High charges give poor return

A participant at the CASE forum gave this statement. He said that he had invested in unit trusts for the past many years. Two years ago, on his retirement, he calculated the return on these unit trusts and found that it gave an average of about 3% annually. This is a poor return, considering the long period of investment. He has decided that to avoid all types of investments.

If he had invested for such a long period, his return should have been more than 6% annually. It is likely that his fund was badly managed, e.g. in speculative investments, or had high charges that are taken away from his return.

There is a segment of the fund management industry that behaved unethically. The fund manager takes away big fees, but were not able to achieve a good return to the investors.  The fees take away a large part of the return and gave a poor net return to the investor.

Many life insurance products also offer a poor return, of 3% annually or less. Considering that inflation must have been around this level, the poor return is just able to match inflation. For investors who took our their money earlier, the high front end fees led to a big loss of their savings.

Be careful of bad financial products. Many financial products fall in this category!

Proposal to solve the global economic crisis

We are facing a global economic and financial crisis. People are scared to spend. They want to save money, in case they lose their job and need the money to spend at that time. 

The reduction in consumption is causing the economy to slow down badly. Businesses are hurt. They are not able to get encough sales to pay their expenses. They have to close down and retrench their employees. This will lead to a downward spiral.

The collapse of the value of property and other assets cause people to feel poor. They also cut down their spendings. 

Actually, the people still own the same houses and assets. They now believe that these assets are worth little, when one year ago, they thought that the assets are worth two or three times more. 

All this is just a matter of the mind. It is also called confidence. If we can get people to believe that they are rich, that their assets are worth more than they can fetch today, we can revive the global economy. 

Read this proposal.

Tackling the credit crunch

Many small businesses find it difficult to get credit from the banks. Here is my proposed solution.

Local transport within a town

Is there a need to create a local transport service (using light bus or private cars) to serve a town? Give your views in this survey.

Here are the survey results.

Handling injury claims

Dear Mr. Tan

Mark Lim, Executive Director of GIA has posted a comment to my views about motor insurance claims. I thank Mr. Lim's for his comments.

I think that Mr. Lim as not understood the part of my comments regarding personal injury claims. The increase in personal injury claims is not because of fraud by lawyers, doctors, workshops and members of the public working together. I never said or implied this.

I do not know why Mr. Lim is suggesting that I should make a police report. I put the increase down to injured parties being better informed of their legal rights. Even if the injury was a minor one, the injured party has the right to seek legal recourse. So, in the example given by me, there was nothing wrong in the conduct of the workshop owner referring the injured motorist and his wife to a lawyer to claim for damages. There is no criminal misconduct.

In the past some insurers have screamed fraud at some of the soft tissue injury claims, but a further anlysis and examination by their own appointed specialists revealed nothing untoward and the injured parties were awarded damages by the courts.

In this respect, I agree with Senior Counsel Michael Hwang (in his letter in the ST Forum) that if there was nothing the lawyers and doctors would not be able to make out something and the courts would not have agreed.

We need to think out of the box regarding the escalating personal injury claims. For example, when I was heading the Claims Department in NTUC Income, we had a unit that took the pro-active approach in handling personal injury claims. Injured parties were offered fair compensation even before they submit their claims. We also give them a list of running down firms which were not in the NTUC Income's legal panel for them to check on the fairness of our offers. In taking this approach, we saved on legal costs which can add 50% to 100% to the final payout amounts on those cases that we closed successfully..

If insurers cannot handled the personal injury cover profitably, maybe this portion should be handed over to the State like in New Zealand, (where the State handles and the claims are paid out on a no fault basis.)

I have just received an affirmation last week (24/3/2009) from Mr. Tan Kin Lian, that "[w]hile you were in Income, we must have made more than $40 million in profits over the few years that you headed the department." So I do know what I am talking about!"

Freddy Neo
Former general manager, NTUC Income

Housing crisis in USA

FIRST POSTED IN MARCH 2008 (1 YEAR BACK)

Some analysts said that the subprime problem and credit crunch is caused by the fall in the housing prices in USA. If this problem is not solved, the financial system will continue to be under great risk.

What can be done to solve the housing crisis in USA? Some measures being proposed include the following:

a) Government to take over the mortgages
b) Help for borrowers to repay their debts
c) Incentives to encourage new buyers of houses

What is the solution? Singapore faced a similar crisis between 1996 to 2003, when the property market dropped by 30% for private and HDB properties. An effective measure was introduced by MAS, which stablilised the market and led to a recovery in 2007.

What is this measure? Perhaps a similar measure can be introduced in USA ?

HERE IS THE ANSWER:

The MAS allowed a borrower to refinance a mortgage loan with the CPF savings taking lower priority. The lender does not have to worry that the property price has fallen below the purchase price leading to negative equity, as the CPF savings is exposed first. This allows the lender to take a long term view and give time for the housing price to recover (which happened subsequently).

Individual legal action in Subordinate Court

I am discussing with a lawyer to take up individual legal action in the subordinate court against a financial institution for mis-selling of the minibond or credit linked note. The claim can be for an amount up to $250,000. The legal fees and cost, including payment to the defendent's lawyer, will be capped not exceeding $10,000. 

As this is an individual action, the claim can move quickly as it does not involve a class action. If you are keen to consider this option, please provide your particulars in this survey. 

We will arrange a meeting to explain the approach and consequences. You can consider this approach, if your investment is between $100,000 to $250,000.