Protecting Tomorrow...

According to a research done by Life Insurance Association of Singapore in 2006. The average working Singaporean needs roughly $480,000 of Insurance Cover but has just a quarter of that or $118,000. From this survey, 3 hard facts were identified.

1) Majority of Singaporeans who own life insurance policies do not have sufficient coverage to protect their families and loved ones.

2) About a third of Singaporeans underestimate the amount of protection that is sufficient and more than a thir had no idea who much is considered adequate.

3) While many understand that insurance is important, they do not see see it as an urgent necessity.

What are the common excuses Singaporeans have for not getting an insurance plan?

1) Not free. Very busy... Call me next time... (The next time will never comes)

2) I know when I need it... Don't need to worry... (Its probably too late when you need it)

3) Call you when I'm interested... (I don't think insurance will ever interest them)

4) I have enough policies... (Don't know how they guage if they have enough)

5) I have an agent already... (Don't know if the agent really do a proper Financial Plan for him)

6) I can invest and save better... (Probably punting the money in the stock market)

7) I don't have money. Budget very tight... (Some people have hundred of thousands in their bank and can tell you "I don't have money to buy insurance")

Through my experience, few people will wake up and remind themselves that they need to do a financial review. Its not like a doctor or dentist where people will visit when they are physically sick. How many people think they are financially sick? Its probably at the back of their mind, but they need someone to push them a little bit in order that they action.

The Festive Season

I was chatting with my colleague recently until a question popped out. "What is the difference between a Bull and an Ox?". There was so much of guessing game until we decided to check out the Internet for an answer. We concluded that Bull is an uncastrated adult male of a cattle and an Ox is a casatrated bull which are normally meant for domestic purpose such as farming. The chinese use Ox for farming and not Bull and hence they named it the year of Ox and not the year of Bull. Well. This is for your Information about why Ox was named and not Bull...

As a child, I like Chinese New Year because I get to receive lots of Ang Baos and have fun playing cards with my cousins. After Marriage, I kinda feel tired when it comes to Chinese New Year. I got to spend two full days doing spring cleaning of the whole house, I got to squeeze through the Causeway back to Malaysia, I got to spend a sum of money to give out Ang Baos and I have problem meeting with any clients during this period when they are busy with their CNY celebrations.

This year shall be a challenging year for me. I have to redefine my work, prioritize my time and be more selective with my clients. I had spent too much time doing administrative work like claims, premium collection, on policies like Travel and Home Insurances and on people who will ask thousands of complicating questions but never do anything. I really felt very sorry for leaving my beloved wife at home alone most of the nights. Our relationship will be strained, no matter how close we are, if this going to carry on.

Thats why on her Birthday on 19th Jan, I treated her to a sumptous Japanese Buffet at Himawari (Telok Blangah). We went to many Japanese Buffets and this is one which I strongly recommend. Very value for money and the quality is good. On 18th Jan, I invited her parents to our place to celebrate her Birthday and to BBQ in Pasir Ris and on the 20th Jan, I gave her a surprise by sending a banquet of Tulips to her office. So she actually celebrated her birthday for 3 days...

Thank you, my dear, for supporting me in this industry. Thank you for ironing all my long sleeve shirt. By wearing them, I look smart and tidy in front of my clients. I promise you to work hard and smart this year. Thanks for always believing in me...

Oops. I just forgotten that its Chinese New Year today... Wish all of you a very Happy Ox Year and may all your wishes come true...

The desperately needed leadership

It was 20th January 2009 when Barack Obama was inaugurated as America 44th President. Wearing a navy suit and red tie, Obama repeated the oath of office, his hand on the same Bible used in President Abraham Lincoln's inauguration on 4th March 1861 as the 16th President. Abraham Lincoln entered office in a crisis when America is fighting a Civil war. He was regarded as one of the greatest US president, not only leading the country out of Crisis but drove Slavery out of America.

Barack Obama entered office also in a Crisis. The world are expecting change desperately. They need the leadership and the confidence to get out of this crisis. I watched the inauguration on Channel News Asia and felt very touched with his speech. He sort of became an idol to me.

Obama promised his people 3 million jobs saved or created within 2 years and outlined an agressive stimulus package worth US$825 Billion in his country. Do you know what package is it? His plan has six components. Let me share with you.

1) Double alternative energy production in three years
$32 billion for a "smart electricity grid."
$20 billion in renewable energy tax cuts.
$6 billion to weatherize homes.

2) Modernize federal infrastructure

$32 billion for transportation
$31 billion to modernize federal buildings.
$19 billion in water projects.
$10 billion mass transit projects.

3) Improve health care
$39 billion to subsidize health care insurance for the unemployed.
$90 billion to help states with Medicaid.
$20 billion to modernize health information technology systems.
$4 billion for preventative care;.
$1.5 billion for community health centers.

4) 21st century education
$41 billion to school districts.
$79 billion to states.
$21 billion for school modernization.
$16 billion to boost the Pell Grant.
$2 billion for Head Start.

5) Invest in science research and technology
$10 billion for science facilities
$6 billion to expand broadband.
$1 billion for the 2010 Census.

6) Relief for Families
* Cut taxes by $500 for individuals and $1,000 for families.Tax cuts would be retroactive to 2007, and rebates would be mailed in Q1 2009.

* Greater access to child tax credit for working poor and expand earned-income tax credit to families with three children. A $2,500 college tuition tax credit. Allows first-time homebuyers to keep $7,500.
* Keep extended unemployment benefits through 2009 and provide job training.
* Increase benefits to the poor by $25 billion.

Data Summarised from:

http://www.google.com/hostednews/ap/article/ALeqM5iBY9VnNiqr_CIcPWutqGB_TA_J5AD95NMB9O0

Well. Hope his presence shall inject confidence and the recession be over soon...

The Paradox of Thrift

Our Senior Minister Goh Chok Tong said the below during his Grassroot event on 6th Nov 08. His likely intention is to help boost confidence among Singaporeans to continue spending money in times of recession...

** Quote **

“If all of us go into a power save mode, then the economy will really go into a recession! This is what economists called the Paradox of Thrift. If you have sufficient savings and can afford to spend, you should continue to spend on life’s little pleasures.
“Take your family to the movies, shop, dine out at restaurants and hawker centres, go for your regular foot massage, indulge yourself at a spa, take a taxi, donate to charity and so on.
“This way, we keep the economy going. In fact, I would say when times are a little slow, you could get the best bargain.” - Senior Minister Goh Chok Tong.

** Unquote **

From Wikipedia, I found the following to explain Paradox of Thrift:

The paradox of thrift is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population. One can argue that if everyone saves, then there is a decrease in consumption which leads to a fall in aggregate demand and thus leads to a fall in economic growth.

In simpler words, it means that if we saves more money, the total revenues for companies will decline. This decrease in economic growth means fewer salary increases and perhaps downsizing. Eventually our total savings will have remained the same or even declined because of lower incomes and a weaker economy.

Another simple way to explain is by using an example of a leaking bucket.

* In a leaky bucket, an equilibrium level of water occurs when the leakage just equals the inflow of water.

* In the multiplier model, investment and government spending are inflows

* Taxes and expected saving are leakages

* When leakages increase and inflows remain constant, the level of water will be reduced.

When I read through the comments in "Onlinecitizen.com" website http://theonlinecitizen.com/archives/2765, many people are urging the government to give them money or cut tax like what Obama is expected to do in US. Obama articulated the opinion that "Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."

Many believe that in a financial crisis, the best way to get the economy moving is for the government to "prime the pump" by putting money in the hands of consumers.

The US goverment have to prime more money in because the people in US actually don't have much money. They are highly geared as compared to the Asians. They don't have much savings but still need to spend to keep the economy going because internal consumption take up probably 60% of their economy. If all spending stops, more companies will go bankrupt and more unemployment to come.

But of course, priming money doesn't means giving out money all the time, it can be in the form of tax cut or increasing government expenditure and investments, etc. All these will increase the already ballooning deficit faced by the US Treasury. Nobody knows if Obama's plan will works. Just pray hard that it will or else the global economy will continue to stay down for a long time to come.

As for the consumerism story in Singapore, I think that the "Paradox of Thrift" doesn't apply much here because we are largely a service and manufacturing base compared to the US. The challenge of our government to ensure Singapore stay competitive and as many Singaporeans retain their jobs for as long as possible before the economy turnaround.

Many companies get their projects and contracts secured during times of good economy and managed to save for rainy days. They probably hold retrenchment plans till the last of the project are completed. If the recession stay longer than expected and new projects are not secured, Singapore will be in deep trouble.

The 3 Skills needed in the Financal Advisory Industry

3 skills are needed in order to lead a meaningful career in the Financial Advisory Industry. If we apply these skills on the correct market, coupled with the right process, success will be in sight for us. I'm currently trying to master the 3 skills and at the same time finding the right group of people to serve. So what are the 3 skills I'm talking about here?

1) The Core skills of acquring knowledge
* A Financial Planner needs a lot of knowledge before he can complete a proper financial plan
* He need to be kept updated of many news around the world, investment opportunities, new insurance plans, etc
* He need to know where to acquire the right knowledge in order to strive and grow. Formal learning such as acquring his CFP, keep reading and going for countless seminars, be humble and learn from others as well as teaching and coaching others.
* My blog itself is like another avenue for me to learn because I learn as I teach and write for other people.

2) The Life skills that apply to yourself
* A Financial Planner needs to be continually motivated and positive.
* I was being trashed and insulted during my journey of being a planner. In a recently case, I was being described to be a monkey just because I recommended unit trust portfolio to a prospect I know through my blog. He said that Fund managers cannot do better than a group of monkeys picking stocks and I'm just another monkey trying to add another layer of cost from him.
* Well, he is not entirely wrong but deep inside, I know there are people who need me and I'll stay on to earn my wage in an honest and ethical way and NOT through monkey business.
* If I believe that I'm a monkey, I will have resign long time ago.

* A Financial Planner need to be very self disciplined. He need to wake up on time to work and do the necessary work inherent in the whole Sales and Advisory Cycle. People do not wake up and call you to buy an insurance or investment plan, we somehow need to call for people and work hard for the next referral.
* For a planner who sell plans with lower commission, he need double the volume, double the dose of passion to work and doubly hard for half the income a normal adviser earns.

3) The soft skills towards other people
* Its useless if you have all the knowledge, be very disciplined and hardworking but people simply don't trust you.
* We need the right communication skills to convene the message to our clients. We need to show clients that we are the pilot of their money and we are able to bring them to the right destination.
* We must impart confidence so that they will act on something. A financial plan is useless if we cannot convince our clients to act on it
* We need to be connected with their heart to gain such trust and confidence. To make it simple. That person must simply like you...

If I'm going to rate myself in term of the 3 skills. I think I can get 7-5-4. I'm not very disciplined in my prospecting and too comfortable with my current group of clients. I also need to improve on my soft-skills. Many people find me to help them with a Financial Plan, but I always can't convince them to take action. Obviously, I'm not convincing enough...

Looking for a good PA Plan

In my last posting, I mentioned the benefits of having a Personal Accident Cover. It was also highlighted in the comments that it is by no way to replace coverage against death because death can happen due to both accident and sickness.

For those looking for a Personal Accident Cover, I can share a few tips in how I select coverage for my clients.

1) Get a plan that forcus on the core coverage

* Some covers in a PA plan, in my opinion, are not very necessary. When such covers are added in the PA plan, it adds up to the premium.

* What are the common things which I feel are not so necessary

a) Hospital Benefit - If you need this cover, get one which covers accident and sickness. Covering accidents only is not good enough, so no point getting this.

b) Emergency Evacuation - When we go overseas, we usually get a separate Travel Insurance which normally also cover emergency evacuation.

c) Recuperation Benefits, Bereavement Grants, Lifestyle maintenance, etc... They are simply extra benefits to the total sum assured. If you are covered for $100k, why so concern about the extra $5k or so?

2) Look into the definition of an Accident

* Some common Definitions of Accidents

a) Bodily injury caused by violent, accidental external and visible means which is the sole cause of death or disablement or which necessitate medical or surgical treatment

b) Sudden, unforeseen and fortuitous event that results in the insured person suffering death, disablement or injury

c) an event which happens suddenly and gives rise to a result which the Insured person did not intend or anticipate

* First definition is the worst of all. It is very restricted with its definition. I'm not sure if I'll be covered if I die in a fire by fume and not fire or if I die through food poisoning, etc. The 2nd and 3rd Definition remove such restrictions.

3) Check out if your PA plan covers the below:

a) Terrorism. Some insurers covers but put some terms and conditions applies in it.

b) Motorcycling whether its rider or pillion. Don't take chance. You never know when you may need to ride a motorcycle and your family be shock that your PA plan don't cover motorcycling.

c) Certain hazadous sports, such as Scuba Diving, Rock-climbing or Skiing even if its for leisure when you go holiday.

d) Dengue Fever. Some Insurers covers for Insect bites but not for Mosquito bites such as Dengue Fever. Watch out...
e) Traditional Chinese Medicine. Some insurers did not mention anything about TCM. They may or may not pay but they rightfully can refuse to pay you if you visit them.

4) The premium rates
a) Some insurers imposed the same premium rate for Class 1 and 2 occupations. For those in Class 2 occupations, you might be able to get very good rates from them.
b) For a $100k cover, you normally need not pay more than $10/mth. Many PA plans purchased through Credit Card telemarketers normally charges at least $20/mth.
c) Some companies charge you double and promise a 50% refund of premium after 5-6 yrs. I'll rather than you pay less and save up the rest of the premium yourself than to tie yourself with that insurer for 5-6 yrs.
d) Some insurers gives free coverage for children when both parents take up their PA plan. For those with 3 children and above, its a very good free cover.

Have fun shopping for a good deal... but remember that the cheapest or the most expensive plan doesn't always mean the best.

Why Personal Accident Plan???

Most people took up a Personal Accident plan via telemarketers, Credit Card complement or through their company's corporate insurer. An adviser who do not do proper fact-finding may miss out recommending a PA plan. It is understandable that few advisers like to recommend a PA plan largely due to the low premium, low commission and the high chance of claim.

Many people do not have such a low cost policy because they did not hear about it or has misunderstood its coverage. It will be quite unfortunate if an accident strike and they are not able to claim things that are unique to a PA plan. Today, I like to share why its important to have a Personal Accident Plan.

1) Beefing up Death Coverage at low cost

* 6% of Singaporeans die of Accident in 2007. It is not a big number compared to Cancer and Heart Diseases but I believe the chance that a young man dies via accident is higher compared to sickness.

* And it is usually that young man have a higher dependency needs when they are likely to be under-insured.

2) Covering Accidental Permanent Disablement

*A person’s life have a certain value attached which are determined by his dependency needs. Likewise, a person’s hand, leg or eyes should have a value attached as well.

* If a person loses a leg, eye or finger permanently, he is likely not able to claim for any of his policy.

* The chance that a healthy person loses a finger, hand or eye is largely via accident.
* Example. Full Sum Assured $100,000. Loss of one arm = 50%, Loss of one finger = 8% x $100k.

3) Accident Medical Reimbursement

* A person may not be admitted to hospital upon meeting an accident because an accident may not necessary means a major road accident or work place accident, etc. It can be a simple sprain during house moving or a bad cut during cooking, etc.

* Such incident may end the person up in hospital A&E or just the neighbourhood clinic or even the Traditional Chinese Medicine Clinics. Such expenses may come up to as much as several hundred dollars.

* Post Accident visits to Physiotherapist, Chiropractor, Osteopathic Practitioner, Bonesetter or even Acupuncturist might even cost you few thousand dollars if they are not serious enough for one to be hospitalised.

4) The other "Good to have" covers

The 3 items above the are core coverage, but there are many sub-coverage which many accident plans include. The rest are good to have but usually not critical.

a) Daily Hospital Benefits or Weekly Disablement Benefits - Allows you to claim $XXX amount per day in hospital or per week of disablement. Good coverage for those self employed people.

b) Mobility Aid Reimbursement - Allows you to buy mobility aid such as Wheelchair, clutches, etc

c) Ambulance services - Allows you to claim against Ambulance expenses as a result of an accident.

Well. In my next posting, I can share the tips in selecting a good PA plan.

Fund Managers Skills

Fund Manager need 2 skills to outperform the market.

1) The skill of forecasting price movements of selected stocks. It is best described as "Security Analysis" or simply "Stock Picking"

2) The skill of forecasting future economic conditions and adjust portfolio systematic risk. This is best described as "Market Timing"

Many people only looks at the returns of their fund to guage if they are investing well and not comparing this returns to anything else. I think this practice can be improved by looking into some technical aspect of the fund.

So what are the technical areas we can look into when we analyse fund managers? With my limited knowledge, I can share 5 simple and more reader friendly ones.

1) The Annualised Returns

* The absolute returns of a fund above 1 year are first annualised and compared with the benchmark and peer funds.
* If the fund outperformed the benchmark, we can say that it had generated excess returns over the period. 1,3 and 5 years of returns are normally used.
* Thereafter, we use the figure to compare between fund managers. Its like a soccer league table where we see who top the table for each category.

However, by knowing returns alone are not sufficient, we have to know the type of risk the fund manager is taking in order to generate this excess returns.

2) Fund's Beta

* Beta is the primary measure for market risk of an investment. It measures the volatility of an investment in relation to the overall market. The overall market has a Beta of 1. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.
* For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

3) Standard Deviation
*Another way to see the level of risk a fund manager take is by looking into the fund's Standard Deviation.
* Standard deviation is a statistical measurement on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

After understanding Returns and Risk, we need to combine both to evaluate if the fund manager is really doing fine.

4) Sharpe Ratio
* William F. Sharpe developed the Sharpe Measure in 1966 to evaluate portfolio performance. His idea was to measure the amount of excess return of the portfolio over the risk-free rate in a given period per unit of risk.
* It indicates the excess return that the fund manager can deliver to investors for each unit of risk the fund manager took. Hence, the higher the Sharpe ratio, the better the investment's performance.

5) Fund's "Alpha"
* It measures the difference between a fund's actual returns and its expected performance, given its level of risk (as measured by beta).
* A positive alpha indicates that the fund has performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed based on the risk it had taken.
* A fund manager always strive to achieve positive alpha consistently.

The ratios that can be used are exhaustive and the above are very basic ones. Many other ratios such as Information Ratio, Jenson Ratio, Tracking Error, R Squared, etc are not mentioned. Frankly, I'm not an expert is these as well and certainly not good enough to conduct a class on them.

We are nevertheless fortunate to have Investment Information Providers such as Morningstar and Lipper to help group fund managers' ability according to their methodology which partly use these ratios.

2009 Resolutions

This is my first posting of 2009 and as usual, I shall write about my resolutions.

I was at Vivocity with my wife for the countdown party by Channel 8. Both of us managed to get into the section where all the fans of the celebritites are. It was the one of those front seats and we have a lot of fun with these fans.

We left shortly after the countdown and reached home at around 1:30am. I'd prepared a soft cuddly teddy bear for my wife to welcome her 2009. I have big problem remembering what I bought for her over our 6 years together. Maybe I can make use of my blog to help me remember all these.

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

After the countdown, I was quite lost over my 2009 resolutions. I was so busy with work over my last 6 months that I only worked on what I see forward. Its like taking a step at a time.

After sitting quietly in front of my computer over the last 3 hours, I had carefully set out my 2009 resolutions?

1) Health

* To be careful with my nutrition. Less oily and fried food. Less chocolates and sweet stuffs.

* I shall sleep and wake up early everyday for the benefit of my health

* To take care of my back and strengthen my back muscle to prevent future sprains again.

* To be a healthier Adrian and able to take care of others who are sick.

2) Physical Well Being

* Be disciplined with my exercise Regime. Twice Gym, Onces jogging or swimming weekly.

* To participate in the annual Army Half Marathon somewhere in Aug or Sep

* To be a stronger and energized Adrian

* IPPT Gold in 2009. Tall order but must try...

3) Career

* Consumers are getting more demanding and knowledgeable but wanting to pay less for adviser's help.

* Its tough but I still find this job one of the most meaningful and fulfilling. I'm enjoying myself and I will continue touching lives to people around me. I assure that I will continue to give my clients the best value possible and be honest with my views. Definitely no career switch...

* I may take up some courses relating to my work. Not decided on which yet.

4) Money

* I don't earn much but I will still spend to understand what life is about. I will dine and holiday in 2009 but maybe through budget tours.

* I must pay tax in 2009 to help the Singapore economy. To pay tax, I probably have to earn at least $30,000 after operating expenses and reliefs.

* Stick to my disciplined savings/investment regime meant for my retirement.

5) Family and Social

* I must try contact all my friends in Secondary Schools, Polytechnic, University, Ex-colleagues at least once in 2009. To say hello and get to know how they are doing.

* To be closer with my parents. Apart from the weekly dinner and my Christmas dinner, I aims to treat my Mum, Dad and Grandma good meals outside more often.

* Kids? Let God decide for me. Not really planning but not preventing. Not attracted by the freebies the govt give. A bit of probia. Probably worried of the insufficient money and lifestyle change.

* I will select a charity and to contribute 5% of my income in 2009.

Well. I think my resolutions are specific and measurable. Today's New Year energy gives me today's resolutions. After that, it’s up to me how things will continue. I shall do what matters most and not taking on more than I can handle. In 2010, I shall review them again. Wish me good luck...