Wealth Management Singapore

There is a recent article from a dedicated reporter covering high-net-worth investors for New York Times, Mr. Paul Sullivan, that discuss about the importance of looking at hedging the Human Capital of the client, not just the Investment Portfolio.

Learning How to Hedge Yourself, and Not Just Your Portfolio

The idea of hedging a person’s future income potential is not new. This is the sole basis of insurance. Earlier days, insurance companies have been championing this, though recently the focus of insurance companies have become advertising and enticing customers with promotions.

Here are some thought provoking ideas in the piece.

The thought of human capital became more pronounced with the financial crisis. With nearly 10 percent of Americans unemployed and investment portfolios in losses, the value of work has been given new importance.

The concept of human capital is used to calculate how much a client should be insured. The higher the income, the more insurance cover. The longer expected years of working, the more insurance cover. Refreshingly, the more stable the income, the more insurance cover client should get. And vise versa.

What effects does the nature of your job have on your financial well-being? People have learned in the crisis that human capital is much more sensitive to the financial markets than they thought.

The key is to make sure your human and financial capital are not correlated. For example, if your salary as a tenured professor will not fluctuate, you can take on more risk in your investment portfolio. If you are a investment banker having a large part of income from bonus, and assets bank stocks options. This, obviously, is what you want to avoid: the perfect correlation between human and financial capital.

For people with employee stock option plans, this may be worth a thought.

A more detailed and secure strategy will be to exclude specific risk of your work from your investment portfolio. Human capital of a real estate developer will be linked to real estate and also to the mortgage interest rates. Excluding additional real estate and credit market risk from the developer’s portfolio would be smart, but to go further will be to short an exchange-traded fund focused on real estate.

The following is a real life case study.

Mdm Hayashi is 60 years old. She was the second wife of her deceased husband, late Mr Cheong, who was also her second husband. She married Mr Cheong when she was in her late forties and Mr Cheong in his early fifties. She has 2 adult children still in Japan from her first marriage and Mr Cheong has 2 adult children from his first marriage living and working in Singapore.

When Mr Cheong passed away 3 years ago, he left in his Will 55% of his assets to Mdm Hayashi and the rest to his 2 children. Mdm Hayashi’s current networth of $5 million is almost fully from this inheritance. Mr Cheong’s 2 children are both doing really well financially. However, it is Mdm Hayashi’s wish and the step children’s expectation that upon Mdm Hayashi’s passing, most of the wealth from Mr Cheong should be inherited by the step children instead of Mdm Hayashi’s Japanese biological children.

Mdm Hayashi has been used to a very comfortable lifestyle by now and this rises the question of how much of the $5 million will be left when she passes. Her situation is a classic case of the earlier generation wanting to both enjoy the wealth as well as share it with the next generation.

The situation was solved by a Universal Life policy. An amount of $1.7 million is used to set up a Universal Life Policy. The policy has a guaranteed cover of $4 million upon Mdm Hayashi’s passing. With this Mdm Hayashi can enjoy the remaining $3.3 million without any worry knowing that she has done her part in leaving $4 million for Mr Cheong’s children.

In addition, at year 20, when Mdm Hayashi will be 80 years old, the policy has a good guaranteed surrender value of $2.0 million and a projected surrender value of $4 million at current interest crediting rates.

For information on Universal Life Insurance go HERE

Recently, I have been asked this question by a friend of mine. “What can you do that Prudential cannot do?” It is not an easy question to answer especially with when the public have preconceived impressions. Let me answer the question here.

Prudential is a huge company. If Prudential is willing, there is certainly very little that they cannot achieve. However, the insurance product provider with an asset management arm, is not interested in several aspects of wealth management business. For insurance companies, the sales force, insurance agents, are not under the companies’ payroll. Therefore, the sales force should not be mistaken for Prudential itself. I will rephrase the question to, “What can I provide that other Insurance Advisers, even other Financial Advisers cannot?”

There are a few areas:

Qualifications

In 2002, the Financial Advisers Act was passed to regulate every individual giving financial advise (insurance, investment and other aspects). One of the aims of the Act is to set good standards for the industry, but in my view it has been detrimental so far.

With minimum requirements being 21 years old and above, ‘O’ levels passes and Singapore citizen or PR, I believe that the entry qualification requirements are too low. I am not discriminating against people of lower academic qualifications. I know many senior Financial Advisers with low academic qualifications but have examplary knowledge and expertise gained through experience. However, I still believe it is a problem. Imagine a society where high school graduates who passes biology are allowed to practice medicine (just as the ones with M.B.B.S. are) and the only differentiation is their reputation, years of experience and number of clients they have treated. Read my views on the shortcomings of the current regulatory framework.

The Act also has an effect of leading the public to think that all Financial Advisers are of such low standards. Truthfully speaking, I am upset on the rare occasions when people confuses me with others of minimum standards. I have a Bachelors in Business Management majoring in Finance and Masters in Wealth Management with good GPA.

Knowledge & Calibre

Experience gained during my employment with Citibank in SME banking, in OCBC Private Bank (now Bank of Singapore) and Citi Private Bank gives me knowledge of how investment advisers and fund managers analyze information and arrive at the advise.

Some Financial Advisers do not even know what is alpha, why a short term money market fund will drop in value or how a structured product bought from a bank works. I have seen many factually wrong information even on www.moneytalk.sg and www.cpf.gov.sg/imsavvy. Some of these celebrity bloggers just have insufficient calibre. Similiarly, like million-dollar-round-table achieving insurance agents and millionaire trading coaches, who advertise their ‘guaranteed profitable strategies’ so often in newspapers, it is a case of who shouts the loudest wins!

Conduct of Business

I am on the client’s side! I go about my profession now acquiring clients, I to not go about trying to sell products. Once I accept a client, we have a relationship. I am forever responsible for the client’s financial situation. I will be handling every aspect of the client’s financial needs, representing them to deal with whichever financial institution necessary, it is immaterial where the product is from. I will go with my client to meet a banker to discuss his investments, banking and loan needs.

I am an Adviser, I am not a salesman. Sadly, I also concede that a salesman definitely earns more than an Adviser. My conversation and dialogue with my clients and measured, based on facts, numbers and probabilities. A good salesman strikes up a conversation with you, make you like him, assess your weak point and exploit it to bring out the emotion of fear, excitement or greed. I do not believe clients should make financial decisions based on emotions, although I know that this will remain so as long as we are human beings.

Many people will tell you, “Oh, I have a Financial Adviser in so-and-so company. In fact, I have a few Advisers.” In reality, this only shows there was a few salesmen who sold them several financial products before. I am aiming to achieve my clients saying this to someone advertising their financial product, “this product sounds good, speak to my Financial Adviser, he will assess it and I’ll get it from you.”

Range of Service

There is a weakness of me in that I am too proud to be in a role going around selling insurance. As I have mentioned earlier, to be my client’s Financial Adviser, I must be equipped with all the knowledge and tools related to financial service. This includes investment management on all instruments, insurance protection (personal and valuable possessions), property loan, will writing, setting up offshore private investment companies and trusts for planning purposes, management of liquidity and crisis.

I view each with equal importance.

In conclusion, I aim to be a Financial Controller of the client, hired by the client to handle his financial situation, regardless of the companies that I need to deal with representing the client.

United States of America’s debt, also called the national debt or the public debt, represents the money that the U.S. government owes to the owners of debt instruments that are issued by the U.S. treasury. There are several types of debt instruments issued by the U.S. Department of the Treasury. All of these items are collectively called treasuries.

Since the 18th century, the country has carried debt that has fluctuated with the political and social climate. In 1860, U.S.A.’s debt was $65 million. The Civil War brought about a major spike in the debt. World War I and World War II also brought about major rises in the debt. The latest debt numbers have put it at its steepest numbers since the debt level spiked during World War II.

U.S.A.’s debt, as owed to foreign nations, has been rising steadily over the years. The gross debt was about US$10 trillion in 1940. In 1950, it had risen to about US$18 trillion. After falling for a few decades, it began rising again in the late 1980s. In 2009, U.S.A.’s debt was again up to US$18 trillion. It is projected to continue to rise over the next few years. By 2011, it is projected to be about US$20 trillion. The projected amount of American debt in the next few years equals 100 percent of the U.S. GDP.

New property rules

Government steps up moves to cool the sizzling property market yesterday.

First, anyone who sells a property within a year of buying it will have to pay stamp duty of around 3 per cent. This is on top of the stamp duty you had to pay on the purchase.

Second, lending institutions will now be allowed to lend only up to 80 per cent of the purchase price, not 90 per cent. Buyers will have to come up with at least 20 per cent themselves. Housing Board loans are not affected by this change in what is called the loan-to-value (LTV) limit.

The sellers’ stamp duty will hit short-term speculators, observers said, while the change in the bank loan limit is likely to weed out marginalised buyers. The measures will affect only a limited number of buyers but experts feel they could have a psychological effect on the market. There is also concern that tougher steps are in the pipeline.

Singapore GDP Forecast

SINGAPORE’S economy, which contracted 2 per cent last year, is expected to grow at 4.5 to 6.5 per cent this year, adding to evidence of a sustained regional recovery.

The Ministry of Trade and Industry gave the revised GDP growth forecast in a statement on Friday morning adjusting earlier prediction for the economy to grow 3 to 5 per cent in 2010.

US Federal Reserve Raises Interest Rates

The Fed increased the discount rate (the cost of direct loans to banks) by a quarter-point to 0.75 percent on Feb. 18. This represented a “normalization” of lending rather than a change in policy, said officials. Officials also repeated that economic conditions warrant low levels in the federal funds rate “for an extended period.”

Federal Reserve Chairman Ben S. Bernanke will probably assure Congress that an increase in the benchmark interest rate isn’t imminent during his semi-annual report on the economy and interest rates to House and Senate panels Feb. 24- 25.

The dollar posted its sixth straight weekly gain against the euro, the longest streak since 2000 and Treasuries fell, pushing yields to the highest levels in at least five weeks, following the decision.

Fed Bank of St. Louis President James Bullard said expectations for a rate increase were exaggerated. Markets will likely stablise once investors are assured Fed is confident of the economy but will keep interest rates low.

Greece and her budget problems has been in the news for some time now. The issued started way back in 1999.

Greece, which had an increasing budget deficit (where spending is higher than income) that cause it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at less than 3 percent of GDP and trim national debt to less than 60 percent of GDP under the pact.

Greek Prime Minister George Papandreou, who came to power in October, more than tripled the country’s 2009 deficit estimate to 12.7 percent of GDP, and officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic data.

It turns out that Greece turned to Goldman Sachs Group Inc. in 2002, just after adopting the euro, to get $1 billion in funding through a swap on $10 billion of debt. The transactions consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding. Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time, declined to give specifics on by how much the swap reduced the country’s reported deficit or debt.

Sardelis said in an interview last week that Eurostat, the EU’s statistics office, was aware of the plan. Risk Magazine also reported on the swap in July 2003. EU regulators pressed Greece to disclose details of currency swaps after an inquiry by the country’s finance ministry uncovered a series of agreements with banks that it may have used to to delay payments and shrink its reported budget deficit.

A dispute is unfolding about how long and who in European Union have known that Greece used derivatives to conceal its growing budget deficit. The disagreement comes amid the worst crisis in Euro’s 11-year history. The existence of the swaps is fueling questions about whether Greece used the contracts to mask the fact it was struggling to comply with the currency’s membership criteria from the early days of its entry into the eurozone.

This sovereign debt crisis is spreading in Southern Europe, from Greece to Portugal, Spain and Italy, where government debts and budget deficits are high.

The cause of concern is the lost of confidence of investors in sovereign debt. Investors have sold government bonds in those countries as perceived default risks have risen. This has resulted in the rise in the yields of government bonds resulting in higher borrowing costs for the government and private sector as loans are often tied to the risk free rate of government bonds.

Greece was forced to revise her GDP growth forecast for 2009, saying the recession was worse than expected, and that the Greek economy would shrink by “around 1.5 percent” this year, rather than expand by 1.1 percent as previously predicted.

Now, Greece has just won European support for its plan to boost tax revenue and cut public spending. The European Commission said on Tuesday it would endorse Athens’ plan to bring back under control the public sector deficit, which last year reached almost 13 per cent of gross domestic product.

Meanwhile, BlackRock Inc., the world’s biggest asset manager, increased its Greek bond holdings, betting the European Union won’t allow the nation to default as Prime Minister Papandreou cuts the bloc’s biggest deficit.

Parsing the Language of Influence and Affluence
Posted by Lewis Schiff in The Affluentialist

I recently read an article in The New York Times about an up-and-coming media mogul who claims to have coined the word “affluencer” which means: someone who tries to influence the affluent. In her role as the chief of NBC’s Bravo network, Lauren Zalaznick creates programming that will influence affluent people—in particular, her network’s target demographic of 18 to 49 urbanites.

As readers of this blog know, I call myself an “affluentialist.” While I don’t claim to have created the word “affluential” (here’s the source), I have to admit, I like the word “affluencer.” It rolls off the tongue more easily than “affluentialist.” So, I’m kicking myself for not having thought of that word myself.

However, it also brings up an interesting distinction and one that will help Ms. Zalaznick and I distinguish our different roles. So, Webster and Roget, if you’re listening, here’s my proposition for the distinction between “affluencer” and “affluential.”

As Ms. Zalaznick points out, an “affluencer” tries to influence affluent people. In this regard, she’s trying to guide the interests and opinions of the affluent who are watching TV.

“Affluentials,” on the other hand, are affluent people who influence others, both the affluent and the non-affluent, around them.

So the key distinction is that an affluencer becomes an affluencer because she or he sets out to influence affluent people. Whether or not he or she is affluent is besides the point. This group includes media professionals, political consultants, brand managers and the like. Whereas an affluential is, first affluent, and second, in part because of the credibility affluence confers on someone in our plutonomous economy, is able to influence others.

How does that sound? Based on those definitions, an advisor who markets to the affluent is an affluencer in that they try to influence affluent people to both work with their firms and tell others about them.

One final point: as an “affluentialist,” I study the influence of affluence, or the effect the affluentials have on people around them. Therefore, as far as professional distinctons go, Ms. Zalaznick wants to influence while I want to understand what the effect of influence is on the affected population.

Ouch. I’ve got a headache.

The MSCI World Index of stocks fell for a sixth day, its longest losing streak in almost a year. The global index of equities in 23 developed nations retreated 0.4 percent as at 27th Jan morning New York, bringing its six-day slide to 5.4 percent.

Greek bond yields surged to a 10-year high amid concern growing sovereign debt will derail the economic recovery. The yen and dollar gained as commodities dropped.

Some reasons for the fall

• Investors are concerned that economic growth will falter as the Federal Reserve and the European Central Bank curb stimulus measures extended for slightly over a year since the height of the crisis.
• Plans by United States President Obama to curb risk-taking by banks and impose fees to recover losses on a bank bailout fund plunged the stock market back into the fear and uncertainty that marked the financial crisis.
• Economists predict central banks in China, India, Brazil and Australia will push up borrowing costs. Concerns about Chinese bank-lending restrictions are sending most Emerging Market shares lower.
• Earnings setbacks also hurt stocks.

Commentary

The proposed measures, which aim to roll back corporate excesses and limit dangerous risk-taking on Wall Street are unlikely to adversely affect Asia’s risk-averse financial institutions.

China’s lending slowdown may benefit the domestic economy by reducing risk and investors should still buy shares of the nation’s banks. They could even be beneficial to Asia as US banks may have to move their hedge fund businesses to the region, analyst said.

Recall the sentiment before the correction, some investors are wondering if the price level too high. Now that the correction happened, it presents an excellent opportunity for investors with time horizon of 2 years or more to invest!

China’s wealthiest are gaining against their U.S. counterparts.

The total net worth of China’s 40 Richest, all of whom are now billionaires, doubled in the past year as bust turned to boom. A quick comparison of our new Forbes China Rich List with that of the Forbes 400 list of richest Americans, published in September, appears to tell a expected story. China’s 400 Richest are worth a record $314 billion, just one-fourth the total net worth of their American counterparts. China’s richest person, BYD’s Wang Chuanfu, has a net worth of $5.8 billion, far below the $50 billion fortune of U.S.’s richest citizen, Microsoft’s Bill Gates. In the U.S., Wang would only rank no. 40.

But the more interesting story is the fact that Chinese tycoons are making huge gains, at a time when many of the world’s richest haven’t been as lucky. As a result, there is a record 79 billionaires, up from 24 a year earlier, more than Germany, Russia or India had published in our worldwide billionaire rankings. The U.S. has 391 billionaires, down from 489 a year ago. The total net worth of the China 400 jumped 81%, or $141 billion, at a time when American’s wealthiest lost $300 billion, or 20% of their cumulative total, dropping to $1.27 trillion.

Chinese Richest List 2009

Forbes Full Article

China Trade Rebound Aids Global Economic Recovery
China’s exports surged in December 2009 to make it the 2nd largest exporter in the world. Imports rose to a record in a stronger-than-forecast trade rebound that may lessen the case for governments to sustain stimulus programs this year.

Exports climbed 17.7 percent from a year earlier, the first increase in 14 months, and imports jumped 55.9 percent. Year-on-year comparisons are affected by the tumble that began in late 2008, when the global credit crisis deepened. Shipments to the U.S. and the European Union grew 15.9 percent and 10.2 percent respectively from a year earlier. Imports from Australia and Malaysia more than doubled.

Soaring imports are more evidence that China’s economy may face an increasing danger of overheating. Chinese government, while warning that recovery is not yet solid, pledged to “guide” speculative flows, bank loans and property lending. China is expected to raise interest rates and let its currency appreciate in the coming months as policy-makers resort to more aggressive measures.

Countries like Taiwan also experienced surge in exports while Australia and New Zealand markets and currencies gained on bets their economies will benefit from the increase in shipments to China. Among other points, the International Monetary Fund has said it will probably raise its estimate for 2010 world growth from 3.1 percent.

Trade Rebound Aids Global Economic Recovery

Analysts bullish over earnings season
In Singapore, as earnings report for Q4 and the full year 2009 goes into full swing next week, analysts are expecting good results for all sectors given the cost cutting measures and rebound in economy in 2009. Except for the volatile biomedical sector, which is not represented in the local stock market, all sectors grew in Q4 last year.

Analysts bullish over earnings season