FINANCIAL PLANNING December 2020
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Think Ahead, Post-Covid 19 Retirement Planning
Long Term Family Financial Resilience with a Trust Structure
Resilience to a Retirement Portfolio for Today and Tomorrow
Contents 3 4 6 8 10 13 14 16 18 20 24 26 29
EDITORIAL BOARD
President's Message Chief Editor's Message
CHAIR Ms Lisa Lee, CFP®
Growth Strategies for your Financial Practice in a Pandemic
CHIEF EDITOR Ms Yash Mishra, CFP®
The Benefits and Risks of Asset Allocation, Insurance leverage
MEMBERS / CONTRIBUTORS Ms Yash Mishra, CFP® Mr Alfred Chia, CFP® Ms Kee Siew Poh, CFP® Mr John Sim, CFP® Mr Lawrence Chow, CFP® Mr Adrian Tong, CFP®
How to build Financial Resiliency as a Single Parent Think Ahead, Post-Covid 19 Retirement Planning Book Review: Mervyn King: The end of Alchemy How to build a resilient investment portfolio
Ms Joanna Leng, CFP® Mr Ron Miura, CFP® Ms Irene Yee, CFP® Mr Tan Hwee Heng, CFP® Mr Calvin Bok, CFP®
Resilience to a Retirement Portfolio for Today and Tomorrow
GUEST WRITER Ms Lorna Tan Head of Financial Planning Consumer Banking Group DBS Bank
Are Your Finances Healthy?
FPAS SECRETARIAT Production of the Magazine.
How to Boost your Financial Resilience
Please email admin@fpas.org.sg for advertisment / article contribution.
Long Term Family Financial Resilience with a Trust Structure
Is Dependants’ Protection Scheme (DPS) enough? Event Calendar
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World Financial Planning Day 2020
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CPF Sharing for Financial Advisers FPAS-SUSS Webinar Series - Financial Planning in Uncertain Times
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FPSB - Building your Virtual Practice Find Me a Planner
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Financial Planner Awards 2020
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FPAS' VISION FPAS envisions that all Singaporeans have access to responsible and appropriate financial planning advice by raising the professionalism in the industry through education and shared code of ethics. FPAS also provides a range of services to consumers including:
Financial Planning Association of Singapore (UEN: S99SS0008L) 112 Robinson Road #07-02, Sinagpore 068902 Tel: (65) 6372 1030 Fax: (65) 6372 0121 Email: admin@fpas.org.sg Website: www.fpas.org.sg | www.FPA.sg CFP®, CERTIFIED FINANCIAL PLANNER™ and are certification marks owned outside the U.S. by 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. AFPCM, AWP CM, ASSOCIATE FINANCIAL PLANNER and ASSOCIATE WEALTH PLANNER are registered certification marks of the Financial Planning Association of Singapore. MCI (P) 013/01/2020
• Educate and inform the public of the need for objective professional advice in making secure financial decisions. • Ensure sufficient professional and ethical standards to maintain the confidence and trust of consumers. • Provide education, training and information to our members to enhance their skills in providing holistic and objective financial advice. • Develop and maintain high ethical standards within the CFP professionals.
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Are Your Finances Healthy?
• Represents the industry and CFP professionals to continue to raise the professionalism of the industry and to provide high quality financial advice to Singaporeans.
President’s Message by Alfred Chia, CFP®
With the year coming to an end, Covid-19 continues to terrorize the World. We have learned to combat it with Circuit Breaker, social distancing, wearing a mask, SafeEntry checkin, zoom, etc. It is certainly a year of much new learning and ritual. Many of us call it the ‘New Normal’. At FPAS, we have organized our first Virtual Financial Planner Awards 2020. After months of waiting, we finally are able to announce the winners. We are glad to have the understandings and support of everyone. We are honored to have Ms. Abigail Ng, Executive Director, MAS as our Guest of Honour. Her speech, “Strengthening Financial Resilience Amid a Crisis” is a good reminder of the importance of being resilient. We are excited that Mr. Noel Maye, CEO of FPSB, took the time to share on the global initiatives.
Alfred Chia, CFP®
You can still watch the Award Ceremony at fpa.sg. We have received good response and comments on the Award Ceremony. Great work by Samantha and her team. While this may be the ‘New Normal’, many of us do miss social networking and human interaction.
planning practitioners are learning to adapt and are coping very well. On the financial front, many businesses have to close and many jobs are lost due to the impact of Covid-19. It has turned many family’s financial situation upside down. Many longterm financial goals like children’s education, property mortgages, and retirement planning were severely disrupted. It is such times that the Financial Advisory Industry need to step up our efforts to help such families navigate through the difficulties through financial planning.
Like many, I prayed for the development of a safe vaccine for Covid-19 soon. Until then, keep safe and healthy. It is also important to ensure our financial health is in the pink of health!
Another ‘New Normal’ will be Virtual Financial Advisory. This has accelerated the adoption of technology such as digital financial planning tools. Both the customers and financial
Chief Editor’s Message by Yash Mishra, CFP®
This is the year where the pandemic took center stage and upended our lives as we knew it. New words, phrases, and acronyms that have become part of our everyday vocabulary- New normal, pandemic, social distancing, Covid fatigue, WFH (Work From Home), online classes, flattening the curve, masks as part of everyday fashion, and Zoom meetings to name a few. But in all of this runs a common invisible force- the indomitable human spirit of “Resilience” and that is what we dedicate this issue of “financial planning magazine to – “Building Financial Resilience”
Yash Mishra, CFP®
Singapore Government here announced the Solidarity Budget 2020 and outlined a series of measures to support and save jobs, supporting workers and protecting livelihood and support for the affected sectors. The budget outlines solid measures taken timely for supporting businesses during the extremely difficult time when the Singapore economy plunged into recession. We discuss these unprecedented supportive Resiliency and Recovery measures in the Singapore budget Article. Rapid Digitisation is an outcome of this pandemic and we discuss how as practitioners
we can adapt & adopt digital tools in “Financial planner in the Digital Era” and what strategies to adopt to grow your practices in “Growth strategies for your financial practice in a pandemic”. Building resilience flows through in the consumer section and into understanding the elements of Investment portfolios that need to withstand market volatility as was seen this earlier in March 2020, in “Building a resilient Investment portfolio” and “Resilience to Retirement portfolios”. We help you understand, the challenges that remain as you plan ahead in “Post Covid-19 financial planning” and “Boosting your financial resilience”. As central banks around the world, led by the US Fed reserve help economies and countries navigate around he unprecedented effect of the economic shutdown, forced by the pandemic through supportive monetary and fiscal policy, we recommend in our book section review exbank of England, Governor Mervyn King’s book – “The End of Alchemy”. Stay Healthy and Stay safe everyone in an unprecedented year that was 2020.
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Growth Strategies for your Financial Practice in a Pandemic By Louis Koay, CFP®
2020 is an eventful year where the global pandemic, COVID – 19, has caused the entire world to come to a standstill. Not a single industry is being spared from this disruption. Although financial advisory service is categorised under essential service, face-to-face meetings were not allowed as a social distancing precautionary measure. During this unprecedented period, my first thought was to take a break. But soon, I realised that this may be the new normalcy. I have since learned to embrace the situation, adapt to the changes, re-strategise my work and move with the flow. With the help of digital solutions, here are the five things that I have done to grow my financial advisory business: 1) Beyond face-to-face Barely a few months back, in the beginning of the year, faceto-face meetings with clients were part of my daily routine. Physical meet-ups were the norm in our industry. When I learned that face-to-face meetings were prohibited during the circuit breaker period, I made use of digital solutions to bridge the gap. I used Zoom to meet my clients. The places where I used to meet my clients is now confined to a 14 inch screen. My study room is the virtual café. When I first started, I was apprehensive and worried about catching the attention of my clients in the digital world. To enhance my presentation, I prepared PowerPoint slides with animations in an attempt to sustain my engagement with them. My worries were unfounded. My delivery was precise and I overcame the lack of physical touch with digital technology. We must learn to embrace to move forward. I used to spend a lot of time commuting. Now, I tele-commute. Time saved is translated into more virtual meetings. Hence, I increased my productivity. There were days when I was able to schedule 5 to 6 meetings with back-to-back hourly schedule. The novelty of virtual meeting is also well received by my clients. The meet-up rate is a lot better than face-to-face meeting as we are now meeting in the comfort of our own homes. 2) From Seminar to Webinar In the past, I used to conduct seminars on a monthly basis to provide market updates to my clients. Until then, when the Ministry of Health raised the DORSCON level to Orange, my seminars were changed to webinars. My concerns were similar with the lack of face-to-face meetings. How do I capture the attention of my audience in the virtual arena? How do I maintain interaction with my audience? Amid all these anxieties, I have to overcome my own fear too, including the awkwardness from talking to myself for two hours straight. As a presenter, I need to bring up my energy level so that the audience will not just click me off the screen. After a few rounds of practice, the feedback I
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received from my audience was encouraging. In reality, they actually preferred webinars over seminars. They saved time from travelling and could watch the webinar recordings at their own pace. The polls and chatbox functions in webinars proved useful to my presentations. The obvious advantage of webinars is the attendance. For seminars, I am limited by the capacity of the venue. 100 pax is the maximum audience per seminar. With webinars, my audience increased by 7-fold. It is an incredibly significant increase in terms of productivity. I am on target to reach an audience of more than 1000 attendees for an upcoming webinar! The sky is the limit when you integrate digital solutions into your business. 3) Digital Marketing We are living in a digital world. Nowadays, people spend more time on smartphones, social media platforms such as Facebook, telegram etc. Gone are the days of traditional newspaper reading. During this circuit breaker period, I created my own Facebook business page. I launched several marketing campaigns through my Facebook page to increase my reach. This has been a more effective way to reach out to my new audience at a lower cost; I spent less than $50 for each campaign that yield a reach of more than 5000. I also have more time to write on my own blog, “drwealth. com” where I posted my articles that people can relate to during the COVID-19 pandemic. Sharing personal stories and recording educational videos on my blog also helps to build my personal branding. The key idea is to add value and not to sell your services. Once you have your personal branding, the numbers will stream in! 4) Mass Communication 2020 has been a volatile year for investment. As financial adviser representatives, we must constantly provide investment updates for our clients. Before a flight, a pilot needs to conduct all the necessary ground checks, go through the flight path and weather forecast, preempt any deviations for the safety of the passengers and deliver a safe journey. Any turbulence during the flight should be an expected event. What is unexpected is an air pocket. Passengers should not panic whenever the plane flies through a patch of turbulent weather. Instead, they should buckle up, sit tight, and wait for the seatbelt sign to be turned off. Similarly, all forms of investments come with volatility. Instead of panic-selling at the first sign of market turmoil, investors should ignore the short-term volatility, follow the plan, and stay invested. The role of a financial adviser representative to investors is akin to a pilot’s responsibility to his passengers. We should provide constant updates to help investors ride through the volatility in their investments.
To provide constant updates, I have also added broadcasting tools such as Telegram and Mailchimp. These are one-to-many mass communication tools. If any of my clients needs more help, I will schedule a Zoom meeting to assist them. 5) Working From Home #WFH has taken over the traditional work arrangement since early this year. As a financial adviser representative, I adhere to the standard practice and have been working from home for the past few months. I appreciate my company’s initiatives on adopting non-face-to-face advisory processes to facilitate client serving. Physical training was replaced by online sessions. With this arrangement, I managed to attend more training with time saved from travelling. In fact, I prefer to work from home where I tend to be more focused. For greater work efficiency, I have converted one of my bedrooms into my home office and added new equipment such as a better microphone, a drawing pad, and upgraded my WIFI connection. Sum it up I believe this pandemic will reshape the entire world, not just the financial industry. This is the new normalcy. Every financial adviser representative should embrace and adapt to the new norm. I am pleased to see that my business has grown at a faster pace during this pandemic due to my adaptability. In our line of service, there will always be ups and downs. The only certainty in this business is uncertainty. We must learn to adapt and overcome the challenges ahead. Stay safe and manage well. The sooner you adapt, the stronger you emerge.
About the Author Louis Koay, CFA, CFP Louis Koay is a dual-licensed (Trading and Financial Adviser) representative at Phillip Securities (a member of PhillipCapital group). He graduated from the National University of Singapore with First Class Honours and he is a CFA charterholder as well as a Certified Financial Planner (CFP). He is currently managing a team of six financial adviser representatives and servicing more than 1,000 clients with asset under advisory of more than $20 million. As a trainer at Dr Wealth, Louis developed the Personal Finance Mastery Course and he is a key trainer in the Intelligent Investors Immersive Program. He has trained more than 10,000 retail investors in analysing stocks and personal financial planning.
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The Benefits and Risks of Asset Allocation, Insurance leverage By Ron Miura Ryutaro, CFPÂŽ
Life Insurance products: beyond standard asset class for affluent clients. First of all, what comes to your mind when you hear life insurance? Some people may think selecting the right life insurance policies might be tedious and complicated. Others might feel afraid of planning the worst-case scenario which means either death or permanent physical disability. This topic on death and permanent physical disability is considered a taboo in Asia. However, it is very important to tackle this in a professional manner and it is a valuable asset class for families.
Many people are familiar with how life insurance products work for personal protection planning. It can be family protection known as income replacement planning in case breadwinners are no more around. The death benefit would be provided as a guarantee and the insurance proceeds would be distributed to each beneficiary the client nominated under the insurance nomination. Life insurance product is a valuable asset class due to surrender cash value and liquidity. That’s because the life insurance is unfazed by stock market volatility and it can function as asset diversification to hedge against investment volatility risk. Moreover, residential property owners must have the mortgage insurance planning by using term insurance policy. The purpose of this life insurance can be protection from debts in case the house owner is no longer around. The rest of family members do not have to sell their own residential property to offset mortgage if they have sufficient life insurance coverage. Some affluent clients can consider utilising life insurance as an estate equalization tool among family members to maintain emotional family harmony. There are varieties of life insurance product tools, such as term insurance, whole life, and universal life. Clients need to select and construct the right personal insurance portfolio to provide financial security and stability for their beloved ones. It might not be a common knowledge for many buyers, yet some small-medium enterprise (SME) owners should consider purchasing life insurance to leverage it as a business insurance planning. Many SMEs in Asia are family-based enterprise, which includes sole proprietorships. Which scenario requires business life insurance? Business life insurance can be a risk mitigation strategy for corporate debt obligation in case family business owners are no longer around. Indeed, many SMEs have financial and manpower issues. Besides the family business owners, company needs to ensure key employees are also insured by business insurance as a keyman insurance. If key employees pass away while still employed at the company, the insurance proceeds would be paid out to the company. This pay-out can be used to replace new staff and offset the revenue loss of company. To mitigate business risks and ensure business succession planning, each business owners can invest in life insurance
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products. Even after the demise of business owners, the insurance proceeds would be distributed to the beneficiaries to provide liquidity and maintain business longevity. This strategy is known as buy and sell agreement and usually It is written by the contract. Although universal life and whole life policy can be used for business succession planning, most of the business insurance is settled by simple yet cost-effective term insurance policy. Many people do not realise life insurance products can be utilised as a predictable retirement income planning. Usually many tend to do retirement income planning by investing in properties, fixed income products, and dividend stocks to enjoy passive income stream during their retirement period. There is nothing wrong with this strategy, however these assets are subject to tenancy risks, interest rate volatility, and market volatility risks. Other people have too much cash reserves to sustain their retirement fund due to their risk averse attitude. They also would face inflation risk and their purchasing power would be eroded gradually. To mitigate tenancy, inflation, interest rates, and market risks; adding life insurance annuity can achieve the diversified retirement portfolio. Insurance annuity offers predictable and stable income stream. Life insurance annuity as a valuable asset allocation is not correlated with sudden market fluctuations and retirees can enjoy peace of mind. The ideal retirement portfolio should be constructed in a balanced and diversified method by using different asset class.
money to fund the life insurance premium from the financial institutions. As the process of estate equalisation planning, some affluent clients consider investing in universal life products by using cash and borrowing money to enhance death benefit coverage and surrender cash value. Also, they can invest in life insurance annuity products to enhance annual cash benefit by borrowing money from the financial institutions. Before the client decide to invest in universal life or annuity products with premium financing, he needs to understand interest rate volatility risks. Although the current monetary policy is at lower interest rate, if the interest rate rises again, policy owners would have the burden of having additional interest payment costs. In conclusion, it is fair to say that life insurance is simple, cost-effective yet powerful tool, and it can be a valuable asset class due to the surrender cash value and liquidity. Although life insurance planning is providing a lump sum money for others, it can protect others from unseen troubles and financial difficulties. Investing in right life insurance products can achieve asset diversification by constructing many different asset classes. Last but not least, the client has to be mindful of interest rate risks if he chooses to use financial leverage. Before you decide to invest in life insurance, please seek reliable and professional Certified Financial Planner (CFP) first. Let’s acknowledge your risk profile, liquidity situation and longer time horizon.
Life insurance products may be used as a philanthropic purpose by nominating the charity organisation as a beneficiary. As the part of a legacy planning, people can buy life insurance and appoint the charity organisation client nominated under the insurance nomination. Also, life insurance products can be a gift for beloved one appointed through nomination. Therefore, it would be obvious that characteristics of life insurance provide a flexible and efficient structure for policy owners. Life insurance products can be invested with other’s people money. This strategy has been known as premium financing and people can use both cash outlay and borrow bank’s
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How to build Financial Resiliency as a Single Parent By Joanna Leng, CFPÂŽ
Being resilient for your children is not about giving them the best you can. It is also giving them the best version of yourself.
Financial resiliency starts with having a strong mindset and healthy habits. Only with one can you make better decisions. Think of the times when your thoughts run wild and not being able to function at work. So, let’s start with the mind. 1. Have a support group. When I was going through my divorce a decade ago, I have never thought about support group. In fact, support groups can be your mental pillar when you need someone that understands you the most. It is often free, and you can get friendly advice from the the group, like Facebook and online forums. Also, never put yourself in an uncomfortable spot of feeling the need to help anyone. Practice moderation, for any online friendship that you make. 2. Focus on your health. Yes, you are the most important person in your family now. Think of it. Can you still work and provide for your family if one of your child is unwell and cannot go to school? Can your child continue his/her childhood if you cannot work and have no income for the family? Can you see now which one is more crucial? 3. Read. What I found helped me during those times as a single parent with little friends I’ve got is by reading. I will save up money to buy parenting books and self-help books. Focusing on my personal development more than any point in my life. I learn to understand why people react the way they did and how to build mental and emotional resilience. 4. Accept imperfection. And never be critical of yourself. Do not compare yourself with the surrounding people. Focus on making progress. There is no positive progress because no one can determine progress is positive or negative till end of the day. There will be times we need to go through a few series of downturns, before things can get better. 5. Have a hobby or exercise. I found having a hobby on my own helps keep my mind clear of worries. It distracts me for the moment, and then I come back feeling refreshed and recharged. I brainstormed for 6 months before picking a hobby and sticking to it. It needs to be something you know you can continue progressing on it. Exercising came later, and like I said, it is a progress, never aim for perfection. I have touched on the personal well-being, now to the financial part
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6. Always understand the difference between a good debt and a bad debt. A good debt is something that helps level up your life. Example, a study loan to upgrade your skill sets for better employment. A bad debt is for example buying a material item that you do not need, a simple tote bag vs a branded bag. 7. Understand interest rates. We often take interest rates for granted. The simple understanding of an interest rate of 3% of 10k is $300. Yet, when you take a loan from a bank or anywhere else, what you pay for might be higher. We call this compounding interest. It means the end of day amount that you pay for will work out greater than the 3% you thought of. 8. Renew your mortgage interest rates. If you have your own place with a mortgage loan, never underestimate the interest rate you are paying. A bank will offer you an attractive rate for the first 2-3 years. After, it goes back to what they call a “default” rate, which can end up being 2-3 times higher than your initial offer. Thus, always take note on the expiry date of your mortgage loan. It will surprise you can save a few of hundreds each month on the interest. Also, to note that, when you do your refinancing of your mortgage, never increase your tenor. If you have a loan of 30 years and you have paid for 3 years, stick to the balance of 27 years, and not 30 years all over again. If you keep resetting your loan tenor, you are delaying pay off your mortgage. All you have done is letting the bank earn the additional years of interest. 9. Plan. When you have a stable income, start planning, by setting aside money for future expenses. These can be things like utility, mobile phone bills, your cable television. Once yearly expenses like school textbooks and uniforms are saved in a separate account every month. That way, you keep your expenses consistent. 10. Create detailed weekly expenditure list And below it, a weekly probable expenses list. Doing it on a weekly basis helps in A. Getting you organized for the week B. Detailed planning on a weekly basis is much more achievable than doing it monthly.
week, put in all those you have spent and you know you must pay. Then as the week goes, move up the probable expenses up the list as you spend them. This gives you a good idea if you could be overspending. The best thing that came out of this exercise for me is, I tend to think again on spending. 90% of the time, I do not need it, and for those 10% of the time when I do, I can often find a cheaper alternative or free alternative. 11. Get over the embarrassment. It is okay to look for second-hand items. Often, I have things that I own but do not want, yet; I am not willing to throw it away as it’s such a waste. More often than not. If a friend wants it, I am more than happy to pass it on. My friend is doing me a favour by helping me get rid of it, and I am helping her to save money for something that she needs. It is a win-win for both parties. Facebook groups and Carousell are good places to look. I own a few pet rabbits and we have a community where we sometimes let go items that do not suit us or we do trades. 12. Have a financial plan in place. It is never possible to get everything you want if money wasn’t an issue, but you need to have a plan to work towards to. Not being able to afford any form of insurance is a kind of excuse. If you cannot afford the consistent premium, can you then handle the major bill that lands on your lap? Think about it now. As we go through the period of covid19, many people would have a reduction in income or even a total loss of income. Insurance cannot help to cover everything but these are lessons we can learn. If today you have a pay reduction, will you make things work or would you sit and wait and say you will come back to work only when someone pays you the full salary you have before the lockdown? The answer is obvious, and it will only work for people who are sensible. Manage your finances on a reduced income basis, for example, you earn 3000, but you make it work with 2500. The 500 is being set aside for rainy days and insurance. That way, you can cover yourself and your children with a hospital plan, a term insurance like accident or death. It is a good start. Then when your income increases, you can look into saving for your children’s tertiary education and your own retirement.
You first set aside what is the weekly budget you can spend on. My first and last week are always the highest as bills like utility etc comes in. The middle 2 weeks have the lowest budget, making sure that all 4 weeks do not go beyond what you can afford to spend. As you start your
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Think Ahead, Post-Covid 19 Retirement Planning By Kee Siew Poh, CFP®
Most people would need average 70% of their pre-retirement income to live comfortably for retirement, but many do not have that much saved away, and Covid-19 is about to make it worse. According to a survey done by OCBC, 2 in 3 Singaporeans and PRs do not even have sufficient savings to maintain their current lifestyle beyond 6 months if they were to lose their jobs now. This being the case, would Covid-19 ruin their plans for retirement? A crisis as sudden and pervasive as this is bound to cause one to be concerned or worried.
Useful lessons & Insights from Covid-19 1. Plan early for retirement o Millennials need to future-proof themselves by planning early for retirement o This means to start early, save more, invest more to enjoy the benefits of starting early and letting time and the power of compounding to work its magic o Younger investors also time on their side and hence a wider margin for making errors
How Covid-19 is affecting retirement 2. Cut back on expenses & invest additional savings
1. Delay in retirement o From the same OCBC survey, many who have either decreased or stopped setting aside funds for retirement. This would inevitably result in a delay in their retirement. This delay is further compounded with the withdrawal of retirement savings to pay for current living expenses due to job loss. 2. Earlier than expected retirement o Unemployment may force an earlier than expected retirement for some, especially those in the 50s. Second career may be hard to come by in the pandemic economy with greater employment vulnerability. o In addition, because of the pre-mature unemployment, loss of medical benefits through the corporate plan happens sooner than expected. Additional premium or budget may need to be set aside to take care of one’s medical plan. In event of pre-existing health conditions, new application is not likely to cover pre-existing conditions which could possibly be covered under corporate scheme.
o The Covid-19 pandemic has not affected all occupations equally. While many employed in retail, food and beverage, hospitality, aviation had lost their jobs or suffered pay cut, those employed in the healthcare, education, finance, government & IT have been relatively unaffected. o The lockdown and WFH (work from home) can be a boon as it enables us to easily cut back on shopping, eating out, everyday commute and overseas travel. For those who do have any pay cut, this should translate to additional savings which can be invested towards retirement. 3. Review & refinance your housing loan o Interest rate on most housing loan has fallen tremendously over the past few months. Mortgage payment is usually one of the biggest expenses in one’s balance sheet and by cutting down on mortgage repayment, these additional savings could be used towards retirement. 4. Rebalance your investment portfolio o Instead of adopting a “buy, hold and pray” approach in the hope that your portfolio will grow in the long term, times like these would be best to take a complete review of your asset allocation. You would want to review and rebalance your portfolio periodically e.g. quarterly to best take advantage of current market volatility and opportunity.
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5. Have in place an Opportunity Account o The uncertainty when the virus became a pandemic has resulted in volatility in stock markets, with some markets falling more than 20-30% from their all-time highs. The last major financial crisis where markets corrected very substantially was in 2008, 12 years ago. For some, it is very likely this could be the last major financial crisis before their retirement. In times of crisis, some will sell out of panic, because their portfolio had dropped. Some will buy, as they see opportunity amidst the crisis. What we do with our Investment Portfolio during a major financial crisis can have a big impact on our retirement. o Thus beyond just having an Emergency Fund Account, it is important to have some funds as Opportunity Account, to be able to buy in when there is substantial market correction, to accumulate for the long term. 6. Review your Retirement Goals o If you are young and in the early phase of your career, you may be able to quickly recover from a Covid-19 setback. Assuming you were made redundant, it would not be too difficult to find next employment opportunity and from there, start to save more or hope that over time your income will grow faster.
Think Ahead, Post-Covid 19 Retirement Planning this delay in retirement is inevitable because the savings accumulated by the desired retirement age is insufficient to support their lifestyle, and they do not wish to compromise on their retirement lifestyle. Nevertiree & Post-Retirement Career Not everyone wants to retire. There will be some who have the means to retire and choose to work. They are called the ‘Nevertirees’. Instead of working full time in pre-retirement occupation, what could be more feasible would be a parttime employment or being self-employed in the period postretirement. Instead of waiting till then to plan, why not start planning now? https://www.straitstimes.com/business/banking/2-in-3-here-donthave-savings-to-last-past-6-months-survey
o But if you are a senior professional who is being retrenched, you may need to consider delaying your retirement or adjusting your expectation in terms of your retirement lifestyle. This is the hard truth, but it is better to start making adjustment now than to be hit by unpleasant surprises later. o A delay in retirement means less retirement funds required. By continuing to work for another 5 years, the number of years you would need to draw down the funds from your retirement portfolio will reduce. o You may be 50 and your original plan was to retire at 60. You only have 10 years of runway to accumulate and you need to provide for at least 20 years till say 85. When you delay your retirement by 5 years to 65, you will have additional 5 years to accumulate, and your drawdown is shorten from 20 years to 15 years. For some families,
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Mervyn King: The End of Alchemy: Money, Banking and the Future of the Global Economy By Yash Mishra,CFP®
In the very many books that I have read on economics, never have I seen one that starts with a a quote from the famed English poet TS Eliot– Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information? This tempted to me to pick up the book at first glance. As you read through the book, one is pleasantly surprised with the wide repertoire of references from Stefan Zweig, Thomas Carlyle, Secretary of state Truman and Friedrich Hayek to name a few. In the book, there are reminisces about exchanges with other policy makers and one that stood out was with one that Mr Mervyn King’s exchange in Beijing in 2011, where the Chinese central banker at an unwind session observed: “We in China have learned a good deal from the west about how competition and how a market economy supports industrialization and create higher living standards, But I don’t think you’ve quite got the hang of money and banking quite yet.” In summary, this book is a substantive analysis of the 2008 financial crisis, seen through the lens of an academic who lived through and participated in managing that crisis as the Governor of the Bank of England. It goes on to analyse through the myriad of experiences as a key central banker and policy maker as to how and why money and banking have become the Achilles heel of the global economy. In other words, he examines the alchemy that runs through the financial system, whereby governments pretend that paper money can be turned into gold on demand and banks pretend that the short-term deposits used to finance longterm investments can be returned whenever depositors want their money back. This in our view, is an essential read as this provides a ring side view of central bankers and shows how they do “whatever it takes, for however long it takes” to get economies out of recession in a global economic slowdown, even created by a pandemic .
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How to build a resilient investment portfolio By John Sim, CFP®
Introduction
STEP 1
We are in unprecedented times! 2020 will remain a year that most of us will not forget any time soon. If not for anything else, it will be remembered for how the COVID-19 virus wreaked havoc on the financial system and our investment portfolios. We’ve seen:
If we can take away anything from this pandemic, it is this: no one can predict the next crisis and how markets will react to it. As such, diversification is key.
Broad Diversification
• All major economies of the world are continuing to print money to support their economies • Despite how the virus has decimated the real economy, equity markets around the world have been reaching record highs • Inflation is seen less so in goods and services, but more in financial assets • Even bankrupt companies like Hertz can quadruple in price So how do we position ourselves during these financially crazy times? I present 4 steps we can take now to ride through this storm and come out stronger from it. From the above table, we cannot discern any pattern to tell us beforehand which developed market will do well in the following year. We see similar randomness of returns when we look at emerging markets.
Execution Tip: Ensure that our portfolios are diversified on a global scale. We need to steer clear from home biases, where we allocate an oversized proportion of our investments into our home market, Singapore.
STEP 2
Asset Allocation Even different asset classes perform almost randomly, as seen in the next chart. In a traditional equities and fixed income (bonds) portfolio, we can observe that different types of equities (and bonds) deliver different returns in different years.
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STEP 4
Secret Sauce – Factors of Returns Finally, to complete the picture of diversification, we can go beyond the traditional asset classes of equities and fixed income and further diversify into alternative strategies and alternative asset classes. The following diagram illustrates how such diversification helps your portfolio. The important point is that we want to include assets strategies and classes that perform differently from the traditional assets under varying market conditions.
Execution Tip: void picking and choosing the “flavour of the month or year” asset classes, because it is near impossible to forecast beforehand which asset class will perform well at the end of the year. Many “talking heads on financial TV” will be able to give many very convincing reasons why markets performed as they did AFTER the fact. As they say, hindsight is 20/20. But none of them will be able to consistently give an accurate prediction before things happen. And the key phrase here is “consistently before things happen”.
STEP 3
Secret Sauce – Factors of Returns Next step is to make sure that we are maximising our returns in both our equities and fixed income portfolios. The way we can do this is to “tilt” our portfolio from the traditional market capitalisation weighted approach to one that overweights factors that produces higher returns. Some call these factors “Smart Beta”. While many factors have been identified by the academic community, few have been found to persist and withstand the test of real-life execution. Here is the list:
Equities
Fixed Income
• Market Premium
• Duration Premium
(equities tend to outperform bonds)
• Size Premium (small cap tends to outperform large cap companies)
• Value Premium (value tends to outperform growth companies)
• Profitability Premium
(longer tends to outperform shorter)
• Quality Premium (high credit quality tends to outperform low credit qualify bonds)
Here are some ideas to include into your portfolio. In addition, we may want to position our portfolio to combat potentially upcoming inflation that has been notoriously missing since quantitative easing (otherwise known as money printing) that began back in 2008.
Alternative Strategies •Venture capital •Leverage buyouts •Long/short equity •Merger arbitrage •Managed futures
Alternative Asset Classes • REITs •Commodities / Precious metals • Derivatives • Cryptocurrencies
Execution Tip: Look for unit trust funds / ETFs that allow you to gain exposure to the above strategies and asset classes. Such products allow access without requiring large sums of capital to achieve the required safe diversification.
• Currency Premium (certain issuing currencies tend to outperform other issuing currencies)
(high profitability tends to out low profitability companies)
Execution Tip: Instead of going with a traditional market cap weighted index (for either equities or fixed income), you can choose funds / ETFs that are overweighted in the above factors of returns to achieve better returns than the market.
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Long Term Family Financial Resilience with a Trust Structure By Tan Hwee Heng, CFPÂŽ
This Covid crisis has demonstrated the importance of having reserves as our government called upon our reserves to support the economy. The packages provided funding across the board with salary subsidies to preserve jobs in the whole economy and various tax incentives and rebates. Despite so, we have also seen numerous businesses struggle and household brands like Teo Heng Karaoke shut down branches to hopefully preserve their remaining capital to wait for the storm to be over. At individual levels, many individuals have adapted to ensure they and their family continue to have some form of income. Through this period, we came to understand that in the classifications of reserves, there are 2 types of reserves, namely immediate reserves and inter-generational reserves. The assets that our government taped upon are reserves that have accumulated through the first pioneer generation. They are now called upon to help the current generation to get through the crisis. Inter-generational reserves are powerful. Families frequently encountered more crisis, in many different forms, than such mega crisis that affects everyone. Some common crisis can be caused by a wayward child, unsuccessful expansion of businesses, or a damaging marriage. For families, such crisis may leads to a rapid decline in family fortunes, loss of reputation, loss of educational and business opportunities for future generation. In some cases, families have to downgrade their lifestyle, move out of family homes and faces hardship. Family wealth may flow out of the family, seized by opportunistic outsiders or due to bad marriages. Blame, anguish, hurt will dominate conversations within the family for long periods of time. Is there a structure that can help manage this accumulated reserve so that the succeeding generations can have resources to call upon in all sorts of crisis? The good news is there is a structure called Trust, that is encoded in our law as well as in the Common Law that our legal system sets its foundation.
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For many, there is a myth that Trust structures are meant for the rich. The reality is Trust structures are meant for most Singaporean families who care for their future descendants. It is easy to create and can be relatively affordable to everyone. A Trust can be simply be created via a Will with a few paragraphs or pages of intentions, which is inexpensive. Such a Trust is called a Testamentary Trust. In the same breath, it is a commonly held misconception that the cost of setting up a Living Trust will be a prohibitive sum that runs into tens or even hundreds of thousands of dollars. Today, even a Living Trust can be set up with a few thousand dollars. These trusts are different in the Trust is set up while the person (Settlor) is alive. There are various types of Living Trusts available for different purposes.
Types of Trust that can be used as a Family Reserves Holding Structure Trust Testamentary Standby Trust
Property Trust
Investment Trust
Typically, young parents have been using their Will to create a testamentary trust to provide for their minor children over the years since minors cannot handle the estate monies till they reach 21. However, any one can even take a step further to use the same features to set up a testamentary trust to create a Family Reserve fund. Here are some steps and considerations on how create a Family Reserves Fund using a Trust Structure. • Develop an Estate Plan with the help of an Estate Planner o Consider whether a Living Trust or a Testamentary Trust or even both that fits your requirement
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Living Insurance Trust
Private Trust Company
Charity Trust
• Appoint Trustee using the legal instrument chosen. Choose either a o Lay person (e.g. family members) or Professional Trustee o Can the Trustee last the duration of the Trust? o Will the Trustee be neutral and impartial? o Will the Trustee administer the Trust competently? • Develop specific instructions on o Objectives o Set conditions and instructions: Examples are - how to manage and invest the assets for longer term - how to ensure the descendants do become useful citizens - situations and conditions of distributing the assets - how to end the Trust • Fund the Trust o Using Current Assets like Property, Cash, Stocks o Leverage on Insurance For many, it may seem a very lofty intention to have a family reserves fund. But one shall not be daunted by the scale of the Estate Plan and resulting in inaction. A skilled Estate Planner and Trust team can effectively assist you. Building financial resilience for your family takes effort. For many of us, this is the first-generation wealth and can be easily squandered away by the immediate generation. The good news is that we have the right tools available for most families to create structures for our future generations.
Case example of a Family Reserve Fund using a Trust: Mr Wee is concerned for his spouse upon his demise. He wants her to be able to stay in their present home till her demise. A major consideration he has is she will not be influenced by the children or anyone to sell the property where they built the family together. This is especially when she is left alone by herself after his passing. Mr Wee then set it up such that the property or portions of the property (in shares) will be placed in the Trust via a Standby Trust (a form of affordable Living Trust) upon demise of Mr Wee or when either party loses mental capacity. • Wife will not be subject to pressures from children to sell the house • Will not get cheated or gotten her Will changed under undue influence After her demise, liquid assets and the house shall form part of the Family Reserves within the Trust. The house shall be rented out to generate income to maintain the house and distribute some dividends to family members. Mr Wee then state that if the children involved in the family business becomes bankrupt due to the personal guarantee that they have to provide for the family business, the house will be available for any of the bankrupt children’s families to stay in. Alternatively, the rental income generated can also be used to rent homes for the bankrupt child. Further, since the Trust is holding onto both the title deed of the property and other liquid assets like shares, the assets shall not be subjected to divorce or bankruptcy proceedings of his children and future descendants.
Regardless of whether we are in 40s, 50s, 60s or beyond, each family should consider setting a Family Reserve fund using a Trust structure that will help generations down the road. Remember, the road will always be bumpy. Hence, providing financial resilience through careful management of family reserves are crucial.
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Resilience to a Retirement Portfolio for Today and Tomorrow By Adrian Tong, CFP®
Insurers are still stuck with 3G, and how you can make it 4G yourself. 3G Plans had been rather common in the financial market for years. And unlike Telos which are slowly moving to 5G, Insurers are likely sucked with 3G for the next few decades. So let’s try to understand such plans. F irst, what kind of plan is it? It’s basically an annuity plan with a death benefit. So this is what happens: 1: The client pays a premium, sometimes a single payment, but usually around 5~8 years. 2: The plan next uses a few years to invest the money, before it starts paying a stream of yearly income to the client. This happens anywhere from the 8th to the 12th year of the policy. 3: The policy pays the annual stream of income until the client dies, which than pays a sum assured, which is usually around the same as the total premium paid, to the client’s estate. o why such plans are called 3G plans? Because it can S theoretically benefits up to three generations. First, the client can buy the plan on his or her child’s life. Next, at the year the plans starts paying out the income, the client can starts collecting it for his or her retirement. Upon the client’s decease, the child, whom is the life assured, will continue receive the income until his or her decease, upon which, a sum of money would be paid to the grandchildren of the client. And hence, they are called 3-generations plans. They can either be in SGD or USD. So how can one make this game a 4G plan instead of just 3G? he client can wait for his or her child to get married, and T produce an offspring or two, and buy said plan on that grandchildren’s life. Hence, the client can received the income first, before passing it to the children, whom would than passed on to the grandchildren, and upon the decease of the grandchildren, the sum assured will be paid to the great grandchildren, thus making it 4G.
F irst, decide between USD or SGD plans. Next, get a quote from the different insurers and decide which one can potentially give higher payouts based on the quote. It’s that simple. So what are the alternatives to these plans? ell, such plans are designed to be management free, they W allows a hands off approach for both retirement and legacy together for the next 2 or 3 generations. However, due to such a two in one feature, they are not known to have very attractive returns. For those whom don’t mind spending more time to manage their money, there are a few hands on approach to achieve the same results. F irst, one can simply buy a normal wholelife insurance policy on their children or grandchildren’s life, for the benefits of the next in line generation. Next, they can use the remaining money to invest into income producing assets, such as REITS, Blue Chip Stocks, Income Focus Unit Trusts, or into the property market. This provides more liquidity and possible better returns than the 3G Plans. o should one purchase such a plan for their retirement and S legacy planning? Well, it all depends on their needs. Such plans are good for those whom prefer hands of approach, and would like to be assured of a stable stream of income from the insurer, instead of taking market risk. They can also be used as a diversification for those with a more aggressive portfolio, it is best for one to look at such a plan from a bird’s eye view and how it can complementary one’s existing arrangements, instead of relying on such plans as a comprehensive solution. Finally, one can also consider using a Will or Trust to complement such plans. For example, the ownership of the plan can be given to a family trust, with the insured being the beneficiaries of the Trust, this can prevent the children from surrendering the policy for a lump sum of money upon the client’s decease. The client can also use a will to leave some part of his or her estate into the purchase of such polices for his or her youngest descendants upon his or her decrease. There are many ways to play with such plans; however it is advisable to consult a CFP and a Lawyer for such complex arrangements.
So, how to choose which of these plans to get?
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Are Your Finances Healthy? By Alfred Chia, CFP® It is recommended to go for regular health checks to assess our health condition. It will check our vitals such as heart rate, blood pressure, cholesterol, etc. It may even detect critical illness early and seek treatment early. When you are healthy, your immune system is stronger.
How about Financial Health? One may seem to be successful with nice car and house but is actually highly leveraged. One may be earning high income but has no savings. Financial crisis will impact them most as their Financial Health is weak. How do you assess Financial Health? Financial Planners are like Financial Doctors. We conduct Financial Health Check by assessing Client’s Financial Ratios. When we evaluate Client’s Cash Flow and Net Worth Statements, we can derive Financial Ratios. We will discuss some of the key Ratios using an illustration: Mr Jin Save, age 35 Salary: $5000 monthly Owns a $500,000 HDB with $400,000 loan (Monthly mortgage: $1,439) Takes public transport Total monthly expense: $2,500 Cash savings: $50,000 1.) Debt Servicing Ratio (DSR) CFP recommends 35% for prudent financial management. In Singapore, Total Debt Servicing Ratio (TDSR) framework is based on 60% for mortgage loan application
inflation. He should invest the excess funds or place in instruments that are according to his risk profile;
3.) Liquid Cash to Net Worth Ratio
it is not a major cause for concern. As he is still young, the ratios should moderate over time as savings increase. It is not uncommon for buyers, even for couples, who had just purchased their first home to have these levels. The debt servicing ratio (DSR) is a more important consideration factor.
This ratio provides an indication of the amount of net worth that is in cash or cash equivalents. A minimum ratio of 15% is considered prudent to meet short term emergencies so that the funds can be liquidated with minimal or no loss of capital unlike investments that may have higher volatilities.
Mr Jin Save Financial Health is in pink of health. He should enhance it with: 1. Retirement Planning 2. Insurance Planning 3. Estate Planning 4. Consider to rent out his spare rooms for extra income.
$50,000/$3,939 = 12 months Pass
He has 50% which is more than adequate. This Ratio reflect our readiness to combat crisis. Pass 4.) Savings Ratio A person should save at least 10% of income for cash savings towards long term goals like retirement. The higher the ratio, the easier and faster it is to achieve financial independence. He has more than 21%. He needs to evaluate investment plan to make his money work harder which is according to his risk profile.
$1,439/$5,000 = 28.8% Pass
Pass 5.) Debt to Asset Ratio
2.) Liquidity Ratio In the event of any emergency such as sudden job loss, an individual should be able to sustain all his expenses for at least 3 to 6 months. The emergency fund can be higher depending on the job security, nature of the industry and expected time frame for any job transition. However, having too much idle funds may impede the growth of assets towards retirement. He can survive up to 12 months without income. However, he has too much idle funds that is not generating returns to beat
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This measures the amount of the assets that are leveraged. The rule of thumb is to have not more than 50% of assets under financing. Debt is a double-edged sword. For example, a good property investment can be considered a good debt while a poor judgement and a high leverage could lead to loss of wealth or even bankruptcy. $400,000/$550,000 = 73% Fail Although the debt to asset ratios is high,
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By going through a Financial Health Check with a Financial Planner, he will have a better pulse of his financial matter. In this illustration, he is financial healthy and can work to increase his fitness. If the Financial Health Check indicate ‘Fail’, it will be a wake-up call to improve on the financial situation.
It is important to do regular Financial Health Check to evaluate the Financial Health Status. Do consult your Financial Planner!
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How to Boost your Financial Resilience By Irene Yee, CFP®
With increased uncertainty brought about by an unprecedented global pandemic, it is essential for everyone to boost one’s lifetime financial resilience by supplementing current national protection plans or financial schemes with financial solutions available from established financial institutions. The key areas of personal finance to review include: 1) Hospitalisation and surgery expenses Hospitalisation and surgery expenses should ideally be managed with not only MediShield Life but also with private Hospitalisation & Surgery (H&S) Shield plans. MediShield Life provides the Insured with lifetime health insurance including pre-existing health conditions, without a maximum entry age to the national health insurance. This is available for all Singapore citizens and permanent residents. This national insurance is tailored for subsidized treatment in public hospitals and pegged at B2/ C-type wards; if you choose to stay in an A/B1 type ward or in a private hospital, for example, you will still be covered by MediShield Life, but it will cover only a portion of your hospital bill. You will need to draw from CPF Medisave and/or cash to pay the balance. Likewise, you can expect to pay out-of-pocket for various types of surgery due to Medishield Life’s sub-limits for surgeries for each procedure. To mitigate these out-of-pocket payments using Medisave or cash, you have the option to take up additional cover through the private H&S Shield plans. Premiums for such an insurance can be partially paid with CPF Medisave ranging from $300 to $900 per year, depending on the age of the insured. 2) Long-term care insurance Long-term care insurance was implemented with ElderShield, an opt-out long-term insurance that covers severe disabilities or the inability to perform 3 of 6 Activities of Daily Living (ie. ADL) such as walking, toileting and feeding. As the current ElderShield covers $400 per month for 6 years if severe disability strikes, this national plan can and should be supplemented with private long-term care insurances for lengthened or even lifetime payout in the event of severe disability. This type of private supplement can be partially paid with up to $600/ year from CPF Medisave.
You may ask, “Why are private supplements still necessary since the ElderShield is already in place?” Consider this: Since long-term care payouts usually occur due to ageing-related conditions, nursing home or home-nursing expenses is a significant longterm care expense. Since current nursing home expenses is in the range of $2500/month, ElderShield needs to be boosted with private supplements to mitigate expected future long-term expenses. 3) Some essential financial resources in the event of Death, Terminal Illness or TPD The Dependents’ Protection Scheme (or “DPS”) is a basic term-life insurance that provides CPF members and their families with basic coverage of $46,000 should the insured member pass away, suffer from Terminal Illness or Total Permanent Disability. The 2 key reasons to enhance or supplement this cover are: (1) DPS covers the insured until age 60 despite Singaporeans’ increasing life expectancy, and (2) TPD definitions are more generous in the recent term insurance for TPD, eg. payout in the event of insured’s inability to perform 3 out of 6 Activities of Living (ADLs) before age 70, compared to DPS’s definitions of TPD. 4) Retirement cashflow planning a) CPF Life Did you know that about 50% of Singaporeans will live beyond age 85, and that 1 in 3 will live beyond age 90? As more Singaporeans live longer lives, it is critical that retirement cashflow planning be done so that there are adequate financial resources for a longer retirement life. Assuming the Full Retirement Sum (FRS) is met by age 55 for 2020, ie. $181000 set aside without a property pledge, CPF Life will provide lifetime monthly income ranging from $1,390 - $1,490 in the default Standard Plan. These are monthly esimates for members who turn 65 in 2030 (Source: CPF Board)
To increase your retirement cashflow to say a minimum $2000 to $3000, supplement this lifetime cashflow plan with private retirement cashflow plan to meet your expected individual retirement lifestyle needs. b) SRS savings The Supplementary Retirement Scheme (or “SRS”) is a voluntary savings scheme that can help you boost savings for your retirement years, while giving you tax relief for the same year of the SRS contribution. The SRS complements CPF savings which are intended to provide for basic living needs after retirement, in addition to current housing and medical needs. Participation in SRS, however, is voluntary. SRS members can opt to contribute up to the annual capped amount, ie. $15,300 for Singapore citizens and PRs for FY2020. SRS contributions may be used to purchase various investment instruments, including private retirement cashflow plans to boost your retirement savings. Investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement, ie. there is a 50% tax concession. Note that withdrawals before applicable statutory retirement age is subject to 100% tax, plus 5% penalty. And that 50% tax concession only applies to withdrawals from the current statutory retirement age of 62, over a 10-year withdrawal window. It is timely and wise to review your personal financial matters now; this will help you find ways to boost your financial resilience by leveraging on available national plans or schemes, and supplementing them with relevant financial solutions from established private providers. Discuss this financial life planning matter with an experienced and reliable Certified Financial Planner who offers you options of financial solutions from different financial institutions to suit your circumstances and needs.
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Is Dependants’ Protection Scheme (DPS) enough? By Lorna Tan Head of Financial Planning Literacy Consumer Banking Group DBS Insurance planning is an integral component of financial planning to boost our financial resilience. A government initiative to bolster our protection is the Dependants’ Protection Scheme (DPS). It is worth your while to understand how it can complement your financial plan. Come April 2021, the maximum sum assured under DPS will increase to S$70,000 from S$46,000 and the annual premiums will be lowered for certain age bands. The maximum age of DPS coverage will also be increased to include members aged 60 to 65, but at a lower sum assured of S$55,000.
6 things you should know about DPS 1. DPS premiums rise significantly beyond age 40 One advantage of DPS is the financial protection provided at affordable premiums. However, most people do not realise that the DPS premiums increase significantly when the insured member reaches 40. For instance, the annual premium stands at $36 ($18 from April 2021) for those below 35 and it goes up to $48 ($30 from April 2021) at the next age band of 35 to 39. The premiums rise to $84 ($50 from April 2021) from ages 40 to 44, and to $144 ($93 from April 2021) from ages 45 to 49. When the member reaches 50 to 54 the premium stands at $228 ($188 from April 2021), and it jumps to $260 at the age band 55 to 59. From April 2021, the premiums are even higher at $298 from age band 55 to 64.
To recap, the DPS is an opt-out term insurance scheme. Central Provident Fund (CPF) members are automatically included under DPS if they are a Singapore Citizen or Permanent Resident from age 21 and have made their first CPF working contribution. While the DPS is simple to understand, the coverage is basic and usually insufficient especially if you have dependants or are servicing a home loan. After all, the aim of this scheme is to provide insured members and their families with some money to tide over the initial period should the insured members pass away or suffer from Terminal Illness or Total Permanent Disability. Source: Central Provident Fund Board
2. Other term plans may offer lower premiums Because of the premium spike after age 40, other term plans in the market may be more attractive. Under the enhanced DPS, for the sum assured of $70,000, the total premiums payable till age 64 under the enhanced DPS (from April 2021) amount to $4,965. On the other hand, the annual premium for a 25-year-old male under Manulife’s ManuProtect Term (II) plan amounts to $184.20 or a total of $7,368 for 40 years till he reaches age 65, for a higher sum assured of $150,000. And for a sum assured of $1 million, the annual premium would be $594. For ManuProtect Term (II), the maximum age a person can be covered is 85. 3. DPS cover ends at age 65 (come April 2021) The statutory retirement age in Singapore currently stands at 62 and is set to rise to 65 in year 2030. So, it is welcome news that the enhanced DPS will cover insured members up to age 65 from April 2021, especially for those who plan to
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work beyond 60. However, do note that most term plans offered by private insurers cover the insured up to age 70 and there are a few plans that extend the cover till age 99. This may be an important factor for those who are planning to continue working beyond the statutory retirement age or require the cover beyond age 65. 4. DPS does not offer limited premium payments DPS requires the premiums to be paid annually whereas most term plans in the market allow more flexibility in that you can choose to pay your premiums over a shorter specified period. 5. DPS has less flexibility There are some benefits offered by other term insurance plans that are not found in the DPS. They include the guaranteed conversion to a whole life or endowment plan, guaranteed renewal privilege and the option to include riders that cover critical illness or accidental death. For example, ManuProtect Term may be converted to any available regular premium life insurance plan (whole life, endowment or investment-linked) offered by Manulife without providing evidence of health while the policy is inforce and before the insured turns 65. After the conversion, there will be cash value for the policy unlike traditional term plans.
Take into consideration when your child will complete university, or when the housing loan is fully redeemed, and/ or when you expect to retire. You can also opt to stagger your term policies which can come with varying sums assured.
There are also a few term plans such as ManuProtect MoneyBack that offers full refund of premiums upon policy maturity assuming no claims were made.
For CPF members who wish to maintain their DPS cover, it is prudent to look for other term insurance plans to boost their cover in terms of the sum assured and for a longer duration, depending on their financial situation.
6. Opportunity cost DPS premiums are usually paid from our CPF savings unless you opt to change the premium payment mode. As our CPF Ordinary Account attracts up to 3.5% pa and the CPF Special Account yields up to 5% pa, there is an opportunity cost in using them to pay for DPS premiums.
Steps to take 1. Work out your term coverage Generally, term insurance is usually less expensive when compared to whole life insurance as there is no cash value when the plan matures. Term insurance is a useful plan to replace loss of income for the family and dependants when the main breadwinner is no longer around or unable to work. Do ensure that both the policy sum assured and the policy term are sufficient to cover the amount and the period that the income is required by dependants or for a loan’s outstanding period.
2. Stay with DPS and consider other term plans
For example, if you are servicing a mortgage, do ensure that you have sufficient insurance cover against death and terminal illness to cover the loan amount. In addition, there are also benefits in most term plans that are not available under DPS. 3. Terminate DPS and buy a term plan Some CPF members may prefer to terminate their DPS early and buy term plans from private insurers which cater optimally to their needs. If you do so, do ensure that you do not miss out on your premium payments. To avoid the risk of lapsing your plan unknowingly, consider arranging for such deductions automatically via Giro or a credit card. In the case of DPS, it is highly unlikely for CPF members to miss out on premium payments as they come from their CPF savings. The writer is head of financial planning literacy at DBS Bank and author of bestseller Money Smart: Own Your Financial Destiny.
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Event Calendar 2020 - 2021
30 April 2020
July 2020
FPAS 20 th Annual General Meeting
2020 Exams Cycle 2
21 August 2020
7 October 2020
Financial Planner Awards 2020
World Financial Planning Day Consumer Series 2020
January 2021 – February 2021
March 2021 – April 2021
2021 Exams Cycle 1
2021 Exams Cycle 2 * For information on the events visit www.fpas.org.sg Event
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World Financial Planning Day 2020 The global financial planning profession will come together for World Financial Planning Day (#WFPD2020) to help raise awareness of the value of financial planning, of having a financial plan and of working with a competent and ethical financial planner who puts clients’ interests first. Date: 07 October 2020
Here is the youtube by FPSB:
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CPF Sharing for Financial Advisors A collaboration between CPF board and FPAS to help professionals to have a deeper understanding about CPF. The speaker spoke on the following “Maximize the interest earned on your CPF savings”, “Boost your savings through top-ups” and “learning about how CPF can value-add to the financial planning for your clients.” Date: 22 September 2020 Time: 2.00pm – 3.00pm
FPAS-SUSS Webinar Series - Financial Planning in Uncertain Times FPAS organized the event in Singapore University of Social Sciences (SUSS) to help students to better understand on ways to tide though the uncertainties and financial planning. In addition, guest speaker, Louis Koay, CFP, shared his real-life experience on how he has helped a client to navigate through this uncertain period of 2020. Date: 17 June 2020 Time: 2.00pm – 3.00pm
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FPSB - Building your Virtual Practice The global webinar by Financial Planning Standards Board, the standards-setting body for the global financial planning profession, for an in depth discussion with speaker Adele Martin, CFP, Australia’s leading authority on financial advice for Generation X and Y. Date: 22 September 2020 Time: 8.00pm – 10.00pm
Find Me a Planner We are excited to launch the Find Me a Planner service at FPAS website, www.FPAS.org.sg soon. Look out for this page! A new look that includes videos and photos of our CFP Practitioners at work! The world today looks much different than it did 12 months ago. We have all been rattled by the COVID-19 pandemic and the challenges it has raised throughout our daily lives. Anxiety levels are undeniably higher around the world as millions of families have struggled to manage jobs, caregiving and education amid great economic uncertainty. FPAS is dedicated to raise the financial literacy in Singapore and to help Singaporeans understand the value of financial planning. This unprecedented time reinforces the importance of having a competent and ethical financial planner in helping you meet your financial goals.
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2020 has been a watershed year for the entire world. The Covid-19 pandemic has upturned every aspect of our lives, from the way we work to the way we live, curtailing our travel itineraries, our life decisions, and our financial plans. Anxiety over our future has spiked as we struggle over how to manage our jobs, our livelihoods, and our health in the new normal. That is why financial planning is even more important now than ever.
Samantha Wong CEO, FPAS
Our goal at the Financial Planning Association of Singapore (FPAS) is to increase financial literacy and help Singaporeans understand the full value of financial planning. It is especially important that we have competent, resourceful, and ethical financial planners to help us. We believe that all people should have access to a certified financial planner and our mission is to benefit the Singaporean by granting the CFP certification and upholding it as the recognised standard of excellence for competent and ethical personal financial planning. In Singapore, we have more than 1,200 CFP professionals who can help you make the best financial decisions for you and your family. Our professionals are trained to understand the complexities of the changing financial climate and to make personalised recommendations in your best interest. We train our CFP professionals through a rigorous certification process and showcase the best of the best at our annual Financial Planner Awards, which honours financial planners who excel in their professional knowledge, demonstrate financial planning skills at the highest level and
uphold best practices in financial planning in Singapore. It reflects the high competency standards in education, experience and in ethics of our CFP professionals, who will help you identify financial concerns, establish a roadmap to achieve your financial goals. CFP professionals are required to act as fiduciaries that put your best interests ahead of their own at all times when providing financial advice, whether it is debt management, home ownership savings, investment planning or setting financial goals for your retirement. You can now Find Me a Planner at FPAS newly launch – CFP Professionals directory! Lastly, I would like to congratulate all our winners of FPAS Financial Planner Awards 2020 and to all the judges and sponsors who have rendered their support to make this first-ever live broadcast Awards 2020 a great success! Hence, FPAS is pleased to announce that we will be launching the Financial Planner Awards 2021 competition in Feb 2021! We will continue the search for Singapore top financial planner in the Banking, Insurance and Financial Advisory sectors. Lastly, I would like to wish everyone a blessed Merry Christmas and a Happy New Year 2021.
Visit our Website www.fpa.sg
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FPAS Financial Planner Awards 2020
Watch the live broadcast of FPAS Financial Planner Awards 2020 on 21 August 2020 @ 9am! www.youtube.com/watch?v=BuNGTTxBOSs&feature=youtu.be
Judging Panel Gary Harvey
Alfred Chia, CFP®
FPAS Vice President CEO St. James’s Place Wealth Management
FPAS President CEO SingCapital Pte Ltd
Rachie Hui, CFP®
Luke Lim
COO and Head of Standards Institute of Banking and Finance Singapore
Managing Director Phillip Capital
Hu Yuanwen, 胡渊文
Deepak Khanna
Associate Business Editor Lianhe Zaobao, 联合早报
Head of Wealth HSBC Bank
Lily Choh
Dato’ Wayne Chen
Head of Institutional, Asia Pacific Head of Distribution Southeast Asia Schroders
CEO GoalsMapper
Goh Siak Koon
Director Institute for Financial Literacy
Dr Ben Fok, CFP®
When: 21st August 2020
Genevieve Cua
Time: 9am to 11am
Vincent Ee
FPAS Virtual Financial Planner Awards 2020
CEO Grandtag Financial Grp
Editor The Business Times
CEO Financial Alliance Pte Ltd
Assoc. Prof Jeremy Goh Principal Investigator Citi-SMU Financial Literacy Programme for Young Adults Singapore Management University
GOLD SPONSORS
TECHNOLOGY PARTNER
BRONZE SPONSOR
SUPPORTING PARTNER
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Aspiring Category
FPA 2020 Winner
FPA 2020 Runner Up
DBS Bank
Great Eastern Financial Advisory
Goh Teng Hui Justin
Soong Jun Cheng Aloysius
Experience Category
FPA 2020 Winner
FPA 2020 Runner Up
HSBC Bank
DBS Bank
Song Ruilin Marcus
Tan Ee Rui Telvin, AFP
Student Category Winner
Runner Up
Nanyang Polytechnic
Singapore Polytechnic
Asher Patrick Chua Wei Jun
Ng Ming Liang
Lim Yee Teng
Jeron Kek
Jerry Yeo (Mentor)
Melissa Loh
Lim Edith
Quak June Yang
Ng Guo Huo Philbert
Rachel Tham
Celeste Yeo Pei
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2021 The Industry-Wide competition by FPAS for Financial Planners in Singapore to be recognized for their Financial Planning Excellence in the Banking Insurance and Financial Advisory sectors. SUBMISSION OF PLAN February - March 2021 ORAL PRESENTATION & MEET THE JUGDES April - May 2021 AWARDS NIGHT & GALA DINNER June 2021
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BRONZE SPONSOR
SUPPORTING PARTNER
