Monday, June 15, 2009
TKL Intelligence Quiz Vol 2
TKL Intelligence Quiz Vol 2 is now available. It can be ordered from the website (with free delivery by post in Singapore) here. It will be available in the major bookstores by end June.
Smoothing of bonus
Dear Mr. Tan,
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?
REPLY
These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.
Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).
In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.
Due to the low yield, it is best to avoid investing in life insurance products.
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?
REPLY
These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.
Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).
In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.
Due to the low yield, it is best to avoid investing in life insurance products.
Sunday, June 14, 2009
Going overseas for further studies
Hi Mr Tan,
I am 20 years old and looking to enrol at a local university. However, I couldn't get into the course I prefer. I am now looking to study in Australia.
1) Based on my calculation, I will probably accumulate a personal debt of A$60,000at the age of 24. Assuming that I can get a job and pay S$1,400 toward clearing the debt, I'll be 28 yrs old by that time.
2) If I stay in Singapore to study the course (Maths and Economics) that I am not too keen on. I'll be about 26 yrs old, debt-free.
Which is better?
REPLY
I usually discourage students from incurring a large debt for overseas studies. I know of many students who are not able to get a good paying job after they get an overseas degree. It will take a long time for them to repay the loan.
If you have a place in a local university, the cost is lower, but you have to like the course that you are taking. I find Mathmatics and Economics to be a good course, but perhaps it appeals to some students and not to others. You may be able to find another course that you like from a local university?
I believe that a hard working, well educated student with a good attitude can do well in the job market without an university degree. I suggest that you consider working as well.
I am 20 years old and looking to enrol at a local university. However, I couldn't get into the course I prefer. I am now looking to study in Australia.
1) Based on my calculation, I will probably accumulate a personal debt of A$60,000at the age of 24. Assuming that I can get a job and pay S$1,400 toward clearing the debt, I'll be 28 yrs old by that time.
2) If I stay in Singapore to study the course (Maths and Economics) that I am not too keen on. I'll be about 26 yrs old, debt-free.
Which is better?
REPLY
I usually discourage students from incurring a large debt for overseas studies. I know of many students who are not able to get a good paying job after they get an overseas degree. It will take a long time for them to repay the loan.
If you have a place in a local university, the cost is lower, but you have to like the course that you are taking. I find Mathmatics and Economics to be a good course, but perhaps it appeals to some students and not to others. You may be able to find another course that you like from a local university?
I believe that a hard working, well educated student with a good attitude can do well in the job market without an university degree. I suggest that you consider working as well.
Accountability in Hong Kong
I have posted several media articles about the process in Hong Kong involving the legislative council and the Monetary Authority.
The elected Lego members (equivalent to our Members of Parliament) have summoned the top officials of the Monetary Authority for questioning regarding their role in approving the credit linked notes for sale to the general public, and the steps that they have taken to rectify matters after these products went bust.
This is the process of holding people accountable to do the job that they are expected to do. It is very educational. It is good for society and will encourage officials to learn from mistakes. It will lead to better governance.
Tan Kin Lian
The elected Lego members (equivalent to our Members of Parliament) have summoned the top officials of the Monetary Authority for questioning regarding their role in approving the credit linked notes for sale to the general public, and the steps that they have taken to rectify matters after these products went bust.
This is the process of holding people accountable to do the job that they are expected to do. It is very educational. It is good for society and will encourage officials to learn from mistakes. It will lead to better governance.
Tan Kin Lian
Puzzle: Send More Money
A young man who is backpacking overseas sends his father the following telegram from Timbuktu:
The father looked at the telegram and, with a bit of logic, he figured out the exact amount of money that his son needed! How much money did the son request? Each letter in MONEY represents a different digit.
Give your answer here. The correct answer will be displayed after you submitted your entry.
Here is the explanation on how to solve this puzzle.
SEND
+ MORE
------
MONEY
The father looked at the telegram and, with a bit of logic, he figured out the exact amount of money that his son needed! How much money did the son request? Each letter in MONEY represents a different digit.
Give your answer here. The correct answer will be displayed after you submitted your entry.
Here is the explanation on how to solve this puzzle.
Saturday, June 13, 2009
China Daily:Authority feels more heat on Lehman Bros
13 June 2009
HONG KONG: The Monetary Authority was held to account again Friday for its failure to avert the Lehman Brothers mini-bond debacle.
Deputy Chief of the Authority Choi Yiu-kwan appeared before the Legislative Council (LegCo) Subcommittee examining allegations of malpractice in the sale of the mini bonds. Choi explained that during on-site investigations, the Monetary Authority inspectors "role play" with sales representatives to assess the understanding of reps about the products they sell.
Choi said representatives with records of high sales, especially sales among individuals more likely to be susceptible to manipulation, are given special scrutiny.
Lawmaker Raymond Ho Chung-tai cited the regulator's figures saying that the authority had carried out about 170 on-site inspections at banks between April 2003 and December last year. He wondered why the probes had failed to avert investors' losses on Lehman Brothers minibonds
Choi responded that during its inspections the Monetary Authority checked the materials banks used for training staff to sell investment products and found the materials satisfactory.
Legislator Kam Nai-wai asked why the authority does not reveal its inspection checklist to banks so that the banks could set guidelines for staying within the rules. Choi replied that banks should already be aware of the rules which are set out in the code of ethics and in the answers to frequently-asked questions issued by the authority.
He said his agency found 72 suspected cases of breaches of rules between April 1, 2003, and September 14 last year through its regular inspections. During the same period it had received 106 complaints from bank clients.
He declined to comment directly on whether existing measures to protect the interests of investors are sufficient. He added that the authority is doing its best.
Choi said the manner in which the authority regulates bank securities sales is similar to the Securities and Futures Commission and to overseas regulators.
He said sales personnel who sold Lehman Brothers-related products passed examinations set down by the Securities Institute concerning relevant regulations. However in matters of product knowledge, sales personnel receive their training from the banks who employ them.
Choi said it had so far received over 21,000 complaints concerning Lehman Brothers-related products and is hurrying to examine them. But he said the authority lacks the staff to proceed more quickly. He noted that the department already has about 60 professionals on loan from accounting firms to help with the investigations. He said he hopes to borrow more staff in the near future.
In the future, Choi said his agency intends to send officers posing as customers to banks so as to evaluate sales practices. He said consultation on the initiative will be launched within a time span of a few months to a year.
HONG KONG: The Monetary Authority was held to account again Friday for its failure to avert the Lehman Brothers mini-bond debacle.
Deputy Chief of the Authority Choi Yiu-kwan appeared before the Legislative Council (LegCo) Subcommittee examining allegations of malpractice in the sale of the mini bonds. Choi explained that during on-site investigations, the Monetary Authority inspectors "role play" with sales representatives to assess the understanding of reps about the products they sell.
Choi said representatives with records of high sales, especially sales among individuals more likely to be susceptible to manipulation, are given special scrutiny.
Lawmaker Raymond Ho Chung-tai cited the regulator's figures saying that the authority had carried out about 170 on-site inspections at banks between April 2003 and December last year. He wondered why the probes had failed to avert investors' losses on Lehman Brothers minibonds
Choi responded that during its inspections the Monetary Authority checked the materials banks used for training staff to sell investment products and found the materials satisfactory.
Legislator Kam Nai-wai asked why the authority does not reveal its inspection checklist to banks so that the banks could set guidelines for staying within the rules. Choi replied that banks should already be aware of the rules which are set out in the code of ethics and in the answers to frequently-asked questions issued by the authority.
He said his agency found 72 suspected cases of breaches of rules between April 1, 2003, and September 14 last year through its regular inspections. During the same period it had received 106 complaints from bank clients.
He declined to comment directly on whether existing measures to protect the interests of investors are sufficient. He added that the authority is doing its best.
Choi said the manner in which the authority regulates bank securities sales is similar to the Securities and Futures Commission and to overseas regulators.
He said sales personnel who sold Lehman Brothers-related products passed examinations set down by the Securities Institute concerning relevant regulations. However in matters of product knowledge, sales personnel receive their training from the banks who employ them.
Choi said it had so far received over 21,000 complaints concerning Lehman Brothers-related products and is hurrying to examine them. But he said the authority lacks the staff to proceed more quickly. He noted that the department already has about 60 professionals on loan from accounting firms to help with the investigations. He said he hopes to borrow more staff in the near future.
In the future, Choi said his agency intends to send officers posing as customers to banks so as to evaluate sales practices. He said consultation on the initiative will be launched within a time span of a few months to a year.
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