In 2012, Monetary Authority of Singapore (MAS) released their results of their mystery shopping whereby there were 126 mystery shoppers who in total made 500 visits to 11 licensed banks and 4 registered insurance companies seeking financial advice from their representatives. The recommended products were subsequently reviewed for their suitability by a panel of industry practitioners. The most alarming findings to me was that almost 30% of the recommended products were unsuitable! This statistics implies that 1 out of every 3 insurance policies that you have should not have been bought in the first place.
A suite of recommendations were made by the Financial Advisory Industry Review (FAIR) committee and we have just seen one of the recommendations being implemented – a web aggregator, compareFIRST.sg, was launched to allow consumers to compare insurance products from different insurance companies and also to purchase whole life and term insurance directly from the companies without the need to go through a financial adviser, up to a limit of $400k (cap to $200k for whole life).
Before this web aggregator, DIYInsurance was in place to provide consumers an online platform to compare various insurance products and offer part of the commission as rebate to consumers. It is important to note that the products offered on compareFIRST are specially created by the insurers and you won’t be able to purchase them via other channels. There are differences between these Direct Purchase Inurance and usual insurance products which you should understand. You can find these differences in point 5 of this DIYInsurance document.
It makes sense to get the basic coverage settled first before engaging a financial advisor in order to keep cost low. However, things are not going to be so rosy as it isn’t easy to understand these insurance policies and buy directly from the insurers. This is because the level of financial literacy is lacking in Singapore. For direct insurance to work, people must be savvy about these product offerings. And mass education is more efficient than one-to-one financial consultancy. Also, the education must be conducted live to have higher effectiveness as these high touch events can convey the messages better. As such, our company is willing to play a part by conducting free workshops to educate attendees on personal finance matters.
Granted, financial plan is unique and it makes sense to consult a competent and ethical professional on a personal basis. But if MAS is allowing direct insurance, it suggests that there is a basic coverage everyone should have. This baseline protection doesn’t really require advisory. For people who have higher net worth to plan for and require more protection can seek out a financial advisor. It makes more sense because the cost of engaging a financial advisor commensurate with the amount of wealth to be managed or protected.
Besides life insurance, there are other types of insurance that consumers should have basic understanding about them – Integrated Shield Plans, accident plans, endowment policies, Investment-linked Policies, partial disability income policies etc. I take the stand that it is important for everyone to understand the broad principles and utilities of these policies so that they can make a better decision, and are also able to judge if the advisor is mis-selling. An effective check-and-balance come in a combination of sound regulations and basic consumer knowledge.
Bonds With Good Yields
I wrote an article about why retail investors have limited access to high-yielding bonds and that drove many to seek for dividends in the stock market, taking higher risk in the process. Jon also wrote another article on the behavioral aspect of dividend investing to expand on my view why yield-hungry individuals are digging in the stock market.
In the same period where Jon published the interview with Lawrence Yong, CEO of MoolahSense (a peer-to-peer lending site whereby investors can get higher yields by lending small amounts to small and medium enterprises) the Singapore Government announced the introduction of the Government Savings Bond. It got many Singaporeans excited. You can also read about some financial bloggers’ responses here and here.
This is a no brainer product if you are putting your money in fixed deposits because the Savings Bonds offers higher returns and lower risks. With CPF Life annuity as the baseline income, add on the Savings Bonds as the next layer of income, and both would alleviate retirement income woes in a rising cost of living in Singapore.
I see this as a response to help Singaporeans tide with retirement income needs. Instead of appearing as a social welfare state giving money directly, I reckon this is a more balanced approach by having the individual pledge a sum of money in exchange for yields. At least there would be some responsibility and stake on the table. Fair deal.
I am heartened to see the Government is introducing more initiatives that improve our financial lives. I am equally confident more good things would come our way. But I reiterate again, these initiatives and products would not help the people naturally. We need to educate to increase the awareness and financial literacy of our people. This is because unlike a shampoo, financial products are more complex and abstract. The latter requires explanations.
That said, we cannot afford to sit and always wait for the state to drive initiatives in every part of our lives. We should be courageous enough to do something bottom-up too, meeting the Government’s efforts in the middle. So we will do our part in financial education.