Diversifying Ruined

Another great article by Wilfred Ling, a professional fee-based financial planner.

There is no law in Singapore that prohibits financial advisers from recommending other products that are not carried by their own principal. There is also no law prohibiting the financial adviser from charging a fee.

However, many insurers and IFA firms prohibit their own advisers from charging a fee. Why? There are two main reasons.

First reason: If advisers can charge a fee, they would have less motivation to sell products. Do you know that insurance advisers earn commission based on 3 – 6 years on a declining basis but product manufacturers earn perpetual revenues as long as their clients do not terminate the product? Are not these advisers fools to keep on selling when the one who ultimately benefits are the product manufacturers? Many advisers do not realized that they are being made used of. Advisers must keep on selling and pushing products to earn a living while product manufacturers earn perpertual revenue once the sale is closed. Advisers who want to escape from this trap must quit from this kind of working environment.

Second reason. Many firms prohibit their advisers from recommending other people’s product and prohibit them from charging a fee. The reason is because the firm views these advisers as salesmen. Salesmen must be loyal to their bosses. They must not have a conflict of interest selling other competitors’ products. Salesmen loyalty lies with their companies. Each prospect is a chance to milk and squeeze more money so that their bosses will be happy.

Many “financial advisers” join the industry thinking that it is going to be a noble job. Unfortunately, they are not “financial advisers.” They are just product salesman in the eyes of their firm. Frankly speaking, I really pity these people. I have friends who are trapped in such situation but they must keep on selling and pushing to make their bosses happy.

To the end consumer, this is very dangerous. A salesman that keeps on pushing product is not going to care whether the product is useful or not. There is a conflict of interest too. The salesman is unable to recommend more superior product to the detriment of the client. Consider a television set. The maximum lost of being cheated for buying a wrong TV is capped at the cost of the television. But when comes to financial advisory, the maximum lost has no upper limit at all. There is no cap.

I strongly urge all my peers to rethink their business model and consider whether is this what you really want in life. You do not need to be a salesman. Singapore is quite a free market. There is always a choice. The choice is up to you to decide whether you want to ruin other people’s life in order to serve your Master or help others achieve their financial goals.

Was chatting with one of my secondary school friend when he gave me this link. Below is extracted from the web site.

Children from rich background have it easy. Many doctors come from rich families. Rich kids go to elite schools. If they work sufficiently hard, they can almost guarantee themselves a good life - get good high-paying jobs, inherit parents’ fortune, and the “virtuous” cycle repeats.

I’ve said before that it takes luck and a lot more hard work for the poorer students to catch up.

But what are the options? Suppose they are not smart and lucky enough to get into an elite school. What should they do?

These are my suggestions:

Go to a polytechnic for your tertiary education. Less stress there, and you learn practical skills.

Work for small and medium enterprises (SMEs). Yes, I know the standard advice from HR experts - one must try to get into an MNC, because your resume will look very nice. My argument here is that you can learn very different things in SMEs. Read on.

Learn as much as you can about the business in the company you’re working for. If possible, observe closely how the entire company works - sales, operations, logistics, human resource, accounting, finance, suppliers, vendors, etc. Because it’s an SME, it should not be too hard to know about almost everything about the business.

Mix with like-minded people in the company, people who are as hardworking, smart and ambitious as you are.

Save up.

Together with your like-minded friends, start your own business. Compete with your ex-bosses. (Now, if you think this is unethical, let me say that this is only as unethical as joining a competitor. If you think that is also unethical, I have nothing else to say.)

This is how many “tow-kays” got started.

If you had chosen the MNC path, do you think it’s as easy to start a business? What you would learn in MNCs are corporate things that won’t help you start a business. Your experience in an SME should help make the learning curve much less steep.

You can’t start an MNC, but you can definitely start an SME.

Work hard, work smart, and with a bit of luck maybe you’d be a millionaire in your 30s - as rich as an investment banker.

Now, do you agree with the writer? I do. As discussed with him over MSN, one of the reason I mentioned was that the average and poor is they dare not dream. Whereas for the rich, they often mixed around with their family's relative, business friends etc where they get to know and learn how the rich talk, behave and slowly learn from them. They have already inculcated in them the postive side of starting a business and that it is possible to be as successful as them! Opportunity like this does not arise easily for the common. Hence, they dare not even dream or think of starting a business, fearing of failure.

Now, another problem which we agreed was people started planning for their life too late. He proposed a plan to a few of his close friends that he will pool a sum of money together with them to buy properties. All of his friends' replies was negative and even stated that they would put the money in the bank instead. This same mentality applies to my side here too. If you belongs to this group of people, what I suggest is to get yourself a copy of "Rich Dad Poor Dad" by Robert Kiyosaki. Its nothing than an inspirational book to get you started.

Next, I mentioned this "dream" of mine to him. To find a few like-minded people like us, who want to break free from the rat race, to be financially independent, get together to brainstorm for ideas to make money. Everyday when I walk down the street, I realised that there are many money making opportunities, however, most are out of my reach and I do not have the motivation to do it. So, if you are like me, perhaps we could get together and work things out. Because I believe that one needs to let his idea been known in order to get the motivation and discipline going.

Comments are welcome.

This post is extracted from former NTUC CEO, Mr Tan Kin Lian's blog which I think its very interesting fact and therefore will share with my readers here.

Some people thought that I must be very rich to have sufficient money to last 100 years. This is not really the case. It depends on how much you need to live comfortably.

If you have a house that is fully paid for, and your children are working, you will find $1,000 a month to be sufficient for 1 person or $1,500 for a couple.

If you can earn 4% per annum, a capital sum of $450,000 can give $1,500 a month forever. The money will not run out. It can last for more than 100 years.

A capital sum of $300,000 can provide $1,000 a month forever.

The problem is: $1,500 may drop in value year by year, due to inflation.

Here is how you can deal with inflation. You have a larger capital sum of, say $900,000. If you can earn 4% a year, you can draw out $1,500 a month, and this amount can increase yearly at the rate of about 2% per annum. This should be sufficient to keep pace with inflation, and preserve the real value of your monthly income.

This is how the participating annuity plan works. It pays a smaller sum (compared to a non-participating plan) and pays a bonus each year to keep up with inflation.

You can earn an average of more than 4% per annum, if you invest in a large, well diversified low cost fund that is mainly invested in equities. Read this FAQ.

In summary:

1. You only need a capital sum of $900,000 to provide a monthly income forever.
2. This allows you to draw a monthly sum of $1,500 increasing by 2% yearly,

Just an update after taking the QET. What's QET? Refer to my previous previous entry.

I reached the Hall 10mins before time. There are tons of people waiting outside, luckily the route I took lead me to a shoutcut to the queue so I was the first few to go in. While waiting for the rest to come in, I have the opportunity to just scan through all the people to identify familiar faces. To my surprise, quite a number of familiar appeared. They are Alex, Zhenglin and Xian Hui from my Poly DCNT Course (Diploma in Computer & Network Technology). Billy and Willy, the twins whom I knew through Army life. Not to mention Nigel whom I got to know through my SCE/MSE orientation camp. Actually thats about it lol.

So the time began and we were suppose to write a short essay of 250-300 words. 2 topics were given. 1 of them was asking you to describe the qualities of a parent needed to raise a child. The other was a subjective topic asking if you would benefit from a gap of 1 year between studies. I was not too sure what do the 2nd topic means. A 1 year break between Uni studies? Or a 1 year break after Poly/JC? So I chose the 1st topic. After a 5min brainstorm, I pen my thoughts without drafting (as usual).

1st, I mentioned about raising children in Singapore was already hard in the first place due to the long working hours and competitive industry, it adds further burden to parents. 1st quality needed - Good Time Management Skills.

Next, you would want to provide everything for the child. Hence, a good and early financial planning for the child's University education. Of course, parents need to plan for their own retirement before any others financial planning. So parents should start early to have a child's University education planned. This would include the annual expenses needed all the way from Kindergarten till University including the various school fees at different stages. Not forgetting to take into account our dear friend Mr Inflation. A rough gauge of 1-2% will do.

Finally, due to words constraints, I quickly ended my essay by stating raising a child is not just providing care and concern, its also about guiding and teaching them towards the positive and right direction. With proper guidance, the child, hopefully, will grow up to be a righteous and positive man/woman towards things. Last but not least, teach your kids early about financial planning so that they will take control of their own money from young. 1 good way is to give them a book call "Rich Dad Poor Dad" by Robert Kiyosaki as their birthday gift. Of course wait till the kid know how to read English first. =)

There you go. A close to 300 words essay done in 20mins. So the rest of the 70mins, I was just stoning and rocking away because we were not allowed to leave early. (WHY?)

As discussed with Wee Hian, that afternoon we will be heading to Queensway's Ikea for purchases of stuff for our new "bunk". Total damage was about $170. $98 for the chair LOL. We bought bedsheets, pillows, blanket, dustbin, small table for our laser printer etc. Photos will be shot and uploaded next week when I start staying in my new "bunk".