Financial Freedom

Remove Commissions for Financial Planners

I read with interest the news in Channel News Asia regarding Australia coming up with certain regulations to do away with the commission based model of compensation for financial planners.

This is indeed something interesting that Singapore should consider exploring.

In today's financial planning industry, Singaporeans are limited to the banks, insurance companies and independent financial advisory (IFAs) firms. While a new breed of financial planners are still emerging that charge clients based on a fee based model, the public as a whole seem unprepared to pay for financial advice.

As such, a large majority of financial planners are still paid based on commissions. They are considered financial planners but they have sales targets and objectives to meet. In fact, insurance companies recognise their "best" financial planners as those who are able to achieve the most sales for the company. Just look through those advertisements in newspapers featuring the top financial planners and you will notice that they are called : "TOP PRODUCING FINANCIAL PLANNERS" , etc.

This basically means that these are the people in the industry who managed to make the most money for the company and themselves, not for their clients!

I have nothing against financial planners being paid a commission. The issue I have is the potential conflict of interests that arises when it comes to recommendations to the clients. Because a financial planners is compensated based on commissions, his or her judgement could be skewed to favor products that pay higher commissions. Sometimes, it could even mean recommending products to clients that are unsuitable based on their risk profile. This is worrying.

Considering that most Singaporeans are not saving enough for retirement, any bad financial planning advice will only be more detrimental to their overall financial health.

Singaporeans ought to debate more openly about this issue and demand for more professional financial planners to serve its entire population. It is time that Singaporeans as a whole consider the option of moving the financial planning industry towards one which pays its financial planners based on a fee. This is similar to seeing a doctor or a lawyer. When one needs professional and independent advice, it is best that the professional you are seeking advice from does not have to struggle with conflicts of interests.

There are limits to what regulation can do. If the market is not ready for fee-based financial planners, no amount of regulation by MAS will help. Singaporeans need to ask themselves whether they are willing to pay a fee to meet up with a professional financial planner.

Let's do away with commissions for financial planners. Let's move towards a fee-based model of compensation for all financial planners. What do you think?

Cheapest Term Insurance in Singapore?

Some years back, I purchased a term insurance under the SAF Group Term Life for me and my wife. The consideration back then was affordability.

Just for information, term insurance has the following features:

1. Cheap in premiums compared to whole life policies and investment linked plans (ILPs)
2. High Coverage.
3. Pay and Throw Away. You don't get any returns from it. It is a pure protection plan.
4. Provides coverage only for a term (usually up to age 70) compared to 99 yrs for whole life and ILPs.

Aviva SAF Group Term Life

I have not really done any comparisons but I am pretty sure that this must be one of the cheapest term insurance.

For my case, I pay $51.72 per month for $100,000 coverage for death, total permanent disability, critical illness and personal accident for both me and my wife.

In addition, I just got a letter 2 days ago that says a rebate has been given. This rebate is worth around $106 and will be credited back into my bank account. This rebate is calculated annually and is based on the actual claims experience of the insurance company for the group policy.

So with the rebate factored in, the term insurance only costs me $250 per pax per year for $100,000 coverage. That is really cheap and works out to be around $20 per month for each person.

Do you know of any cheaper term insurance than the SAF Aviva Group Insurance?

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For those who are interested, do check out the following interesting articles

Articles on retirement, savings, financial planning and investing:

Real Estate Investment Trusts (REITs)

Commodities/Gold/Silver

Insurance

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The Road to Financial Freedom:

How Many Pratas Can You Eat?

Just the other day, the family was out eating some prata.

The wife actually had some words of wisdom to impart to me.

Wife: " I like eating prata."

Me: "Me too."

Wife: "What I like about prata is that both the rich and the poor can enjoy it."

Me: "Oh...okay.."

Wife: "Yes. Even if you drive a big car or you are poor, you still can afford prata."

Me: "That is true. And there is only so much prata we can eat."

How true it is indeed!

Roti prata is really cheap Indian food in Singapore. And whether you are rich or poor, you can enjoy this food. But at the end of the day, there is only so much prata that you can eat in one seating. So what if you have lots of money? You can't possibly eat a lot more prata than the person sitting next to you.

This is a lesson about contentment. Be contented with what you have. At the end of the day, there is only so much food you can eat and there are only so much clothes you can wear. All the money in the world can buy you more food, but how much food can one possibly eat?

As if to prove a point, the wife managed to gulp down 4 plain pratas whereas I only managed to finish 2.

Whose Dream Is It?

I just read an article on the Straits Times by Grace Chua titled "Whose dream is it anyway?"

It is interesting to note that many points she raised resonates with what I feel about the unspoken Singapore Dream.

It is unspoken because deep down inside, most young working adults still desire the 5Cs that was popularised about a decade ago even though nobody really talks about it. Most people just hide behind a mask and give the one-liner that goes: "Oh, money isn't important to me." But deep down inside, I guess we have all been subconsciously programmed to gun for the 5Cs.

It is difficult to unlearn things that we have been taught since young. Learning new things is never difficult but unlearning is a whole new level. Try unlearning to ride a bike!

When we start work, we inevitably hear comparisons of who has been promoted, who just bought a new car, house or who and who is now working in some big MNC with a lucrative pay package. Even when we return home, the comparisons do not stop. We hear of relatives who are doing well, we hear of the recent purchases of so-and-so...

All these affects most people subconsciously. And at the end of the day, many Singaporeans end up desiring wealth or riches or the 5Cs. The Singapore Dream. Not really our own dream but rather a dream that has been "forced" upon us.

Suddenly, it seems that if we do not attain the 5Cs, we have failed in life. How wrong can we be...

I think a lot has been mentioned about the 5Cs already so I will not delve into it further.

When I first started this blog, it seemed like my focus was on being financially free. When I say financially free, I don't mean being rich or anything. I just meant being able to live a life where I know all my expenses can be taken care of even if I do not work. I do not aspire to have the 5Cs. Why do I need a country club membership when I don't golf or swim?

Some people once asked if I am obsessed about being financially free everyday....Ermm....the answer is NO.

The reason why it seems I am so obsessed with it is because this blog is about financial freedom so my topics must be about personal finance =)

Believe me, I would rather be writing about something more interesting like my travels and stuff. But because this blog is about personal finance, I need to feed my readers a daily dosage of personal finance information. If I could make an analogy, I am like the journalist writing on the Invest section of the Sunday Times. Is the journalist crazy and obsessed about investments? Maybe, maybe not. For all you know, the journalist could be bored stiff of writing and talking about investments. But it is a job so he/she has no choice but to write about investments.

So when you meet me (if you do ever meet me), please talk about more normal stuff with me. I am not some crazy person who is obsessed with becoming rich. I enjoy playing my new ukelele much more than I enjoy writing about personal finance (well, at least for now). I am a normal person with normal dreams just like everyone else.

Back to the 5Cs...

The question that I would like to ask is this: "Are you still pursuing some dream that involves the 5Cs or are you trying to live your own dream first?"

P.S. My CPF IMSavvy profile is already up. Do check it out at the website.

New Hobbies

I realised that I had not have much time to pursue various hobbies.

So this month, I bought a ukelele and started teaching myself how to play the instrument. I also bought a kite and have been unsuccessful at flying it so far.

The ukelele costs only around $50 and it was a pretty good buy. It has kept me pretty occupied these days that is why I hardly had time to focus on posting new articles at the blog! Call this addiction =)

Anyway, I share with you this lovely piece of music

How Much to Save?

What percentage of your income should you be saving?

I was reading Tan Kin Lian's book on financial planning where he advocates saving a total of 50% of your income (inclusive of CPF savings). That works out to be around 15% to 35% of one's take home pay depending on your income bracket with the rest of the savings coming from your contribution to CPF.

This is interesting because most advice that you get nowadays is that one should save 10% of your take home pay. Personally, I feel that TKL is correct. Saving 15% to 35% of your take home pay in addition to your CPF savings should put you in good stead for your retirement planning.

Too often, people think that just by saving 10% of their savings or by just relying on CPF savings, they will have enough for retirement. That simply cannot be the case. If you only have a working period of 40 years in your life (age 25 to 65), saving 10% of your income will add up to only 4 years worth of salary.

How can that be possibly be enough for retirement with the long life expectancy in Singapore?

So throw the idea away that saving 10% of your take home pay is enough. You ought to aim much higher just to be sure.

Breaking the Psychological Barrier

I have related this story to many people before.

Most people have a psychological barrier when it comes to saving. If they have been saving 10% of their income, they find it hard to increase the absolute amount they are saving even as their income increases.

This is because with a rise in income, their expenditure also goes up. So if they have been saving $300 per month since they first started work, it is not uncommon to find that they will STILL be saving only $300 per month even when their income has already doubled or even tripled.

Some people are savers and some people are spenders. So I guess the savers have developed better money spending habits over time. The way to go about saving more is to practice paying yourself first. Make sure that you save a portion of your money before you even spend it. And do make sure that the amount you are saving is minimally 10% of your income.

If you could heed TKL's advice, a savings of 50% (inclusive of CPF contributions) of your income will be a good start.

COE Relief of Up to $8000

While I was travelling by Alexander Road which is littered with car showrooms, I passed by this advertisement put up at one of the showrooms which proudly read:

"COE Relief of Up to $8000"

That was pretty funny and I was kind of amused at the efforts the sales and marketing team must have come up with to attract customers back into the showrooms.

With the increasing COE prices, a "relief" for the customers reminded me of the various reliefs that one can file for during income tax declaration. It also reminded me of the GST credits (GST Offset Package) and stuff that the government gives out as a temporary relief for the increase in GST.

So it is really a bit amusing to see a car showroom offer reliefs for COE. I was just laughing to myself when I came across another advertisement from Volvo. I didn't really get to catch the exact words but it read something like this:

"With the 7 seater Volvo, you can have more Tiger babies."

Okay, the advertisement did not sound so crude but it was something to that tune.

How funny is that! Car dealers coming up with such creative advertisements to get people to buy cars. They are offering reliefs and now even helping Singapore to boost its birthrate!

Those two adverts really made my day. =)