One of the best things about writing for BigFatPurse is the opportunity to meet with interesting and inspiring people from the financial industry. Some are just starting out, others have seen it all. Many propagate the status quo, yet others turned their backs on it and attempt to trailblaze their way out.
I cannot find a more appropriate word to use on Christopher Tan than ‘Trailblazer’. Top insurance sales person in his rookie year, he walked away from six figure paychecks to start Providend, a fee based financial advisory firm in 2003. Just last year, he started DIYInsurance to allow people to purchase insurance online.
And it was DIY Insurance that bought us together. DIY insurance is Singapore’s first life insurance comparison portal launched in June 2014. The portal allows you to compare insurance products from major insurers from the comfort of your own homes without the need for a financial advisor.
Regular readers will know that our greatest joy at BigFatPurse is in empowering people to take charge of their finances. We love to simplify investing and personal finance. We hate unneccessary complexity. We are fans of technology and we are in great awe of its disruptive powers. DIY Insurace is all that and more. To say we were excited to meet the man behind all this is a massive understatement.
Here's our mistakes. Don't do the same.
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Fee Based Financial Advisory
The meeting took place at Providend’s office at Duxton Hill. A fee based financial advisory is a rarity. In the simplest possible manner, here is why.
For anyone who chose to go with a fee based financial advisor, they are required to pay an advisory charge over and above the cost of the products they have purchased. The money is tangible. The pain is real.
Traditional insurance companies understand the pain. To alleviate that, they bundle sales person’s commission (the distribution charges) into the insurance plans they sell. That way, the consumer does not have to grapple with the pain of forking out additional cost. To put it in another way, they are not privy to the cost.
That is a pretty elegant solution to say the least. In all other industries it would have worked perfectly. Case in point – you buy a car, the salesperson commission is worked into the car price. You are quoted a list price which you pay happily and the sales person gets his or her due.
But because insurance is such an intangible product, it is highly complex and largely misunderstood by consumers. Insurance agents discovered that they could make more money selling more expensive plans. Unlike a Mercedes Benz C Class vs an S Class, many consumers are unable to tell the difference between the plans they have been sold.
Many of these plans are life plans, or investment linked products, where a small proportion of the premium goes towards protection and the rest is invested as per the insurance company’s mandate.
Life vs Term
The alternative to life insurance is term insurance. No frills, just pure protection. It is a lot cheaper. And precisely because it is cheap in absolute terms, the profit margins and consequently sales commissions cannot match up to that of investment linked policies. Despite it being a much ‘better’ product, few people bother to promote it because there is little money on the table.
Like many insurance advisors, Chris started off selling life plans. It was largely profitable. He had his epiphany in 2001 after reading an interview with US personal finance celebrity Suze Orman. He recounted his struggles during the transition.
Suze Orman visited Singapore and Genevieve Cua from The Business Times did an interview with her. She wrote an article that had Suze Orman claiming this – If as a financial advisor you sell a whole life policy to your client, it is like serving your client a plate of poison.
My partners and I, we went through six months of denial. We tried to find reasons to counter the argument. But deep inside we knew that it cannot stand. Every time my we met, this issue always surfaced. It came to a point where we had no more reasons to defend ourselves.
Eventually Chris came to a realization that the only way he could proceed further is to align his own interest with that of his clients. He has been a keen advocator of term insurance for more than a decade. Here is an article he wrote for the Business Times.
And just in case you are still confused, here is a 3 min clip of Suze Orman herself. Be entertained.
Singaporeans tend to be underinsured
As we chatted more about insurance, Chris shared another interesting nugget. Singaporeans tend to be under insured. The reason is very simple. We tend to equate how much we pay for insurance to how much we are covered for.
Let’s say my peers and compatriots within my age group are paying $500 a month for insurance coverage. I can easily find comfort in paying the same amount. The thing is, coverage can vary tremendously depending on the type of policy purchased.
The DIYInsurance platform allows the user to compare quotes at the click of a button. I was interested to discover the difference in the amount of coverage I can obtain from term and life policies. It was a well designed and painless process that took all of one minute to complete.
With DIYInsurance, the differences became apparent. Term coverage for $200k would cost me between $600 to $700 per annum. Life policies would cost four to five times as much, for half the amount of coverage at $100k. WIth these figures readily available at the click of a button, there is no excuse for anyone looking to buy any form of protection not to drop by DIYInsurance first. It provides them with an excellent frame of reference.
The Rise of Social Media
Beyond insurance, we also ventured into other interesting topics. We spoke about technology, and in particular the rise of social media and how it has changed information flows.
Previously it used to be a top down process. Information is disseminated from the source via ‘official’ channels. Take insurance. Many years ago if someone wants to find out more about insurance, their only source would be through their advisors, who are in turn representatives of the insurance companies.
In this modern day and age though, people turn to the internet for information. Financial bloggers become new-age journalists, sharing and aggregating useful information for the community at large. Many bloggers have written about insurance from a layman and consumer’s point of view. The information flow is reversed and the process is now bottom up.
In order for this medium to work, there has to be a certain level of trust. Fortunately financial bloggers a principled bunch. If we believe that a product or an investment is good for retail investors we will not hesitate to shout it out from the rooftops. If not, no amount of freebies or referral fees will tempt our principled keyboards.
I have yet to see a blogger promote dodgy fish-banking/land-farming companies touting sky high returns. I hope that day will never come.
The biggest mistake
We asked Chris what is the biggest financial planning mistake most Singaporeans make. Here is his take.
We find that many people plan by first making financial decisions. When you plan for yourself, the first decision you make should be your ‘Life Decision’. The ‘Financial Decision’ follows. Decide first what is it that matters most in your life. What are you passionate about? What would make you happy? What is it that excites you. Decide on this first and then make your financial decision would be to support your life decision. In other words, adjust your financial life to achieve your life goals.
Unfortunately, most people do it the other way round. How many friends do we know who make the ‘financial decisions’ first – the house they aspire to live in, the car they want to drive, the watches and holidays they must have, and then subsequently build their life decisions around it
They buy their dream house and complain about having to work the rest of their lives to pay off the mortgage, in a job they derive absolutely no satisfaction from. They upgrade to a new car every other year and end up having to scrimp on essentials like insurance. These are mistakes of the greatest proportion!
At BigFatPurse, we cannot agree with him more. All four of us at BigFatPurse have in recent years made life decisions that require us to modify our financial habits. We do because it we understand what matters, because we want to do what excites us and what makes us happy the most. Chris you spoke our hearts!
It is easy for anyone to start a business selling a product or providing a service. It is on a different level altogether when the business is derived out of principles the owner holds dear. And even rarer are businesses where the principles it is based on are against the established norms in the marketplace.
Providend and DIYInsurance is all that and more. We wish Chris great success!