Financial Planning Problems

[Chennie]

No worries, it is definitely open for criticism.. Everyone is free to judge and express their views as end of the day it is still consumer's choice.. I do my best in my profession in advisory and planning by creating awareness and understanding my client, even if they choose not to work with me, they still left with more knowledge than before, which will help them in making more informed decision elsewhere.

This is a statement I can definitely agree with. Ensuring that the customer's needs is taken care of, first begins with an understanding of them (^_^)

Whether they remain with you should be immaterial. If you work well, people will come.

 

[chopra]

ts, you are brainwashed? young ppl shld nv get investment products. pls read up more and do the society something good.




The under-mentioned is the same old naggy message that i have been posting for years, based on the clueless people whom had asked/post such questions/remarks before. Kindly spend a few minutes reading it. No need thank me.

First, you need to understand what's insurance and what's not insurance.

1. term plan, travel insurance, accidental insurance, medishield / integrated shield plan = insurance

2. life/endowment/savings plan/kids education = insurance plus fixed return investment in bonds etc

3. ilp = insurance plus variable investment in a mixed of bonds and stocks.

Next, the problem...

Only silly-people-who-feel-too-rich buy plans bundled with investment. Hefty commission in terms of paying the insurance agent, other insurance company overheads, HUGE bid-sell spread should you switch fund or surrender policies. If you do not understand all the terminologies of what i have written in this para, then you should see why this is a PROBLEM; signing contracts blindly.

Again, ILP, life, endowment, kids education plan, savings plan are essentially the same thing, with different weightage in bonds and equity. These silly ppl pass money to insurance company to invest -- what you should do is to skip these intermediary channels and DIY.

Remember, there is no free lunch in this world. If you think insurance agent is god-sent to help financially not so savvy people, you are wrong. These silly people will only realise the meagre profit (sometimes huge loss) after 5 to 10yrs of silly committment to the insurance company. They will then start asking their agents for the BENEFITS ILLUSTRATION only to realise what they r trapped. These silly people will either remain disillusional or wake up and start reading up on investment. So why repeat the path that these ppl have had taken? Spend 15min a day to read the money mind subforum in hwz and you will be enlightened in a year. Get off your lazy bum and be hardworking now!

Also, some agents will ask you to pm and discuss because they dont want you to know the truth. Again, be cautious, be skeptical. Your loss is their gain. The conflict of interest is and will always be there.

Buy term insurance and integrated shield plan and maybe accidental plan, and invest the rest. There's no financially not savvy ppl, only lazy people.

Good luck.

 

[Chennie]

ts, you are brainwashed? young ppl shld nv get investment products. pls read up more and do the society something good.




The under-mentioned is the same old naggy message that i have been posting for years, based on the clueless people whom had asked/post such questions/remarks before. Kindly spend a few minutes reading it. No need thank me.

First, you need to understand what's insurance and what's not insurance.

1. term plan, travel insurance, accidental insurance, medishield / integrated shield plan = insurance

2. life/endowment/savings plan/kids education = insurance plus fixed return investment in bonds etc

3. ilp = insurance plus variable investment in a mixed of bonds and stocks.

Next, the problem...

Only silly-people-who-feel-too-rich buy plans bundled with investment. Hefty commission in terms of paying the insurance agent, other insurance company overheads, HUGE bid-sell spread should you switch fund or surrender policies. If you do not understand all the terminologies of what i have written in this para, then you should see why this is a PROBLEM; signing contracts blindly.

Again, ILP, life, endowment, kids education plan, savings plan are essentially the same thing, with different weightage in bonds and equity. These silly ppl pass money to insurance company to invest -- what you should do is to skip these intermediary channels and DIY.

Remember, there is no free lunch in this world. If you think insurance agent is god-sent to help financially not so savvy people, you are wrong. These silly people will only realise the meagre profit (sometimes huge loss) after 5 to 10yrs of silly committment to the insurance company. They will then start asking their agents for the BENEFITS ILLUSTRATION only to realise what they r trapped. These silly people will either remain disillusional or wake up and start reading up on investment. So why repeat the path that these ppl have had taken? Spend 15min a day to read the money mind subforum in hwz and you will be enlightened in a year. Get off your lazy bum and be hardworking now!

Also, some agents will ask you to pm and discuss because they dont want you to know the truth. Again, be cautious, be skeptical. Your loss is their gain. The conflict of interest is and will always be there.

Buy term insurance and integrated shield plan and maybe accidental plan, and invest the rest. There's no financially not savvy ppl, only lazy people.

Good luck.

I can certainly see your points, but I feel that you have probably met very poor agents or been subjected to some misinformation. Allow me to clarify certain key points (^_^)

One - With respect to the huge bid-sell spread. It is not at all large, it is standard. In most companies it is around 3%, compared to the market average which is often 5% if you DIY. There is also no bid-offer spread when switching funds (in AIA) and there are no fees payable for switching either (same with rebalancing).

Two - The charges with respect to the policy are only "huge" in later years (i.e. past 60) because of heavy mortality charges and other problems that eat into your fund returns. You should therefore check how soon you are allowed to dial-down the sum assured or start with a very small sum assured. (After all, if you're seeking investment, why bother with the sum assured at all?)

Three - DIY is very difficult. The reason most people do not achieve the projected return in an ILP is because they themselves are lazy (hence they would be too lazy to DIY). AIA allows you to choose your own funds and choose your own allocation. You should never ask for an agent to recommend funds to you, as we are NOT trained in investment banking. Read up on the funds and find the ones that suit your objectives. This type of homework is a must. You should not buy into a fund that is at the peak of its 10 year high or perhaps even the peak of its life. This, again, is information that is publicly available (on AIA website).

Four - ILPs ARE for young people, because they have a longer horizon to accumulate returns. Say for example a young investment savvy individual had $2,000 on hand that he could invest every year. He would have to self diversify his portfolio (unless he was willing to gamble). Each share costs about $1.76 (assuming you go for none of the big companies), so 100 shares would cost $176 a bundle. In terms of dividends, let's assume you get a generous 10 cents per share. From your bundle of 100, you've earned, 0.10*100 = $10 [Not too shabby!]

But now let's look at reality. Most companies pay poor dividends when their share-price is low. Those that are willing to give decent dividends are called blue-chip shares and their price will always be higher than a measely $1.76. It is therefore VERY difficult for a young investor to enter the market and do well.

With funds instead, you can limit your homework to the fund itself and if you think you can earn some returns on the fund, investing in it results in automatic diversification, plus you can buy more units (since each unit may be as low as 80 cents per unit).

For a share to give you a 1% return, with a share price of $1.76. That share will need to rise by about 2 cents ($1.76 x 0.01). That's very plausible, but out of the many choices, how many of them will actually do that?

As a young working adult, do you really have the time to continuously monitor the market? To seize every opportunity as it comes? You may as well become a day trader if that is your objective.

ILPs are mainly for protection (let us be clear on that). It is a life policy with some chance for investment returns. It will not earn you some kind of super return (unless you aggressively monitor the funds, in which case you are likely to still be unable to sleep at night). Instead, it allows you to choose funds with the potential to grow over the next five years. Sit and monitor those funds and as the cash value accumulates in your policy, you can withdraw some of that money to use for yourself.

That is the nature of an ILP, it is not a super investment product. It is protection with an element of investment. If you do not want this, buy a term policy and invest on your own. Many people tout this strategy and I think its worthwhile, but in life we only see the successes, not the failures.

 

[chopra]

I can certainly see your points, but I feel that you have probably met very poor agents or been subjected to some misinformation. Allow me to clarify certain key points (^_^)

One - With respect to the huge bid-sell spread. It is not at all large, it is standard. In most companies it is around 3%, compared to the market average which is often 5% if you DIY. There is also no bid-offer spread when switching funds (in AIA) and there are no fees payable for switching either (same with rebalancing).

Two - The charges with respect to the policy are only "huge" in later years (i.e. past 60) because of heavy mortality charges and other problems that eat into your fund returns. You should therefore check how soon you are allowed to dial-down the sum assured or start with a very small sum assured. (After all, if you're seeking investment, why bother with the sum assured at all?)

Three - DIY is very difficult. The reason most people do not achieve the projected return in an ILP is because they themselves are lazy (hence they would be too lazy to DIY). AIA allows you to choose your own funds and choose your own allocation. You should never ask for an agent to recommend funds to you, as we are NOT trained in investment banking. Read up on the funds and find the ones that suit your objectives. This type of homework is a must. You should not buy into a fund that is at the peak of its 10 year high or perhaps even the peak of its life. This, again, is information that is publicly available (on AIA website).

Four - ILPs ARE for young people, because they have a longer horizon to accumulate returns. Say for example a young investment savvy individual had $2,000 on hand that he could invest every year. He would have to self diversify his portfolio (unless he was willing to gamble). Each share costs about $1.76 (assuming you go for none of the big companies), so 100 shares would cost $176 a bundle. In terms of dividends, let's assume you get a generous 10 cents per share. From your bundle of 100, you've earned, 0.10*100 = $10 [Not too shabby!]

But now let's look at reality. Most companies pay poor dividends when their share-price is low. Those that are willing to give decent dividends are called blue-chip shares and their price will always be higher than a measely $1.76. It is therefore VERY difficult for a young investor to enter the market and do well.

With funds instead, you can limit your homework to the fund itself and if you think you can earn some returns on the fund, investing in it results in automatic diversification, plus you can buy more units (since each unit may be as low as 80 cents per unit).

For a share to give you a 1% return, with a share price of $1.76. That share will need to rise by about 2 cents ($1.76 x 0.01). That's very plausible, but out of the many choices, how many of them will actually do that?

As a young working adult, do you really have the time to continuously monitor the market? To seize every opportunity as it comes? You may as well become a day trader if that is your objective.

ILPs are mainly for protection (let us be clear on that). It is a life policy with some chance for investment returns. It will not earn you some kind of super return (unless you aggressively monitor the funds, in which case you are likely to still be unable to sleep at night). Instead, it allows you to choose funds with the potential to grow over the next five years. Sit and monitor those funds and as the cash value accumulates in your policy, you can withdraw some of that money to use for yourself.

That is the nature of an ILP, it is not a super investment product. It is protection with an element of investment. If you do not want this, buy a term policy and invest on your own. Many people tout this strategy and I think its worthwhile, but in life we only see the successes, not the failures.

Sorry I have to stop at your point one.
bid spread for diy at 5percent? beg your pardon? don't smoke ok.


cpf sa issit consider too much effort? 4percent easy money.

 

[Chennie]

Sorry I have to stop at your point one.
bid spread for diy at 5percent? beg your pardon? don't smoke ok.


cpf sa issit consider too much effort? 4percent easy money.

Bid-offer spread for DIY is often at 5% for stocks projecting higher returns, this is because the market is illiquid. Where the market is liquid, bid-offer spreads are much smaller, because the dealers know that prices are not highly volatile. More volatility = more risk = more return, low risk and high returns, do not exist. Bigger firms will eat up those arbitrage opportunities since they are in the market all the time. Furthermore, include transaction costs and administration fees, and the cost of all your time and you're looking at a very costly product.

CPF SA is 4% easy money, but how much of that can you actually withdraw to enjoy? CPF is designed to be a retirement nest egg, which is very good, but people do need cash on hand in order to enjoy their retirement.

Remember, with CPF you will need to keep the minimum sum inside the account at all times and this sum will rise with every year. The 4% may not be enough to give you returns + cover the increment in minimum sum scheme.

It is easy money, but there are other factors that you must be aware of.

 

[sgtsickox]

Sorry I have to stop at your point one.
bid spread for diy at 5percent? beg your pardon? don't smoke ok.


cpf sa issit consider too much effort? 4percent easy money.

Chill chopra, Dont get too angry because of different views.

 

[chopra]

Bid-offer spread for DIY is often at 5% for stocks projecting higher returns, this is because the market is illiquid. Where the market is liquid, bid-offer spreads are much smaller, because the dealers know that prices are not highly volatile. More volatility = more risk = more return, low risk and high returns, do not exist. Bigger firms will eat up those arbitrage opportunities since they are in the market all the time. Furthermore, include transaction costs and administration fees, and the cost of all your time and you're looking at a very costly product.

CPF SA is 4% easy money, but how much of that can you actually withdraw to enjoy? CPF is designed to be a retirement nest egg, which is very good, but people do need cash on hand in order to enjoy their retirement.

Remember, with CPF you will need to keep the minimum sum inside the account at all times and this sum will rise with every year. The 4% may not be enough to give you returns + cover the increment in minimum sum scheme.

It is easy money, but there are other factors that you must be aware of.

your 5% of diy is miserably wrong.
buying cpf sa, sgs new bonds have no spread. If one's risk appetite is higher, sti etf have a buy+sell spread of merely 0.3%.

people can't meet ms maybe becos they got conned too much into life/ilp? hurhur.

 

[chopra]

Chill chopra, Dont get too angry because of different views.

thanks for the timely reminder.
I'm ok with different views if one have the complete understanding of the pricing mechanics of all options - life , ilp, unit trust, cpf sa, etf, equity etc.

I'm however not ok if one choose an option because of the fact that he is only familiar with that option and has a bad understanding of the other options.

 

[Chennie]

your 5% of diy is miserably wrong.
buying cpf sa, sgs new bonds have no spread. If one's risk appetite is higher, sti etf have a buy+sell spread of merely 0.3%.

people can't meet ms maybe becos they got conned too much into life/ilp? hurhur.

I stated the bid offer spread of 5% in relation to shares my friend.

With respect to ETF, the lower bid offer spread impacts upon returns. Even amongst shares there are those with a bid offer spread lower than 5%. However lower volatility means lower returns.

The bid-offer spread is merely one part of the equation that impacts upon other parts.

How much return would you be getting from the SA in order to be able to withdraw a substantial amount in your later years? This is what we must ask ourselves. Furthermore, how many individuals can emulate the strategy and achieve that return?

With ILPs, there portion of winners is very substantial, assuming the agent knows what they are doing.

 

[Michyeosseo]

thanks for the timely reminder.
I'm ok with different views if one have the complete understanding of the pricing mechanics of all options - life , ilp, unit trust, cpf sa, etf, equity etc.

I'm however not ok if one choose an option because of the fact that he is only familiar with that option and has a bad understanding of the other options.

SHOCKING Facts About Our CPF in Singapore! (Part 2) | The Heart Truths

What's your take?

 

[Chennie]

SHOCKING Facts About Our CPF in Singapore! (Part 2) | The Heart Truths

What's your take?

Some very interesting points raised. It does help to explain why so many people find their retirement funds to be inadequate.

That could be an additional problem lumped on-top of the inability to withdraw the money you make in the SA account.

As I stated before: You have to leave the minimum sum inside and this grows every-year. If your returns do not cover this, you could be left to withdraw very little at the end to actually ENJOY your retirement, which is what I feel that most people want to do (^_^)

Agents like myself have roles beside providing investments and retirement planning is one of those (o3o)b

 

[Aerial86]

Chennie can I check with you something, for insurance company, the funds that they invest in are all mirrored funds am I right?

I have not really go deep into this to confirm before.. Since you seemed quite knowledgeable with your products you might be able to help me clear this doubt..

That will help me in providing more knowledge sharing with my clients too as IFA goes directly into Fund Houses using platforms for trading so I'm not sure for insurance company as I know IFA needs to pass M8 (Collective investment schemes) before we could be licensed.

Thanks in advance.. You could PM me

 

[JoePilot]

FA reps no need to have M8. They just can't sell UTs, that's all.

So it's a misconception that FA reps are "more qualified".

 

[Chennie]

Chennie can I check with you something, for insurance company, the funds that they invest in are all mirrored funds am I right?

I have not really go deep into this to confirm before.. Since you seemed quite knowledgeable with your products you might be able to help me clear this doubt..

That will help me in providing more knowledge sharing with my clients too as IFA goes directly into Fund Houses using platforms for trading so I'm not sure for insurance company as I know IFA needs to pass M8 (Collective investment schemes) before we could be licensed.

Thanks in advance..

Hi there Aerial, as far as I know, our par fund is not mirrored, it is simply a regular mutual fund. I do know that if any of the funds are mirrored, they are required to state it in their opening line (same with feeder and other types). This is what I was taught when I entered the industry.

The same appears to be true of the ILP sub-funds, based on the information found on the AIA website. They do not appear to be mirror funds.

You can view the funds from the ILP link on the website and read up about them. However, AIA agents do not need to pass M8, so there are factors I may not be completely aware about. This, I think, is rather unlikely though.

 

[JoePilot]

Insurance companies can offer mirror funds, feeder funds, fund of funds, or their own funds. They can also tie up with fund houses to offer clients more choice.

And pls don't confuse par fund with mutual fund.

 

[Aerial86]

FA reps no need to have M8. They just can't sell UTs, that's all.

So it's a misconception that FA reps are "more qualified".

No one is stating in any part of the post that FA reps are "more qualified".. It does seems more like you have something against FA.. All of us are here to help within our own expertise so why make it so hostile?

Chill out my friend..

 

[Chennie]

Insurance companies can offer mirror funds, feeder funds, fund of funds, or their own funds. They can also tie up with fund houses to offer clients more choice.

And pls don't confuse par fund with mutual fund.

We know this. I was simply stating that the par fund is a regular mutual fund and not mirrored.

Same with the ILP sub-funds.

 

[chopra]

I stated the bid offer spread of 5% in relation to shares my friend.

With respect to ETF, the lower bid offer spread impacts upon returns. Even amongst shares there are those with a bid offer spread lower than 5%. However lower volatility means lower returns.

The bid-offer spread is merely one part of the equation that impacts upon other parts.

How much return would you be getting from the SA in order to be able to withdraw a substantial amount in your later years? This is what we must ask ourselves. Furthermore, how many individuals can emulate the strategy and achieve that return?

With ILPs, there portion of winners is very substantial, assuming the agent knows what they are doing.

The bid-spread for shares (in STI) is exactly the same as STI ETF.

On equation. Let's define the costing equation.

If Life/ILP,
Cost = bid-spread + agent + agent manager etc + brokerage fee + fund management
If DIY,
Cost = bid-spread + brokerage fee + fund management (optional)

 

[chopra]

as far as I know, our par fund is not mirrored, it is simply a regular mutual fund. I do know that if any of the funds are mirrored, they are required to state it in their opening line (same with feeder and other types). This is what I was taught when I entered the industry.

Does this mean that you have no idea what's the underlying?
If so, how do you advise if 4.75% or whatever % is a reasonable figure for what's invested using the whole life package?

For all we know, maybe your mutual fund is partially invested in Genting SP PS.

 

[Chennie]

The bid-spread for shares (in STI) is exactly the same as STI ETF.

On equation. Let's define the costing equation.

If Life/ILP,
Cost = bid-spread + agent + agent manager etc + brokerage fee + fund management
If DIY,
Cost = bid-spread + brokerage fee + fund management (optional)

Firstly, Life products do not have those costs. Only ILP funds. Secondly ILP cost is structured like this

Cost = bid offer spread + insurance company fees + management fee

These costs are deducted by a higher amount initially as reflected by the allocation of premium.

In later years, to make up for it, the insurance company will allocate 105% of the premium paid into the fund, giving you an extra 5% of whatever premium you paid.

You can further reduce the costs if you choose a small sum assured (which reflects the protection components). There are no transaction (brokerage fees) in AIA and I think most other companies do not have such fees.

And for DIY (if investing in a fund) there is always a performance and management fee for the manager, otherwise he would have no incentive to work.

As for the agent's fee and the agent's manager fee. These are paid by the company and not out of the premium paid. We do not receive the commission forever, nor do we receive it each year. That is a fact.