On Reservist

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

Half Truths???

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

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

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

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

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

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

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

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

The Hard and Soft Commodities

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

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

Hard Commodities

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

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

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

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

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

Soft Commodities

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

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

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

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

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

How I view both commodities if a Bull comes around

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

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

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

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

Comparing Group Term Insurances

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

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

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

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

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

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


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

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


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

My comments:

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

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

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

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

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

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

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

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

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

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

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

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

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

My 1st Year as an FA Rep

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

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

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

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

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

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

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