I mentioned in the previous blog about ILPs and how insurers have been frequently mis-sold these products to policyholders normally through non-disclosure. The irony is that the current benefit illustration (BI) disclose all risks in an RP-ILP but nobody can understand what these BIs are saying. Just as the prospectus of Lehman Brothers’ MiniBomb fully discloses all risks, nobody can understand what it said. If a document cannot be understood, there is no disclosure. That is what is happening to RP-ILP as well. I have something to say to shareholders of these insurers:

As the title above says, I feel that the next MiniBomb that will explode and perhaps even at a greater scale than the Lehman Brothers MiniBomb, HighNotes etc. This next time bomb will not explode within the next few years but perhaps 10 or 20 or 30 years later. This bomb will not be labeled “Mini” but it will be a MegaBomb. Don’t get me wrong, an ILP itself is merely a product and its suitability has to be match appropriately to the clients’ needs. However, similar to the MiniBomb fiasco, the ILP is significantly been mis-sold and its risks usually not disclose. Here are some reasons why I feel that ILP will be a time bomb:

There has been a report from the media etc that some banks are considering to compensate those who has lost their money in structured product especially those who are in the "vunerable" group like those below primary school education & above age 62. Here is what I think:

Here are some financial jargons:

How to find a financial planner who is able to draw up a roadmap for the client? It is important to understand the following:

• Transactional advisers and
• Relational advisers

Many people do not have a financial plan. Buying insurance does not constitute a financial plan. Buying some unit trusts does not constitute a financial plan. Having a CPF or an SRS account is not a financial plan either. Learning about fundamental analysis and technical analysis do not constitute financial planning. Attending financial talks especially those “free” talks isn’t making any financial plan too. Quite the contrary, purchasing an insurance, investment, opening an SRS account and following what the speakers have to say in those “free” talks can be detrimental to one’s financial health because there was no financial plan in the first place. So what in the world is a financial plan?

I am one of the very few advisers in Singapore that charge fee for financial planning. Most advisers in Singapore do not charge any fee for planning. They are either compensated through salary or commission only. For salary, if they do not sell enough of  high margin products, they will be in trouble. For commission only, their remuneration is directly proportionally related to the kind of products they sell.

Here are some slogans used by famous institutions that have failed or have been bought over due to impending failure (Source: Economist)

I come across an elderly couple (not my clients) with a sad story to tell. I have changed some facts to protect the identity of the family but the essence of the story remains the same:

At last, Singapore Central Bank has waken from their long sleep and decided to face the reality. It now guarantees all deposits in the bank. See press release HERE.

• Previously it only guarantees S$20,000; now guarantees all
• Previously only guarantees for individuals; now both individuals and corporate enjoy such guarantees
• Previously the guarantee only applies to Singapore denominated deposits, now include the foreign currency deposits
• Previously it seems to guarantee based on a pre-funded insurance scheme; now it is backed by a S$150 billion Singapore government reserve of which has been approved by the President for such use.

The fine print is that the guarantee will end on the 31 Dec 2010.

This comes after many jurisdictions such as Hong Kong had given such guarantee. Despite Hong Kong banks having the lowest loan to deposit ratio in Asia, it was unwise for Singapore not to act likewise since it has the 3rd highest loan to deposit ratio in Asia. At last, people can sleep well tonight. In the meantime, I am sure damages have already been done with the eroson of deposits. For my family, I am one of those who has already pull out much of our deposits from banks. I hope MAS can be ahead of the curve. It is putting Singapore at risk for being behind the curve.

EDIT: From what I understand, there are S$700 billion deposits in Singapore. Yet MAS only sets aside S$150 billion to guarantee S$700 billion. My math tells me that 150 < 700. Looks to me that someone at the top failed their primary school math. Fortunately most of my cash is not with banks any longer.