Excellent train service in UK

I like the train service in the UK. There is something that Singapore can learn. Read here.

Oligopoly

Source: Wikipedia

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek oligoi 'few' and poleein 'to sell'. Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be a high risk for collusion.

Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.

In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if, for example, the firms were only regionally based and did not compete directly with each other.

Question: Is banking in Singapore similar to an oligopoly?

New York Times to Goldman Sachs

The New York Times editorial slams Goldman Sachs for its role in creating the global financial crisis. What a brave newspaper who is willing to speak the facts honestly.

Low interest rate

Interest rate has been low for the past few years. It will continue to be low for a long time, partly due to supply and demand. There is low demand for loans due to the global economic downturn. There is too much money due to stimulus spending of governments.

But there is another factor. The banks are keeping large spread for themselves. They charge a high interest rate on their loans, especially to small businesses, but offers a low interest rate to their savings. They make a large profit.

In a competitive market, the banks should be competing among themselves to pay higher interest rate to get savings to give out as loans. Their access to cheap government money reduces the need for paying competitive interest rate. There are just a few banks and there could be some "tacit understanding" among the banks that they do not need to compete for savings in this environment. This is an oligopolistic situation.

For interest rate to raise, we need a new arrangement for businesses to get loans at cheaper rates, and for savers to get a higher interest rate. This is a challenge for the governments and economists to rebuild a more competitive environment for the financial sector. The old "free market" did not work well.

Tan Kin Lian

Motley Fool

This is an excellent website to educate the public about investments.

Better citizens

We need better citizens to improve the future of a country. Read this.

Bailout of AIG

Read this report. The counter parties should have been forced to take a haircut, rather than get paid in full.

Full employment and welfare state

Winston Churchill was the Prime Minister of Great Britain during the Second World War. His outstanding leadership was the key factor in winning the war for Great Britain, against a stronger Germany. He was called "the savior of our nation".

Towards the end of the war, an election was called in Great Britain. Churchill was the leader of the Conservative Party. The Labour Party campaigned on a platform of full employment and a welfare state, and won the general election. Churchill lost, in spite of the gratitude of the people for his leadership. The people were looking towards the future and wanted a government that could deliver full employment and welfare.

Charity and the retrenched

Mr Tan,
What exactly is the legal definition of "Charity"? I am somewhat confused by the "We Are One" campaign which is enjoying an unprecendented TV coverage, to solicit public donations.

Why are retrenched people who can't find jobs, being lumped with the traditional Charity recipients, as in, chronic sick, aged, infirm, homeless, destitute. Is this legal? Surely a lot of retrenched people get at lease some retrenchment benefits whilst those really in dire need e.g. kidney patients, poor sickly aged people, are actually more deserving of :charity: money?

Why are "those affected by the economic downturn" now being sanctioned by the government as charity recipients?

Who isn't affected by the economic downturn, it is a question of the "degree". How do you qualify to get this charity money? Who is the judge? this is very important. Everyone would like to say he is affected terribly by the economic downturn!

I went to "weareone" website to find outmore. The FAQ just tells you how to donate, not telling how the money is administered, who qualifies to get it, how, when, who, zilch!

The website, as in the tV clips, said that the donation is for those "affected by the economic downturn". this is a very vague statement for me to part with my donation money, which could also be given to a kidney patient in financial trouble.

I am quite traditional, i still think that if retrenched people cannot find work and is in financial trouble, it is the Government's duty to generate jobs, or have a system to cushion the impact.

Is it a shift in the policy to pass the burden of supporting jobless people to the rest of the people with jobs, and the government will wash half its hands off the burden of generating jobs, by putting the jobless on charity? I wonder if the small boy on tv who felt proud of contributing the lego bricks, does he know wht he is doing?

In summary, I don't feel comfortable at all constantly being bombarded by the media in the last few weeks, and not getting any wiser going to their website.

What does everyone here think? Tell me, am I being selfish, oversensitive and unreasonable?

REX

Marketing of Portals

I wish to look for marketing associates who are interested to work from home to market the portals. Details are shown here. If you are interested, send an e-mail to kinlian@gmail.com.

Graphics software

I have some projects involving graphics software, e.g. Photoshop or Apple software. If you are familiar with these software and can spend some time to do some graphic work, please send an email to kinlian@gmail.com.

Law Society - Speech by Michael Hwang

Read this speech by President Michael Hwang of the Law Society. He made reference to the Minibond saga.

Yield on a Life Insurance Policy

Microsoft Excel has a function to calculate the yield on a life assurance policy. You can get this function using Insert > Function > Financial > Rate.

Policy taken for 18 years
Monthly premium of $50
Surrender value at end of 18 years is $12,800
What is the yield?

You have to enter the following values in the RATE function:
NPER - number of periods: 18
PMT - payment: $50 X 12 = $600
PV - present value: 0
FV - future value: -12,700 (show as negative as the money is being received)
TYPE: payment type: 0.5 (for monthly payment)

This returns a value of 1.68%

The Big Squander

Paul Krugman wrote this article about the bailout of the banks during the financial crisis of 2008. The government should have insisted that the banks take a haircut on the credit default swaps that were bought from AIG. They did not. The banks obtained 100% payout on the CDS, which were funded by the tax payers. Now the banks can pay multi million dollar bonuses again. What a corrupt world.

Wonderful scenes of Paris

I just visited Paris. Here are some wonderful scenes of this beautiful city.

SCMP:Ex-DBS broker suspended over Lehman debacle

21 Nov 2009

A former employee of DBS Bank (Hong Kong) has been suspended from providing securities-related services for three months by the Monetary Authority after being found to have failed to disclose to a client the risk involved when selling a Lehman Brothers-related financial product.

It was the first disciplinary action taken by the authority since it received complaints about problematic sale practices of products linked to the bankrupt US investment bank.

The authority said yesterday that an investigation had found that Leung Wai-yu, who was registered with the authority to run securities-related businesses, had "failed to diligently disclose and explain to the client the product's risk".

She had also "failed to complete the risk-disclosure statement for the client in accordance with the bank's internal control procedures" when she was selling a client Lehman Brothers constellation notes, a derivative similar to minibonds also issued by Lehman, in March 2006, a spokesman said. He said the authority had suspended Leung's details from its register for three months from November 20 to February 19, during which time she could not take part in dealing in or advising on securities.

"This is the first time the HKMA has taken disciplinary action against a relevant individual in connection with a Lehman Brothers-related investment product," the authority's executive director responsible for securities enforcement, Raymond Li Ling-cheung, said. "There are other disciplinary cases which have reached an advanced stage and they will be announced in due course."

Leung left DBS in 2006 and works for the Bank of Communications. The authority said it had taken into account all the circumstances of the case, including the extent of the client's losses and the fact that Leung had no disciplinary history.

The action followed Leung's withdrawal of an appeal with the Securities and Futures Appeals Tribunal seeking to review the authority's decision. As of yesterday, the authority had begun disciplinary consideration of 765 Lehman Brothers-related investments other than minibonds. It is investigating 3,097 cases of Lehman Brothers-related non-minibond complaints and seeking further information on 1,292 cases. A DBS spokesman said it had reviewed every complaint by investors in the derivatives and had compensated those in which the sale might have been inappropriate.

Hong Kong investors lost billions of dollars on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt in September last year. Minibonds are not corporate bonds, but consist of high-risk, credit-linked derivatives, marketed as a proxy investment in well-known companies.

Socialist Market Economy - China's Key to Success

Here is an interview with Wen Jiabao, Prime Minister of China. He expressed an insightful understanding of Adam Smith's theory of economics. He pointed out that Adam Smith actually wrote two books - on the invisible hand (i.e .market) and the visible hand (i.e. role of government). When economist applied only one side of Adam Smith's theory, the results are not satisfactory. It is now time for Singapore to learn from China about economics and governance. View this interview.

A better way to pay doctors

Here are some views.

Health care reform in the USA

The business and medical community is taking ads against health care reform as they wish to protect their vested interests. They are using philosophical arguments that had proved to be groundless, based on actual past experiences. Read this report.

Here are the views of 23 prominent economists.

Action to cool down speculation

Asia is faced an asset bubble, due to speculation in real estates caused by low interest rate, due to stimulus spending by governments in many countries. Read this report.

Visit to INRIA, Paris

Read my views about the Cycab.

Reforming the financial sector

The senator should not give way to the business lobbies. Read this report.

Dr. Lim Hock Siew speaks out

Video

How to spot an investment scam

Mr Tan

This article may be useful to some of your readers from the UK FSA . It also points out the issues with prosecuting overseas fraud and why recovering funds is very difficult. I think a key question for an investment scheme should be who is independently auditing on an annual basis and what are they auditing. http://www.fool.co.uk/news/investing/2009/04/30/transcript-how-to-spot-an-investment-scam.aspx

I was disappointed that he didnt mention land banking but did feel that this quote represents the issues with many investments (stock scams, ponzis, land banking, oil etc) where big returns are offered annually (Minimum 12% return etc). Most people lose of the actual money and just see numbers on a statement or page.
David:

It strikes me that the guys who actually get in early are the ones who are going to make the most amount out of it.

Jonathan:

No, because what actually happens is, normally the con man is good enough to convince the first guys to leave their money in, and that normally happens, they might take out a bit of interest, but essentially they leave their money in as well, and what everybody sees is a paper profit; we see the conmen, they'll give a fancy spreadsheet, they'll open up a laptop, show a graph, and say, "That's what your money was at the beginning" (pointing to the low point of the graph) "and that’s what your money is now" (pointing to the high point of the graph), it looks fantastic.

Steve

Globalization - some bad consequences

The prevailing thinking is that globalization improves the economic wellbeing of the people in the world. Not enough attention is paid to its negative consequences.

One such consequence is the export of the harmful effects of low interest rate to other countries. During the past two decades, Japan had very low interest rates. Speculators borrowed large sums in Japanese currency to speculate in assets in other economies, leading to asset inflation. This has been named as the "carry trade".

Now, the US Dollar has become the currency to borrow for the "carry trade". It has led to the stock and property market bubbles in Asia. Some countries have decided to impose control over the flow of currency to prevent their assets from excessive escalation.

If we want to get back to more stable economic growth, we have to open our eyes and see what is really happening, rather than rely on thinking that globalization, free market and global competition are good. They may be good in some respects but they have negative consequences, which may outweigh the benefits.

Tan Kin Lian

Public transport in London and Paris

Read my observations about the public transport system in London and Paris here.

Wealth manager

A wealth manager is a person working for a bank who helps the high net worth people to manage their wealth. Usually the client needs to have assets of more than a certain sum, e.g. $250,000.

The wealth manager tells the client that they will help the client to earn a good return on the wealth and will tell some stories about how this can happen. But there is no guarantee.

In some cases, the wealth manager can help the client to make some money but in other cases, the wealth manager loses money for the client. On average, the loses outweigh the gains.

The wealth manager is usually involved in advising on short term speculations on the currency or stock markets. These speculations are at best a zero sum game. The gains made by some come from the losses made by the other speculators.

However, the wealth managers and the banks earn a large fee and commission from handling these transactions. So, in the long run, the clients tend to lose out. For each client that makes money, there is likely to be another client that loses a larger sum, due to the fees.

The experience of many clients who entrusted their wealth to be managed by the wealth managers had been disappointing during the current downturn of the market. However, during good times, they have not been great either.

The lesson: invest for the long term. Avoid short term speculations. The wealth managers cannot help you to spot winning trends. If they can, they would be wealthy on their own.

Tan Kin Lian

Disclosing the commission earned

Someone asked why it is necessary for an insurance agent to disclose the commission earned on selling an insurance policy, while sellers of other products are not required to disclose their commission.

The answer is, the insurance agent is supposed to give advice that is in the best interest of the client. The payment of commission create a conflict of interest.
The commission is paid indirectly by the client, from the premiums. A high commission means a high cost to the client.

The regulators in the UK, where this concept of disclosure was developed, thought that the disclosure was the best way to manage the conflict of interest. If the client is aware about the cost, the client would be able to evaluate the advice of the agent.

This belief has turned out to be naive. The consumers were not savvy. The advisers were able to hide essential facts from the clients or to give misleading information.

I understand, from comments posted in this blog, that the UK authorities have now decided that this "disclosure" does not work and intends to ban the payment of commission entirely. I have not been following this specific development, so I am not sure about the details.

I agree with the thinking that it is better for insurance advisers to be paid a fee for their advice. Some practising advisers also hold the same view, as they prefer to be transparent in their dealings with their clients.

Tan Kin Lian

Personal entertainment system on air flights

Singapore Airlines can learn from Emirates or other airlines on how to improve the ergonomics of its personal entertainment system. Read here.

Changi Airport can adopt the best practice

Changi Airport may be among the best in the world. It can still learn from the best practice at other airports. Read here.

Paying the right price for insurance

A good insurance product has the following features:
a) reimburse the insured for a loss caused to an unforeseen event
b) provides transparency in coverage
c) charges a fair price.

Medical bills, repair bills and loss of income are unforeseen events. Insurance serves a useful purpose in compensating the insured for the loss.

The coverage should be written in clear terms. It should be understood by both parties. There should not be uncertainty leading to disputes. If the coverage is written in language that is not obvious to the lay person and requires a court to interpret the meaning, it is not transparent.

A fair price is one that covers the cost of claims and provides a reasonable margin for expenses and profit. The claims should represent 70% of the premium, with the remaining 30% set aside for marketing expenses, administration expenses and profit margin. This applies to the risk portion of the premium.

For the savings portion, the margin should not take more than 10% of the premium.

Many insurance product in the market failed to meet the tests of useful purpose, transparency and fair premium. They may be written in a confusing manner (which allows the insurer to interpret differently and deny the claim) or has an excessive margin for expenses and profit (which is hidden from the customer). The product is designed to make it difficult to compare the price.

The insurance agent can over-exaggerate the claims and get the unwitting customer to pay an excessive premium. For example, If the rate of claim is 5% and the average amount of claim is $5,000, the pure premium should be $250. If the margin is 30%, the gross premium should be $357. If the insurance company is charging $500 or more, the premium is too high and the insurance should be avoided. If the agent said that the claim could be $50,000 and get the customer to pay a premium of $1,000,the cost is excessive.

I have often been asked by the public - is this insurance plan a good plan for consumers? My answer is, "it depends on the premium that is charged". If the premium rate is fair and the coverage is transparent, it is a good plan.

However, most insurance plans are designed to give excessive profit to the insurer and pays a high commission rate to make it attractive for the agent to sell the product. After allowing for the high cost, which has to be paid by the customer, most insurance product are not good for consumers.

One possible exception is term insurance as it is tranparent and the consumer can get a quote of similar products for several insurers. The competitive market is likely to drive the premuim rate down to a fair level.

Tan Kin Lian

APEC Leader's declaration at Singapore 2009

Here is the declaration of the Apec leaders at the Singapore 2009 meeting.

Here are some key paragraphs:

Looking beyond supporting the recovery, we recognise the necessity to develop a new growth paradigm for the changed post-crisis landscape, and an expanded trade and investment agenda that will strengthen regional economic integration (REI) in the Asia-Pacific region. We cannot go back to “growth as usual”. We will put in place next year a comprehensive long-term growth strategy that supports more balanced growth within and across economies, achieves greater inclusiveness in our societies, sustains our environment, and which seeks to raise our growth potential through innovation and a knowledge-based economy.

Supporting Balanced Growth

We support the goals of the G-20 Framework for Strong, Sustainable and Balanced Growth. We join in their commitment to:

* Work together to ensure that our macroeconomic, regulatory and structural policies are collectively consistent with more sustainable and balanced trajectories of growth;

* Promote current account sustainability and open trade and investment to advance global prosperity and growth sustainability;

* Undertake macro prudential and regulatory policies to help prevent credit and asset price cycles from becoming forces of destabilisation; and

* Promote development and poverty reduction as part of the rebalancing of global growth.

Resisting Protectionism

We firmly reject all forms of protectionism and reaffirm our commitment to keep markets open and refrain from raising new barriers to investment or to trade in goods and services, and instruct our Ministers to continue to regularly review our adherence to these commitments. These efforts reinforce the WTO’s own monitoring mechanism, and act as another bulwark against protectionist pressures by ensuring transparency in the measures taken in response to the crisis.

Survey: EPL matches on Pay TV

What are your plans to watch EPL matches on Pay TV next year? Participate in this survey.

Here are the survey results.

How lawyers overcharge clients

Read this article.

Consequence of widening income gap

Published in New York Times

To the Editor:

So the corporate C.E.O.’s and their friends now reap what they have sown. For the last two decades, they have systematically (with tax subsidies at times) stripped middle- and working-class America of the jobs, financial security and health care that they depended on to buy those same companies’ cars, “labor saving” devices, electronic devices and all other manner of stuff.

The cost savings conveniently floated up the pyramid and were split among the executives and their board members, lawyers, accountants, investment bankers and other friends.

Now Middle America is broke and can no longer support those at the top of the pyramid. Or their big bonuses. Or their friends and hangers-on.

It’s going to stay that way until they start to undo what they have done and bring jobs back — real jobs with health care.

Elizabeth A. Letzler
Baldwin, N.Y., Nov. 8, 2009

The writer is a retired former banker and certified financial planner.

Marketing of holiday and spas

Be careful about these marketing schemes. Read here.

CyCab - Driverless Electric Vehicle (2)

I am visiting Paris to see the Cycab, - driverless electric vehicle. After that, I will visit the University of Kent to give a talk to the actuarial students. I will return on Saturday.

Need to create more jobs

Read this article.

Managing to survive tough economic times

Received this humor by e-mail. Hope you enjoy it.

Unemployment worse than projected in USA

Read this report.

Virtual wallet

Here is an interesting innovation, to replace cash and credit cards.

Low birth rate and immigration

I saw a news report that Japan, which is suffering from low birth rates and an aging population, is thinking about making changes to be more attractive to immigrants. This is similar to the situation and solution adopted in Singapore.

In my view, a better approach is to deal with the underlying causes for the low birth rates. Due to insecurity caused by globalization, many people are now spending more years to get a higher education, and are starting work later. They have to work long hours to establish a career. They dare not think about the commitment to raise a family.

The people from the less developed countries do not have this same type of worry. The cost of living is low. They are willing to raise more children and supply them as immigrants to the more developed countries.

Is this type of arrangement good for the world? I think that it is better for a country to grow its own local population rather than rely on immigrants.

Insuring critical illness

I have often been asked if it is advisable to buy insurance to cover critical illness. It is difficult for me to answer this question. It is likely that the customer has been advised by an insurance agent to buy critical illness policy to cover medical bills, which can amount to $100,000 or more, and for the loss of income during the period of treatment.

The large cost of medical treatment is usually exaggerated and the chance of incurring a large bill is small, especially as there is the option to be treated in a subsidised ward.

In most cases, the medical bills can be covered by Medishield or private Shield, which pays for the major portion of large hospital bills. The patient has to pay only the deductible and coinsurance.

Some insurance agent advised on the need to insure the loss of income during treatment of the critical illness. However, you must consider the the risk of loss of income does not arise only from critical illness. It is more likely to arise from unemployment and retrenchment, which is higher than the risk of critical illness.

The best way to protect against loss of income is to have adequate savings. If you save 15% of your monthly earnings, it will take you 10 years to accumulate savings amounting to two years of earnings. This is likely to be more than the sum that you can insure under a critical illness policy.

The accumulated saving can be used not only for critical illness, but also for unemployment and other emergencies. Furthermore, you also do not have to worry about the exclusions in a critical illness policy.

If you wish to cover for critical illness, make sure that you do not pay more than 0.4% of the insured sum. If you insure for $100,000, the premium should not exceed $400 a year. If you take a critical illness term coverage for 10 years, the cost should be lower.

However, if you cannot buy a critical illness cover at a fair price. it is better for you to be uninsured. The chance of getting a critical illness during the first 10 years for a young person is quite low. The priority is to accumulate sufficient savings as early as possible. This is explained in my book on Financial Planning. Get a free copy here.


Tan Kin Lian

Choice of modes of travel

I planned a visit from London to Canterbury and was surprised to see the choice of travel by coach (cheaper) and by train (more connection times). This is an example of the positive aspect of competition between the different modes of travel. I hope that the transport system in Singapore can provide a similar choice and encourage real competition. Read here.

Distributor of torchlights

Someone expressed an interest to distribute my rechargeable torchlight with locator, but did not give any contact information. He can contact me at kinlian@gmail.com. This offer is also available for those who are interested to distribute my books.

Practice your skills in financial trading with Pro-Trader

You can practice your skills in trading in the futures market with Pro-Trader. It is fun. Learn about how news affecting prices of future products and the unpredictability of the markets (which is a reality in life). Learn how to respond to events and market trends. Read this document.

You can ask a few friends to challenge each other by logging into the same game, created by the first player. It can be quite fun. It is also educational, as you get the chance to interpret how events affect the prices of the various products - and see which player make the best moves. Good luck.

Fee on bank overdraft

A friend told me that the bank in America have an unfair practice to levy the overdraft fee on many transactions during a month.

For example, if the customer has a few transactions that may result in an overdraft, the bank will debit the largest transaction first to cause the account to be overdrawn. All subsequent transactions will be overdraft and each will attract an overdrawn fee. It may result in the fee being applied to many transactions in a month.

The US Congress is passing a law to disallow a bank from this kind of practice and to require the bank to debit the transactions in the chronological order that they have been received.

I find this type of practice to be dishonest. However, the bank seems to be able to get away with it, and a new law has to be passed to stop them from continuing with it. It seems that the standard of honesty has dropped to a low level and that bankers need a law to tell them what is honesty.

Cap on interest rate and bank charges

Should the government set a cap on loan interest rate and other bank charges?

At one time, it was argued that these matters should be left to the free market. Consumers can make their choice and avoid the banks that have high charges. In reality, consumers are not aware about these charges. The ignorance allows the banks to make billions of dollars in high charges and fees.

The US Congress is now considering passing laws to make it mandatory for consumers to be informed about the charges and to opt in. Some people think that this does not go far enough, and that it is better for the Government to set limits on the interest rates and charges.

Many decades ago, there was a law to limit the interest rate that can be charged by money lenders. This law was necessary to prevent consumers from being exploited by money lenders. The same reasoning can be applied to the lending by banks, especially if they behave just as bad as the money lenders.

The general argument is that the level of interest rate should depend on the market and cannot be set by law. I do not agree with this argument, especially if we look at what has happened in many countries. It is better for the government to set these caps on fees and loan interest rate, and to revise them when necessary due to changes in the market conditions.

Tan Kin Lian

Overdraft protection

What is overdraft protection? It is a nice name for fleecing the bank customer.

Low interest rate - the underlying cause

Why is interest rate so low? The simple answer is there is a big supply of money and insufficient demand for money. What cause this imbalance?

The low demand for money is caused by low consumption. The low consumption is caused by low wages and high unemployment, which has affected a large part of the population, and brought out a large disparity in income distribution in recent decades. The lower and middle class people have to work harder to earn enough to survive. They have fewer children, which also contributed to the drop in demand over the years.

The supply of money has also been increased by governments through their monetary policy and recently, through stimulus spending. With so much money in the economy and little demand, interest rate is likely to remain low for a long time.

This is bad news to retirees who have to depend on their investment income to live on. With low income from their savings, they have to spend their capital sum, which will deplete over the years.

What can retirees do? They have to invest in equities to earn a higher return. Although equities have a higher level of risk, it can be mitigated by investing in a low cost fund, such as an exchange traded fund. The return on equities is likely to be around 5% to 7%, which is much better than 2% on government bonds.

In the past two decades, there was demand for money but they were used to create asset bubbles, especially in housing. This helped to boost the world economy for some time. The recent collapse of the asset bubbles brought about the economic downturn. However, the asset bubble is being revived, but this is not a long term solution.

In my view, the solution is to generate demand by giving people a chance to work and enjoy fair wages, so that they can feel secure about their future, raise a family and spend time on leisure. With a sound economy, there will be a demand for money which will give a fair return on their savings.

Tan Kin Lian

A recovery for some

This article explains that the economy recovery in America benefits only the elites who has stock portfolios. It did not benefit the many people who are still unemployed. The same comments would probably apply to many other countries, including Singapore.

Experience with locator torchlight

I have been using the torchlight (with locator turned on) each night for the past two weeks. I found it to be useful. It is easy to locate the torchlight. I have now made it a habit to use the torchlight instead of the main light at night.

This torchlight is available at $6.50, compared to $27.20 for a branded torchlight with similar functions.

Battle of Pay TV Operators (2)

There is a big battle between SingTel and Starhub over PayTV. SingTel has won the rights to boradcast the English Premier League (EPL) matches in 2010. Consumers have to switch set top boxes to SingTel to watch these matches. If they wish to watch programmes from both operators, they need two set top boxes and two sets of wiring in their home.

This is time for the regulator (i.e Media Development Authority) to come in and require the PayTV operators to separate the two operations, namely to operate a platform and to provide the contents. There will be a separate charge for using the platform and subscribing to the content. Each platform operator is required to carry the content of any approved provider.

This will give the best choice to consumers. There is competition between the platform operators in pricing and service. There is also a free choice of contents.
The content should not be bundled up with the platform.

There is also a need for the Competition Commission to come in and give a ruling. The Commission is required to ensure that there is free competition in Singapore to give choice to consumers. The bundling of platform and content is monopolistic and bad for consumers. I hope that the Commission will also have a say on this matter.

Tan Kin Lian

Specific unfair practices - financial products

Here are some practices adopted in the financial services industry that could be found in breach of the second schedule in the Fair Trading Act:

11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.

12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.

14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.

18. Representing that goods or services are available at a discounted price for a stated period of time if the supplier knows or ought to know that the goods or services will continue to be so available for a substantially longer period.

20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.

Delivery of torchlight with locator

A customer placed on order for 2 torchlights and asked for them to be delivered urgently to his office. He pays a delivery charge of $7. This is the first order with delivery.

It is better for a customer to order more pieces and enjoy a discount of $1 (for order above 5 pieces). The delivery cost will also be spread among a larger number of orders.

Most customers prefer to collect from my office and save on the delivery charges.

Combating escalating motor claims

Someone asked for my views on why the "motor claim framework", which was introduced two years ago to combat the escalating claims, did not work. This question should more properly be addressed to the parties that introduced this framework, rather than to me.

This framework was introduced by the General Insurance Association with the support of the Monetary Authority of Singapore. They should explain what has happened, what had failed and what they are doing about this matter.

Why did I say that the framework did not work? I recall that the framework was intended to bring down the claims and keep motor premiums from escalating. From anecdotal evidence, it seems that the motor premiums continued to escalate sharply during the past two years. Clearly the framework had failed to achieve its primary purpose.

When the framework was first launched, there were media reports that motorists can wait at the roadside and ask for a surveyor to arrive on the spot to settle the claim or arrange the repair. At that time, it was quite clear to me that this proposal was impractical, but the people who promoted this framework was confident that it would be the silver bullet to solve the underlying problem. It did not work.

It seems that nobody really wants to put to find a solution. They are only interested to make a show of dealing with the problem. Most of the parties involved actually benefited from the escalating claims - the repair shops, the lawyers, and the insurance companies. The only parties that suffer are the consumers, who has to pay higher premiums.

The consumers do not have the power to hold anybody accountable for the escalating premiums. Their complaints will be ignored and will be brushed off as the price for living in an advanced country. If consumers have to pay higher petrol prices and ERP, what is a few dollars more in insurance premiums?

The trouble is that this attitude will lead to wastefulness, which is now acceptable as being part of life in Singapore. It is now a Singapore culture to pay a lot of money on infrastructure and systems (instead of going for cheaper solutions) and passes the higher cost to consumers.

What is the underlying cause of the escalating motor claims, which was not solved during the past three decades? It is caused by fraudulent claims, not only for repair claims but for injury claims as well.

These fraudulent claims cannot be handled by the insurance executives, who do not have the power to deal with crime. They have to be handled by the people with the power, namely the Government. If the Government does not wish to deal with fraudulent claims, then the problem can never be solved.

Tan Kin Lian

Unfair contract terms

There is a law against unfair contract terms in Singapore. Some of the standard terms used in contracts for financial products are likely to be considered as unfair, if they are challenged in court.

If you are caught in an unfair contract, you can engage a lawyer to take a look at the contract to see if it falls foul of this law. If I am not mistaken, the requirement for fair contract goes beyond the concept of "caveat emptor". The other party is required to give fair terms for the contract.

Here are some legal points about contract law in Singapore.

I like to ask volunteers (especially those with legal training) to do some research and send your views to kinlian@gmail.com.

Power of demonstration

I gave the rechargeable torchlight to a friend and showed him the use of the locator lamp. He showed it to many of his friends, who expressed interest in the torchlight. He came back to me with an order for a dozen pieces.

Specific unfair practices

ECOND SCHEDULE

Section 4(d)
SPECIFIC UNFAIR PRACTICES

1. Representing that goods or services have sponsorship, approval, performance characteristics, accessories, ingredients, components, qualities, uses or benefits that they do not have.
2. Representing that goods or services are of a particular standard, quality, grade, style, model, origin or method of manufacture if they are not.
3. Representing that goods are new or unused if they are not or if they have deteriorated or been altered, reconditioned or reclaimed.
4. Representing that goods have been used to an extent different from the fact or that they have a particular history or use if the supplier knows it is not so.
5. Representing that goods or services are available or are available for a particular reason, for a particular price, in particular quantities or at a particular time if the supplier knows or can reasonably be expected to know it is not so, unless the representation clearly states any limitation.
6. Representing that a service, part, repair or replacement is needed or desirable if that is not so, or that a service has been provided, a part has been installed, a repair has been made or a replacement has been provided, if that is not so.
7. Representing that a price benefit or advantage exists respecting goods or services where the price benefit or advantage does not exist.
8. Charging a price for goods or services that is substantially higher than an estimate provided to the consumer, except where the consumer has expressly agreed to the higher price in advance.
9. Representing that a transaction involving goods or services involves or does not involve rights, remedies or obligations where that representation is deceptive or misleading.
10. Representing that a person has or does not have the authority to negotiate the final terms of an agreement involving goods or services if the representation is different from the fact.
11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.
12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.
13. Representing in relation to a voucher that another supplier will provide goods or services at a discounted or reduced price if the supplier making the representation knows or ought to know that the other supplier will not do so.
14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.
15. Representing that a particular person has offered or agreed to acquire goods or services whether or not at a stated price if he has not.
16. Representing the availability of facilities for repair of goods or of spare parts for goods if that is not the case.
17. Offering gifts, prizes or other free items in connection with the supply of goods or services if the supplier knows or ought to know that the items will not be provided or provided as offered.
18. Representing that goods or services are available at a discounted price for a stated period of time if the supplier knows or ought to know that the goods or services will continue to be so available for a substantially longer period.
19. Representing that goods or services are available at a discounted price for a particular reason that is different from the fact.
20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.

Unfair practices as defined in Singapore

Here are some extracts from the Unfair Practices Act:

Meaning of unfair practice
4. It is an unfair practice for a supplier, in relation to a consumer transaction —
(a) to do or say anything, or omit to do or say anything, if as a result a consumer might reasonably be deceived or misled;
(b) to make a false claim;
(c) to take advantage of a consumer if the supplier knows or ought reasonably to know that the consumer —
(i) is not in a position to protect his own interests; or
(ii) is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction; or
(d) without limiting the generality of paragraphs (a) to (c), to do anything specified in the Second Schedule.

Circumstances surrounding unfair practice
5. —(1) An unfair practice may occur before, during or after a consumer transaction.
(2) An unfair practice may consist of a single act or omission.
(3) In determining whether or not a person has engaged in an unfair practice —
(a) the reasonableness of the actions of that person in those circumstances is to be considered; and
(b) an act or omission by an employee or agent of a person is deemed also to be an act or omission of the person if the act or omission occurred in the course of —
(i) the employee’s employment with the person; or
(ii) the agent exercising the powers or performing the duties on behalf of the person within the scope of the agent’s actual or apparent authority.
Consumer’s right to sue for unfair practice

If a consumer has been the subject of an unfair practice, the consumer can sue the supplier under this Act, but the amount of claim is subject to a limit of $20,000.

Gerrymandering and election

Gerrymandering is the redrawing of electoral districts to benefit the incumbent in an election. It is practiced in New York and is considered to be corrupt.

Consumer Protection and Fair Trading Act

There is a law in Singapore called the Consumer Protection and Fair Trading Act (CPFTA). This law, which was passed in 2003 did not apply to financial products initially. It was extended to include financial products in 2007.

Many consumers have lost a lot of money due to unfair trading imposed by financial institutions and intermediaries. They should get a lawyer to see if these parties have infringed the CPFTA. If you are not able to engage a lawyer, you can do some research on your own or get assistance from FISCA.

If you have done some research and wish to share your views with other consumers, please send them to kinlian@gmail.com.

Motor insurance is compulsory

It is compulsory by law for the owner of a vehicle to have a motor insurance cover. The mandatory cover is for third party injury. In theory, you do not need to buy insurance to cover property damage, if you do not wish to.

It is difficult to find an insurance company that will offer only compulsory Act cover. A more frequent coverage is third party cover (which covers liability to third parties for injury and property damage). The premium is about 50% to 65% of the comprehensive cover. Comprehensive cover, which is more common, will also cover damage to your own vehicle.

During the past two years, the premium for motor insurance has increased by about 30% due to more accidents and fraudulent claims. Some customers have to pay more. The insurance companies introduced the "Motor Claim Framework" to combat the escalation in claims. So far, it has failed to achieve the desired outcome.

Shape Quiz for birthday party

A customer came to my office to buy 60 sets of shape quiz to be given to children at a birthday party. Cost per package is $2 (comprise of shape quiz sheet with 100 shapes and pieces made in plastic).

Delivery of rechargeable torchlight

I can arrange delivery of the rechargeable torchlight to buyers for $7. You pay the normal price of $6.50 and enjoy a discount of $1 for purchase of 5 or more. More details of the torchlight here.

You can pay by internet banking or send a cheque to my office at Blk 5, Ang Mo Kio Industrial Park 2A #06-12, Singapore 567760. Enquiry at 6555 5762.

China Daily:More deals reached in Lehman debacle

11 Nov 2009

HONG KONG: Some 16 banks have agreed to settle all complaints arising from the sale of Lehman Brothers non-minibond products by March next year, a Legislative Council's subcommittee heard yesterday.

Choi Yiu-kwan, the Monetary Authority's deputy chief executive, unveiled the latest agreement with the banks at a hearing of the subcommittee on the debacle arising from the sale of Lehman Brothers financial products.

In a payout plan proposed in July by the Securities and Futures Commission, the authority and the 16 banks, minibond holders can redeem at least 60 percent of the value of their initial investments.

The deal also required the banks to immediately put improved complaint-handling procedures in place to resolve complaints on the sale of structured financial products other than minibonds.

Choi said before the proposal of the payout deal on July 22, the authority completed an average of 130 complaints about the sale of non-minibond products a month.

Since the introduction of the deal, it has finished some 550 investigations into complaints about the sale of non-minbond products every month on average, he said.

But he added that some 4,450 complaints about the sale of non-minbond products and about 1,000 about the sale of minibonds are still under the authority's investigation.

He expected the regulator can complete a monthly average of at least 1,000 investigations into the sale of non-minibond products in the near future.

Choi said it is now difficult to tell whether a payment deal can be bargained for Lehman Brothers non-minibond holders, but he has the idea in mind.

Lawmaker Starry Lee Wai-king urged the financial regulator to hold regular talks with complainants to update them concerning progress on the investigation.

But Choi said holding regular meetings with individual investors will place a huge demand on manpower. He said such a commitment may slow down the progress of investigations.

To help monitor the business of local banks, Choi said the authority holds meetings with each local bank's board of directors once a year to analyze how well the firms perform compared with other institutions of similar levels and advise them on their management, especially in the area of risk management.

Be aware of your rights

Many Singaporeans are ignorant of their rights as individuals or as a human being. This is due to many decades of trust in a government that will take care of the people, i.e. the "nanny state".

In recent years, the people are expected to take care of themselves, in line with the trend towards a "free market" environment. Unfortunately, they are ill-prepared for this responsibility. Many people are not aware about their individual or contractual rights.

It is easy for certain unscrupulous parties to take advantage of the ignorant people using unfair contract terms, unfair trading, investment scams or outright cheating, and get away under the guise of "caveat emptor".

The people who are cheated do not even know how to seek redress. They can engage a lawyer, but they find the fees to be too high, and they are wary about trusting the lawyer.

Here is my advice to Singaporeans:

a) Spend time to learn about your rights as human beings
b) Learn about the law of contracts and agency
c) Learn about the law on consumer protection, fair trading, fair contractual terms
d) Talk to lawyers who are your friends.

Tan Kin Lian

Bus arriving soon

I have been looking for a solution to show the arriving buses at an electronic display at bus stops. This is to help the older people with weak eyesight. A polytechnic lecturer told me that some countries have adopted a low cost system using wire mesh technology. How does it work?

Increase in motor insurance premiums

Many motorists have seen a large increase in motor insurance premiums in recent years. Some have their renewals rejected, due to bad luck or bad driving that have resulted in two or more claims. In some cases, the large claims were due to fraudulent claims lodged by third parties.

I have received e-mails of this nature from motorists over the past years, "Mr. Tan, I have been driving without any claims for more than 15 years. Last year, I had an accident. The other party lodged a large claim. The insurance company paid the claim, but did not check with me. This year, they want to increase my premium by 30%. What should I do?"

I usually advised them to find another insurance company and provided them this list of hotline numbers. However, they were unsuccessful in most cases, and most insurance companies would not want to take a motorist with a claim.

Some motorists have their renewals rejected due to two or more claims. They were not able to get another company to take over the insurance.

This may happen to a small percentage of motorists each year. For these people, getting renewals is a stressful exercise. Accidents can happen to anyone, even if you are careful most of the time. You may be careless just once, to get into trouble.

Some people who are caught in this difficult situation come to me for help. Other people who are not involved tend to say, "These drivers are reckless. They should not expect to get their insurance renewed. It is better that they keep off the roads".

This tends to be the attitude of Singaporeans, until they become the party that is personally involved. I hope that Singaporeans can be more empathic to people who are caught in a bad situation due to bad luck or circumstances beyond their control.

Tan Kin Lian

Express your views

I write this blog to express my views. Visitors to my blog can also express their views and give their reasons. I do not intend to engage in a debate with people having different views from me. This is not a platform for debating. I do not have the time to engage in one to one debates.

If you wish your views to be posted, you should show respect. Do not attack my views or any other views or make personal comments. If you are abusive, your views will not be posted. I do not block different views, but only those that are abusive or disrespectful.

Some visitors use this blog as a platform to promote their own views. Please create your own blog for your purpose.

Some visitors do not like my views, or see their views blocked. They are not required to visit this blog. There are 1 million other blogs that they can visit.

Invest your savings

Here is a chapter on "Invest Your Savings" from my book - TKL Financial Planning.

Providing health insurance for the population

There is some debate in this blog about how to insure the unhealthy people. Those who are healthy felt that they should not be subsiding the unhealthy people and they like the current system of insurance purchased from insurance companies operating on commercial grounds.

This self-centered approach is not helpful to people who are not in good health, especially those who were born with congenital conditions and did not take care of their health in the past (and now wish to make a change).

Some countries realize that they cannot just let these people be uninsured. America is now addressing this problem and is taking bold steps to make a reform.

I like the approach adopted in Australia. Every family can join a health insurance plan without the need for underwriting and to pay the community rate. The Government provides attractive tax incentives and make it attractive for people to join a plan, rather than be uninsured. The healthy people are willing to join, due to the tax subsidy.

I believe that a similar approach is being adopted in Japan, Germany, Switzerland and other European countries. The systems are not identical, but the general approach is probably as I have described (but I may be wrong).

I do not like the American or Singapore system, as there is a high layer of administrative cost and uncertainty about the coverage, due to the proliferation of different plans and exclusions of pre-existing and other conditions. The confusion is not helpful to consumers and the actual benefit to consumers is lower than the premiums that they have paid. I believe that a better and more streamlined system can be found.

Tan Kin Lian

A free market has to be regulated

The headline of a Straits Times report said "MAS flags two risks for property buyers". MAS is warning about the risks of a weak economy (which may cause property prices to drop) and a strong economy (which leads to higher interest rates). Property buyers should not be paying high prices which they may not be able to service.

This move is timely to prevent an asset bubble in property - the same type of bubble that caused the collapse of the US and global financial system last year.

Some people think that a free market should be unregulated. This is not correct for many markets where one party, usually the seller, has more information that the other party, usually the buyer, and can take unfair advantage of the buyer. This situation applies to the property market, financial market, insurance market and for many professional services.

For the free market to work well, it has to be regulated to ensure that information is made easily available to all parties and that a code of fair practice and professional ethics is observed. A free market is not one which allows some people can take advantage of other people to make an excessive profit.

There is now a trend towards stronger regulation in America. I hope that this trend is followed in other countries.

Tan Kin Lian