Aviva Ltd just publish an interesting survey results (appended is the Channel News Asia report.) Briefly, the results show that:

• 48% of Singaporeans have less trust in savings providers than they used to. (In 2008, the percentage is 29%).
• One fifth of Singaporean respondents said this was stopping them from saving or investing more. This is more than double last year's ratio.
• 2 out of 3 find life more risky than before. 22% worried about job security and 23% worried about health.
• Nearly 50% is willing to pay for high quality advice.

Here are my comments:

In 2008, there was already 30% who did not trust financial institutions but I really wonder why this group did not complain to MAS? Either they did not bother to complain or MAS was sleeping. Possibility both were valid reasons. Unfortunately things have not changed much. I still see insurance agents advertising misleading products.

The increase to 48% of Singaporeans who did not trust savings providers may look shocking. But actually this percentage will come down again due to two reasons. When economy improve, people will have short memory and due to greed will forget about their past mistakes. I remember countless people who were cheated of their CPF money to invest in technology funds during the dot com craze. I also recall many financial salespersons telling their clients that technology funds’ return were even guaranteed. So what happened? Almost all their CPF money were wipped out. Did the government do anything to arrest these financial salespersons? Nope and the wonderful part is that most people have forgotten their bitten pill they swallowed. So history will repeat itself again. People will forget. Secondly, many young people will graduate. These young people have never invested before. They have never been cheated. Their parents may have been cheated but not them. So they will enter the workforce as green horn waiting to be slaughtered because they are too trusting. Therefore, 48% figure will come down eventually to the long-term figure or maybe 29%.

Two thirds felt life is more risky. This is demonstrated by the concern that 22% worried about job security and 23% in about health. Job security and health are potentially financial time bombs. So all the more it is to make plans to manage these risks. It is impossible to avoid retrenchment and falling sick. But it is possible to mitigate the financial consequences of retrenchment and health problems. The wonderful part of this is that financial salespersons and financial institutions do not have the vested interest to manage these two risks for their clients. How does one manage job security risk? For my clients, I advocate that they implement two prong approach – Save to have a large reserve of cash to address negative cash flows when one loses the income due to retrenchment. Second approach is to invest in the human capital by upgrading one’s education. I am not referring to those “certificate” courses where after you attend a few days / months of training you can some certificate which you will find useless. I am referring to getting a real diploma, degree or master. If your degree has become useless due to structural shift in employment, get another different degree that has demand for it. But investing in such education requires huge capital investment because such education isn’t cheap. Nevertheless this can help you remain relevant to the industry. These two approaches are seldom advocated by financial salespersons because these two approaches are DETRIMENTAL to them. Why? Telling a client to save enough for two years of cash reserves means cannot buy that ILP or endowment (the deadly “savings” plan). Telling a client to spent $80,000 in an MBA course to upgrade himself means there is no more $80,000 to invest in a unit trust or toxic asset like structured product. Singaporeans are right NOT to trust financial salespersons because many matters of financial planning are in CONFLICT with the financial salesperson’s remuneration package.

As for the worry about health, the financial consequence of having a large hospital bill can be mitigated with an as-charged shield plans. Very easy one but the commission is only enough to buy a cup Starbuck coffee (ok, I exaggerate it. Can buy two cups of Starbuck coffee actually). Has anyone seen a bank pushing the client to buy a shield plan? Maybe but seldom. I always hear about structured product and single premium endowment but shield plan?

The last point on nearly 50% is willing to pay for high-quality financial advice is a shocker to me. I am one of the extremely few who charge fees for financial advice and I know this must be a statistical error. I say this based on two reasons. First, if it was so there will be a very long queue of clients at the Promiseland office waiting to see the only three fee-based financial planners in the company and I am one of the three. I don’t see any queue leh. On the average, I will only get two fee-based financial planning cases per month. Secondly, market is extremely efficient. If there are 50% of the population willing to pay for advice, the financial institutions being profit-maximization will immediately offer such service. From what I know, I have never heard of any financial institutions charging fee for financial planning. Sometime they say theirs is “fee-based” but actually they charge a management fee which is no different from a unit trust charging a management fee. If you invest in a unit trust, the fund manager takes a cut as a percentage based on the size of the fund. But these fund managers don’t give financial advice right? So many financial advisers and firms say they are fee-based but actually what they meant is that they charge a wrap fee or a management fee. It does not mean that they are giving financial advice. Anyway, I feel that the survey is faulty. I suspect that many of the respondents who took part in the survey got burn in the Lehman Minibonds or High Notes or similar products. In other words, I think the sample used in the survey is biased and not representatives of the population.

Risk of losing money preventing S'poreans from saving and investing more
09 October 2009
ChannelNewsAsia.com

SINGAPORE : British insurance provider Aviva has said affordability and the risk of losing their money are preventing Singaporeans from saving and investing more.

In its latest survey on global consumer attitudes towards savings and investments, Aviva also found that in the wake of the financial crisis, Singaporeans are concerned about putting too much trust in financial institutions.

There has been a noticeable decline in trust in financial institutions, according to Aviva's latest survey.

Forty-eight per cent of Singaporeans surveyed have less trust in savings providers than they used to, up from 29 per cent in 2008.

A fifth of Singaporean respondents said this was stopping them from saving or investing more. This is more than double last year's ratio.

In total, almost half of the 1,000 polled said they have less trust in savings providers.

And two in three Singaporeans find life more risky than before, with 22 per cent of them worried about job security, and 23 per cent of them worried about health.

Despite the pessimistic outlook, the survey found that Singaporeans were not doing much to protect their finances.

Simon Newman, managing director, Aviva (Singapore), said: "I think one area is affordability - in these difficult times, can people actually afford to invest and save for the future? And secondly, we have to acknowledge that levels of trust between consumers and financial institutions have come under pressure."

Aviva believes that the best way for financial institutions to regain consumers' trust is by listening to what consumers want.

Respondents said the most important thing banks can do is to increase trust is to offer products which are easy to understand and give better value for money.

Aviva said many Singaporeans still lack financial knowledge and confidence.

However, what is positive is that they are more willing to pay for professional advice.

Mr Newman said: "The need and desire to have high-quality advice is very strong. In fact, here in Singapore, nearly 50 per cent of consumers say they would consider paying for high-quality financial advice."

Aviva's study is now into its sixth year and covers close to 30,000 people in Asia, Europe, and North America. - CNA/ms