely protect the pool of policyholders against anti-selections. Every claims should be viewed objectively with this in mind.

c) Aviva have around 100k+ policyholders for their Myshield Plan and is known to make around 5,000 claims per year. It is not heard of many cases whereby Aviva rejected claims purely based on Pre-existing illnesses.

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

Patrick Lim - http://www.patlim.blogspot.com/ wrote about it in sgfund forum and I like to share what he found out from Aviva when he asked about the "Pre-existing Illnesses" issue.

++ Quoted ++

In determining whether a condition is 'pre-existing', Aviva will determine whether there is a clear clinical association between the condition being claimed for and the clinical manifestation, diseases that may have occurred PRIOR to commencement of the policy.

If NO, the claim will be payable. At claims stage, all assessments will be made objectively based on medical reports obtained. When a policyholder develops a medical condition after inception of myshield, our approach for the 3 scenarios quoted will be:

Scenario 1
If this is not known to him/her? We will ascertain whether his/her condition would have originated prior to policy commencement regardless known or unknown to the claimant. If yes, claim will be rejected.
If no, claim will be paid.

Scenario 2
After a short time on inception of the policy?
Duration of policy commencement may not be the key basis to reject claim. We will ascertain the possible onset / duration of the illness in comparison to policy duration.
However, early claims could be easily supported as compared to policy which has been incepted for many years.

Scenario 3
Donkey years after inception of the policy?
When the policy has been incepted for many years, it would make clinical evidence difficult and most of the time we would admit if there is no symptom or treatment rendered prior to policy commencement.

Lastly the question on 'under what scenarios will Aviva admit and pay claims on pre-existing conditions', we will adopt the two broad approaches:
(1) If it is a proven pre-existing condition for 'New' policy, we will reject. But if medical information is inconclusive, we will give benefit of doubt to the policyholder and pay the claim.
(2) In the case of 'Takeover' policy, if such pre-existing condition/s would have been covered under previous Shield coverage (except MediShield), Aviva will pay.

++ Unquoted ++

Phrase from Sir John Templeton

I learnt a phrase today...(by Sir John Templeton)

"Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria."

* The bull market should have started as most people are already not so pessimistic compared to 1 year ago.
* Though not pessimistic, we are still sceptical if the bull will continue.
* If the Bull really continues, we will get optimistic and gain a lot more confidence
* However, when over confidence steps in, the bull will die and the bear comes back...

This is history and I'm happy that there are still scepticism in the market which means more upside potential for equities. Hope history repeat itself this time round...

Timing the Market?

Many of my clients are sitting on a profit of between 20% to 30% for their investments especially those who heed my advise to invest during the early part of the year. Some of them asked in May, some in June and July if they should sell their investments. I instead proposed to increase equity position and switch from Global bonds to Corporate bonds during May and June. Fortunately, it pays off.

I'm still sticking to the 60% equity position for balanced investors, 75% for growth investors, 85% for agressive investors. I try not to time the market too much and manage risk via the asset classes of equity, bonds and money markets using largely geographical allocation with bias towards Asia and Commodities.
I advocate investment with a longer term perspective. I'll try convince my clients to avoid timing the market. Its hard for anytime to give them the exact time to buy and/or to sell.

To make a market timing strategy works, you must be right 2 times. The time to buy and the time to sell. Mistake in either, you will have serious consequences towards your investments. There is a high risk that you end up locking in the losses you sufered from a fall in the market or missing out on gains when the market picks up.

Its easy to say "Buy Low, Sell High" but are we doing the opposite? We can get very emotional if the market changes direction suddenly with significant gains that can come in short burst, over a matter of days. If we are in, we will say "Take Profit". If we are out, we will say "Invest when its down". Eventually when the market is experience a bull run, most of us are out of the market but when its experience a bear run, most of us are in the market.

Look longer term and you probably be able to sleep better. At current moment, volatility is expected in the short term but I'm positive on the long.

Another year passed

Din work for 3 days. Went back Malaysia on Thursday, Celebrated my birthday on Friday and bring my rabbits for a walk on the beach + going for my YEC Bi-annual meeting on Saturday. Friday spent in Malaysia with the super cheap RM11 ktv with buffet and a RM10 movie. Cheaper, yet better than Singapore. Dinner at Outback in Singapore and hear the roaring F1 cars in town.

Time really flies that I'm older by another year again. Contrary to past years where I'm happy during birthdays, I'm getting worried with myself with each passing birthday nowadays. My 2008 birthday wishes did not materialise and I'm already 1 year older. I felt that I'm heading nowhere. My only wish is on my career this year. Simply nothing else crosses my mind this time round. My business model is not very good and I'm still confused on what I should do next.

2 shows I watched recently gave me some encouragements.
* The first scene is from the TV series "Fated to Love You" where Ji Cunxi told Chen Xinyi to say "Jia You" to herself whenever she wants to say anything to discourage herself. Why say something to discourage myself when I have the choice to say something that encourage me?
* The next scene in on Jack Neo's movie "Where Got Ghost". One of the scene show a guy proclaiming that all wealth and prosperity are useless without health. My consolation is that I'm in good health and when I still have my breath, I will still have a chance to improve on myself and just be better in this profession...