1. finance
2. personal finance
3. financial planning

November 2014
Financial
PLANNING
Excellence in Holistic Planning
CONTENTS
F MESSAGE _______________________________________
3
President’s Message
4
Chief Editor’s Message
F PRACTITIONERS _________________________________
5-7 Advising the One Percenters
On the Cover:
After the Pioneer generation, the focus is now
on the Generation Y, also sometimes known
as the Net Generation. Highly connected and
constantly plugged to their mobile phones
and social networks, this group presents a
different set of challenges in planning their
finances as highlighted in this issue.
8-11
D.N.A of the 3G Financial Advisors
EDITORIAL BOARD
19-21 “Legally Single” – Inherent Challenges and Opportunities
CHAIRMAN
Mr Ben Fok, CFP®
CHIEF EDITOR
Ms Yash Mishra, CFP®
MEMBERS
Mr Andy Chiok Gay Shing, CFP®
Mr Derek Liang Aik Kwan, CFP®
Mr Isaac Fang Chung Ngee, CFP®
Mr Joseph Paul Kennedy, CFP®
Ms Kee Siew Poh, CFP®
Mr Sammy Chiu Sung Kee, CFP®
Mr Shawn Yap Khoon Juay, CFP®
12-14 Why Financial Planning is the Best Career
15
16-18 Singapore Trusts
F CONSUMERS ____________________________________
22-23 Managing Your Debts
24-26 ‘3G Annuities’ – Tool for Intergenerational Asset
Creation and Retirement
27-29 Medishield Life - The Implications
30
Financial Planning 101 Booklet
F NEW INITIATIVES ________________________________
31
CONTRIBUTORS
Mr Derek Liang Aik Kwan, CFP®
Mr Ryan Yeo Eng Hong, Associate Director,
finexis advisory Pte Ltd
Mr Andy Chiok Gay Shing, CFP®
Mr Ben Fok, CFP®
Ms Yash Mishra, CFP®
Mr Joseph Paul Kennedy, CFP®
Ms Kee Siew Poh, CFP®
Mr Sammy Chiu Sung Kee, CFP®
Mr Joseph McBurney, Head of Trust, Heritage Trust Group
Financial Planning Association of Singapore
146 Robinson Road #04-02, Singapore 068909
(65) 6372 1030
Tel: Fax: (65) 6372 0121
Email: [email protected]
Website: www.fpas.org.sg
CFP®, CERTIFIED FINANCIAL PLANNER ™ and
are certification marks owned
outside the U.S. by Financial Planning Standards Board Ltd (FPSB). Financial
Planning Association of Singapore is the marks licensing authority for the CFP
marks in Singapore, through agreement with the FPSB. AFPCM, AWPCM, ASSOCIATE
FINANCIAL PLANNER, ASSOCIATE WEALTH PLANNER are registered certification
marks of the Financial Planning Association of Singapore.
Financial Planning is edited, designed and printed by Ray Media Pte Ltd and
published by the Financial Planning Association of Singapore. Although every
reasonable care has been taken to ensure the accuracy and objectivity of
the information contained in this publication, neither the Financial Planning
Association of Singapore, Ray Media Pte Ltd nor the magazine’s contributors
shall be held liable for any errors, inaccuracies and/or omissions and no liabilities
shall be attached thereto. Copyright of the materials contained in this magazine
belongs to the Financial Planning Association of Singapore. Nothing in here shall
be reproduced in whole or in part without prior written consent of the publisher.
All rights reserved.
MCI (P) 074/09/2014
Book Review - Capital in the 21st Century
Membership Events
FPAS’ VISION
The FPAS vision is to ensure that all Singaporeans have
access to responsible and appropriate financial planning
advice, by raising the professional standards of the
industry through education and shared code of ethics. In
support of this vision, FPAS provides a range of services to
consumers and to member individuals and organisations.
In particular, FPAS aims to:
F Educate and inform the public of the need for objective
professional advice in making secure financial decisions.
F Ensure sufficient professional and ethical standards
to maintain the confidence and trust of existing and
prospective customers.
F To provide members with education, training and
information to enhance their provision of objective
professional financial advice.
F Develop and maintain high ethical standards for
members.
F Represent the industry and its members to ensure an
operating environment which is conducive to providing
high quality financial advice.
MESSAGE
PRESIDENT’S MESSAGE
Dear Members,
The world has fast changed in an astonishing fashion.
Technology makes possible the evolvement of business model in financial institutions to broaden geographical footprint and deepen
international capabilities while complying to the stringent regulations world-wide.
Gen Y has been gradually helming the new regime of financial planning when it can be tailor-made personalisation or simply online
vanilla product offers, the two extremes of the platform.
One can describe the tech-savvy Gen Y to be individualistic, creative, celebrators of diversity, multi-taskers and rule writers. Work-life
balance is, however, a buzz word when long duration desk bound jobs would not be the choice. Simply put, meaningful and funfilled jobs making an overall contribution to the bottom line of the organisations would be preferred.
We financial planners have to adapt by upskilling and upgrading of our knowledge and techniques towards an efficient and sociallyconnected technological advancement.
Even if we might not belong to Gen Y, we should pick up some of the timely skills.
I like technology and gadgets, so do you.
Happy reading.
“
Kimmis Pun, CFP®
President
Financial Planning Association of Singapore
We financial planners have to adapt
by upskilling and upgrading of our
knowledge and techniques towards
an efficient and socially-connected
technological advancement.
3
MESSAGE
CHIEF EDITOR’S MESSAGE
Dear Members,
A
fter the Pioneer generation, in this issue we shift our focus on the younger generation. The Gen Y’s refer to the group
born in the 80’s or later and are often referred to as the Millennials or the Net Generation. The Net Generation thrives
on getting their stock tips pushed directly to their mobile phones and their social networking feeds announce their
relationship status.
Millennials don’t have to just keep up with the Joneses, with the influx of reality shows they have to keep abreast of the Kardashians
too! Mix that with the motto of ‘Life–is–too–short–so–let’s–treat–ourselves–now’. It presents a different set of challenges to manage
whilst doing financial planning for the longer term.
Staying single longer presents some unique financial planning opportunities and challenges. Whether you’re single by choice, or
as a result of a recent breakup or divorce, there are a few things you need to keep in mind when managing money just for yourself.
‘Legally single’ helps you understand the various aspects better. The rising trend of instant gratification means greater use of credit
cards and ‘Managing your Debts’ discusses how to handle excessive spending.
If you thought 3G referred to the mobile phones, then think again. 3G annuities are the latest tool being discussed for multigenerational asset creation and Retirement. We give you a glimpse into how these annuities help in adding to the inter-generational
asset pool.
As the year closes out and you’re thinking of the holidays, here are a few suggested good reads. In the book review section, we take
a glimpse at how rising inequality could well ring in the death knell for capitalism in the book ‘Capitalism in the 21st Century‘ by
French economist Thomas Piketty.
Finally, as our ongoing endeavour to promote financial literacy, FPAS has launched the “Financial Planning 101” booklet that will
help consumers understand the simple aspects of everyday living.
Happy reading and here’s wishing you a fantastic year end!
“
Yash Mishra, CFP®
Chief Editor
4
...in this issue we shift our focus on the younger
generation. The Gen Y’s refer to the group born
in the 80’s or later and are often referred to as
the Millennials or the Net Generation. The Net
Generation thrives on getting their stock tips
pushed directly to their mobile phones and
their social networking feeds announce their
relationship status.
November 2014 Financial Planning Association of Singapore
Mr Andy Chiok Gay Shing, CFP®
C
apgemini has defined high net worth individuals (HNWI) as those having investable assets in excess of USD1 million.¹
In 2013, wealth from this market segment has exploded by roughly 14% to reach a record high of USD52.62 trillion.¹ Closer to
home, the high net worth population in the Asia-Pacific region has reached 3.7 million in 2012 with Hong Kong seeing the highest
growth of 35.7%.2
PRACTITIONERS
ADVISING THE ONE PERCENTERS
Interestingly, the term ‘wealth management’, which has been in use since the 1990s to describe a comprehensive service model akin to
financial planning has now been applied to comprehensive investment advisory services for high net worth clients.
This term has even been taken up by real estate agents, lawyers, and even insurance specialists to the extent that there is “no real
consensus on the professional tasks, knowledge, and skills that should be associated with (the) delivery of wealth management.” 3
Identifying HNWI Needs
Take a walk through any private bank offering wealth management solutions to HNWI and you will often hear conversations with ultra
wealthy clients is longer term, frequently revolving around thematic asset allocation and portfolio building rather than individual
products.
Recurring topic include private equity and direct acquisitions, structured financing, low risk long term investments, real estate, hedge
funds, family office solutions and advice on tax rules in different.
Whilst the choices vary, the common aspects of any investment include the following :
Access
Regardless of their mobility, HNWI like their wealth
to be internationally accessible. This could be due to
family members or dependents living and/ or studying
abroad and the need for platforms to facilitate banking
transactions. Funds may also be shifted to jurisdictions
where taxes are more benign or the political climate
more stable. This is why Goldman Sachs is boasting
online access to their private clients’ monies with
an emphasis on access to “the broader network and
resources” of the ‘Wall Street’ bank.
Enjoy
Whether it is relocating to another country, funding
special needs, philanthropy, or pursuing a passion,
HNWI need to enjoy what they have accumulated—
an understatement perhaps but one will be surprised
by the number of financial advisers missing this point
(“These people are no longer in the accumulation
stage”). A successful financial adviser must ensure that
an infrastructure is in place for the rich to play with/
have access to their toys.
www.fpas.org.sg
Manage
Ever walked up to an HNWI with an investment plan of
an 8% return? Ever wonder what he will say to that? A
consultant for trusts in Hong Kong once told this writer
that HNWI there do not want the excessive risks that
accompany investments in capital markets. Rather, they
prefer a ‘boring’ return of 2 to 3% per annum just to setoff any erosion to purchasing power. Treasury InflationProtected Securities (TIPS) will be ‘The In-Thing’ should
interest rates start appreciating.
Transfer
More than anything else, leaving a legacy ranks as the
more important objective in the HNWI list of priorities.
“Family legacy planning is more than just about money,”
says Judith Saxe, managing director at Atlantic Trust,
the U.S. private wealth management division of The
Canadian Imperial Bank of Commerce (CIBC), “It’s a way
of helping parents discuss sometimes uncomfortable
issues of wealth, estate or legacy planning with their
children, especially if they’re worried that wealth will
destroy their children’s motivation or desire to excel or
match their parents’ financial success.”
5
“It takes a very skilled agent
to advise the affluent
on managing a unique set
of exposures created by their
assets and often
high-profile business, family,
and personal activities.”
Kathleen Tierney, Chief Operating
Officer of Chubb Personal Insurance
Tailoring to the needs of HNWI
Although the five processes of financial planning will never
deviate much, the breadth of knowledge for private wealth
advisers is substantially more comprehensive.
…and then there is philanthropy; this is increasingly important to the
HNWI more so in Asia and is often an engagement tool.
In a global survey of 3025 HNWI with an average net worth of USD2.9
million, 64% of the respondents feels that their money manager has
good knowledge of their core financial needs.4
The study also dwells into what these HNWI value in their relationship
with their financial adviser and factors that contributes to customer
loyalty.
“HNWI want to regularly interact with their wealth managers, be
it through ongoing communications, strong research or engaging
dialogue, and they expect wealth managers to do the same, by learning
about their needs and tailoring services accordingly,” says Alfred P. West,
Jr., Chairman and Chief Executive Officer of SEI.
Conclusion from the World Wealth Report seems to be pointing to the
same direction: HNWI show a preference for professional advice, work
with a single firm, and receive customised services.
While HNWI still prefer direct contact with their wealth manager, digital
is gaining prominence, with almost two-thirds of HNWI expecting most
or all of their wealth management relationship to be run digitally within
the next five years.
6
No longer can financial advisers afford to be ‘one-man’ shows.
Satisfying the diverse needs of HNWI requires expert knowledge
(not necessarily product-related) and skill, and this calls for
specialisation. Lawyers, tax specialist, and investment managers
have to be engaged. The role of financial advisers has morphed
from one who is desperately trying to cope in an ever-changing
landscape to a strategist. Rather than being the accomplished
violinist or flautist in a symphony orchestra, he is now the
conductor.
The investment climate has also changed, particularly in the
aftermath of the collapse in sub-prime assets and sovereign
concerns in Europe. There is an increase in the demand for
transparency and a corresponding plummet in the trust placed
on advisers. This has contributed to the wealth management
industry for HNWI in the U.S. striving to achieve an ‘integrated
experience’ for clients. This can be broadly summarised as
developing:
•
A broad range of private banking, commercial banking,
and investment banking capabilities
•
A Team-based, multi-disciplinary sales and service
coverage model
•
A referral protocol to access products within a diversified
financial services firm
November 2014 Financial Planning Association of Singapore
PRACTITIONERS
WEALTH MANAGEMENT STRATEGIES
Knowledge and Skills Important for Private Wealth AdvisErs
Develop
intra-family
income shifting
Avoid
fraudulent
conveyance
Recommends
directors and
officers/ errors
and omission
insurance
Minimise the
impact of the
alternative
minimum tax
Engage
in multiyear tax
modelling
Work with
multiple
passthrough
entities
Implement
tax-aware
investment
strategies
Effective
manage
portfolio
risk
Understand
offshore
strategies
Understand
tax
implications
for trust
entities
Discuss
multiple
domestic trust
structures
and strategies
Understand
family limited
partnership
Recommend
property
and high
casualty
Some items — particularly those dealing with tax issues - may not apply locally
(Source: IMCA; “Defining Wealth Management — Serving High Net Worth Clients with a Distinct Body of Knowledge”)
In a report by Capgemini on market trends and Post-Crisis HNWI
investment, it is found that challenges financial advisory firms are
facing include “motivating and incentivising wealth managers to
interact with multiple business units to provide clients with the
necessary information.”
Another challenge is the provision of a wide array of products
to HNWI and the expertise to explain the risks involved in each.
However, these challenges are not universal as talent shortage is
more acute in the Asia-Pacific region.
Philippe Legrand, Chief Executive Officer of the Multi-Family Office,
London and Capital Asia Limited, notes that All high net worth
individuals have one trend in common: they all lack time and they
need someone they trust to manage their accumulated nest egg.
Although the concept of transparency and a one-stop destination
of family offices is relatively new in Asia, it has proven to be highly
successful in Europe and the U.S.
“Asia has a limited number of players for the moment,” says Legrand,
“But the segment of clients attracted by such services is continuously
growing, not to mention the number of private bankers who now
have an option for a career outside the banks.”
www.fpas.org.sg
1 Capgemini & RBC; World Wealth Report 2014
2 Capgemini & RBC; Asia Pacific Wealth Report 2013
3 IMCA; “Defining Wealth Management — Serving High
Net Worth Clients with a Distinct Body of Knowledge”
4 SEI, Scorpio Partnership, and NPG Wealth Management;
“The Futurewealth Report 2014: Enhancing the Customer
Curriculum,”
5 Booz & Co; “US Wealth Management Survey — Trends
and Emerging Business Models”
7
D.N.A. of the
3G Financial AdviSOrs
Derek Liang, CFP®
Joint Author Ryan Yeo, ChFC®, CLU® AEPP®, Associate Director, finexis advisory Pte Ltd
If you saw the recent blockbuster, X-men: Days of the Future Past, then you would have seen how
Professor Charles Xavier teamed up with his nemesis, Magneto, to lead the X-men to face the allpowerful new threat, the sentinels. More spectacularly, to survive the extermination of the mutant
race, the DNA of many of the mutants in the movie had transformed at amazing speed to adapt to
the new threat.
This is so with the local financial advisory industry.
8
November 2014 Financial Planning Association of Singapore
PRACTITIONERS
A
s Singapore readies itself to be the ‘Switzerland of Asia’, the financial advisory industry is dealing with changing and
tightening regulations and policy shifts. In order to keep up with the changes, there is a need for a new class of
financial advisors – the 3G Financial Advisors.
The 2001 Financial Advisers Act (FAA) had successfully created a new financial advisory landscape. The first generation of insurance productpeddlers has evolved to the second generation of needs-based financial advisors, whereby the correct financial planning process involves
the understanding and analysing a client’s financial needs and life goals before recommendation. Those who were not able to adapt have
been forced by these changes to leave the industry.
A decade on, the combination of the Financial Advisory Industry Review (FAIR), Do Not Call (DNC) Registry and Personal Data Protection Act
(PDPA) in 2013/14 has the potential to create a new class of third generation financial practitioners.
These regulations, alongside the influx of social media in recent years, have added immense pressure on the financial advisor to change
and adapt.
The third generation probably needs much more than just mettle to stay competitive and to be prepared for the continuous regulatory
changes in years to come.
Who are the 3G Financial AdvisOrs?
The ability to change in an ever-changing consumer market is a given. In the past, the consumer lacked information and just relied on the
advice of financial advisors. Consumers today have access to a slew of information and often get the information first before meeting a
financial advisor.
Due to widely available information on the internet, consumers suffer from “information overload”. There are often a lot of misleading and
conflicting information, and without proper context, it may result in them making wrong decisions.
www.fpas.org.sg
9
Let us examine the three key attributes (D.N.A) you will
need to become a successful 3G Financial Advisor:
Differentiation
Differentiation is extremely important in an ever-changing,
competitive environment. You need to position yourself with a
different value proposition in order to stand out from the crowd.
You are highly encouraged to choose a niche area. It is never just
about the products and services you offer, but rather, why the
client needs to work with you.
Your niche is developed through a combination of your expertise
and domain knowledge and this helps you understand your
clients’ needs better than others.
Network
Your network plays a huge part in your success as a 3G Financial
Advisor. Networking is a ubiquitous trend in any kind of
businesses today.
In today’s complex and broad-spectrum market needs, the need
for financial advisors to provide more than just holistic financial
planning is pressing. You would need to be able to collaborate
effectively with other professionals to expand your external
network. As consumer needs become more sophisticated, having
a network in other industries like the legal, banking, taxation,
medical and accountancy industries, will enable you to provide
Attraction
The game of prospecting has changed due to the implementation
of the DNC Registry and PDPA. Unlike how it was done in the
past, it is going to be increasingly challenging to grow your leads.
Therefore, to ensure sustainability in a long term business model
is to start attracting your prospects.
Reputation forms the foundation for attracting new business. A
good reputation goes a long way towards helping you connect
with others. The world is getting smaller over the years, due to
the rapid growth in technology and influence of social media. It
might take years to build a good reputation, but all you need is
one mistake to destroy your reputation. Ensure that you maintain
a good reputation in your existing clientele base.
10
November 2014 Financial Planning Association of Singapore
You need to harness technology to differentiate yourself. With
clients becoming more tech savvy, a financial calculator alone
might not be sufficient to prove your worth anymore.
The next part to differentiating yourself is to create a unique
value proposition. Work hard on delivering this value and allow
it to become part of your personal brand that belongs uniquely
to you.
It is important to start exploring online financial planning
software and tools to create more value in educating the clients.
Find a tool that suits you and delivers instant results.
PRACTITIONERS
This boosts your clients’ confidence to entrust you to carry out
your work for them. Therefore, it is critical to be an expert in a
certain niche market.
Being able to differentiate yourself on the very first meeting is
important. Your prospects may not give you a second chance.
more value to your clients. In return, it will definitely bring more
business in your direction, in particular with High Net Worth
(HNW) individuals and families.
Before you find your own network, it is important to know your
distinct value and that of your potential partners. Knowing when
and how to utilise expertise of different partners in your network,
allows you to form effective collaborations.
There are dozens of business networking organisations such
as Business Network International, Young Entrepreneurs
Organization and LinkedIn®, and also networks formed among
However, building your reputation alone is a very passive
approach. You need to create a strong “referral” strategy. This
is to ensure that your clients talk to their friends about you. The
problem is that if they have qualms telling their friends about you,
the process of attracting will be too slow. Most clients are actually
willing to refer, but are just unsure about how to broach that topic
with their friends. To make it more effective, teach them how to
start and how to say the right things about you.
your own contacts. Networking is a soft skill the 3G Financial
Advisors have to be equipped with, both in setting up and
maintaining relationships. As the collaborators are often separate
business entities, it is often challenging to align all parties’
interests.
A network may collapse if the interacting forces are unequal.
To maintain an effective and productive network, collaborators
have to open up their clientele base and help to promote their
partners’ business whenever applicable in an open and trusting
manner. Nobody wins by always taking and seldom giving. The
best way to start is by giving first.
The old saying “first impression lasts” still stands, even in today’s
context. The only difference is that this first impression is no
longer about the first face-to-face meeting, but is now about the
first thing you read about the person on the internet. If you take
out your smartphone now and search for your own name, what
kind of results would you get?
Once you learn the art of attracting clients, you will realise that
finding new clients has never been easier.
Another effective way is to use marketing tools to create your
personal packaging. Do you have a personal brochure, a personal
website or a LinkedIn profile? If you do not have any of these, you
probably are not spending enough effort in packaging yourself.
www.fpas.org.sg
11
Why Financial Planning
is the Best Career
Mr Ben Fok, CFP®
Y
ou must have heard of this survey
before “Financial planners are the fifthbest career in a ranking of 200 jobs”. In
another survey it was reported that financial
planner is one of the most desirable careers
that makes the most money and is a fastgrowing field.
In Singapore, the occupation of a financial
planner is not regulated. However, if you are
marketing investment products or providing
advice on investment products as part of
your job, you must be registered with the
Monetary Authority of Singapore (MAS) as a
financial adviser representative.
To acquire this knowledge, most financial
planners would pursue the CFP® certification
awarded by the Financial Planning
Association of Singapore (FPAS). The
education requirement of CFP certification
assures you the requisite competence
expected of a CFP professional.
I wonder how many financial planners in
Singapore agree to these findings as none
of these surveys consider why financial
planning would be a good career for them.
As a financial planner we are also expected
to evaluate all aspects of the clients’ financial
needs including consumption, income and
wealth analysis, insurance, retirement, tax
and estate planning.
These are:
The reason why we are called financial
planners is because this job requires us
to have all-round knowledge. So being a
financial planner is very challenging as it
requires us to combine the knowledge of
being an investment analyst, risk specialist,
an accountant and estate planner all lumped
into one profession.
12
Then there are some microeconomic and
macroeconomic factors that would affect
the performance of the clients’ investment
portfolio. Therefore as a professional financial
planner, we should have related knowledge
in putting the clients’ best interest first.
•
abiding by a stringent Code of
Ethics
•
have been tested on your
competence
•
have completed years
working experience.
of
November 2014 Financial Planning Association of Singapore
PRACTITIONERS
In Singapore, the
occupation of a financial
planner is not regulated.
However, if you are
marketing investment
products or providing
advice on investment
products as part of your
job, you must be registered
with the Monetary
Authority of Singapore
(MAS) as a financial adviser
representative.
At the end, having the CFP certification, a
financial planner should be equipped with
the necessary skills and knowledge.
A CFP professional is required to do at least
15 hours a year of continuing professional
development (CPD) to maintain the status.
In addition, if you are a financial adviser
representative you must attain 30 hours
of CPD. This means that you must attend
workshops, seminars, conferences and
professional courses.
www.fpas.org.sg
As part of your job you also need to be able
to do client acquisition, client servicing and
client retention all at the same time. There’s
also the ‘soft skills’ which will come from
on-the-job training. These include how to
build a rapport with clients, how to do initial
interviews, and how to manage delicate
situations.
Then, we have the compliance paperwork
such as Financial Needs Analysis; Risk
Profiling; Client Knowledge Assessment;
Politically Exposed Person; Anti Money
Laundering and not to mention Foreign
Account Tax Compliance Act (FATCA). So,
with all these tough requirements, how can
financial planning be the best career?
No doubt financial planning is a fastgrowing career dealing with a line of work
affecting people’s lives significantly. But in
reality financial planning career could be the
most rewarding and at the same time most
challenging for the financial planner.
We have all seen the peak of financial crisis
in the year 2009 where many clients got laidoff from their highly paid jobs or have faced
cuts in their wages. With more and more
economic instability, it is necessary that
financial planners have sufficient knowledge
and skills to protect their clients from future
uncertainties.
On a global basis, the Financial Planning
Standards Board (FPSB) reported that as at
31 December 2013, there are 153,376 CFP
professionals in the world up almost 3.76%
from last year and Singapore alone have 914
CFP professionals.
In order to have a better insight of these CFP
professionals in Singapore, FPAS partnered
with Cerulli Associates to conduct a Survey
of Trends on CFP practitioners last August.
From this survey it revealed some trends and
more importantly the mindset of those who
attained the CFP certification.
The research attracted 119 responses
that provided transparency on how CFP
practitioners operate in their practices;
their perception of the value of the CFP
certification and key trends of the industry.
A detailed report of this survey can be found
at www.fpas.org.sg
But for this article we will examine basic
findings such as the benefits of having the
CFP certification, level of satisfaction, and
the impact on their progression and changes
to income.
On average, the survey respondents have
held a CFP credential for 5.9 years; with
about 41.0% having less than five years’
experience as a CFP professional. On the
other hand, nearly 20% have 10 or more
13
67.3%
34.2%
of the poll participants experienced
some form of income growth
in the year after receiving
their CFP certification.
indicated that their client
rose by an impressive 11% to 20%.
years of experience. This perhaps shows
that the financial planning industry is still
considered a young industry.
With regard to career progression 16.2% of
respondents experienced career progression
as a result of CFP certification. 6.7% said it
helped them get promoted. Through CFP
certification, 4.8% got a new job and 4.8%
were able to start their own practices.
According to the survey, the benefits of
providing financial planning services, as
learned through CFP certification are quite
clear with 87.9% indicating that the CFP
certification has helped them make clients’
review in an organised manner which is
deemed the most important factor.
Other key benefits including expanding
the number and depth of services, building
stronger relationships with clients and
managing client expectations.
Most respondents have strong views on
raising asset retention and assets under
management, and identifying more product
opportunities.
As for income expectation about 67.3% of
the poll participants experienced some form
of income growth in the year after receiving
their CFP certification.
All participants in this segment indicated
that the CFP certification had an impact
on their income change. In addition, the
number of years a financial planner practises
as a CFP certificant has a direct correlation to
their earnings.
In terms of attracting new clients’ majority
of the practitioners sighted improvements.
34.2% indicated that their client rose by
an impressive 11% to 20%, whereas 25.3%
indicated that their client base rose by 1% to
10%.
14
However, the most important criteria in any
career is job satisfaction. In the survey, 62.9%
of CFP practitioners are satisfied with their
careers after obtaining the certification.
Of these, 23.8% are significantly more
satisfied and 39.0% are somewhat more
satisfied. About 32.4% are neither more
satisfied nor dissatisfied, while the remaining
4.8% are somewhat or significantly more
dissatisfied.
This outcome confirms that financial
planners remain very satisfied with their
career choice, as well as in overall satisfaction
with their career in the financial planning
industry.
As you can see there are many factors
affecting the growth of the financial planning
industry, but most importantly is the attitude
of financial planners themselves.
Practising as a financial planner requires
many skills (professional and technical),
but people who are empathetic, care
about making a difference in people’s lives
by helping them achieve life goals, have
excellent attention to detail, and are skilled
communicators are often great financial
planners.
62.9%
of CFP practitioners are satisfied
with their careers after
obtaining the certification.
Furthermore, financial planner holds a
high degree of responsibility by working
with clients to help create and implement
financial goals such as creating savings plans
for major events like paying for a wedding,
putting a child through university or saving
for retirement. Some of these financial
planners may specialise in a specific area like
risk management or investments.
Hence, a financial planner needs to have
greater passion in order to join this industry
to make a big difference where your clients
need to be thought of as people and not
dollar.
So, forget about those surveys that promote
financial planning as the top best careers. In
order to make financial planning your best
career, you must have the desire and passion
to help people make good use of their
money in terms of saving, accumulating and
investing.
Only if your clients are successful then
you are likely to have a career that you are
passionate about, one that is professional
and financially rewarding.
As far as I am concerned, it is amongst the
most rewarding professions to be as we
have the privilege of being entrusted with
people’s dreams and helping them achieve
that . The best is still ahead of us.
November 2014 Financial Planning Association of Singapore
CAPITAL IN THE
TWENTY-FIRST CENTURY
PRACTITIONERS
BOOK REVIEW
BY THOMAS PIKETTY
Ms Yash Mishra, CFP®
I
t is the most talked about Economics book in 2014. Capital in the
Twenty-First Century by Thomas Piketty, a French economist but
be prepared for a long read as it is 577 pages!
Its main message—Rising inequality is the death knell for
capitalism.
Capital is much the same as wealth in this book and has tended to
grow faster than real economies. Returns to capital are rising faster
than economies are growing.
The wealthy are getting wealthier while everybody else is
struggling. Inequality will widen to the point where it becomes
unsustainable—both politically and economically—unless action
is taken to redistribute income and wealth. Piketty favours a
graduated wealth tax and 80% income tax for those on the highest
salaries.
This book uses empirical data from 30 countries drawn from the
18th century onwards spanning about 300 years. The richest source
of data is from France which has well-documented record keeping
since the 1789 revolution that shows that the ratio of capital to
income remained steady at about seven to one for centuries fell at
the onset of World War 1 and began recovering after World War 2.
It is still not back to the levels of the pre-world war but it’s headed
as Piketty refers to as the Downton Abbey world of a century ago.
Where most of the economics books are heavily laced with
economic jargon, this narrative makes reference to popular culture
and literature to stress a point. Quentin Tarantino gets a mention,
www.fpas.org.sg
as does the film Titanic and he does like Honore de Balzac and Jane
Austen.
The author’s premise is that growing wealth in Europe will bring
a return of the 19th century perception where he draws parallel
to Austen characters where one sees marrying into money or
inheriting as the way to a comfortable life.
Inequality in the U.S. is highlighted where since the 1970’s, the
sharp increase of income going to the top 1% and especially the
0.1%. This has not been driven by the capital and inheritance
dynamics at the core of the narrative. He attributes it to the “super
managers”.
The book cites recent research that shows managers and financial
professionals making up 60% of the top 0.1% of income distribution
in the U.S. and proposes that their skyrocketing pay is mainly the
product of sharp decline in top marginal tax rates.
The solution proposed is a progressive global wealth tax which can
start as 0.1% a year for small nest eggs and rise to 2% for wealth
above five billion Euros.
If you prefer to read a condensed review of the argument, then
there is a good summary on the Harvard Business Review website
by Justin Fox on it.
In any case, the book gives us a lot to ponder about what drives
economic growth and wealth, how economic theory is taught and
how economic policy impact is discussed in future!
15
Singapore Trusts
Joseph McBurney, TEP
General Manager, Head of Trust
Heritage Trust Group
SINGAPORE—LEADING INTERNATIONAL WEALTH MANAGEMENT CENTRE
Singapore is a pre-eminent financial centre, wellestablished as a safe jurisdiction for large global
and regional financial institutions.This reputation
is anchored by a well-regulated financial services
industry, tax-friendly legislation and a strong
English common law legal system. Singapore
continues to enhance its role as a premier
international wealth management centre and
attracts Ultra High Net Worth Individuals
(UHNWIs) from all around the world, seeking a
stable and well regulated jurisdiction to manage
and administer their wealth.
Singapore’s continued success rests on four
pillars—legal, regulatory, political and financial.
Its business-friendly regulations and policies have
driven most international wealth management
firms to establish a presence here. It has rigorous
bank confidentiality laws, a reliable legal system, a
highly efficient government and a well-regulated
financial sector.
16
Based on statistics and reports, Singapore is
consistently recognised as one of the best cities
in the world for wealth management. According
to the financial consultants, Wealth Insight, it
is predicted that the city state will surpass
Switzerland as the world’s largest financial centre
by 2015.
Today, UHNWIs can enjoy access to a wide
range of wealth management services in a safe
and secure environment for their families. Over
50 licensed trust companies have since been set
up and regulated by the Monetary Authority
of Singapore (MAS). These companies have
the capability to set up and manage corporate
vehicles or trusts in various jurisdictions to
meet the needs of UHNWIs looking to preserve
their wealth for asset protection and succession
planning. They are also able to assist UHNWIs
to better understand the global implications of
cross border planning.
November 2014 Financial Planning Association of Singapore
CONSUMERS
What Is a Trust?
USE OF TRUSTS IN SINGAPORE
t is an effective wealth management
tool for wealthy individuals or families
to protect and preserve their wealth
during their lifetime as well as to pass it
on to future generations. It is also a means to
protect their assets from losses arising from
claims from business creditors and family
disputes such as divorce.
Trust structures are commonly established
in Singapore as a tool for estate planning.
Under a trust structure, a trustee will be
appointed to administer the trust assets. A
trust is basically a contractual relationship in
which ownership and benefits of property
is divided between two parties. The first
party, referred to as the trustee, is the
person in whom the legal title of the trust
assets vests. On the other hand, the second
party in a trust is the beneficiary, in whom
the equitable or beneficial ownership of the
trust assets belongs.
I
A trust is in fact an essential tool for any
UHNW family and a more reliable way to
pass on generational wealth compared to
making a will.
With careful planning, the set-up of a trust
can eradicate delays of probate, minimise
legal costs, minimise taxes and provide
other benefits such as protecting assets and
providing confidentiality.
The use of trusts as a means of holding and
passing on family wealth, even for modest
estates, has increased dramatically in recent
years.
A trust is not a legal entity, but a private
relationship between the trustee, the original
owner of the asset and the beneficiaries
whose confidentiality is assured.
www.fpas.org.sg
The trustee holds the trust assets on behalf
of the beneficiary, and the trustee owes a
fiduciary duty to the beneficiary to act in the
beneficiary’s best interests. Although the
trustee holds the legal title on the assets,
he is required to deal with the assets for the
benefit of the beneficiary.
It can be common practice to appoint a
“protector” for the trust should the “settlor
“(i.e. the person who creates the trust and
the original owner of the trust property)
wish to reserve some control over the
trustee. The protector may be given a wide
variety of powers, including the power to
remove and appoint new trustees and
settle their remuneration or add to a class of
discretionary beneficiaries, or to terminate a
trust by triggering a final vesting provision.
Although there is no specific mention of
the role of a protector in the Trustees Act,
the provision in the Act setting out the
statutory power of appointment of new
or additional trustees does contemplate a
situation where the power of appointing
new trustees may be conferred on a party
other than the trustees. The conferment of
powers, in connection with the trust, on the
protector under the trust instrument should,
as a matter of trust law, be accepted as valid.
Trusts are established for the long-term
management of wealth and assets as the
circumstances of a settlor, the beneficiaries
and other unforeseen factors may change. It
is very important for a trustee to be granted
the flexibility and sufficient powers to be
able to accommodate future requests by
the settlor or changes to the trust structure
or its investment strategies that may
become necessary. As such, in most cases,
a discretionary trust coupled with a letter of
wishes is preferred to a fixed trust. In making
any change to the trust, or in making
investments or distributions, the trustee
is generally guided by the intentions and
wishes of the settlor expressed in the letter
of wishes.
17
MORE
THAN
50
LAW OF TRUSTS IN SINGAPORE
In Singapore, the law of trusts is largely
based on English common law. The principle
statutes governing trusts include the
Trustees Act, the Trust Companies Act, the
Public Trustee Act, the Settled Estates Act,
the Charities Act, the Civil Law Act and the
Business Trusts Act.
licensed trust companies
have since been set up
and regulated by the
Monetary Authority
of Singapore.
Trusts are established
for
the
long-term
management of wealth
and
assets
as
the
circumstances of a settlor,
the beneficiaries and
other unforeseen factors
may change.
It is very important for a
trustee to be granted the
flexibility and sufficient
powers to be able to
accommodate
future
requests by the settlor
or changes to the trust
structure or its investment
strategies
that
may
become necessary.
The recent review in Singapore’s trust laws
was to ensure that Singapore’s trust laws
were up to date and remain relevant to
the needs and requirements of the wealth
management and trust industries.
TAXATION
TRUSTS
ON
SINGAPORE
Singapore has a territorial system of taxation.
Therefore, income is subject to tax when it is
sourced or received in Singapore. The same
principle applies to the income of a trust.
Therefore, the trust will generally be subject
to tax on income which is sourced or received
in Singapore. Hence, beneficiaries are not
subject to tax on undistributed income of
the trust unless it is clear that such income is
attributable to them.
Investing Overseas
From a trustee perspective, clients should
always diversify their portfolio and spread
their risk, which may include investing
beyond their home country. Through
Singapore private banks and external
asset managers, clients can have access to
almost all major markets worldwide, making
Singapore very convenient as an Asian
Financial Centre.
For tangible assets such as real estate,
Singapore however may not be a favourable
location due to recent property tax cooling
measures by the state, and UHNWIs may
need to seek advice as to where the
alternatives can be found.
Considerable savings can be made by
structuring one’s investments correctly. For
example, many buyers of real estate in the
United Kingdom or the United States are
often unaware of the inheritance or estate
tax issues which can be as much as 40%
of the value of the estates held in those
countries.
Choosing a Reliable Trustee
Setting up a trust means that the legal title
of the client’s assets is transferred into the
name of the trustee. Even though these are
not assets beneficially owned by the trustee
under the law and hence not subject to risks
of bankruptcy, the trustee is still controlling
the assets on a day-to-day basis.
It is therefore important to find an
independent trustee who has a reliable
and credible reputation and able to fully
understand the client’s needs. A settlor or
owner of the assets will need a trustee with
experience and expertise to service the
client’s long term needs.
Joseph McBurney is the Head of Trust at Heritage Trust Group, an independent, trust and
corporate services company with offices in Singapore, Hong Kong and the BVI, along
with associated entities in Brunei, New Zealand and Seychelles.
He oversees the trust company operations and is responsible for the trust structuring
for clients. He has more than 15 years of proven experience in the trust and fiduciary
industry in Jersey, the British Virgin Islands, Switzerland and UK.
Previously based in London, Joseph was in charge of a team responsible for a large and
diversified portfolio of various trusts and structures from around the world.
18
November 2014 Financial Planning Association of Singapore
CONSUMERS
“Legally Single” —
Inherent Challenges
and Opportunities
Mr Joseph Paul Kennedy, CFP®
“Singles”. What is unique about these individuals? To be certain, they are not a homogenous
group. Some have a life partner; others do not. Some have children; most do not. The
intention of this article is to highlight some of the most important issues that singles should
be aware of while considering their financial planning needs. According to the government
defined marital status categories of single, married, widowed, and separated/divorced, we are
only referring to those defined as single. Thus, we will call them “legally single”. We will also
assume that since they have not been married, most single persons will not have children.
S
o how many singles are there in Singapore? According to the “Census of Population
2010 and consideration of the population growth since then, it is safe to say there are
now close to 200,000 individuals aged 40 and above who have never been married.1
It is clear mature singles in Singapore are no small number.
Not surprisingly, comprehensive financial planning for singles includes the same issues as
for married, widowed, and separated/divorced persons:
1
3
Sharing of
Personal Goals and
Identifying Those
Who Mean the Most
To You
Accumulation of
Assets to Last a
Long Lifetime
2
4
200,000
singles
aged 40
& above
Creating an
emergency Fund
Responsible Risk
Protection for
Self and Loved
Ones
5
Distribution of
Assets According
to Your Wishes
However, there are a number of unique issues that are especially pertinent to singles and are often not thought about until it’s too late.
www.fpas.org.sg
19
Sharing of Personal Goals
and Identifying Those Who
Mean the Most To You
How do you get the most suitable advice
from a financial adviser? I would say it is
by being honest and providing unedited
information about your goals and those who
really mean the very most to you. With this
information, an adviser can focus on what is
most important and highlight ways to ensure
your goals are addressed and that you take
the appropriate action to implement them.
Creating an Emergency Fund
In today’s working environment, there may
be a time when you may be in between jobs
or take a year off to fulfil your interests such
as travel or volunteer work. That requires you
to ensure that there is an emergency fund
saved up. Aim for enough money to cover
your expenses for at least six months or, in
this uncertain job market, even a year.
Accumulation of Assets to
Last a Long Lifetime
There will be a time when you are no longer
capable of working. While you may have no
children to help with a financial shortfall, if
you plan appropriately, you will be able to
rely on various income streams that you have
developed including:
•
CPF life
•
Supplementary Retirement Scheme
•
Retirement policy payouts
•
Rental income
•
Dividends
•
Capital appreciation from diversified
investments such as unit trusts, stocks,
bonds and other financial instruments.
The income from your investments will help
to replace the income that you previously
generated from employment.
No telling how many friends and family
you will outlive. Putting together a plan for
investing at an early age will help ensure
that you have a roof over your head in a
residential property as well as cash flow
from your other investments to last longer
than you expect to live. These will help you
to meet your financial commitments and
achieve your financial goals throughout your
life.
20
Responsible Risk Protection
for Self and Loved Ones
One good way to protect yourself is to obtain
appropriate insurance coverage to help in
case of unforeseen events.
A financial adviser can work with you to
identify the gaps between what you require
and your current coverage.
Typical areas to review are:
•
Critical illness coverage
If severe illness strikes and you are unable
to work for a period of time while expenses
continue, it’s important to have this resource
in case you lack financial or other support
from a partner or family members.
•
Disability coverage
The need is similar to critical illness coverage
but could be required for an even longer
period of time until you can return to work.
•
Long-term care
Access to ongoing insurance coverage to
ensure you can afford quality care indefinitely
in the case of infirmity will provide peace of
mind for singles. Relying on a family member
may not be an option.
•
Hospitalisation
Affordability and coverage of a medical plan
is a foundation of your financial planning.
Being exposed to the chance of high medical
bills can be largely eliminated with a suitable
plan.
•
Death coverage
You may underestimate the merit of using an
insurance policy that pays a death benefit.
While you may not have children to consider,
this is an opportunity to create more financial
resources for someone or an organisation you
care about. Death can come unexpectedly to
anyone at anytime and you should ensure
that your policies include a nomination.
Another important consideration is to
make preparations in case you become
incapacitated through accident or illness and
are unable to make decisions for yourself.
The Lasting Power of Attorney (LPA) is
a document that specifies who has the
authority to make decisions concerning
your:
1.
personal welfare (including health care);
2.
property and affairs (including financial
matters).
It is critical to put this in place while you have
the mental capacity to do so.
Distribution
of
Assets
According to Your Wishes
If you are “legally single”, pass away, and
do not have a Will, Singapore’s Intestate
Succession Act applies a generic distribution
plan for your assets.
Let’s say that you would like to include a
non-blood relative or an organisation as a
beneficiary of any part of your estate, a valid
Will is a solution.
The transfer of assets to those closest to
you won’t naturally happen under the
framework of the government’s generic plan.
Take note that most parents will die before
their children, so a transfer of assets back to
parents may not be an option.
Distribution will then go to your siblings…
and their children if a sibling has passed
away. If you do not have the prescribed next
of kin, the government is entitled to your
estate…in total.
Singles should consider ways to selflessly
impact others around them. This may be by
naming family members as beneficiaries yet
it could include individuals or organisations
that have touched your life. Without
children, you are likely more open to these
possibilities.
In addition to a Will, make your desired CPF
nomination, Life Insurance nominations, and
Dependants’ Protection Scheme nomination
to ensure your desired beneficiaries
experience expedited distribution compared
to waiting for a lengthier process under the
Intestate Succession Act to be completed.
November 2014 Financial Planning Association of Singapore
Jim Rohn
Learning from Others
A 92-year-old single woman’s estate planning
was highlighted in a recent article in The Straits
Times.2
Madam Khoo Guat Neo left a Will that provided
nearly $1 million to her maid of 13 years.
CONSUMERS
“If you don’t design
your own life plan,
chances are you’ll fall
into someone else’s plan.
And guess what they
have planned for you? Not much.”
Checklist
for Single
s
Am I saving an
d investing en
ough to take
term needs?
care of my lo
I may not be
ngab
le
to rely on anyo
dependents.
ne if I have no
If I have a part
ner, but am no
t married, ha
her through
ve I protected
a Will, and po
him or
ssibly a Trust?
If I no longer
have the nece
ssary mental
on to make so
capacity, who
und decision
can I rely
s
for me — and
a backup deci
who can I trus
sion maker? H
t to be
av
e
I given them
Lasting Power
authority thro
of Attorney?
ugh a
[N
ot
e: The $50 fee
being waived
for OPG Form
for 2 years by
1 is
Office of Publ
ic Guardian. 3
]
If I choose no
t to accept lif
e-sustaining
where death
treatment in
is imminent,
the case
ha
ve I completed
Directive to en
the Advance
sure this wish
Medical
is followed?
Have I compl
eted my CPF
and insuranc
my adviser re
e nominations
view this with
and does
me in case I ha
circumstance
ve changes in
s or those of
my
my beneficia
ries?
Do I have a W
ill and is it up
to date?
Additional bequests were given to the Cat
Welfare Society, a hairdresser, a doctor, her
nephew and Kwong Wai Shiu Hospital.
What a great way to celebrate the end of one’s
life by remaining in control with a “gesture of
thanks” to those who were special to her.
You can do something similar. Just make sure
you take action while you can. If a person
becomes mentally incapacitated this option is
gone…forever.
In conclusion, as a “legally single” individual,
ask yourself the following questions and reflect
on whether or not you are truly prepared. If
not, take action.
www.fpas.org.sg
1 Census of Population 2010 Statistical Release 1 Department of Statistics
Singapore: (http://www.singstat.gov.sg/publications/publications_and_
papers/cop2010/census10_stat_release1.html)
2 The Straits Times, published on 10 Nov 2013. Viewed on 28 July 2014.
http://www.straitstimes.com/breaking-news/singapore/story/formerschool-principal-bequeaths-1-million-her-maid-20131110
3 “Application forms for Lasting Power of Attorney simplified, registration
fees waived”, Channel NewsAsia, 12 July 2014 as viewed on 30 July 2014.
http://www.channelnewsasia.com/news/singapore/application-formsfor/1256176.html
21
MANAGING YOUR DEBTS
THE CASE OF ‘RUN AWAY’ DEBT
Mr Sammy Chiu Sung Kee, CFP®
Not long ago I received an overseas call from a bank officer.The officer inquired about the whereabouts
of an old friend of mine (living in Australia), whom I had not seen in many years since my relocation
to Singapore. I gave the caller my friend’s old contact number in my phone - to which I was promptly
told it has been disconnected. Apparently, I had been listed by my friend as a ‘next of kin’ with the
bank (he is not related to me) and the bank is looking for his whereabouts because he has failed to
make his credit loan repayments.
Wow! How did this happen? The last time I saw my friend he was holidaying with me in Malaysia and
everything seemed to be fine. He had a reasonable job with no dependents or commitments.
Thinking back, I recalled my friend telling me (while we were holidaying together) that he had a large
credit card debt that he couldn’t pay off. However, he managed to transfer it to a ‘better’ credit card
with another bank and the repayments are now manageable. And furthermore his credit card limit
has been extended!
I remember thinking to myself: shouldn’t you be avoiding a holiday if you have a substantial credit
card debt? I suspect that my friend has lost out to his spending impulses, having holidays and spending
money when (already highly indebted) he could ill afford to. The offer of ‘more credit’ to help him
manage his debts merely got him into even deeper trouble. And now I suspect he is attempting to
‘run away’ from his debts.
This is a classic case of how NOT to manage your debts.
BEWARE OF THE HOLIDAY OR IMPULSE
D
uring the holidays and the festive season some of us run out of
cash and revert to our credit cards to purchase dinners or last
minute gifts. Usually these are spontaneous purchases, which
tend to cost more than we originally bargained for.
Credit card debt is one of the most common forms of debt in the
world and is growing at a rapid rate in Asia. Most credit cards offer a
30-day interest free period, which is usually enough time to clear any
debts incurred.
But what if you use your card to pay for your overseas holiday,
presents, celebration and perhaps a new wardrobe? Can you afford
to clear your debt within the specified 30 days or will you have to pay
it off over time - which means you will incur interest?
In Singapore where credit card interest can amount to 25%, this is
an exorbitant cost. Now is a good time to start taking control of your
debts.
22
WHAT SHOULD I DO IF I AM HAVING TROUBLE
MANAGING MY DEBT?
If you find that you’re having difficulty controlling debts such as a
credit card or a personal loan, you should contact the credit provider.
If they’re made aware of your circumstances, they may be prepared to
restructure your payments over a longer period of time. Remember
that it’s in the interest of the lender to recover their money, even if it
does take a little longer than expected.
As in the case of my friend, restructuring with new credit itself
is pointless - unless you change the behaviour that got you into
unmanageable debt in the first place. Therefore it is critical to
recognise one’s own weaknesses and seek help. It is a good idea to
get assistance from a qualified financial adviser. With the right advice
and a workable budget in place, it may only be a matter of time
before you’re in control of your finances once again.
November 2014 Financial Planning Association of Singapore
CONSUMERS
CAN DEBT CONSOLIDATION HELP?
Put simply, debt consolidation is the process of replacing several
separate debts with one new debt (or loan). For example, you have an
existing home loan, a car loan and a credit card debt. The credit card
debt, with higher interest rate, could be rolled into your home loan
which should have a lower interest cost since it is secured against
your home. Alternatively, a new loan could be arranged which
effectively pays out the higher interest debts and then continues to
operate as a normal loan. Many banks offer such services, commonly
referred to as “balance transfers” or “credit loans” where you can be
incentivised to transfer and consolidate your credit card debts.
We see many companies starting to appeal to consumers with poor
credit history . They promise you easy money or for a fee, to clean
up your credit report so you can get a car loan, a home mortgage,
insurance, or even a job.
The sad truth is that easy money is always high risk. In many of these
cases loan sharks may be involved who would charge even higher
interests and give unfavourable terms.
SCAMS AND WARNING SIGNS
Potential Disadvantages
The consumer must beware of the dangers of dealing with offers
‘too good to be true’ and look for these tell-tale signs of a scam. Look
out for:
•
Companies that want you to pay for credit repair services
before they provide any services
•
Companies that do not tell you your legal rights and what you
can do for yourself for free
•
Companies that recommend that you do not contact a credit
reporting agency directly
•
Companies that suggest that you try to invent a “new” credit
identity
•
Companies that advise you to take any action that seems
illegal, like creating a new credit identity. If you follow illegal
advice and commit fraud, you may be subject to prosecution.
1.
SEEK PROFESSIONAL ADVICE
Potential Advantages
1.
2.
3.
4.
2.
3.
4.
The annual interest paid on the new loan is usually less than the
total annual interest on the other debts combined.
Annual repayments on the new loan may be less than the total
repayments on your current debts.
Ongoing transaction and administration costs are less with one
loan compared with several separate debts.
Manageability — one monthly statement and one monthly
repayment.
A loan which may potentially be paid over a shorter period will
now be extended.
A longer loan term means total repayments can be higher.
Fees and charges associated with taking out a new loan or
paying out other loans early.
The consolidating loan interest, although lower than credit
card debt interest, can still be too high — unless you have an
achievable plan to fully repay the debt.
BEWARE OF OFFERS TOO GOOD TO BE TRUE
Many people in debt find that the shame of owning up to any
uncontrolled debts shameful and embarrassing. This means that
many people who are heavily in debt will find that desperate times
calls for desperate measure and they seek out quick fixes.
www.fpas.org.sg
Traditionally, many of us will seek financial advice in relation to
growing or managing our assets, but not regularly seek professional
advice about the management of our debts. Successful creation of
wealth in the long term is reliant on proper management of both
assets and liabilities; and more importantly having proper cash
management or budgeting plans in place to achieve your financial
goals.
So when you do get into trouble with too much debt - often the best
person to consult is your financial adviser. With proper consultation,
the adviser should not only provide you with a strategy to manage
run-away debt, but hopefully also give personal insight into how to
safe guard your behaviour and avoid getting into such debts in the
first place.
23
3G ANNUITIES:
Tool for
Intergenerational
Asset Creation &
Retirement
Mr Sammy Chiu Sung Kee, CFP®
There is currently a group of hybrid ‘annuity’ and ‘insurance’ products with a legacy objective that
allows the annuitant to allocate wealth beyond the next generation - directly to their grandchildren.
These are often referred to “multi-generation”,“tri-generation” or “3G” annuities/insurance products
due to their unique ability to create a separate asset or immediate estate that can directly allocate
inter-generational benefits.
These products are designed for wealth protection and wealth distribution goals and are generally
targeted at the mass affluent segment.
H
ave you heard of the Chinese saying “Fu Bu Guo San Dai”
or “Wealth does not pass beyond the Third
Generation?
The name for this class of annuity product is based on a common
Chinese ‘observation’ on the cycle of wealth creation and destruction
through succeeding family generations. The saying goes that: ‘the first
generation works hard to create the wealth, the second generation
may add to the wealth but the third generation eventually loses it all.
Money can be easily depreciated and wealth destroyed if one
mismanages the inheritance that they are given - either through bad
investments, or wasted on frivolous expenditure, or worst gambled
away unnecessarily!’
The main financial planning theme of multi-generational products is
to not only to consider your income during retirement but also the
financial legacy you are leaving for your children. More importantly,
you should consider the example that you are setting for them.
How you do this may influence how they will subsequently pass on
their wealth to their children (your grandchildren) and so on.
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WHAT ARE ‘3G’ OR ‘TRI-GENERATION’ ANNUITIES?
These products are basically a hybrid of annuity, insurance and
investment products that provide benefits or a legacy beyond
retirement income to future generations.
These hybrid-annuities enable a retiree to create a ‘special asset’
that provides an income stream, life protection and investment
value during the initial contribution and retirement period (first
generation).
Then when they pass away it provides a second income stream,
together with extended protection and investment value during
their child’s life (second generation); and when their child dies, it also
provides a final lump-sum inter-generational transfer or ‘pay out’ to
their grandchildren (third generation).
Protection typically includes life insurance with a death benefit;
permanent disability, terminal and critical illness protection is also
available in some products.
The annuity income stream usually incorporates both a fixed and
variable component that is dependent on investment performance.
November 2014 Financial Planning Association of Singapore
CONSUMERS
These ‘hybrid’ products typically offer the following features:
01
02
03
04
05
A ‘deferred’ contribution period. Unlike ‘immediate’ annuities where you pay one lump sum followed by
the immediate receipt of an annuity income stream, it requires you to contribute a regular amount over a set
period (or deferred period). E.g. — pay $15,000 each year for the first 10 years, before the annuity income starts.
Alternately a Single premium needs to be invested for a minimum period before the annuity income pay out
stream begins.
An ‘extended’ Annuity pay-out period. A ‘lifetime’ or ‘straight life’ annuity would typically stop paying once
the annuitant dies. A 3G product extends the annuity payment period beyond the annuitant to include the life
duration of the annuitant’s child (i.e. — payments continue until the annuitant’s child dies).
An ‘extended’ protection period. Similarly while the annuity period is extended, the life insurance protection
period is also extended to cover the life of the annuitant’s child.
Both ‘fixed’ and ‘variable’ income components. The annuity income stream includes a guaranteed (fixed) and
non-guaranteed (variable) component. Like a bonus, the non-guaranteed pay-out is usually dependent on the
product’s investment performance during that period.
An annuity ‘refund’ component. A 3G annuity also refunds a fixed lump sum or ‘final’ death benefit upon the
end of the income/ protection period (ie — upon death of the annuitant’s child).
www.fpas.org.sg
25
BENEFITS
The product conveniently combines life
insurance, passive retirement income, an
extended income stream (for your child’s
life), with a lump sum capital legacy also
to the grandchild—all combined into one
simple product.
The hybrid product is relatively low risk with
a fixed amount of return guaranteed. There is
still some exposure to uncertain investment
returns via its variable bonus component—
however, the overall risk exposure is low and
this ‘bonus’ component provides a degree of
long-term inflationary protection.
Most importantly these 3G annuities allow
you to directly set up a wealth transfer
structure to allocate income stream and
wealth to later generations of family
members using an insurance platform,
which has the ability to by-pass any existing
will (or estate) structure.
This has the benefit of avoiding any potential
issues with estates, which may include
complex and sentimental assets such as
businesses, properties, and heirlooms. When
emotions and personalities are involved,
it can be very difficult to determine a ‘fair’
division of the estate that all family members
are happy with—this can often lead to family
disputes. Therefore, 3G annuities can provide
a direct transfer that avoids the scrutiny and
difficulties of an ‘estate’ transfer—hence
it can be used to supplement any legacy
objectives.
The use of 3G annuities for legacy purposes
also helps reduce ‘liquidity risk’. When faced
with a sudden death, a family may find the
need to urgently sell assets. Under such
circumstances, there is a risk of selling the
assets below their market price. A cash
annuity (or lump sum) pay out to the
beneficiary avoids the need to liquidate any
assets.
26
There is also an important educational
aspect of multi-generational annuities. The
direct involvement of three generations of
family members (as beneficiaries) within
the product provides a strong planning and
legacy example for children and encourages
future generations to do likewise.
However, depending on the retiree’s
estate planning objectives, there may be
some disadvantages around these hybrid
annuities. For one, the capital legacy
may not be sufficient enough for one’s
estate objectives —as the original capital
contributed may not be fully preserved—
especially when you factor in inflation.
EXAMPLE
Special Asset creation
To create a $200,000 ‘Special’ asset, you
only need to pay a yearly premium of
$15,000 for 10 years
By end of the 2nd year, you may be
already eligible a bonus return of 1%
on your $200,000 special asset (i.e.
$2,000).
Although these hybrid annuities provide
a greater degree of cash flow certainty, the
real return provided may be lower compare
to other investment options.
After the end of the contribution
period after the 10th year, a guaranteed
annuity of 2.25% will be paid to you
every year — you will also be eligible
for on-going bonuses from additional
returns on your ‘special asset’. For
example $4,500 (2.25%) + potential
$2,000 (1%) = $6,500 pa.
An alternative would be to place the bulk
of the total legacy amount in a ‘perpetual’
growth or income generating investment
portfolio while also buying (in parallel)
separate life insurance coverage.
These annuity payments (both
guaranteed amount and bonus) will
continue for as long as you are alive
and will also continue as long as your
nominated beneficiary (child) is alive.
There should be greater flexibility within
such a custom-made portfolio to better
balance growth, insurance and income
objectives to meet one’s specific retirement
needs. With an appropriate legacy structure,
such an investment set up can also be
maintained and continued on to succeeding
generations.
When your child dies a guaranteed
lump sum of $200,000 will paid to your
grandchildren.
It is advisable that you consult a financial
adviser to develop a comprehensive
retirement and estate plan before you
commit to any annuity product. An expert on
this area, your financial adviser can help you
explore the full range of investment, annuity,
insurance and legacy options available to
ensure your wealth extends beyond three
family generations.
Also throughout the policy, there
is a guaranteed death benefit of
$200,000 which will increase after
year 10 depending on investment
performance.
A ‘cash value’ on the policy starts
accumulating after year 3 and will
continue to grow each year, with
investment bonuses adding to it after
year 20.
This is for illustration purposes only.
November 2014 Financial Planning Association of Singapore
CONSUMERS
Medishield Life —
THE IMPLICATIONS
Ms Kee Siew Poh, CFP®
M
ediShield life will be implemented in 2015 to provide lifetime coverage for all Singapore
residents. The intent is to provide better coverage for large subsidised bills and provide
assurance that all Singaporeans will be covered for life, regardless of how their life and
health circumstances change over time.
Integrated Shield Plans (IPs) are provided by private insurers and they comprise coverage of the
basic Medishield (or MediShield Plus when it is implemented) plus enhanced coverage from the
private insurers.
What are the differences between MediShield Life and IPs?
Here’s a table of comparison highlighting some of the coverage.
Benefit Parameter
MediShield Life
IPs
Daily Limits
$700 / $1,200
(Normal / ICU Ward)
As-Charged
Surgical Limits
$200 - $2,000
As-Charged
Community Hospital Limits
$350 per day
As-Charged
Outpatient Cancer Treatment Chemo : $3,000 per month
Claim Limits
Radio : $140 - $500 per session
As-Charged
Deductible (B2/C)
No Change
80 & below : $2,000 / $1,500
Above 80 : $3,000 / $2,250
Co-Insurance
Inpatient : 3 – 10%
Outpatient : 10%
10% Max $25,500 per policy year
Annual Limit
$100,000
$400,000
Lifetime Limit
Removed
Unlimited
Source: http://www.moh.gov.sg/content/moh_web/medishield-life/benefits.html
www.fpas.org.sg
27
5 Factors FOR Consideration
With the introduction of MediShield Life, many are wondering if they should still keep their IP
or buy one if they do not have one, to complement the MediShield Life. Here are five factors for
consideration:
1 Healthcare Choice
In the event of hospitalisation, what type of hospital or ward
would you opt for?
If the intention is to stay in Class B2/C Ward in a Restructured
Hospital, MediShield Life may be sufficient as it provides a decent
coverage.
But if the intention is to stay in Class B1 /A Ward or even Private
Hospital, MediShield Life may not be adequate. This is because
there is no subsidies for treatment in Class B1/A Ward of
Restructured Hospital or Private Hospital and the payout from
MediShield Life will be pegged to the estimated expenses in B2/C
Ward.
In order to have adequate coverage for stay in Class B1 /A Ward or
even Private Hospital, an IP plan should be considered.
Some people may have the misconception that insurance does
not pay when it is needed most. The issue is not so much that
insurance does not pay, rather it is because there is a mismatch
between one’s expectation of healthcare choice and the medical
plan. Thus a good match between the two is important to have
the large part of the bill being covered.
2 Any intention to co-pay
MediShield Life is not an “As-Charged” Plan. This means that
there is a sub-limit or a cap on the payout for each item. For
example, the Surgical Benefit is capped at a maximum of
$2,000.
IPs on the other hand provide the option of “As-Charged”
coverage. Instead of being capped at a maximum of $2,000
for Surgical Benefit, one can claim up to the plan annual
limit.
Under MediShield Life, the Deductible ranges from $1,000
to $3,000 and the Co-insurance ranges from 3% to 10%. This
represents the amount one would have to pay and cannot
be claimed.
Under IPs, there is the option to purchase Riders to have
both the Deductible & Co-Insurance fully covered. For a
higher upfront premium each year, this gives the peace of
mind and certainty that there will not be a sub-limit or a cap
on the payout.
28
November 2014 Financial Planning Association of Singapore
CONSUMERS
3 Waiting Time & Preference for a Specific
Doctor
4 Medical Inflation & Development of
Medicine
There has been feedback from some people that the waiting time
at the Emergency Department prior to admission in Restructured
Hospital is too long given the challenge of limited number of
beds relative to the growing population. Restructured Hospitals
have also become increasing creative in dealing with such issues.
Medical inflation tends to outstrip the general inflation. New
treatments, new regimes & new models of care can also drastically
change healthcare cost, particularly in Private Hospitals.
Personally, I know of a few clients who have found the waiting
time in Restructured Hospital to be unbearable (when they are
in pain) and thus requested for admission to the Private Hospital
for immediate treatment. In some cases, they go straight to the
Private Hospital because they have been recommended to a
particular doctor who happens to practise in a Private Hospital.
These people may have originally intended to stay in Restructured
Hospital but because of such scenarios, they ended up seeking
treatment in Private Hospital. The cost of treatment may increase
substantially and in the absence of a suitable medical plan (in the
form of IP), it can cause great financial stress.
5 Affordability – Current & Future
It is important to look into the affordability of the IP not just
based on current premium but also the future premiums. This
is because premiums are priced by age groups and will increase
with age. Premiums may also be revised from time to time in line
with claims experience of the insurer, medical inflation and benefit
enhancements.
www.fpas.org.sg
First-line treatment is often what is recommended as it is often
part of a standard set of treatments and the treatment plan which
is most likely to have the greatest benefits and the fewest risks or
side effects.
However, every person responds differently to treatment.
Sometimes, if the first line treatment does not work, stops
working or causes serious side effects, a second-line treatment
may be recommended.
Sometimes, this may cost substantially more than the firstline treatment. Having an IP provides some peace of mind to
uncertainty in terms of the cost of such new treatments or
regimes.
In conclusion
It is important to consider the above factors and to choose wisely.
A more comprehensive coverage comes with a higher cost, not
just for the current but also for the future. Thus for those who are
comfortable with seeking treatment in B2/C Ward of Restructured
Hospital, there may not be a need to upgrade or to consider IP.
On the other hand, for those who would like to have the option of
treatment in Private Hospital, MediShield Life alone may not suffice.
29
CONSUMERS
FPAS LAUNCHES
FINANCIAL PLANNING 101 booklet
Mr Ben Fok, CFP®
Ms Kimmis Pun, CFP®
FPAS has launched a booklet that is specially written for members of the public who wish to know more about financial planning.
As such this booklet tries to minimise the use of financial jargons and attempts to educate the public on the importance of
financial planning. It contains essential topics facing us Singaporeans in our everyday life such as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Who Needs a Financial Plan?
Helping you in Setting Financial Goals and Priorities
Steps in Making Budgets
Ideal Budget Worksheet
Basics of Investing
Buying a Car
Dealing with Personal Debt
Buying a Home
Saving For Children’s Education
Choosing the right Life Insurance
Planning your Retirement
Planning for your Estate
What a consumer must know?
Why you should choose a CERTIFIED FINANCIAL PLANNER practitioner?
This booklet was written by our Editorial Board Chairman Mr Ben Fok and every member will be entitled to a free booklet. FPAS
also encourage its members to order in bulk (charged at cost) to give the booklet to its audience in the view of promoting sound
financial planning.
The Financial Planning 101 Booklet was distributed during the Singapore Prison Service talk addressed by FPAS President as part
of the Consumer Outreach event in June 2014. FPAS have come up with the bilingual version to cater to more target audiences.
This booklet will serve as a good tool to educate consumers on the basic know-how of Financial Planning.
Please feel free to pick up a copy of the bilingual Financial Planning 101 Booklet in FPAS Office.
Interested members who wish to order in bulk (at cost) can do so by filling out the form below.
ORDER FORM (SELF-COLLECT ONLY)
Name:
Handphone No:
Email Address:
Company Name:
Designation:
Quantity to order:
Cost per booklet is at:
$1.20 per copy
Self-Collection/Courier*
Ordering and general ordering questions please contact us via email ([email protected]) with a subject header of “Ordering of
Financial Planning 101 Booklet”.
* Please note, for courier delivery of your order, a minimum order of 100 booklets are required and courier charges will be borne
by you.
IMPORTANT
We will acknowledge your order form via email address provided. If you do not receive an email acknowledgement within 7 to10
business days, please email us. Kindly take note that the order form is for self-collection only.
By submitting the order form, you consent to your personal information being collected, used, and/or disclosed by FPAS for
administrative purposes of processing your order.
30
November 2014 Financial Planning Association of Singapore
FPAS has been actively reaching out to the Consumers to educate them on the
importance of Financial Planning and the CFP® Certification Mark.
Consumer Outreach Events
Event
Date
Organiser
Audience
5 & 6 April 2014
Money Week
Channel U audiences
17 to 24 May 2014
SIAS
SIAS members
Interview with Channel NewsAsia Money
Mind – Financial Roadmap by Kimmis Pun
21 May 2014
Channel NewsAsia
Channel NewsAsia
audiences
Interview with Channel NewsAsia Money
Mind – Overcoming the Poor Man’s Mindset
by Jeff Lee
7 June 2014
Channel NewsAsia
Channel NewsAsia
audiences
Interview with Channel NewsAsia Money
Mind – Building Your Wealth by Timothy Liew
& Steven Ong
14 June 2014
Channel NewsAsia
Channel NewsAsia
audiences
Interview with Channel NewsAsia Money
Mind – Understanding the Numbers by Sim
Boon Hwa
21 June 2014
Channel NewsAsia
Channel NewsAsia
audiences
CPF Healthcare Talk
26 June 2014
CPF Board
CPF members
Interview with Channel NewsAsia Money
Mind – How the Rich Invest by William Cai
28 June 2014
Channel NewsAsia
Channel NewsAsia
audiences
Smart Investing in Volatile Markets by Kimmis
Pun
30 June 2014
Singapore Prison Service
Singapore Prison Service
staff
20 August 2014
Capital 95.8FM
Captial 95.8FM
audiences
UniSIM – SGX Investor Education Day –
Current Investment Landscape by Donald
Chong (invited panellist)
13 September
2014
UniSIM – SGX
Members of the public
Interview with Channel NewsAsia Money
Mind – Funding Your Children’s Education by
Kee Siew Poh
20 September
2014
Channel NewsAsia
Channel NewsAsia
audiences
Kimmis Interview with Money Week
SIAS Investment Week
Phone Interview with 958
Tang
by Charles
NEW INITIATIVES
MEMBERSHIP EVENTS
Upcoming Events
Enabling our practitioners in the continual enhancement of your skills and knowledge remains our utmost priority.
That is why we have lined up a series of CPD workshops for you.
Event
WealthMatters Singapore 2014
Tea Time Talk
– Your Values to Business Owners
The Associate Estate Planning Practitioner
(AEPP®) Workshop
www.fpas.org.sg
Date
Organiser
Audience
4 November 2014
WealthBriefingAsia
WealthBriefingAsia
Network
12 November
2014
FPAS
FPAS members
3 & 4 December
2014
Rockwills Institute Pte
Ltd
Exclusively for FPAS
members
31
CFP®
CERTIFIED FINANCIAL PLANNERTM or CFP® certification is the only globally recognized
mark of professionalism for financial planners who place their clients’ interests first.
Whether you’re seeking opportunities for networking, career development, practice
expansion or professional mobility, the Financial Planning Association of Singapore can
connect you to the most competent and ethical financial planners in the business.
With connections to 25 organizations offering certification and nearly 153,376 CFP
professionals worldwide, Financial Planning Association of Singapore, a member of
Financial Planning Standards Board, offers you a world of opportunity for advancement
in your financial planning career.
For more information, visit our website at www.fpas.org.sg, or call us at (65) 6372 1030.
CFP
Global excellence in
TM
CFP®, CERTIFIED FINANCIAL PLANNERTM
Financial Planning Standards Board Ltd. Financial Planning Association of Singapore is the marks
licensing authority for the CFP marks in Singapore, through agreement with FPSB.
www.fpas.org.sg