June 25, 2017

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L-R: Ms Charis Low, Mr Edmund Chen, Mr Mervyn Hoe

by Ryan Ong

SINGAPORE is a country of opportunities; but opportunity also means tough competition. It takes more than just talent or working hard to succeed. We spoke to some of Manulife Financial Advisers’ (Manulife FA) top financial consultants, and some shared qualities emerged.

In this article, we spoke to three successful young Singaporeans, financial consultants Mervyn Hoe, Charis Low, and Edmund Chen from Manulife FA. Be it ensuring the financial stability of the clients in their care, or gaining a place in the prestigious Million Dollar Round Table (MDRT), these top Manulife FA financial consultants display similar traits that took them to the top.

While their roads are different and uncommon, they all lead in the direction of extraordinary success. The key factors that set them apart are:

 

Success Factor 1: Thinking beyond paper qualifications

Ms Charis Low, Manulife financial advisor. Image by Mohamad Aidil.

Ms Charis Low, who was a Singapore Airlines cabin crew stewardess, graduated with a Degree in Business Marketing. Becoming a financial consultant would seem like an unlikely career trajectory; nonetheless, in the two years since she joined Manulife FA, Ms Low has already become part of the noted Million Dollar Round Table (MDRT) circle.

Ms Low believes education has to be backed with the willingness to step out from one’s comfort zone: “Qualifications do matter, in Singapore’s competitive environment; but it’s not the only way to success. There are life lessons that you don’t learn in any school, outside of lectures and books.”

Mr Edmund Chen, another leading financial consultant who became part of the prestigious Court of the Table (CoT) in his first year with Manulife FA, had a more “traditional” background. He began his career in financial planning as far back as 2007, with a degree in Banking and Finance from SIM. He also believes the right qualifications mean little without persistence, and the willingness to keep learning.

“Having a degree is beneficial, as it gets you into many job openings. However, I strongly believe that that is not the only way to get opportunities in life. Being intellectual without having the right attitude will not bring you far,” he said.

“The hard truth is that a degree doesn’t necessarily result in higher earnings.”

“The hard truth is that a degree doesn’t necessarily result in higher earnings.”

“Self-discipline and persistence are imperative qualities to success. And in today’s competitive world, regardless of your line of work, lifelong learning is paramount for building a successful career.”

Mr Mervyn Hoe, another entry into the MDRT, graduated from NUS with a background in Material Science and Engineering. He only got started as a financial consultant when he helped fill out an empty spot at an orientation camp (and even then, he only sold pet insurance at the start). Today he’s a successful financial consultant at Manulife FA, and he values the ability to connect as much as he does a degree: “Academic qualifications are important in Singapore, especially if you want to climb the corporate ladder,” Mr Hoe says, “And I’m quite happy I graduated with a Bachelor in Applied Science. But the ability to meet friends in University was just as important.”

“In NUS you can meet people from all different faculties and disciplines; and it’s important to build good networks. You need to the ability to build friendships and get along with people, as you never know when you’ll need their help later.”

 

Success Factor 2: Knowing when to keep going, and when to quit

A common quality among the successful is their seemingly perfect timing – they know when to stay invested in something, and when it’s time to try something different.

For Mr Chen and Ms Low, persistence has to be balanced with the costs they’re facing.

“It’s a mistake to give up prematurely – nothing worth doing comes easy, and the middle of the road to success is always messy. But persistence doesn’t mean being to obstinate either,” said Mr Chen.

“We should evaluate the positive trends we see in our efforts. If there are none, and the price of restarting or trying a different approach would be more cost-effective, then perhaps it’s time to cut losses and move on to a new method.”

Ms Low considers the consequence of failure, when it comes to pushing on. While she agrees persistence is important, she takes the view that: “There is no right and wrong in making such decisions; you just have to weigh up the consequences of further failure. Can you manage those consequences? If your instincts and gut feel say you cannot, you should try something different.”

Mr Hoe also suggests that you need to draw a line, when it comes to work and family: “Draw a line and don’t overwork. Don’t forget about your loved ones.”

“Draw a line and don’t overwork. Don’t forget about your loved ones.”

“If you get too into your job, your job will control you, and you won’t be happy. I don’t work on weekends, even if on weekdays I have no choice and have to sacrifice time with my children.”

Ms Low also draws a clear line on when to stop. “Don’t sacrifice your health”, she said, “Because without it, you can’t do anything. And don’t sacrifice your principles.”

 

Success Factor 3: Setting separate and targeted goals for work and life

Mr Mervyn Hoe, Manulife financial advisor. Image by Mohamad Aidil.

Mr Hoe separates his work and personal goals: “For work, I set a new goal every year after a conversation with my boss. We set the targets to reach, as well as milestones that are broken into specific days, weeks, and months; that’s the way I’ve worked for the past six years.”

“For personal goals, I have three children and aim to spend sufficient quality time with them. I set goals to spend time to teach them and play with them, and for myself I set goals to exercise daily and learn God’s word.”

Ms Low divides her goals along broadly similar lines, although family, career, and financial goals are separated. Each goal is specific and measured: “For family goals, I set a minimum of one family trip per year, and one family dinner per week. For career goals I got into the MDRT last year, and the current one is to set up my own team. Financially, I focus on saving $150,000 a year at minimum.”

For Mr Chen, effective goal setting goes beyond the self. Success comes from also ensuring you bring others with you: “My goal is to help grow the branch, improve the personal growth of newer colleagues, and assist my clients in growing their wealth. My personal goals are to achieve financial independence, and to enjoy life to its fullest.”

However, Mr Chen acknowledges that motivation is important in reaching those goals, and one source of motivation remains: “Having the desire to contribute to and draw inspiration from others.”

 

Success Factor 4: Cultivating a sense of empathy

Life inevitably brings confrontations and disappointment. What creates exceptional people is the ability to face such situations, and defuse them with empathy.

Mr Chen actively reminds himself to cultivate this behaviour, saying: “I am very adaptable and independent, and I can act in ways that sometimes seem aloof or uncaring. So I make it a point to go out of my way, to be as sensitive as possible; to have more open communications with people around me.”

“We will face awkward or difficult conversations. We have to understand where the other person is coming from, and understand their point of view. Most people are quick to talk, but it’s important to listen,” said Ms Low.

“Most people are quick to talk, but it’s important to listen.”

However, this doesn’t mean agreeing with everything: “There are times when I’ve had to say no to my bosses as well, because of things that clash with my principles.”

Mr Hoe says besides having empathy, the key is finding solutions amidst the tension: “Every now and then I need to tell someone their insurance claim is denied, or that they do not have the right coverage. But even then it’s important to focus on helping them, and keep looking for alternatives.”

 

Success Factor 5: Being disciplined in routines

Mr Edmund Chen, Manulife Financial Advisor. Image by Mohamad Aidil.

As any NS man who has been on a route march can tell you, rhythm and repetition do wonders to combat fatigue. Having productive routines can help to steady your mind, and keep you focused.

Mr Chen is a big believer in discipline, of which routine is a part.

“I have a practice of waking up four hours prior to my work schedule. I include a daily run, to train my endurance and give me the capacity to keep focused with a sharp mind,” he said.

“My other routine is giving my wife a goodbye kiss in the morning, before I leave for work; and then a kiss when I return. My family, especially my wife, is a pillar of support that makes my career successful.”

“I make it a routine to spend quality time with my children, to know about their day. Engaging them through play is important- carrying them, spinning them around. Before I end my night I catch up with my wife, have a Milo and some cookies, and allow myself a short television session after the children turn in.”

Mr Hoe has a fixed schedule.In the morning, I send my children to school, and I then go jogging and do whatever marketing I need. From noon I start work, and I begin the work day by thinking of client profiles and working out the plans they can use,” he said

“Routines help, and I follow them day by day. They also give my children a sense of comfort.”

Ms Low keeps a routine that prepares her at the start of the day, and winds down toward the end: “I wake up at 9am for breakfast with my husband. I read the newspapers, create the day’s to-do list, and then keep updated (usually on investment or Forex-related issues).”

“At the end of the day I do sports; I exercise two to three times a week. Then I spend time with my husband, maybe enjoy a movie together.”

 

Looking ahead with Manulife FA

Many of these success factors are straightforward and easy to understand. But it takes effort and discipline to cultivate them, and it’s an everyday process, as these Manulife FA financial consultants have shown.

But the sooner you begin, the sooner success itself becomes a habit.

 

This is an editorial series done in partnership with Manulife Financial Advisers.

Featured image by Mohamad Aidil.  

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by Ryan Ong

FINTECH is a natural response to inefficiencies in the financial system. And before we go further, l’d like you to consider the most famous banking innovation is the ATM. When the world decides your greatest innovation is us no longer having to see your face, you know how much banking processes suck. Enter the internet, with websites that provide banking solutions better than banks can provide them. And now, even the Monetary Authority of Singapore (MAS) wants an environment that’s more supportive of Fintech:

 

What is Fintech?

A portmanteau of “finance” and “technology”. Properly speaking, it refers to the way various websites aim to replace specific functions of a bank, with a more effective version.

For example, P2P lending sites aim to replace the lending function of a bank, with one that’s less tied up in red tape. Blockchain technology aims to replace the transaction systems of the bank, with one that’s safer and harder to hack. Trading sites replace the brokerage services offered by many banks, at a price that saves money for investors, and so on.

Individually, none of these specific Fintech industries represents a threat to a bank (e.g. P2P sites may replace the loans function, but you can’t really deposit money with them). This is why, during the birth of several Fintech companies, banks didn’t take much notice: Fintech firms could steal some business from the bank, but they could never replace the whole bank.

Today, banks have changed their tune. Collectively, Fintech companies have become like a school of piranhas: each one can potentially perform a specific function better than the bank. As a result, traditional banks are seeing little chunks of their business being torn away, and the collective losses are mounting.

 

The two views on Fintech

There are two differing views on what Fintech will do to traditional banking.

One school of thought is that Fintech threatens banks as much as a spitball threatens a battle tank. Fintech sites, according to this perspective, do things that banks no longer have much interest in anyway.

For example, P2P lending sites can give out loans to small businesses, and this should theoretically compete with banks. But many banks don’t want to give out small business loans anyway. The risk is high, and the upside is low (in the unlikely event your Jar Jar Binks-themed cafe becomes a roaring success, are you going to offer to repay your business loan at a higher interest rate? Of course not, so there isn’t much in it for the bank).

Another example:

Mortgage comparison websites, which might seem to affect bank business negatively by directing users to the cheapest loan, mostly work with the banks. See, the mortgage rate changes with the bank’s loan quota (the bank has a certain amount it wants to lend out, and the rates go up as this amount is reached). So the mortgage comparison sites are actually doing the banks a favour: they are advertising the banks that want to give out more loans. The banks that show up as expensive don’t care, because they’ve probably met their quota already.

On top of this, the old school concept of banking – that of banks using deposits to lend to businesses and earn off the interest – is outmoded. Today, the “deposit and loan” aspect of banking may only account for a sliver of the bank’s revenue. Many banks derive the bulk of their earnings from trading derivatives, repackaging loans into bonds, speculating with Credit Default Swaps (CDS), and other things that are invisible to us until they blow up the economy.

From this school of thought, banks aren’t being made obsolete by Fintech at all. Fintech is only taking over the functions that banks don’t care much to provide anymore.

The alternative view is more cautious.

 

Fintech will do to banks what Uber did to taxis

Fintech is catching on fast with Millennials, many of whom (1) are tech savvy and find traditional bank processes too inconvenient, and (2) have grown up in a world where there is increasing distrust of the banking industry.

The view that banks are better established and that Fintech only takes “small” amounts of business, is pretty similar to what many big hotel chains thought, right before Airbnb started to beat them like stepchildren in a faerie tale. Consider that, before Uber moved into Singapore, ComfortDelGro was a giant cab company with literally thousands more vehicles, and near total dominance of the industry. Uber was not even challenged by Comfort (and perhaps still hasn’t been), probably because it seemed insignificant.

While Fintech firms may start with taking small portions of business, they could conceivably grow into other aspects. For example, consider a payment portal: many online shoppers leave some money in their Paypal account. What happens if a site like Paypal decides to take these “residual” deposits, and start investing them using the same fractional reserve banking system that commercial banks use?

What happens if one day, P2P lending sites start rating companies the same way Moody’s or Fitch does, and moves into the finance industry in a way that dramatically affects bond markets? That could disrupt bank businesses at a higher level than retail banking.

This perspective holds that banks shouldn’t sit on their ass and be self-assured. They need to start competing with Fintech yesterday.

 

Examples of Fintech in Singapore

1. Comparison sites

These are sites that aggregate information on different products, and give you a rate comparison. The G has already done this for insurance: CompareFirst.sg gives you a list of insurance policies and quotes, so you can pick based on price, coverage, etc.

We also have sites like MoneySmart and MortgageWise that compare home loans, SingSaver and Get.com which compare credit cards, SG Car Mart for comparing car insurance, and others. The point of these sites is to save you the effort of having to manually compare.

Most comparison sites are free to you, as they operate on the referral fees or commissions they get from selling the bank or insurer’s product.

2. P2P Lending

You can find this on sites like MoolahSense and CapitalMatch. The site hooks you up with a business that needs money, and you can lend them some (usually there’s a minimum sum of $1,000). The interest on this loan is high, up to 21 per cent per annum, so you can grow your money fairly fast.

Of course, this means you take the risk of the business defaulting, and being unable to pay you back. P2P Lending is often used in small doses (like five per cent of your investment portfolio), so the potentially high returns can offset the low returns from safer products.

3. Trading sites

These are companies like Call Levels or 8 Securities, which make it easy or cheap to trade stocks and Forex. Those of you who already do this will be aware of issues such as platform fees, or interface features like the update systems. Pick the one that works for you.

 

Banks aside, Fintech adds a lot of value to you, as the end-user.

Fintech ultimately saves time and money, two resources everyone is always short of. Nurturing Fintech is going to be the smart way forward for us, both because we’re a finance hub, and because Fintech is aggressive when it comes to marketing. If you don’t understand loans or trading, you can bet there’s a Fintech site out there that wants to ram the knowledge down your throat.

In a way, Fintech isn’t just making things convenient. Fintech companies, in an effort to create demand for their services, often produce content explaining mortgages, insurance policies, risk management, and other things we would make mandatory in the school syllabus if we were smarter people. Whatever happens to the banks, Fintech is healthy in more ways than one.

 

Featured image Fintech, money, finance by Flickr user Tech in Asia(CC BY 2.0)

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by Ryan Ong

MOODY’S intends to downgrade the credit rating of the UK. Again. That’s right: this happened before in February 2013, on fears of long term financial instability. This time, the downgrade was due to the potential economic instability following Brexit. But amid all the wagging fingers and Boris bashing, do we actually know what a downgrade means?

Who issues these downgrades?

The powerhouses that are able to affect whole nations, and Multi National Corporations with their ratings, are the Credit Rating Agencies (CRAs). The three most important CRAs are:

– Standard & Poor (S&P) originally set up in 1860 to evaluate American railroad companies

– Moody’s, set up in 1900 as a publication on American shares and bonds

– Fitch, set up in 1913 to provide financial statistics on various American investment products

There are some other CRAs. The most notable upstart is Dagong, a Chinese CRA, which was set up in 1994. Other examples are Morningstar and DBRS. But for the most part, the “big three” are the CRAs that pack true clout.

What do CRAs get out of doing this?

CRAs get paid to rate things.

A bond issuer (an organisation that wants to borrow) typically pays 0.05 per cent of the amount raised to a CRA, with a minimum sum of about USD $80,000.

If the bond issuers don’t pay a CRA their bond will be unrated, and anyone thinking of buying it will have to analyse the risk on their own. This can make the bond issuer appear risky, and they will probably pay higher interest rates. Such bonds are sold on what’s called a “name recognition” basis (i.e. we are so famous everyone trusts us without checking).

What effect do the ratings have?

Governments issue bonds to cover deficit spending (when they spend more than the taxes they collect). The interest rates on these bonds depend on the economic and political stabilty of said government – the bigger the risk, the more the bond holders have to be compensated.

CRAs, in theory, assign ratings that reflect the level of risk (relative levels of creditworthiness). In the same way that, in theory, your PSLE grades reflect your potential. More on this below.

These ratings range from investment grade (Aaa to Baa3 for Moody’s*), to Ba1 to C (speculative). In most cases, an institutional investor – such as your insurer – can only put money in investment grade bonds. Anything below that is considered too risky.

(*AAA to D for S&P and Fitch)

See if you can spot the problem here: the closer a country comes to economic collapse, the higher its debt repayments become. And the higher its debt repayments become, the closer it gets to economic collapse. Each downgrade makes the next downgrade more likely.

This is why governments and investors freak out over even a one-notch downgrade: two or three notches later, an economy that was just a bit wobbly can suddenly be on the express route to a financial apocalypse.

Now as to how much difference there is between each rating, the answer is “it depends”.

Interest rate difference between ratings can be minimal, as low as 0.2 or 0.3 per cent, when the global markets are stable and investors are confident. In 2013, when the market was doing okay, most people didn’t even notice the UK’s downgrade. But during times of crisis, such as during the 2009 Global Financial Crisis, even a single notch could raise interest rates by a whole percentage point. It all depends on how panicked the market is.

How are the ratings determined?

Do you work in finance? Then CRAs have proprietary, tested systems with which to weight the various political, social, and economic factors that impact a country’s ability to service its debts.

Do you work in government? Then CRAs just say whatever the hell they like, and you have many swear words regarding the directors’ parentage. Pick a side.

If you want to go by the book though, some factors considered are:

  • The country’s financial and economic reports
  • GDP expansion / contraction forecasts
  • Third party studies (e.g. OECD and IMF data)
  • Political stability
  • Domestic debt (what the government owes to its own people)
  • External debt (what the government owes to foreign sources)
  • Tax revenue, and effectiveness of tax collection
  • Corruption index
  • Availability and type of natural resources

Now, everyone knows there are flaws in this system. No one (we hope) is dumb enough to think an entire country can be scored like a maths test. But it is the closest thing we have to working out risk. And if you ever develop an accurate, accepted alternative, remember we could really use a penthouse office.

Controversy and defiance

CRAs got a black eye from the 2008/9 Global Financial Crisis. Many “investment grade” bonds were defaulted on, and highly rated companies like Lehman Brothers fell apart. In fact, Lehman Brothers had a rating of A (from S&P) right before declaring bankruptcy. This has called in question how accurate the rating systems are.

And even if they are accurate, how do we know CRAs can’t be bribed or strong-armed into manipulating the rating? They are loosely regulated at best. Financial journalist Michael Lewis, famous for his book-turned-movie The Big Short, has explained in some detail how CRAs failed to rate subprime mortgages properly.

The former CEO of commodities firm Rio Tinto, Sam Walsh, famously ignored Moody’s downgrade. During a crisis involving iron ore, he said that the company refused to let CRAs dictate how it should be run. Likewise, in 2012, Italy tried to sue S&P and Fitch, for repeated downgrades of the country’s rating. Italian Prosecutor Michele Ruggiero accused some of the CRA’s employees of aggressive market manipulation.

CRAs are currently under pressure regarding their legal obligations to investors. In Australia in 2014, a landmark ruling was passed, which held S&P accountable to investors for misleading ratings. CRAs, however, contend that they have no contract with investors, and hence no fiduciary duty to them. As such, a CRA cannot be held liable by investors for publishing an erroneous rating.

In short, they’re telling you that “We’re just saying what we think, it’s your problem if you choose to believe us and we’re wrong.”

Yeah, that wouldn’t be an issue if we’re listening to some ah pek rant in a coffee shop. But it is when you’re a global agency, with the power to determine government interest rates and the fate of millions of retirement funds. The coming years may see significant new burdens placed upon CRAs. It’s either that, or an even further loss of trust.

 

Featured illustration Pro-EU protest by Flickr user Sam Greenhalgh. (CC BY 2.0)

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skillsfuture_300x250

Morning Call, 0830, clock

NOBODY is saying a good thing about Brexit. Which means that the majority of British voters (okay, 52 per cent who voted Leave Euro) could possibly be wrong? Gasp.

The fallout is immediate and bad. The poor pound has got poorer, down to 31 year low, and stock markets around the world are taking a dive. Take a look below.

So the economic/business types are reacting badly. British PM David Cameron, roundly castigated for holding the reckless referendum to appease Eurosceptics in his own party, has resigned. Whoever takes over the job will have to see how to negotiate the divorce settlement with the European Union. It will take at least two years to sort through the tangle of treaties and financial arrangements. But the new PM is expected to immediately do something about immigration – since that appears to be the message from voters which Mr Cameron described as “an instruction to deliver”.

So who voted for Leave? Singapore’s Deputy Prime Minister Tharman Shanmugaratnam put it pithily in a Facebook post yesterday.

“London and Scotland voted to stay in the EU; Wales and the English provinces outside London voted to leave. The majority of the educated class voting to stay; the less educated to leave. Those doing well in their jobs and incomes voting to stay; those who felt they’ve been losing out voted to leave. Many more of the young voted to stay; old voting to leave.”

Analysts appear unanimous in pointing to a disconnect between the elite and the working class, and politicians who are unable to turn the tide of populism, nativism and xenophobia. The rage against migrants (the last total net figure being 333,000 in December 2015) appear to have blinded the British to how they themselves would now be hobbled when travelling or working in Europe, with new restrictions on movement of people and British exports and the loss of the country’s position as a centre for non-Europeans who want to do deals in Europe.  Already, there are mutterings about American financial companies uprooting from London.

The vote showed up the geographical divisions in the United Kingdom, with pro-EU Scotland looking set to push for a second referendum to secede. There’s also fear that other members of the now 27-member EU would do a Brexit which means the grand European plan will start to unravel.

It will be an unstable world. The advice is to put money in gold.

News on the local front looks so insular compared to the turmoil caused by Brexit. But we all live here and need to know what’s happening around us.

Those who have been following The Real Singapore court case may know that Yang Kaiheng has capitulated. He pleaded guilty to sedition charges yesterday. It seems likely that he will join his wife, Ai Takagi, in jail. You can read our report here.

Then we have Chinese restaurant chain Paradise being made to pay up $530,000 yesterday for using around $640,000 of free gas. Meters to monitor gas usage had been tampered with at eight of its restaurants, investigators found.

Those who spend weekends at East Coast Park will be glad to know that the Marine Cove area (where McDonalds is sited) re-opens next week after a four-year renovation costing $18million. Among the facilities is a 3,500sqm playground, with a three-storey play tower at the centre which will have three slides of different levels and a rope bridge. Too bad it’s only opening on Wednesday when the new school term will be in full swing.

 

Featured image by CY Kong.

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by Ryan Ong

GOOD thing you aren’t living in the UK right now. If people there asked a financial advisor what they should put money in, the answer this week is probably “a sock”. What will happen if Britain leaves the European Union (EU)? The only honest answer is that we don’t know; a country leaving the EU isn’t something that happens every other month. So the best we can do is speculate, and maybe play it safe – even if we live in far off Asia:

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Hackathon

by Daniel Yap

IT’S 100 problems, actually, that the Monetary Authority of Singapore (MAS) hopes that tech startups in the finance sector will be able to solve. The list of “Industry Problem Statements” is for the Global Fintech Hackcelerator portion of MAS’s Fintech Festival.

Now the existence of problems in an industry isn’t a surprise, but it is rare for the G or one of its agencies to crowdsource the list of problems as MAS did, publish them as a package and then ask for solutions from the public.

The list is divided into categories such as financial literacy and payments, and identifies problems and their potential tech solutions, such as “gamifying personal finance models”, an “Internet of things to manage personal finance” and a “unified wallet for seamless payments”.

The potential for blockchain-based solutions, better platforms, machine learning and big data was clear throughout the document.

You can take a look at the full list here.

The broad-based invitation to hack away at problems is in line with a much-lauded move by MAS managing director Ravi Menon, who announced in April that MAS would not regulate fintech startups until “they grow and reach a certain critical mass, which then poses a significant impact on the system, or it can affect a large number of consumers”.

Mr Menon and MAS chief fintech officer Sopnendu Mohanty were dressed down, Silicon Valley style, in t-shirts as they made the call for developers to step up to solve these problems.

The Fintech Festival will be held in November and includes three days of conferences and a charity run, but the Hackcelerator portion starts earlier. Over June and July, teams will submit ideas which will then be selected for development and showcased in a demo during the November event.

 

Featured image Wikimedia Hackathon 2013, Amsterdam by Flickr user Sebastiaan ter BurgCC BY 2.0.

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by Ryan Ong

EVERYONE has seen those compound interest charts that explain how, if you save $X a month, you could be rich enough to flush your toilet with bird’s nest by the time you’re 62. This is all easier said than done – when you’re at an entry level job getting $1,200 a month, you’ll more likely speak to a financial advisor just to get free fries at Burger King, let alone think about high level savings and investments. Well, look on the bright side – if you save and invest what little you have, you can still end up with serious money one day.

Let’s start with a boring, difficult truth: the less money you have, the more disciplined you have to be with planning. Look on the upside; when you’re already living off Mamee and McDonald’s curry packets, a little added difficulty won’t make much difference. The key to financial planning, whether you have a million dollars or a thousand, comes to five main things:

  • Cash flow
  • Protection / risk management
  • Debt management
  • Long term / retirement planning
  • Estate planning

Here’s how to look at each one, when you’re on a super tight budget of $1,200 a month:

 

1. Managing cash flow

Under the threat of oversimplifying, this just means making sure you’re never in a situation where you have insufficient funds. For example, if you need to fork out $30 to see a doctor right now, it doesn’t matter that you have $200 coming to you next week. You need the money now.

This is important when making certain decisions, like whether to pay in full or in instalments.

Say you’ve saved up a month of your salary, $1,200, over five months. At some point, you need a laptop. You can choose between blowing all $1,200 right now, or paying $120 a month for one year (for a total of $1,440). Which is better?

If you oversimplify, you might say it’s better to pay everything at once. That will save you $240 in interest repayments. But what happens if you empty out your savings, and then get into an accident? What if the pipes in your kitchen burst and you need $800 for a plumber urgently, but you’ve blown all available cash on said laptop?

That’s a cashflow management issue, and the tighter your funds are the better you have to be at it.

Speak to a qualified financial advisor (we’ve interviewed one below) for more on that, but we’re sure you get the general idea – never reduce your bank account to a complete zero if you can avoid it, even if you’re sure you have money coming in next month, next week, etc.

 

2. Protection / risk management

At $1,200 a month, a medical emergency can cripple more than your body parts. The simplest way around this is insurance. The less money you have on hand, the less you can afford to ignore insurance. If you get an Integrated Shield Plan (IP), it complements the basic MediShield coverage that all Singaporeans get, and it’s paid out of your CPF.

It’s also important to build up savings, to avoid needing loans in the event of emergencies. As a rule of thumb, save 20 per cent of your monthly income, and try to accumulate $7,200 (six months of your income) as an emergency fund. Obviously this won’t happen overnight, but even if it takes a while, be patient and work at it.

Beyond this essential basic, protection and risk management also means not getting ripped off.

It’s an unfortunate fact that, the poorer you are, the more often you’ll be viewed as a target. Ponzi schemes, dubious Multi-Level Marketing scams, and “wealth seminars” will try to rip off what little you have. They’ll assume you’re more susceptible to the lure of money.

You can experiment with bizarre investments or schemes once you are earning a lot more, and can absorb the potential losses. For now, be protective of your money and stick to well regulated products.

 

3. Debt management

It’s hard to get a loan on $1,200 a month. But if you do, do not allow the monthly loan repayments to exceed $360 a month (about 30 per cent of your monthly income). Anything more than that is playing with fire. Remember that the more money you spend on loan repayments, the less you can save and invest to improve your financial situation.

You may be the target demographic for lenders of last resort.

An example of this are certain licensed moneylenders, who know that your options for bank loans or credit cards are limited. They will lend you money anyway, at interest rates that border on extortion. These types of lenders are the financial equivalent of a sexually transmitted disease: one moment of trust will lead to regrets that last a lifetime. Avoid them.

 

4. Long term / retirement planning

Investments may seem like a distant concept at this point, but they’re not impossible. Remember that people invest to get rich – if you want to get rich first and then invest, you’re waiting for a bus that might never come (e.g. bus 10 and 14 on weekends).

It’s not as expensive as you think. OCBC and POSB, for example, have blue chip investment programmes that start for as little as $100 a month, although please speak to a financial advisor or other relevant expert before buying.

Note that long term financial planning is never a one-off process. It will be subject to constant rebalancing. For example, when you start to earn more, your financial advisor will probably need to revise your asset allocation to be more aggressive. Many years from now, when you’re nearing retirement, you may again need to drastically rebalance as your switch from aggressive to defensive assets.

In short, don’t refuse regular appointments with your financial advisor.

 

5. Estate planning

This is working out what you’re going to leave to your children, how your assets will be divided, and how you’re going to annoy that relative you’ve always hated. (I suggest willing them your broken washing machine. It’s as spiteful as it is hilarious.)

Again, this may seem like a distant concept when you are on $1,200 a month. But it always helps to think and plan ahead, and many of the assets you will acquire in point 4 can also go toward your children later. If you have a financial advisor, they will usually handle this aspect of financial planning for you.

 

Sample financial planning for someone earning $1,200 a month

We spoke to Mr. Carlos Lee, a Senior Financial Consultant from NTUC Income. Here’s a hypothetical plan for someone earning $1,200 a month:

“I would recommend for a person to set aside 20 per cent of her salary on financial planning. For a 25-year-old female earning $1,200 a month, her annual income, excluding bonus, adds up to $14,400. As such, her financial planning budget should be kept within $240 monthly.

“For the purpose of holistic financial planning, I will assume that she does not have any insurance plans to begin with.

“Her top insurance priority should be health insurance, as a major medical condition could severely derail her financial plan. The Enhanced IncomeShield Basic plan with Plus Rider to cover deductibles and co-insurance is recommended. Premiums for the Enhanced IncomeShield Basic plan amounts to $257 yearly, which can be paid with Medisave (someone with an income of $1,200 contributes about $100 each month into Medisave). The Plus Rider costs $105 yearly and will have be to paid in cash.

“Life insurance is another key priority. Life insurance is prudent planning that considers the outcome of those left behind should tragedy strike. For someone without any protection to cover for loss of income, I would recommend Income’s VivoCare 100, a whole life plan that provides comprehensive coverage against more than 100 medical conditions including early, intermediate and advanced stage dread diseases.

“At age 65, the plan provides an option to withdraw the cash value to meet one’s retirement needs. For the profile mentioned earlier, the monthly premiums are $118.70 for a payment period of 25 years.

“I would also recommend for her to take up the Dependent Protection Scheme, which provides term coverage till age 60 against death, terminal illness or total permanent disability. The annual premiums of $36 can be paid with one’s CPF OA.

“After addressing these first needs comes the building of assets. I recommend taking up RevoSave, a regular savings plan, for 25 years with a cash value of $44,994 at age 50 which might be used as an early retirement fund. The plan offers the option for yearly cash benefits of $750 after the 25th month. The monthly premium for her would be $104.40.

“Based on this proposal, her monthly premium with cash outlay is $231.85.

“Down the road, after she has built up her assets and has more disposable income, she may need more insurance coverage to protect her and help her conserve her wealth towards a bigger retirement fund. She should review her financial planning every two to three years.”

 

What about when you earn more?

Let’s say you earn a little more over time, and your income climbs by $500.

The first thing to do is to contact your financial advisor, rather than deciding to hide it and spend it all. You could do that, but the payoff that comes from investing and the added $500 could serve you much better in the long term. If you don’t have a financial advisor, here’s a good list of priorities for the extra cash:

(1) Accelerate the building of your emergency fund. Since you know you make $1,700 a month, you can build an emergency fund of $10,200. Pump the extra discretionary income into the emergency fund first, before considering other things.

(2) Repay debts if you have them. After savings, the next issue to address are your debts. Pay them down to shrink your obligations, but watch out for loans that have prepayment penalties (you may have to pay extra to pay off an instalment loan sooner, for example).

(3) Buy some Singapore Savings Bonds (SSBs). These bonds won’t make you rich, but they are superior to the banks’ fixed deposits. You can cash out any month without losing the accrued interest.

 

Other stories in this series:

 

Featured image by Natassya Diana.

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For breaking news, you can talk to us via email.

This is part of a series to get you future ready in collaboration with NTUC Income.

skillsfuture_300x250

Retirement: Your six children will support you, right?

by Daniel Yap

ONE of the comments I get about being a soon-to-be father of six is how my kids are such a great retirement plan. “No, no,” I respond. That’s certainly not my retirement plan. The concept of kids contributing to their parents’ upkeep is an established one, but my wife and I have no such expectations, just as my parents have no such expectation of me or my siblings. Times have changed.

The natural question that follows is this: How do we afford to raise them AND still have money for our retirement? To which I say: What is retirement?

National Trades Union Congress (NTUC) Income recently organised a panel on retirement, and some of the panelists felt that “retirement” smacked of old age and endings. Singapore Management University (SMU) Assistant Professor of Finance Aurobindo Ghosh, however, called it having the “financial freedom to do what you like rather than be forced to do what you do”. He emphasised planning – figuring out whether you will have the resources to do what you want to do when you retire.

Sometimes what we want to do comes with costs attached, like opening a cafe or volunteering for non-profit work. Sometimes what we want to do generates income that can offset costs, like opening a successful cafe or working a staff role at a non-profit organisation.

I’ve had a few interesting episodes when someone at a bank tried to recommend investment plans to me. The first question is always “so when do you want to retire?”

My answer usually stumps them. I don’t ever want to retire. I love the work that I do, and if I leave, I will leave to do other work that I love doing. I want to work like this until the day I die.

Don’t take that the wrong way: It doesn’t mean that I’m picky about my work. Rather, I always work in jobs I find meaningful – jobs that I can see and feel that I’m tangibly adding value to society, whether economically through the businesses I’ve started and jobs those businesses have created, or more directly, as I do now by bringing the news to our readers. If someday I could work a manual job with my hands, I could see the joy and the value in that work as well.

I don’t even need to be financially “free”, as in gather up a big financial cushion under me, to do any of this. I simply need to be mentally prepared to change the way I live and what I expect out of life. I see my responsibilities as things that I take on of my own free will, and I work because I believe it is intrinsically valuable and not merely a means to get money with the objective of never having to do it again.

As far as the cost of raising six children goes, we live no-frills and make constant choices not to be swayed by social pressures to spend on everything from tuition to enrichment to gadgets to fancy food.

Perhaps a better word for my financial position is “financially prepared”. I have some savings and some investments from the work I do. I’ve got insurance to cover the basics and protect my family from unusual financial events. I have the means to tide over a short period of unemployment and I know where to go to, be it the G, family, or other organisations, if I need more help. In any case, I’ve made plans for where I can guarantee myself some paid work and built my skills and contacts to help make that happen.

So here’s the thing: If retirement is doing “what you like”, as Dr Ghosh put it, then it can also be achieved by liking what you do. I definitely am enjoying my “retirement”.

 

Featured Image by Sean Chong.

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For breaking news, you can talk to us via email.

This is part of a series to get you future ready in collaboration with NTUC Income.

Panama Papers Leak Could Hurt Sg Banks
Illustration by Sean Chong

by Ryan Ong

MOST Singaporeans react to the Panama Papers by asking “Oh really, Sherlock? Rich people hide their money?” while mentally classifying you as a new type of idiot, if you attempt to break this news to them.

We have one of the highest income inequality rates in the world, and we can see right into Joe multi-millionaire’s backyard from our two-room flats. We know rich people are held to different standards, because when we walk into a premiere banking branch the teller laughs and explains the toilets are only for customers.

So we can be forgiven for responding to the Panama Papers with a snorting sound at best. But what we should consider is the impact on our finance sector.

Singapore as the soon-to-be world leader in wealth management

Singapore is set to overtake Switzerland in wealth management, by the year 2020. We had $2.3 trillion in Assets Under Management (AUM) in 2014, and our wealth management industry alone holds around $550 billion in AUM. This is about twice as much as Hong Kong’s wealth management industry.

We have over 600 Financial Institutions (FIs), local and foreign, and around 38 offshore banks. Wealth managers in Singapore earn more than their Swiss counterparts: $215,000 to around $550,000 per year, as opposed to the $204,000 to around $500,000 range common in Switzerland. Huh, that might explain the shortage of engineers.

The point: Singapore makes a lot of money from affluent foreigners looking to park their cash here. In some neighbouring countries – which I won’t name for the sake of politeness – the unstable political climate drives them to keep their money here. This could even be considered part of the long-time Singapore plan; it’s one of the main benefits of being a “first world oasis” in a zone of developing countries.

Meanwhile, in Europe, China, and the United States, affluent individuals are growing tired of high taxes and government scrutiny. The current world economy is likely to aggravate this situation: tax hungry governments could press down even harder on the necks of the rich, and grow more stringent in closing tax loopholes. This is also to Singapore’s benefit, as it encourages them to put their assets here.

Maybe you think of the rich as a form of salvation and a pillar of our economy. Maybe you think they’re disgusting Anton Casey types who ought to be doused in Clorox. Either way, one fact remains: they contribute a lot of money to Singapore’s economy.

 

The Panama Papers could slow down our wealth management dreams

In July 2013, Singapore passed laws that hold FIs criminally liable if they shelter tax evaders. Monetary Authority of Singapore (MAS) managing director Ravi Menon has said that:

“Our message to tax criminals is loud and clear: their money is not welcome in Singapore… and our message to our financial institutions is also loud and clear: If you suspect the money is not clean, don’t take it.”

Without delving into the exact laws, which is a topic every bit as fascinating as tracking the growth of individual nose hairs, I’ll summarise the problem:

Our wealth managers now have to become experts at detecting if their clients are lying. Previously, their job was just to dispense advice and facilitate the movement of the money. Now, they’re liable if the money is dirty.

That’s a little like allowing someone to sue the pizza delivery man, if the pizza company used expired ingredients. (Although granted, the delivery guy in this analogy doesn’t earn enough to embarrass a drug dealer.)

This makes wealth management a much more expensive process. Even if a wealth manager is skilled enough to see through the army of accountants and lawyers that rich clients come with (I’d remind you they’re wealth managers, not detectives), the process is time intensive. It will probably also involve several expensive consultations with experts. This takes time away from developing new financial products, or servicing clients.

In addition, the whole point of moving money to a country like Singapore might be to avoid this kind of hassle back home. If Singapore overreacts to the Panama Papers, by imposing a slew of new restrictions, there’s real potential that the money will go elsewhere.

For those of you busy explaining in the comments box that I’m an evil capitalist swine, I’d remind you another pillar of our economy – the oil and gas industry – is already faltering right now. It is not a good time for our finance industry to go down.

 

But it may not be up to us

Will other countries be compelled, by both citizen outrage and a weak global economy, to demand Singapore release banking information?

This has happened before, with the most recent case being the United States demanding that UBS turn over the Singaporean bank records of Mr Ching-Ye Hsiaw. In Singapore, section 47 of the Banking Act provides “that customer information shall not, in any way, be disclosed by a bank (holding a valid banking licence in Singapore or the branches and offices located within Singapore of such a bank incorporated outside Singapore) or its officers to any other person except as expressly provided in the Act”.

If citizens in other countries are infuriated with the Panama Papers, we could see more of such cases as they lean on authorities to chase down tax-dodgers.

This would leave Singapore in a precarious position: We’d be torn between disclosing the information and potentially losing our prominence among the wealthy, or souring political ties.

I should point out that it just takes Singapore giving in to one country for things to roll downhill: If we surrender banking information to the US, for example, it’s just a matter of time before the UK, India, China, Indonesia, etc, start banging on our door, insisting our banks turn over records to them as well.

I’m not taking an ethical stand here – you can decide yourself whether it’s right or wrong for us to conceal banking information, or whether our measures to prevent criminal activity are enough. But outside of those issues, one thing is clear: an overreaction to the Panama Papers could see Singapore banks taking the brunt of the fallout.

 

Featured Image by Sean Chong.

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4 groups of people that Budget 2016 forgot about
Illustration by Sean Chong

by Ryan Ong

IN MOST of life’s situations, you win by coming in first. For example, the first one to seize a good investment opportunity makes the most money, and the first one to become a doctor is the only one who gets the Asian parents’ love. But with Singapore’s Budget announcements, those who come in first (in the income category) don’t get to win at all. It’s like our way of saying “Who do you think you are, being better than 99 per cent of us?” So here’s who benefits the least: