FAQs

Fees and Charges

1. Why do we charge fee for advice?

We are financial planning professionals. Just as the client’s time is valuable, our time and planning effort spent on meetings and developing financial strategies can be substantial (ranging from 10 to 25 hours) and it is only fair that we be compensated for it. For clients who want only advice, this arrangement also frees them from being obligated to implement the solutions with us.

 

There are 6 steps in the financial planning process:

• Step 1: Understanding you, your goals, concerns and setting objectives
• Step 2: Fact finding
• Step 3: Financial needs analysis
• Step 4: Recommendations
• Step 5: Implementation
• Step 6: Review and monitoring

 

We charge a flat fee of $250 per hour for time spent on the first 4 steps. Implementation is largely transactional and client pays the premium for the solutions that are recommended. As for the ongoing monitoring of investment portfolios, a fee of 1% of the net asset value is chargeable quarterly and this is deducted from the units of the highest performing mutual fund.

 

2. What is included in the advisory fee?

1. Meeting with the client to understand their concerns and circumstances
2. Organising the key data collected to make it more meaningful / relevant
3. Analysis of data collected to discover gaps and quantify them
4. Scenario analysis to project the surplus and deficit in the event of various possibilities occurring
5. Comparison of product features and benefits in light of the client’s unique requirements
6. Creating a financial report with recommendations of the action plan
7. Presentation and explanation of findings, opportunities and solutions to the client

Insurance
1. What is risk management?

For individuals with family and particularly sole bread winners, their family depends on them to provide for their essential needs. Any unforeseen event e.g. a major illness, death, disability could have huge financial implications on the family’s future well being. Such risk, fortunately, can be mitigated. In financial planning terms, managing risk is to transfer the risk to a third party. In this instance, it would mean transferring the risk to an insurer (via an insurance contract) who will take on the risk in return for a premium (cost).

 

2. How would I know which type of insurance suit me?

It is not about which insurance product fits you. Rather, it is about what your requirements are and how a product can fulfil that need. Financial planning is not static. As you go through different phases of life, different needs could arise and this has to be taken into consideration in your overall financial plan.

 

3. Is Total and Permanent Disability the same as Disability Income?

Disablity Income is not to be mistaken as Total and Permanent Disability insurance. The definitions mean a world of difference when it comes to claims.

 

Many folks have mistaken the different enhancements (i.e.riders) to TPD like Enhanced TPD, Deferred TPD for disability income. The riders typically refer to how the benefit will be paid out, for e.g., the number of installments and the number of years payment will spread out. In some cases, it is a lump sum. Insurers have also capped the total aggregate payout for TPD to $X million (so buying in excess is not necessarily a good thing).

Yes, you have TPD coverage and you will be compensated but what are the chances of claiming from TPD?

 

First, you’ll need to understand the difference between TPD and disablity income.

 

The definition of Total & Permanent Disability means that one has to lose a pair of limbs (i.e. both arms, both legs or one arm, one leg, or both eyes) to be compensated by the insurer. This is a stringent definition to fulfill.

 

On the other hand, the definition of Disability in a disability income plan is tied closely to one’s occupation. You need not lose an arm or leg or eyes to be compensated. As long as the disability resulting from an illness (including psychological problems) or accident renders you incapable of working to earn an income, you’ll be paid the disability income.

 

Insurers generally do not reveal their claim statistics but one company is transparent. In the month of Dec 2009, the total claim amounted to $9,294,074.00 for life insurance of which $265,138 was paid out due to TPD. This translates to only 2.9%! Shocking but true. Do not be deceived by ‘fancy’ TPD rider names.

 

4. For a person with family (i.e. children), what are the essential covers?

• Disability Income cover
• Death cover
• Critical Illness protection
• Long Term Care
• Comprehensive Hospital and Surgical plan
• Mortgage protection

 

5. What are the insurance needs of a person who is single?

• Disability Income cover
• Death cover (can be omitted)
• Critical Illness protection
• Long Term Care
• Comprehensive Hospital and Surgical plan
• Mortgage protection

 

6. What is Eldershield?

Eldershield is a severe disability assistance scheme to help individuals cope with the financial demands of a disability. It is also referred to as long term care as the benefit payout can span throughout one’s lifetime. This national scheme is applicable for Singaporeans and PRs age 40 and above and is an automatically opt-in program.

 

Eldershield pays out when one is unable to perform 3 out of the 6 activities of daily living (ADLs), namely feeding, dressing, mobility, transferring, toileting and washing.

 

Features

1. Lifetime or limited cover
2. Guaranteed Renewability
3. Worldwide Coverage
4. Tax-Free Cash Payout (use it anyway you like)
5. 90-Day Deferment Period
6. Waiver of Premiums

 

A fixed monthly benefit is payable up to a fixed number of years. Premiums can be paid using medisave and/or cash.  This scheme also allows premiums to be deducted from medisave accounts of spouse, children, grandchildren.

 

The benefit is nothing to shout about – it is either $300/month for 5 years or $400/month for 6 years (applicable for those who turned 40 after September 2007).

 

The question is: Is $300/mth or $400/mth enough when you are disabled for an indefinite period?

 

The cost of hiring a maid is easily $500-800/mth. The cost of private nursing home ranges between 3-figure to 4-figure sum per month (visit MOH website for more detailed information). Miscellaneous costs of medical aids, treatments, alternative therapies, supplements can run into the thousands.

 

7. What can I do with my medisave?

• Withdraw it based on the daily specified limit for hospitalization and certain health conditions, if you do not have a hospital & surgical plan.
• Use it to enhance your hospital & surgical plan and eldershield benefits.
• When you die, your beneficiaries will ‘inherit’ this money.

 

8. What is Eldershield Supplement?

Eldershield supplement was introduced in 2007 because a $300/$400 monthly benefit is not going to be sufficient for medical care and related expenses. The supplement covers a higher monthly cash benefit; the range is from $600 to $3,500. A maximum of $600 can be used from medisave account to pay for the supplement premium. Any balance above $600 will be paid with cash.

 

Should you wait till you are older to get Elderhield and/or Eldershield Supplement?

Life is unpredictable. Can you tell for how long you will be healthy? Who can guarantee that you can still qualify for cover? Because once you develop certain health conditions, you will not be accepted by the insurers.

 

The chances of severe disabilities increase sharply as we age. Based on the experience of advanced countries, men and women have a 35% and 45% chance of being disabled in their lifetime respectively (Source – MOH). Illnesses, accidents and frailty are all common reasons for temporary or long term disability.

 

Since the launch of Eldershield in 2002, in a 4 short year span, there were 2,366 claims paid out by Eldershield and 7,183 by the IDAPE scheme (those who do not qualify for Eldershield and age 70 and above)(Source – MOH Eldershield Experience Study 2002-2007).

 

Given a Singaporean’s lifestyle and high living standards, the ability for one to stop work to look after a disabled family member over the long term is considerably very low.

 

9. What is an integrated private medical plan?

Medisave-approved Integrated shield plan is an insurance plan that offers additional benefits on top of that provided by MediShield. Since the introduction of medisave-approved integrated shield plans, we are spoilt for choices.

 

An enhanced plan has ‘as charged benefits’ instead of sub limits for each category of medical expenses. Besides the usual room and board, surgery, doctor’s fees and treatments etc, other benefits available with such plans include confinement in community hospitals, pregnancy complications, congenital conditions, letter of guarantee and benefits for major medical transplant.

 

A cost effective one should give you the option to choose the deductible and co-insurance riders separately.

 

What to watch out for

Every life insurer would offer medical insurance solutions. A medical plan is made of 2 parts:

1. The basic plan

2. The rider(s)

 

There are full riders and there are partial riders. A full rider covers the deductible (upfront payment, depending on the ward class (ranges between $1,000 – $3,000) and co-insurance (10% of the balance of the bill after deductible).

 

On the other hand, a partial rider covers only the co-insurance portion. Hence, it is expected that a full rider will cost more than a partial rider. Besides the riders, the plan type will dictate the level of benefits. In choosing a plan, be sure to go with one that realistically covers your health concerns.

 

The type of medical insurance you have can either make or break your financial plans.

 

Consult a professional financial advisor before you make the purchase. One wrong move and you could lose your insurance coverage completely

 

10. Is an Investment Linked Plan (ILP) a good insurance vehicle?

The golden rule of insurance is this: Separate insurance from investments. When you have a plan that has both, things get complicated.

 

An Investment Linked Plan combines both protection and investment. To the consumer, it is the best of both worlds. But little do they know that mortality charges (cost of insurance), as one gets older, are the killer. Typically, around the age of 55 and beyond, mortality charges escalate at an exponential rate to the point that they eat into the investment returns. In other words, the insurer will sell your investment units to pay for the cost of insurance. This regular deduction will deplete the returns or cash value and it is accelerated by the volatility of the portfolio. It is possible to have zero cash value at a certain point in time and when this happens, the policy will lapse due to insufficient premium to pay for the cost of insurance.

 

ILPs have been brought to the limelight (for its notoreity) in a few articles in the past. The “Insurance Time Bomb Set To Explode” published by The Straits Times, 15 Feb 2005, opened eyes to the potential dangers of this product.

 

11. I have several ILPs but I have not been told about increasing insurance costs. Can I find this information in my policy document?

Because an ILP is a combination of insurance and investments, the insurance agents need to have a good grasp of the product features. But what they miss out in their explanation to the consumer is certain critical information.

 

The only way to ascertain this is to look at the per $1,000 cover mortality, critical illness charges table at different ages. This information is not highlighted when an agent sells the product because it’s not important in the sales process.

 

Disadvantages of ILPs:

• Pay for life
• Charges not transparent
• Mortality charges increase exponentially as we age, especially after age 55
• Investment units get deducted to pay for mortality charges
• Value of plan can be zero or even negative in your later years i.e. the plan lapses altogether
• Need to give up plan around age 55 (so as to still be able to reap the investment returns before insurance charges eat them up)

 

12. How much insurance coverage do I need?
This depends on a number of factors including the assets you have (excluding personal use assets and home), the lifestyle and expenses of you and your family (survivors), your goals and life expectancy. Each individual has unique needs and hence, the amount of protection required also differs.

Professionalism
1. Why engage a financial planner that is CFP qualified?

A CERTIFIED FINANCIAL PLANNER™ professional or a CFP® practitioner is a financial professional who meets the requirements established by the Certified Financial Planner Board of Standards, Inc. This board is based in the United States. In Singapore, this is administered by the Financial Planning Association of Singapore (FPAS).

 

While others may call themselves financial planners, only those who demonstrate the requisite experience, education, and ethical standards are awarded the CFP® mark.

 

2. Why Certified Financial Planner™ (CFP) Professionals

A CFP® professional is an individual who has a demonstrated level of financial planning technical knowledge, experience in the field and holds to a client-centered code of ethics.

 

Four E’s to Becoming a CERTIFIED FINANCIAL PLANNER™

1. Education

CFP practitioners develop theoretical and practical financial planning knowledge by completing a comprehensive course of study at an institution offering a financial planning curriculum registered with the Certified Financial Planner Board of Standards.

 

2. Examination

CFP practitioners must pass a final exam, a comprehensive 6 hour CFP Certification Examination that tests their ability to apply their financial planning knowledge in an integrated format. Prior to that, they would have passed examinations with a total duration of 15 hours. The CFP Board’s exams cover the principles of financial planning, insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning and estate planning.

 

3. Experience

CFP practitioners must have a minimum of three years’ experience working in the financial planning process prior to earning the CFP mark. As a result, CFP practitioners have demonstrated a working knowledge of counseling skills in addition to their financial planning knowledge.

 

4. Ethics

As a final step to certification, CFP practitioners must pass an ethics review and agree to abide by the CFP Board’s Financial Planning Practice Standards and a strict code of professional conduct, known as the CFP Board’s Code of Ethics and Professional Responsibility. The Code of Ethics states that CFP practitioners are to act with integrity, offering professional services that are objective and based on client needs.

 

Re-certification

It is also necessary for every CFP certificant, once certified, to complete a re-certification every two years. A minimum of 30 hours of continuing education is required. Two of these hours must be spent studying the CFP Board’s Code of Ethics and Professional Responsibility or Financial Planning Practice Standards.

 

3. How can a CFP® professional help you?

A CFP® professional can offer expertise in risk management, including strategies involving life and long-term care insurance, health insurance, and liability coverage. He or she often can help with your tax planning or manage your asset portfolio based on your goals.

 

Specifically, a CFP® professional can help you:

• Establish financial and personal goals and create a plan to achieve them
• Evaluate your financial well-being with a thorough analysis of your assets, liabilities, income, taxes, investments, and insurance
• Identify areas of concern and help you address them by developing and implementing a financial plan that emphasizes your financial strengths while reducing your financial weaknesses
• Review your plan periodically to accommodate your changing personal circumstances and financial goals

 

4. Would a consumer be better off engaging a financial adviser than an insurance agent?

Would you trust your finances with someone who is incompetent? The answer is obvious. You pay peanuts and you get ‘junk’ planning. Many insurance agents are pressurised to get sales and it does not make economic sense to spend good amount of time in fact finding and analysis. Without clarity and a holistic view, recommendations are made in a rash manner, often pandering to what the client wants and perhaps what is, at that point in time, the ‘hot’ product. We have met many clients with ‘messy’ insurance portfolios consisting of all sorts of plans and with no clear direction how they will achieve the clients’ objectives. On the other hand, the public needs to be educated and made aware that there are professionals who can do a good job in planning for their financial future.

Investment Planning
1. Is there a ‘best’ time to invest?

The best time to invest is when there are opportunities to buy good assets at a reasonable price. The earlier the better because all investments need time to grow exponentially. Good assets are assets that will appreciate in value. Reasonable price is based on the value that the asset can generate over the time it is held. For most investors, there will always be good buying opportunities as long as they look around well enough and understand what they are buying. The only bad time to invest is when every possible asset is overpriced as compared to its valuation – a very rare situation.

 

2. How do I get started in the right direction?

• Know yourself – your temperament and appetite for volatility
• Know your needs – based on your family’s expenses, inflation and future lifestyle
• Know your plan – what are you going to base your investment decisions on
• Educate yourself
• Get qualified help

 

3. How do I protect my investments, minimise loss and smooth out volatility?

• Have a long enough time horizon
• Diversify your portfolio
• Ensure you have adequate liquidity so that you do not have to sell at a discount when you need the money
• Buy only good assets at a fair price
• Keep investment costs low
• Ensure you have adequate insurance to transfer the risk away from your retirement nest-egg