A couple of weeks ago, an adviser from a tied-agency told me that she was shocked to learnt that one of her client's regular premium ILP has zero cash value! She is very worried why this can happen. After asking her a few questions, here was my analysis:

• She sold the ILP to a person who needs very high insurance coverage. Therefore, the mortality charges are significantly.
• Due to the market downturn, there are huge losses in the portfolio
• However, there is a double whamming involved here. The mortality charges does not change for the year (but increases as the insured age increase). Recall that:

Units to sell to cover insurance charges = Mortality / Unit Price

However, unit price has drop a lot while mortality remains the same. Thus, the funds were force sold at a very low price and based on the above equation a large amount of units have to be redeemed.

Another problem which may not be obvious to most advisers is that selling a portion of the portfolio with a high volality increases the probability of drawing down the capital to NIL faster. With the increased in volatility this year, a regular redemption quickens the drawndown.

Therefore, it is of not surprising that the cash value of the ILP is now zero. Woe to those who bought an ILP. I never like an ILP. I also don't understand why some IFA sells ILP when they can sell unit trusts.

After 2 1/2 years, my notebook's hard disk crashed. All data's gone. Fortunately I do regularly backup my hard disk. The last time I backup was 2 weeks ago. So I lost 2 weeks worth of data. It would be nice if I had a system of real time backup like a mirror hard disk similar to what they have on desktop. A major weak point of a computer is anything that has moving parts. Mechanical parts are its weakest link. It is of not surprised that the hard disk is the first to fail. Just one month ago, my desktop failed too. It turn out to be the power supply. Apparently the fan was making lots of noise prior to the supply shutting down. Obviously it was also a mechnical failure. Such moving parts are guaranteed to fail due to wear and tear. There will be a lifespan. Once it exceeds its lifespan, it will fail. It is not will it fail, rather when it will fail. I remembered in my R&D job prior to jumping into the financial industry, I had to help the M.E. team come up with all sort of complex algorithsm in the firmware to ensure that the printer works in accordance to the specified lengthspan. Really hard work.

 Anyway, it reminds me of the human body. A highly complicated bag of system. Full of mechnical parts and worst of all easily attacked by microorganism and viruses. It is not the matter will the body fail but rather when will it fail. Unlike a computer or notebook which we can just throw away and buy a new one at quite a cheap price, failure of the human body can be extremely expensive to "repair." Worst - the indirect cost such as lost of income is devastating to self and family. Imagine a lost of say an income of $2000 per month is equivalent to $480,000 assuming 20 years of opportunity cost excluding inflation. Is Term enough? Nope.

Insurance can help to reduce the financial lost of a devastating event although it may not completely eliminate all financial lost. Woe to those who does not buy insurance! They are really silly and irresponsible to themselves and family. Even for thsoe who are single also need insurance. If they did not insure themselves and something happens to them, I as a taxpayer will not permit the government to subsidise their carelessness.

Anyway, for clients who had sent me email which is expecting me a reply which I did not do so, please email me again. For those email related to iFAST's letter on MAS' Money Laundering requirement, there is no need to email me again on this. I'll follow up with this as I have all the names of clients affected prior to that letter was sent and will do the necesary follow-up.

Mr. Gerard Ee is a well-known individual. Without further repetition, here is a brief profile of himself - http://en.wikipedia.org/wiki/Gerard_Ee .

But I was really surprised to have read in today’s newspaper that he was fighting a Stage 3 colon cancer. Stage 3 colon cancer has a 40% survival rate. Gerard just completed its 12 session chemotherapy in June this year.

In an interview between Straits Times and DBS Chairman Mr. Koh Boon Hwee, Straits Times wrote “… Neither is he supportive of a nationwide crackdown on relationship managers and sales targets in banks that some have blamed for hard-sell on the ground. 'I think selling is something that happens in all businesses. There is not going to be an easy substitute for having quotas for salespeople for any kind of product, whether you sell computers or automobiles,'”

I know many financial advisers are told by their firm or institutions that they must have X number of appointments a day so that based on the law of large number, they can get Y number of sales. This is true for pure sales-type of job but I feel this is the wrong way.

Many people like to buy structured product. Although this product is currently not popular anymore due to its poor publicity, but it will become very popular again because people has very poor memory. Some of these structured product is really lousy. To understand why, you will need to use probability maths to figure it out.

Many people choose their career or studies based on interest. They also choose it based on the potential salary that the job can command. I would like to give an alternative view on what is the minimum salary required when considering a career or academic qualification.

I previously proposed that commissions be banned. Commissions are given out based on purchase in transaction. This may not be good for clients because it encourages transactional based relationships. Instead, it may be better to encourage asset based compensation through a retainer fee based on a percentage of the total asset. In such a scheme, the adviser/firm is compensated for the amount of assets under management. This can be in the form of unit trusts, fixed deposits, saving account, checking account, insurance, etc. There should not be discrimination as to which assets pay more retainer fee.  In this way, the firm will focus on customer’s retention and helping client focuses on growth of the assets. Actually I don’t understand what is wrong attracting the customer to put money in fixed deposits. These are cheap source of funding for the bank to loan out at a higher interest rate. It is still profitable to market fixed deposits anyway. Perhaps institutions have become greedy and are not contended with the loan market.