Late last year, I was invited to review a book for Quarterly Literary Review Singapore, so I did. The book was Reaching for Stones, a collection of poems by Chandra Nair. You can read my review here.
Baca Selengkapnya »»
Home » All posts
Paying for Your Financial Advice
An email from a reader:
"Accredited investor" means an investor whose income, net assets or lump size investment exceeds certain levels, such that the law no longer regards him as an ordinary retail investor. Therefore he can be offered different types of financial products which may not be approved for the ordinary retail investor in a particular country.
But anyway, back to the question of financial advice, for the general investor.
Financial advice comes with a cost. You have to pay for it. A financial institution cannot carry on a business that includes providing financial advice, without finding some way to charge for it. Otherwise it would be losing money. Because the financial adviser is himself a fixed cost - the financial institution has to pay him a salary - and because the ability to provide financial advice needs to be backed by an infrastructure that itself costs money to run (for example, a bank's research department).
The cost of financial advice can be passed on to the customer - (that's you, dear reader) - in a variety of different ways. For example, theoretically it could be a flat fee or time-based fee (although this is uncommon in Singapore). Or it could be a trailer fee (charged quarterly or annually) on the total amount of investments you place with your financial adviser (that's "Assets Under Management", or AUM for short). Or it could be built into the upfront sales charges for the investments you make.
Let's look at the following illustration. Here are three scenarios.
Scenario 1
You are an ordinary retail customer. You walk into a bank branch. You ask a financial consultant to recommend some investments to you. She asks about your financial goals; discusses any other investments you already have; determines your risk profile through a questionaire; talks about market conditions etc.
Then she recommends XYZ Equities Fund to you. You agree. You decide to invest $10,000. You pay 5% in sales charges, which is typical for an equities fund. That works out to be $500.
Scenario 2
You are a "priority banking" customer (this typically means that you have placed at least $200,000 with your bank). You walk into a bank branch.
You ask your relationship manager to recommend some investments to you. She asks about your financial goals; discusses any other investments you already have; determines your risk profile through a questionaire; talks about market conditions etc.
Then she recommends XYZ Equities Fund to you. You agree. You decide to invest $10,000. Being a priority banking customer, you typically get a discount and pay 3% in sales charges, for an equities fund at a bank. That works out to be $300.
Scenario 3
You are an ordinary retail customer. You visit a website such as Fundsupermart or Dollardex. The website has dozens of articles about financial planning, regular updates on market news and plenty of online tools. However, it's essentially a DIY process. You do your own reading and research. No one is there to specifically talk to YOU about your money.
You then decide to invest $10,000 online, in a particular equities fund (gee, guess what - it happens to be XYZ Equities Fund). Typically, you pay 2% in sales charges. That works out to be $200.
* * * * * * * *
Note that in all three scenarios, you bought the same exact equities fund (the XYZ Equities Fund). However, in Scenario 2, you paid less than in Scenario 1. And in Scenario 3, you paid less than in Scenario 2.
Despite being an ordinary customer, the Scenario 3 ordinary customer actually got a better deal than the priority banking customer in Scenario 2. Why? Because financial advice costs money.
That financial consultant, or that relationship manager, may have been pleasant, well-informed, patient and helpful. You may indeed have found her advice clear, informative and useful. But you have to pay for that. The payment is ultimately reflected in the extra 1 to 3 per cent you pay, in the sales charge.
This is not to say that paying for financial advice is necessarily a bad idea. This is to illustrate that financial advice does come with a price - even if you are not explicitly told that it comes with a price. What you then have to decide is whether the value of the advice you get is worth the price you're paying for it.
That in turn depends on a variety of factors, two of which are (1) your own level of financial knowledge, and (2) your willingness to learn on your own.
TO BE CONTINUED ......
Baca Selengkapnya »»
Dear Gilbert,I recently got a financial adviser, because I recently made my first investment as an "accredited investor". For me, this is a new corner of the investment universe, so I need some advice to help me get acquainted.
I read your recent post, as always, with much appreciation for its practical content that impacts on Singaporeans from all walks of life. I do have a quandary though and in your post where you mentioned that you just hired a financial adviser sparked me to write to you.
I'm not exactly that savvy with my investments and I have come to a point where I seriously need to find a financial adviser that is not some run of the mill insurance agent type peddling products that I might not necessarily need at all to boost my nest.
I'm 26 and I have no qualms paying for one that could really help me before I fall back even further. Not asking for a recommendation, simply a finger to point in the right direction to find a decent one adviser and the basic points to take note of when choosing a financial adviser. Hope you can take some time off your busy schedule to write back with your thoughts.
A happy Chinese New Year to you..
Regards,
[ xxxx ]
"Accredited investor" means an investor whose income, net assets or lump size investment exceeds certain levels, such that the law no longer regards him as an ordinary retail investor. Therefore he can be offered different types of financial products which may not be approved for the ordinary retail investor in a particular country.
But anyway, back to the question of financial advice, for the general investor.
Financial advice comes with a cost. You have to pay for it. A financial institution cannot carry on a business that includes providing financial advice, without finding some way to charge for it. Otherwise it would be losing money. Because the financial adviser is himself a fixed cost - the financial institution has to pay him a salary - and because the ability to provide financial advice needs to be backed by an infrastructure that itself costs money to run (for example, a bank's research department).
The cost of financial advice can be passed on to the customer - (that's you, dear reader) - in a variety of different ways. For example, theoretically it could be a flat fee or time-based fee (although this is uncommon in Singapore). Or it could be a trailer fee (charged quarterly or annually) on the total amount of investments you place with your financial adviser (that's "Assets Under Management", or AUM for short). Or it could be built into the upfront sales charges for the investments you make.
Let's look at the following illustration. Here are three scenarios.
Scenario 1
You are an ordinary retail customer. You walk into a bank branch. You ask a financial consultant to recommend some investments to you. She asks about your financial goals; discusses any other investments you already have; determines your risk profile through a questionaire; talks about market conditions etc.
Then she recommends XYZ Equities Fund to you. You agree. You decide to invest $10,000. You pay 5% in sales charges, which is typical for an equities fund. That works out to be $500.
Scenario 2
You are a "priority banking" customer (this typically means that you have placed at least $200,000 with your bank). You walk into a bank branch.
You ask your relationship manager to recommend some investments to you. She asks about your financial goals; discusses any other investments you already have; determines your risk profile through a questionaire; talks about market conditions etc.
Then she recommends XYZ Equities Fund to you. You agree. You decide to invest $10,000. Being a priority banking customer, you typically get a discount and pay 3% in sales charges, for an equities fund at a bank. That works out to be $300.
Scenario 3
You are an ordinary retail customer. You visit a website such as Fundsupermart or Dollardex. The website has dozens of articles about financial planning, regular updates on market news and plenty of online tools. However, it's essentially a DIY process. You do your own reading and research. No one is there to specifically talk to YOU about your money.
You then decide to invest $10,000 online, in a particular equities fund (gee, guess what - it happens to be XYZ Equities Fund). Typically, you pay 2% in sales charges. That works out to be $200.
Note that in all three scenarios, you bought the same exact equities fund (the XYZ Equities Fund). However, in Scenario 2, you paid less than in Scenario 1. And in Scenario 3, you paid less than in Scenario 2.
Despite being an ordinary customer, the Scenario 3 ordinary customer actually got a better deal than the priority banking customer in Scenario 2. Why? Because financial advice costs money.
That financial consultant, or that relationship manager, may have been pleasant, well-informed, patient and helpful. You may indeed have found her advice clear, informative and useful. But you have to pay for that. The payment is ultimately reflected in the extra 1 to 3 per cent you pay, in the sales charge.
This is not to say that paying for financial advice is necessarily a bad idea. This is to illustrate that financial advice does come with a price - even if you are not explicitly told that it comes with a price. What you then have to decide is whether the value of the advice you get is worth the price you're paying for it.
That in turn depends on a variety of factors, two of which are (1) your own level of financial knowledge, and (2) your willingness to learn on your own.
TO BE CONTINUED ......
Calculating Your Personal Net Worth
My New Year's resolution was to tidy up my financial matters. So far, I've been making good progress. Among other things, I reviewed my insurance policies; closed two useless bank accounts; switched to a better online funds distributor; switched to a better mortgage package charging lower interest; engaged a financial adviser; opened a trading account; rebalanced my wife's investment portfolio and redeemed all my credit card points.
I realise that financial planning is not exactly the most exciting topic in the world. However, it is a highly practical topic and therefore it's very much worth knowing something about it.
Today, just for general educational purposes, I'm going to explain how to calculate your personal net worth (that really means - how rich or poor you are).
If you want to be very exact, this could be a rather tedious exercise. However, for most people, it works fine if you just want a "big picture" snapshot of your current financial condition.
Step 1. List your biggest fixed assets, such as your apartment and your car, at their current market value.
Step 2. List all of your financial assets, such as your cash savings, fixed deposits, shares, unit trusts, CPF balances etc.
Step 3. List any other possessions which you might conceivably be able to sell, if you needed the money. Gold and other jewelry, for instance.
Step 4. Add together all of the above, and you get your total assets.
Step 5. Subtract all of your debts, such as your mortgage, car loan and credit card balances, from your total assets.
And there, the result is your net worth. An instant snapshot of how rich or poor you are, today.
That should start you thinking about how you can improve your financial condition. Sometimes there are ridiculously easy ways to cut a few expenses or make a bit more money.
Keep your spreadsheet or that piece of paper somewhere safe. One year later, do this exercise again. Hopefully, you'll find that you've grown richer. Good luck.
Baca Selengkapnya »»
I realise that financial planning is not exactly the most exciting topic in the world. However, it is a highly practical topic and therefore it's very much worth knowing something about it.
Today, just for general educational purposes, I'm going to explain how to calculate your personal net worth (that really means - how rich or poor you are).
If you want to be very exact, this could be a rather tedious exercise. However, for most people, it works fine if you just want a "big picture" snapshot of your current financial condition.
Step 1. List your biggest fixed assets, such as your apartment and your car, at their current market value.
Step 2. List all of your financial assets, such as your cash savings, fixed deposits, shares, unit trusts, CPF balances etc.
Step 3. List any other possessions which you might conceivably be able to sell, if you needed the money. Gold and other jewelry, for instance.
Step 4. Add together all of the above, and you get your total assets.
Step 5. Subtract all of your debts, such as your mortgage, car loan and credit card balances, from your total assets.
And there, the result is your net worth. An instant snapshot of how rich or poor you are, today.
That should start you thinking about how you can improve your financial condition. Sometimes there are ridiculously easy ways to cut a few expenses or make a bit more money.
Keep your spreadsheet or that piece of paper somewhere safe. One year later, do this exercise again. Hopefully, you'll find that you've grown richer. Good luck.
CCAs and the Government's Edusave Top-Up
Jan 24, 2011
$155 million top-up for Edusave scheme
By Kor Kian Beng & Leow Si Wan
THE Government is pumping some $155 million into the Edusave scheme to ensure that students can continue to enjoy enrichment classes and IT-enabled programmes, despite higher inflation.
The top-up is the biggest since the Edusave scheme was launched in 1993.
The Edusave account of each student in primary and secondary school will get a one-off boost of $130 this year.
This brings the total amount that a primary school pupil gets this year to $330, and a secondary student, $370.
The account top-ups will total $54.8 million.
Announcing the news on Sunday, Education Minister Ng Eng Hen added that the Ministry of Education (MOE) has given an additional $100 million in Edusave grants to government, government-aided and independent schools.
So in the run-up to the elections, here's the government trying to look generous. But it's really not generous at all. Let me elaborate.
I have two children. Both are in primary school. The girl goes to an all-girls school and the boy goes to an all-boys school. In fact, this is the boy's second primary school (he had transferred from elsewhere).
So over the past few years, I have become well-acquainted with the in's and out's of three separate primary schools. I know a lot about how they operate. And through them, I also have a good sense of how Singapore's primary schools operate.
For instance, I know that nowadays, schools take their CCA activities very seriously indeed. If you are an "outsider" to the current school scene, you would really be surprised.
In the old days, "CCA" (or "ECA", as it used to be known) was often little more than letting the boys randomly bounce a basketball around on the court, after school hours. Kids were not supervised. Every CCA had a teacher in charge, but the teacher didn't necessarily know anything about the activity at all.
(For example, when I was in primary school, the chess club was run by a teacher who didn't know how to play the game. She couldn't even tell the difference between the king and the queen).
Those days are over. CCAs are now much more structured, and well-planned. There is much more focus on proper accreditation, accountability and objectives. The "KPI" management style of thinking has invaded the universe of school CCAs.
The teachers still don't necessarily know anything about the CCAs, but now they don't have to. Nowadays, primary schools regularly engage external professional instructors to conduct the courses and activities for the children.
For example, my daughter has taken up ballet as her CCA. Her school has engaged ballet instructors from the Royal Academy of Dance (RAD) to run this CCA. RAD is the local subsidiary of the RAD in London, a well-established, 90-year-old ballet school whose syllabus is taught in 82 countries around the world.
Music lessons are also compulsory for all students in the school, from Primary One to Primary Three. The school has a three-year programme leading up to a Grade 1 examination for the ABRSM Theory of Music. Again, external music instructors are engaged to conduct the course.
Meanwhile, at his previous school, my son had joined Speech & Drama. This CCA had plenty of fun activities (including a short public performance at Bishan National Library). But again there was a proper underlying structure. This CCA adopted the Trinity-Guildhall exam syllabus from London. Taken far enough, it would lead to a formal certificate in Speech & Drama that is the equivalent of an O-level subject.
Why are schools, even primary schools, taking their CCAs so seriously?
The answer is simple. It is a consequence of certain changes that the Singapore government had made to the education system, over the years.
In the past, academic results were all that mattered, in helping you to get from primary school to secondary, or secondary to JC, or JC to university. Nowadays, however, the student's CCA achievements can be used to help him gain admission to the next stage of education.
For primary schools, the specific driver is the Direct Schools Admission policy. It is now possible for a Primary Six student to secure a place in a top secondary school, even before his PSLE results are out (in fact, even before he has actually taken his PSLE exams). All he has to do is demonstrate a sufficiently high level of CCA achievement.
Schools are now restructuring their CCA activities, such that their students' CCA achievements are more objectively verifiable. In some cases, this means that the CCA ultimately leads to some accredited certification (for example, a certificate from Trinity Guildhall, Royal Academy of Dance, and so on). In other cases, it means getting the students to participate (and win some prize) in a nationally recognisable CCA-related event (such as an inter-school sports competition).
I like the idea of systematic, well-run CCA programmes. This is because I believe that young people should get the chance to pursue their personal interests, beyond the academic syllabus. Overall, it makes for a more well-rounded education. I'm also a believer in the principle of "If you want to do it, then do it well - otherwise don't do it at all.". That's why I like the idea of properly-qualified instructors running the students' CCA programmes.
On the other hand, there is the very relevant consideration of financial cost. Parents have to fork out more money to pay for their children's increased CCA expenses.
In the old days, taking part in a CCA was free or cheap. But nowadays, CCAs cost money. That is because external instructors cost money. So do their exams, their materials and their equipment (just imagine the cost of buying enough Yamaha keyboards for all Primary 1, 2 and 3 students in a school, to have weekly music lessons). Here's another example - when my son took his Speech & Drama exam, an external examiner was flown in from London to Singapore, to conduct the exam. Somebody's got to be paying for that man's flight and accomodation.
It's worth noting that as a practical matter, CCAs aren't optional. They are compulsory. Your child may get to pick his specific CCA (for example, a sport or a musical activity), but he MUST pick at least one. Also, depending on the school, some CCAs can be compulsory for all the kids.
Personally, the money doesn't bother me. I can afford the costs of my children's CCAs. On the other hand, I am much wealthier than the average Singaporean. So I do wonder how the average Singaporean parent is coping.
Back to the Straits Times article.
We learn that the government has given a $130 Edusave top-up for each student. This means that each primary student gets a total of $330. Edusave is meant for enrichment activities, i.e CCAs and the like.
Now, using my daughter as an example, let's see how helpful the Singapore government's top-up really is, taking into consideration actual expenditure in practical reality.
My daughter's ballet leotard cost about $80 (I bought the cheaper one, the most expensive version recommended by the school was about $120). The ballet class itself costs $300. The compulsory music course costs $40 (after the school subsidy). There is also a compulsory Gymnastics & Rope Skipping programme (again, external instructors are engaged). This costs another $40.
That's a total of $460. The Edusave account has been completely wiped out. More than completely wiped out.
And note that right now, it's only January. The school year has just begun. As the year goes on, there will be more fees to pay.
Still think that the government is generous?
Here are a few points that I would like to know.
When the Singapore government introduced schemes such as the Direct Schools Admission policy, did it not anticipate that schools would then start beefing up their own CCA programmes? And that the costs of these programmes would start escalating dramatically?
If the Singapore government knew this, then did it not foresee that a large part of the costs would be passed on to the parents? If so, did it stop to consider whether the average Singaporean parent can cope with these increased costs? What's being done, to help the poorer families?
"Would You Die For Each Other?"
I read this question in the Straits Times today. The article was about Lee Kuan Yew's new book. The question posed to Singaporeans was - "Would you die for each other?". The Straits Times is even doing an online poll.
I could not help laughing. The question is so dramatic that it is melodramatic. Like a line from one of those weepy Taiwanese soap operas.
To the PAP ministers I would say - "What about you? Would you even pay yourselves anything less than the highest ministerial salaries in the world?"
But then we already know the answer. The last 20 years have made it clear.
Baca Selengkapnya »»
I could not help laughing. The question is so dramatic that it is melodramatic. Like a line from one of those weepy Taiwanese soap operas.
To the PAP ministers I would say - "What about you? Would you even pay yourselves anything less than the highest ministerial salaries in the world?"
But then we already know the answer. The last 20 years have made it clear.
Possible New World Record for Singapore?
Floods have caused hundreds of thousands of people in Sri Lanka to become homeless. As many as one million people - including 400,000 children - may experience food shortage.
And the Singapore government is donating ..... $25,600?
That's less than the price of one C.O.E.
Surely this must set some kind of international record. For stingy-ness. This could be the smallest sum ever donated by one sovereign nation, to another sovereign nation, for a humanitarian cause.
I wonder if the government of Sri Lanka feels insulted.
One single primary school like Anglo-Chinese School could probably raise three times that amount in a week, just by asking parents for donations.
Baca Selengkapnya »»
And the Singapore government is donating ..... $25,600?
That's less than the price of one C.O.E.
Surely this must set some kind of international record. For stingy-ness. This could be the smallest sum ever donated by one sovereign nation, to another sovereign nation, for a humanitarian cause.
I wonder if the government of Sri Lanka feels insulted.
One single primary school like Anglo-Chinese School could probably raise three times that amount in a week, just by asking parents for donations.
$25,600 flood aid for Sri Lanka
TODAY 05:55 AM Jan 21, 2011
SINGAPORE - The Government is contributing US$20,000 ($25,600) in aid to flood-stricken Sri Lanka, the Singapore Ministry of Foreign Affairs (MFA) said in a statement yesterday.
Floods and mudslides in Sri Lanka over the past several days have reportedly killed 40 people and left hundreds of thousands of people homeless.
The MFA said the money will go towards post-flood rehabilitation efforts undertaken by Mercy Relief.
The humanitarian organisation will be distributing water filtration units for fresh drinking water to those affected by the floods.
President S R Nathan had earlier sent a letter to Sri Lankan President Mahinda Rajapaksa to express his sympathies to the people and government of Sri Lanka over the loss of life and destruction caused by the floods, the MFA said.
Meanwhile, international humanitarian group Save the Children warned that the damage to agricultural land and loss of livestock is so serious that it could leave up to a million people - including 400,000 children - without enough food.
The Ultimate Guide to Real Estate Investment in Singapore
Ismail Gafoor is the CEO of Propnex, one of the largest property agencies in Singapore. I came across his bio-data and was quite impressed.
Among his many achievements, Ismail holds, as an NSman, the rank of Lieutenant Colonel. He is currently the Deputy Brigade Commander of one of the SAF's infantry brigades.
This is notable especially because of his race. It's an open secret that the SAF is biased against the ideas of Malays holding senior appointments in the military.
(Actually, that's not even a secret. Lee Kuan Yew has spoken publicly about it before).
Anyway, I digress. What I really want to talk about is Ismail Gafoor's new book, "The Ultimate Guide to Real Estate Investment in Singapore".
I bought the book ($34.99 at Popular Bookstore), even though I don't expect to be buying or selling any properties in the next two or three years. The book is informative and well-written, and I feel that its useful shelf life will extend beyond a 2 or 3-year period.
At 337 pages, the book provides quite comprehensive coverage of its topic. There are chapters about HDB flats; landed properties; condominiums; property auctions; bargaining strategies; being a landlord; obtaining a home loan; understanding the URA Master Plan; evaluating a property's location; planning your budget, and more.
Highly recommended, if you're interested in real estate in Singapore.
In contrast, landed properties are cheaper (on a psf basis) because the foreigners are still kept out (not entirely, but largely) by the laws and regulations. Foreigners can buy landed properties, only if they first succeed in getting government approval.
Baca Selengkapnya »»
Among his many achievements, Ismail holds, as an NSman, the rank of Lieutenant Colonel. He is currently the Deputy Brigade Commander of one of the SAF's infantry brigades.
This is notable especially because of his race. It's an open secret that the SAF is biased against the ideas of Malays holding senior appointments in the military.
(Actually, that's not even a secret. Lee Kuan Yew has spoken publicly about it before).
Anyway, I digress. What I really want to talk about is Ismail Gafoor's new book, "The Ultimate Guide to Real Estate Investment in Singapore".
I bought the book ($34.99 at Popular Bookstore), even though I don't expect to be buying or selling any properties in the next two or three years. The book is informative and well-written, and I feel that its useful shelf life will extend beyond a 2 or 3-year period.
At 337 pages, the book provides quite comprehensive coverage of its topic. There are chapters about HDB flats; landed properties; condominiums; property auctions; bargaining strategies; being a landlord; obtaining a home loan; understanding the URA Master Plan; evaluating a property's location; planning your budget, and more.
Highly recommended, if you're interested in real estate in Singapore.
* * * * * * * * *
Anyway, here's one interesting nugget from the book.
If you're interested in private property, you probably know that on a per square foot (psf) basis, landed property is usually much cheaper than condominiums. The question is - why?
I have always assumed that it's because Singaporeans are willing to pay the extra premium for the condo facilities. Typically, that means the swimming pool; the tennis courts; the gym; the barbecue pits; the clubhouse; the children's playground; and so on.
In contrast, a house is, well, just a house.
However, when Ismail discusses the question, he doesn't even mention condo facilities at all. (I take it that this means he would consider my view to be either irrelevant or wrong). Instead, here's what Ismail says:
"How is it possible that a space in the sky is actually more expensive than land on the ground?So according to Ismail, you pay more for your condo, because you're competing with the foreigners. All these years, they've been jacking up your price.
The answer basically lies in the rules of land ownership. In Singapore, foreigners are generally not allowed to buy landed homes, unlike condominiums. Foreigners who desire to own a piece of land must fulfil the criteria and submit an application to the authorities, which will only be approved based on its merits."
In contrast, landed properties are cheaper (on a psf basis) because the foreigners are still kept out (not entirely, but largely) by the laws and regulations. Foreigners can buy landed properties, only if they first succeed in getting government approval.
Langganan:
Postingan (Atom)