Financial Planning Central

Landbanking firm Raided by CAD

Tiang Chuan — Thu, 26 Aug 2010 06:13:53 +0000

A prominent landbanking firm with the well-known tagline of ‘Buy UK Land!’ was raided by CAD last week, according to a report in the 26th August 2010 issue of The Business Times. The story was reported in the Today paper on 20th August.

According to The Business Times report, documents were carted away and the directors were brought in for questioning.

12 unhappy investors also showed up at the company’s office on 24th May. There was shouting and shoving and the police were called in. More than 40 investors showed up at Speakers Corner on 12th June to protest against the company. There was also a report of an investor suing the company after she failed to get back her investment of US22,500.

The managing director of the company was quoted as say that the complaints and CAD probe are a result of “people (being) frightened of what they don’t understand“. The company also claimed that they never lost any money for their clients. The operations director mentioned that the bulk of their customers “keep coming back – 70 to 75% of their business is repeat business.

From the forums and media reports, it does seem that many investors have problem getting their money back. A personal friend had to resort to making repeated phone calls to the management and threatening with complaints to the media that he finally managed to get his money back.

When CAD first investigated Sunshine Empire, the company was also full of confidence and claimed that they welcomed the CAD probe.

It remains to be seen how this probe will turn out.

Insurer Facing Manpower Drain Retaliates

Tiang Chuan — Wed, 18 Aug 2010 05:22:42 +0000

Facing the problem of dwindling agent force, a major insurer has rolled out its own version of red carpet in a bid to stop the agent exodus and even recruit agents from other companies. This follows a previous article that highlighted this issue of agents jumping ship. According to The Straits Times, benefits include:

– sign-on bonus of up to 135% of previous years income
- Up to 125% of previous year’s income paid over 3 years
- ‘Golden handcuffs’ of millions of dollars
- $2000 referral fee for introducing new agents
- $10,000 to agency manager if new agent stays and performs

Such high incentives come with stings attached – in the form of sales targets.

The issue of private bankers playing ‘musical chairs’ has been reported extensively in the media. Now, insurance advisers are also joining in. I have written about the issue of sales targets and other constrains money managers face in the article What Your Money Don’t Want You To Know.

With poaching spree taking place so extensively, consumers would probably be the one to loose out.

Looking For Dividend Yield? Try Asset Allocation Instead

Tiang Chuan — Mon, 16 Aug 2010 10:48:23 +0000

Asset allocation can offer investors cash flows similar to dividends stocks with lower risk. Read the article – Looking for Dividend Yield? Try Asset Allocation Instead to find out more.

No related posts.

Sunshine Empire’s James Phang gets 9 year jail sentence

Tiang Chuan — Sat, 31 Jul 2010 07:06:04 +0000

The law has caught up with Sunshine Empire’s mastermind James Phang. Phang who was sentenced to 9 years’ jail term and $60,000 fine. Phang’s wife, Neo Kuon Huay was fined $60,000. Former director Jackie Hoo Choon Cheat was sentenced to 7 years’ jail. The trio will be appealing against their convictions. These were reported in the 31th July 2010 edition of The Straits Times.

The Sunshine Empire collected $180m from selling 26,000 packages. James Phang collected more than $7m in “consultancy fees’ while Jackie Hoo got about $950,000. James Phang’s wife was paid $950,000. However, there is bad news for the thousands of investors – they are likely to get little nothing back and only $21m have been recovered.

In a Straits Times report on 24th October 2007, James Phang was quoted as saying “I’m a legend – better than Warren Buffett“. In another report on 15th Nov 2007, Sunshine Empire’s spokesman Mr Kegan Lee said that “company executives would be most happy to meet CAD officers to explain its business activities” after CAD started investigations.

Sunshine Empire will certainty not be the last of the scams to go bust. It is just one out of the many scams out there. Some of them are mocking the legal system here saying that there are operating a legal business since the authorities in Singapore, a country with strict laws, are allowing them to operate here. The CAD certainty have its work cut out if there are serious in stamping out such fraudulent schemes in Singapore.

Landbanking Firm’s High Return?

Tiang Chuan — Sun, 25 Jul 2010 14:56:19 +0000

A landbanking firm placed a half page advertisement on the 25th July 2010 edition of The Sunday Times. In the advert, a 28.24% average rate of return was reported. The figure was even reported to be audited by a large audit firm.

Average rate of return is not the standard way investment return is reported. Normally, investment return is reported using Compounded Annual Return (Compounded Annual Growth Rate, CAGR) or a.k.a Geometrical Return. The average rate of return is the Simple Average of the returns.

I check out the report on their website and the Compounded Annual Return is 14.82%, only half of the reported 28.24% average rate of return.

A Geometrical Return will never be higher than the Simple Average. A simple example - An investment gave a 100% return in year 1 and drop 50% in year 2. What is the Simple Average Return and Geometrical Return? Ans:

Simple Average Return – 25% p.a.

Geometrical Return – 0% p.a.

I find it misleading to report the Simple Average return while the Geometrical Return is available. Even the report state that the “compound rate of return is more commonly used in Canada“. But hey, landbanking is not regulated anyway. So we should not be surprised at the non-standard way of reporting investment return.

High Lapse Rate After ‘Free’ 1st Year Cover

Tiang Chuan — Sat, 24 Jul 2010 07:45:40 +0000

1 year ago, an FA firm (not an IFA) ran a promotion that offers a ‘free’ first year term coverage by rebating the whole first year premium. Now that promotion has backfired and the insurer wants to claw back more than $7m in commissions and volume discounts due to the high lapse rate. This was reported in the 24th July 2010 edition of The Straits Times – Insurer fumes over policy’s high lapse rate.

Many industry players view this ‘free’ 1st year coverage as a marketing gimmick. Many other industries run similar campaigns. For example, electronic stores may offer a free DVD player for purchase of a LCD TV. The intention of promotion is to get the attention and interest of consumers and to sell them other products. An important to answer is – Have the products that have been proposed meet the needs of the client?

The high lapse rate signal that the policy owner do not view that coverage as a need. The strong economic numbers would make financial hardship an unlikely reason for the phenomenon. Many promoters of similar ‘free’ campaigns would tell you “If you don’t like it, you can just cancel it’. Only those that have been approached know if similar tactics have been used.

I had the thought that most of the policy owners would have conveniently continued with the policy after the 1st year as it would be ‘troublesome’ to cancel. After all, it is a common tactic that telcos and tele-marketers use to get consumer to sign up plans. To my surprise, this has not been the case. However, no lapse numbers was published. We do not know it is 20% or 80%.

There is no free lunch in this world. If you are offered something for ‘free’, most probably, you will be paying through other means.

Sunshine Empire Trio Convicted

Tiang Chuan — Sat, 17 Jul 2010 15:46:19 +0000

The Straits Times reported that the founder of Sunshine Empire was “found guilty by a district court for running a fraudulent scheme and for faking account“. James Pang Wah, Jackie Hoo Choon Cheat and Neo Kuon Huay will be sentenced on July 30. Those who have invested with Sunshine may want to check out the CAD website to get more information about possible refunds. According to the CAD new release, “Persons who have placed money with Sunshine Empire Pte Ltd are advised to wait for further updates by the CAD on the case.“

As the court proceeding for this Ponzi scheme reaches a conclusion, there are many others out there that should also be apprehended. The most notorious scam now revolves around gold. The investor is promised a high return for buying gold bars, which is sold at 20% higher premium than the market rate (sometimes also known as listed price). The return can start around 2% for a month to higher amounts for longer tenure. The company also promises to buy back the gold bar at the original purchased price (listed price). Different variations of the scam exists. A friend asked for my opinion on such a scheme about a month ago. He told me that many people in his company have invested. I can only hope that they can get back their money.

There have been more developments across the causeway where firms have been raid by their authorities. Here are the links

Bank Negara also maintains a site listing the ongoing probes. Some are familiar names in Singapore as well.

Do people ever learn?

Empty Vessels Makes The Most Noise

Tiang Chuan — Sun, 11 Jul 2010 08:01:59 +0000

The 11th July 2010 edition of The Sunday Times reported an interesting case of a couple who misled a Dutch writer. The article, The ‘millionaire’ Couple Who Couldn’t Pay Up, listed the extravagant lifestyle Ms A.J Hameedah and her husband Mr S. Thomas enjoyed and exaggerate claims made. Details of the charges and their stay at the Burji Al Arab, the only 7 star hotel in the world in Dubai, were shown. Claims like the governments acceptance of Mr S. Thomas’s ‘ideas on how to revive the economy’ in 2001 and him having mentors like Mr Rajaratnam and Mr Lee Kuan Yew were made. In actual fact, they were living in a Pasir Ris HDB flat and they have been harassed by loan sharks who splashed paint on their door. There were many credit related lawsuits against them and their company starting from 1999 till last year.

Reading this article reminds me of the numerous scammers and dishonest practitioners out there. All of them have a common trial – they were loud and made exaggerated claims. I had the opportunity to talk to a practitioner who had worked with a well know ‘couch’. His verdict of this man – Some people can only talk… I have seen him giving a preview talk for one of his seminars. He gave a totally inappropriate promise of giving a 5% return that the then popular preference shares can give. I’m from the industry and know what he was referring to; he was talking about a particular Investment-Linked-Plan. This man is into forex trading courses now.

The successful millionaires I have met were nothing like those I have wrote about in this post. They were humble and down-to-earth, wearing 3 for $10 T-shirts and signing documents with Pilot pens when less successful people serving them would be wearing designer labels and writing with Mont Blancs.

The next time you meet someone with making exaggerated claims, remember – empty vessels makes the most noise.

Windfall For Jumping Ship

Tiang Chuan — Sat, 10 Jul 2010 04:27:31 +0000

The good times are back! And it has spread to the life industry; in the form of firms dangling top dollars to lure top performers. The Straits Times article – Windfall for jumping ship, published on 10th July 2010 highlighted this phenomenon.

According to the article, “total compensation package could range from a few hundred thousand dollars to $1 million on top of usual commissions”. And “to sweeten the deal, the insurer will pay a portion of about 30% of the compensation package as an upfront cash incentive when the agent joins the firm”. These are to compensate the agents for losing the renewal commissions on the old policies when they jump ship. Of course there are no free lunches in this world. The package is tied to a sales quota.

The article also pointed out the risk of policy churning. Policy churning is the surrendering of an old policy and using the proceeds to buy a new policy to generate commissions for the agent. The policy holder would suffer financial or underwriting consequences. Under pressure to meet sales quotas, the agent may be tempted to take and easy way out and resort to churning. Superior products or ease of servicing are common excuses to churn. To the non-discerning, these may sound like legitimate reasons to switch policies.

Money is not the only draw. Administrative changes at a large insurer have became a push factor. The prospect of being taken over by a bitter rival was too much to bear.

Going for better remuneration is not wrong. Afterall, employees in many trades change employers in search of better compensation. It should not be expected of anyone to work for free. Everyone has a family to support. However, the financial advisory business is quite unlike other occupations in that there are plenty of personal relationships involved. Personal information like financial status, health status, family relationships and dreams are divulged. Salary is derived from the client, be it in the form of commissions or fees. Thus, it is not difficult to understand that clients have stronger feeling when the adviser change their firm. The decision to change firm for better compensation must be balanced with the interest of the client. This is easier said than done.

Beware Of The Agent Knocking At Your Door

Tiang Chuan — Wed, 07 Jul 2010 15:51:47 +0000

A major life insurance company in Singapore has embarked on on aggressive drive to increase their private integrated shield plan market share. They are now knocking door to door asking if you have upgraded your shield plan. While the one that knocked on my door was courteous and not pushy. I cannot say the same to the one my colleague’s client met.

The agent claimed he was from CPF Board. After getting to know that my colleague’s client was on the NTUC integrated shield plan, the agent claim that the old plan will not be affected and got my colleague’s client to sign the forms. My colleague only got to know that his client has switched integrated shield plans when he received a termination notice from the insurer.

By unknowing changing his shield plan, the client faces the risk of getting excluded on any pre-existing illness that may be covered under the old plan. From what the agent was doing, I would doubt the health declarations were done properly and in violation of the Principle of Utmost Good Faith.

Be careful of what the person knocking at your door say. Check with your adviser when in doubt.