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Financial
Financial
Planning
Planning November 2017
wwwExcellence
.fpas.org.sg
November 2016 www.fpas.org.sg
in Holistic Planning
Highlights
Crowdfunding for Returns
Investment Portfolio Management during Financial Crises
Application of Total Debt Servicing Ratio (TDSR)
Framework for Property Purchase Planning
“ Price is what you pay. Value is what you get ”
~Warren Buffett
Contents
President’s Message .................................................................................................................................................... 1
Chief Editor’s Message ............................................................................................................................................... 2
Financial Planner Awards 2018 ............................................................................................................................... 3
3 in 1 Legacy Planning Tool: Will, Trust & LPA ................................................................................................... 4
Financial Impact of Big Ticket Items ...................................................................................................................... 8
Guest Writer: Singapore Millennial Parents see value
in Academic Qualifications to ensure their Child’s Future ....................................................... 10
Does SRS Need a Promo Code to Increase Exuberance? ................................................................................... 12
Book Review: Adaptive Market Hypothesis by Andrew Lo .............................................................................. 15
Guest Writer: Will Investors Adopt Robo-Advisors, Traditional Advisors or Hybrid Model? ..................... 16
Past Events ................................................................................................................................................................ 19
External Events ........................................................................................................................................................ 21
Kids’ Corner ............................................................................................................................................................. 24
Upcoming Events .................................................................................................................................................... 25
Editorial Board
Chairman Alfred Chia, CFP®
Chief Editor Yash Mishra, CFP®
Members Kee Siew Poh, CFP® Joseph Paul Kennedy, CFP®
Shawn Yap Khoon Juay, CFP® John Sim Wei Tai, CFP®
Adrian Tong, CFP® Samantha Wong
Contributors Yash Mishra, CFP® Shawn Yap Khoon Juay, CFP®
Kee Siew Poh, CFP® Yeo Sze Hau, CFP®
Joseph Paul Kennedy, CFP® Zanice Yeo, CFP®
Guest Writers Deepak Khanna, Head of Wealth Development, HSBC Bank (Singapore) Limited
Niti Guhathakur, CFPCM
Cornerstone Enrichment Pte. Ltd.
Financial Planning Association of Singapore
146 Robinson Road, #04-02, Singapore 068909
Tel : (65) 6372 1030
Fax : (65) 6372 0121
Email : admin@fpas.org.sg
Website : www.fpas.org.sg
CFP®, CERTIFIED FINANCIAL PLANNER™ and are certification marks owned outside the U.S. by Financial Planning Standards Board
Ltd (FPSB). Financial Planning Association of Singapore is the marks licensing authority for the CFP marks in Singapore, through agreement with
the FPSB. AFPCM, AWPCM, ASSOCIATE FINANCIAL PLANNER, ASSOCIATE WEALTH PLANNER are registered certification marks of the
Financial Planning Association of Singapore.
Financial Planning is edited, designed and printed by Asiawide Print Holdings Pte Ltd and published by the Financial Planning Association of Singapore.
Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, neither the
Financial Planning Association of Singapore, Asiawide Print Holdings Pte Ltd nor the magazine’s contributors shall be held liable for any errors,
inaccuracies and/or omissions and no liabilities shall be attached thereto. Copyright of the materials contained in this magazine belongs to the Financial
Planning Association of Singapore. Nothing in here shall be reproduced in whole or in part without prior written consent of the publisher. All rights
reserved.
MCI (P) 122/11/2016
Dear Members
FPAS’ journey in 2017 has also seen new heights being achieved. In
our May issue, I had promised a more targeted approach to members
in terms of events, talks and benefits. Our Tea-Time Talks have
since been changed to become more interesting and include topics
such as foreign properties, soft skills, alternative investments and
general market outlook. Networking events will be more focused on
providing opportunities for members to share best practices. We have
also launched the first of our quarterly focus groups in July with the
objective of obtaining feedback and ensuring constant engagement
with our members. Weekly touch points through interesting articles
via social media and emails have also commenced.
We are committed to ensuring that all Singaporeans have access to responsible and appropriate financial
planning advice and this can be done by raising the professional standards of the industry through
education. The inaugural Financial Planning Conference in March for both practitioners and general
public is the first initiative to promote financial literacy and improve professionalism of financial
planners. FPAS will next hold the Financial Planner Competition and Awards Night to recognize
outstanding financial planners from different distribution channels. We are honoured to be able to
engage Mercer (Singapore) Pte Ltd to be our domain knowledge partner for this competition. More
details are enclosed in this November issue. These 2 major events will be done on a yearly basis and this
is FPAS’ commitment to raising the level of excellence in the financial planning sector.
In line with the education outreach on financial literacy to the public, we are also increasing our
involvement through more pro bono talks to charities, associations and NTUC. This will ensure that
members of the public will benefit from learning more about the importance of a good financial plan.
We will also be launching a new public category within our member base where non-members will be
able to enrol for our talks and events.
Lastly, FPAS is working towards a new version of the CFP study guides in partnership with an established
publisher that are targeted to be launched in 2018 in time for FPAS’s 20th Anniversary celebration. A
new version of CFP Study Guides is in line with our commitment on the quality of CFP qualification
that is practical and captures the latest changes in current trends, market practices and standards.
We are also looking forward to celebrating the first FPAS convocation with our graduates in October.
This brings about a new milestone in recognising the AFP, AWP and CFP mark.
I thank you for your continued support and look forward to connecting with you regularly through our
events.
Joseph Kwok, CFP®
President
Financial Planning Association of Singapore
■1
November 2017 Financial Planning Association of Singapore
Dear Members This edition focuses on the celebration of Excellence in the Financial Planner Competition and Awards Night that was initiated in 2017. We will celebrate their Success and announce the Winners in our next issue. We feature a CFP Guest writer from India to share their insight on whether Investors are looking to adopt robo advisors or pursue a hybrid model? As the year draws to a close, it’s the time of the year where the contribution deadlines loom for the Supplementary Retirement Scheme (SRS). We discuss the common concerns in the article, Does SRS need a Promo Code to Increase the Exuberance? around it. As Spring Cleaning practice, we shed some light on what it means to get your affairs in order through the use of ‘Standby Trusts’ and the 3 in 1 Legacy Planning tools. To get you into the year-end shopping, vacations and purchases that gets us in mood for festivities. We look at where we spend our most dollars in the article Financial Impact of Big Ticket items and how we can potentially save. The Book Review , this time features Dr Andrew Lo’s Book’ Adaptive Markets’ a very insightful read that applies concepts such as asset allocation, risk management, and investment consulting to practical settings and discussed the evolving role of the Financial Advisor . Hope you enjoy the read! Yash Mishra, CFP® Chief Editor 2■ November 2017 Financial Planning Association of Singapore
Financial Planner
Awards 2018
T
he inaugural Financial Planning Association FPAS is committed to raise awareness of the
of Singapore awards for all financial planners importance of financial literacy for the benefit of
in Singapore to be recognized for their all Singaporeans and encourage consumers to take
financial planning excellence in their respective positive planning action.
industry sectors namely Banking, Insurance and
Financial Advisory (FA).
Uniqueness of the Awards
It is the first competition by FPAS that assesses the
Objectives of the Awards financial planning acumen of practitioners from
The first industry-wide competition organized by three major industry sectors in Singapore namely
the Financial Planning Association of Singapore the Banking sector, the Insurance sector and the
(FPAS) in partnership with Mercer, our domain Financial Advisory (FA) sector.
Knowledge Partner, and a panel of prestigious judges
of experts from the Finance industry, regulatory The award also aims to develop and maintain high
bodies, esteemed institutions and practitioners. ethical standards and increase high quality financial
advice within the industry sectors.
This award aims to recognize 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.
The objectives resonate with FPAS vision and
mission to ensure that all Singaporeans have access
to responsible and appropriate financial planning
advice, by raising the professional standards of the
industry through education and a shared code of
ethics.
Competition Details
• Categories – All successful applications will be categorized into THREE industry sectors namely; Banking,
Insurance, and Financial Advisory (FA)
• Rising Star Category* (Individual Awards)
– Three Best Financial Planner Awards for each industry sector
– Top Ten Financial Planners for each industry sector
*Have less than 3 years working experience in Financial industry
I nd i v 66
idua l
• Open Category (Individual Awards) w inn
er s
– Three Best Financial Planner Awards for each industry sector
Corp
3
– Top Ten Financial Planners for each industry sector o
w inn rate
er s
• Company with the most Nominees
– Three Corporate Awards for each industry sectors
For more information, please visit the Awards microsite at www.FPA.sg
■3
November 2017 Financial Planning Association of Singapore
3 in 1 Legacy Planning Tool:
Will, Trust & LPA By Kee Siew Poh, CFP®
T
here is nothing more certain than the
3 Circumstances a Trust Proves
certainty of death and nothing more
Useful
Useful
uncertain than the timing and moments at
which death occur. Yet, for many of us, we spend 1. Too Young & Financially
more time planning for our dream vacation than Immature: Too Much, Too Soon,
planning for our estate. Without proper estate Too Unprepared
planning tools or instruments, a significant part of With only a Will in place, it means that our
the assets, investments and legacy we have built up estate distribution will be in a lump sum.
in our lifetime, could be lost or diminished in value. Hence, when children reach the age of 18, they
What would happen to the people we care about will have the full insurance proceeds possibly
and the values we would like to impart to them? worth $1m or more. When they reach the age of
21, they will acquire title to the properties which
Many people buy Travel Insurance before could effectively make them a millionaire. In
they depart for their holiday to protect against short, while we take years to build our wealth,
unforeseen circumstances. In the same manner, our children could become instant millionaires
before our demise, when we settle all the important without even lifting a finger to work! Many of us
things that matter to the family such as drawing work hard so that we can retire comfortably. In
up a Will and LPA and for some, to even set up a our children’s generation, some of them could be
Trust, it would give our family tremendous peace born to retire. If you are a parent of young children
of mind and protect them against unforeseen today, in the event of common disaster, would you
circumstances. be concerned with your children receiving too
much and too soon? Will this enrich or ruin them?
Is A Will Alone Sufficient? Will this be in their best interest?
The average Singapore family is among the world’s
wealthiest, and yet also experiences one of the lowest With a Trust in place, it is possible for estate
replacement ratio. In the past, it is not uncommon distribution to be delayed or staggered. This
to have 8 to 10 children in the family, and a HDB means that instead of receiving the proceeds
flat could only be worth $20,000. There is not much at 18 or 21, our children can receive it at a later
to plan for to begin with. Today, a HDB could be age e.g. 30 or 35 when they are more financially
worth $1m and for those who own a home, have matured. It is also possible for us to structure
some savings, insurance and investment plans, their the payout in accordance to their educational
estate could be easily millions. And most families needs in the growing up years.
have just 1-2 children.
2. Too Old : Mental Incapacity
Proper estate planning for the average Singapore As the Singapore population ages, one may be
family, therefore, goes beyond simple nomination alone with considerable assets after their spouse
and writing a will. A family trust is frequently leaves them. When a person is alone in their
required to protect their loved ones and assets twilight years, the risk of being swindled rises
against untimely death and to fulfil the aspirations dramatically. We saw this in the case of Chinese
of the family. Wealth and assets could be lost very tour guide, Yang Yin who was eventually
quickly if we do not plan for potential pitfalls and sentenced to jail for cheating Mdm Chung, a
family circumstances that are unforeseeable.
4■
November 2017 Financial Planning Association of Singapore
wealthy widow. families make provision for their special needs
children and allow them to realise their full
It is important to understand the risk of mental potential in life?
incapacity. Recent statistics showed that
Many parents are worried and concerned with
dementia affect more than 1 in 5 persons aged
what happens to their special needs children when
above 65 and more than 1 in 2 person aged above
they pass on. With the support from MSF and the
85. One of the major concerns flowing from an
National Council of Social Service (NCSS), the
elderly person’s mental incapacity is in relating
Special Needs Trust Company Limited (SNTC)
to the management of his assets and property
was set up in 2008 as a charity with the objective
affairs. If he suffers from mental incapacity and
to enhance the financial security and well-being of
he alone is the sole operator of his bank account
persons with special needs through the provision of
and other financial affairs, during the time of
Trust services. The SNTC requires just a minimum
his mental incapacity but prior to death, no
of $5k to set up the trust account. Insurance
other person has the authority to manage his
proceeds or CPF savings could then be nominated
affairs unless so authorised by the Court.
to the Trust to ensure children are being provided
for financially in the years to come.
With a Lasting Power of Attorney (LPA), the
entire process is simplified and a person (the
A Trust for Every Family Situation
donor) is able to appoint his most trusted person
Every family is different and unique. For every
to take care of him and manage his affairs as his
family situation, a Trust can be constructed to suit
donee. Setting up a LPA is not complicated and it
their family objective. Below is an example of how
is an effective way to ensure that the donor is well
one can effectively combine a Will, Trust and LPA.
protected in the event of his mental incapacity.
The 2 trigger events where assets will be poured into
the Trust would be Death and Mental Incapacity.
3. Too Special : Not Disabled but
In the event of Mr Tan’s demise, aside from the
Differently Abled
assets which he has designated as immediate
Special needs children often have unique talents,
hence making them differently abled. How can
Estate Upon Death Assets Upon Mental Incapacity
Immediate
Gifts
$10,000 to
parents Tan’s Family Trust
Will LPA
$10,000 to
siblings
Mr & Mrs Tan
Regular Payout
+
Regular Payout
Conditional Gift Monthly allowances
+ and costs of nursing and
medical care
Withholding Criteria
■5
November 2017 Financial Planning Association of Singapore
gifts, the rest can be poured into the Standby Trust don’t quite know what to do with the rest of their
for distribution to his loved ones in accordance to lives. This success often revolves around the 3 As
the Letter of Wishes. In the event Mr Tan loses his – Acquisitions, Achievements and Accolades. The
mental capacity, the LPA will be triggered such that pursuit of success can be never-ending, sometimes
some of the assets could be poured into the Trust liken to a dog chasing after its own tail and still find
and provide a monthly payout both for him and his the tail one step ahead. How can one move from
loved ones.
success to significance?
As the Trust is set up on a Standby basis, and only
If success is often about the 3 As, significance
triggered in the event of Death or Mental Incapacity,
there is minimal administrative and ongoing can be about the 3 Is – Inspire, Influence and
management cost involved in the meantime. Thus, Impact. It is no longer about pursuing, but in
the solution is very cost effective. It is also very giving, in trying to inspire and influence the
flexible as changes to one’s intention can be made younger generation and imparting the values that
through the Letter of Wishes, and it allows the make us successful and creating a values-driven
person who set up the trust (known as settlor) to legacy. And such values are often caught and not
retain control in this lifetime. taught. This is also where a well-structured Trust
(in combination with a Will & LPA) can help to
Conclusion: Values beyond transfer and perpetuate such values, beyond just
Valuables the valuables.
Many people upon reaching half time, have
attained a good measure of success but after that,
Standing by a Standby Trust – Case Study
Contributed by: Yeo Sze Hau & Zanice Yeo, CFP®
When it comes to setting up a Will and Trust, the common assumption is that it is for married couples
who wants to provide for their young children. However, these can be very effective estate planning tools
for specific purposes in regards to providing for their loved ones or favourite charities.
Let us share on a case of Dr Mark Ng. He is age 40, single with no children. He is a young and healthy
medical professional. He met with us to explore his estate planning needs and decided to set up his Will,
Trust and Lasting Power of Attorney.
As a doctor, Dr Mark Ng has witnessed first-hand circumstances where family members were put in
difficult situations when their loved ones fell into a state of coma (for example due to stroke). The
challenges faced by the family and the decisions they have to make include:
• If keeping their loved one on life support is the right decision?
• What about the increasing long term medical costs that accompanied with the prolongation of life?
• The daily needs like where to stay, types of medical care, etc?
• Making financial decisions like how to manage the existing property, invested assets, tax matters, etc?
• Can the money and assets of their loved one be directed to take care of his/her long term needs as well
as his dependents’ needs?
The costs of long term care can be extremely high and can be a strain to family members. The patients
may not have sorted out their affairs and their family may be tossed into a state of confusion. These led
Dr Mark to question on such issues and how to continue showing his love for his loved ones.
6■
November 2017 Financial Planning Association of Singapore
A standby trust had been set up with customised instructions to address the needs and objectives of Dr
Mark. In addition, a Will and Lasting Power of Attorney (LPA) were done.
A standby trust is basically a dormant trust where assets are only poured into the trust due to a triggered
event (for example in event of death of settlor, which is the person whom set up the trust). One of the main
reasons for such a structure is gifting can be controlled. Instead of giving a lump sum to his loved ones,
Dr Mark is ensured that:
• His parents and elder aunt will receive a constant stream of allowance in the event of his passing and
be well taken care of.
• Upon fulfilling certain criteria, his other relatives will also receive their share of inheritance.
• As he prefers an independent and capable party to manage the financial aspect of the LPA, he appointed
the Trust Company (licensed by Monetary Authority of Singapore) as his property and affairs donee
in the event of his mental incapacity (for example dementia).
Dr Mark can still maintain control of his assets during his lifetime and pre-set instructions of how his
assets to be managed during the mental incapacity period. Above all, there are no annual administrative
charges until the Standby Trust is activated.
Dr Mark intends to live his life to the fullest and is glad to have a peace of mind should there be any
unexpected life catastrophes.
In some ways, setting up a trust can be like buying insurance. Except instead of standing by money for
the family in the event of one’s passing, the settlor is standing by instructions on how his/her assets
including money is distributed and managed for the benefit of their loved ones. He/she is ensured that
their wishes will be carried out to maintain an element of control upon one’s passing. At the end of the
day, it is their way of showing love to their loved ones.
Lasting Power
Will* Standby Trust of Attorney
Death or Mental Incapacity or Mental
Trigger Event Death
transfer of assets Incapacity
Person who does it Testator Settlor Donor
People to be appointed to administer Executor Trustee Donee
Functions
Yes, if there is a
Distribution of Estate Yes Not applicable
pour-over from Will
Management of Assets/Estate No Yes Not applicable
Addressing personal welfare needs in event of
No No Yes
e.g. dementia
Addressing property affair needs in event of
No Yes, if appointed as Donee Yes
e.g. dementia
Features
Allows Assets to be transferred during lifetime No Yes Not applicable
Avoid Probate No Only for certain assets Not applicable
Appointment of guardian Yes No Not applicable
Lump Sum Distribution Yes Yes Not applicable
Staggered Distribution No* Yes Not applicable
*Assuming no trust
Remarks
instruction is included
■7
November 2017 Financial Planning Association of Singapore
Financial Impact of Big
Ticket Items By Shawn Yap Khoon Juay, CFP®
B
ig ticket items are highly-priced $1 Million $500,000 Invest
consumables that we spent our hard earned Home Home difference
@ 3%
money on. Some are inevitable while others
Downpayment $200,000 $100,000 $100,000
are choices. In this article, we discuss three of the
Monthly $3,800 $1,900 $1,900
biggest financial commitments in Singapore. Mortgage
Financial Impact in 25 Years $1,040,000
Home
Assuming a downpayment of 20%, interest rate of
Home loan will be the biggest liability for many 3% and a loan period of 25 years, the table shows
home owners. Home loan is a ‘double-edged the huge difference of more than $1 million!
sword’ as it can provide positive and negative
leverage effect. While Singapore property Car Ownership
(whether HDB or Private) had appreciated strongly, Another big ticket item is the cost of car ownership.
past performance is not an indication for future Singapore is notoriously known for its high costs
performance. Home owners should focus on of car ownership in the world. It is enlightening to
managing their home loan for prudent financial see the responses of Hollywood stars when told the
management rather than to hope for the property prices of cars in Singapore. They are multiple times
price to appreciate like in the past. that of the States. In addition, cars with higher
horsepower usually come with higher insurance
For Singaporeans and permanent residents, the and road tax. Car buyers commonly gauge the
use of the Central Provident Fund (CPF) has affordability of a car based on the downpayment
aided in the ownership of homes. Unfortunately, and monthly instalment. Many failed to calculate
some home owners have exhausted their CPF and the total cost of car ownership and compare it with
risk compromising the primary objective of CPF other alternatives. The real costs should include
- retirement funding. With a median lifetime petrol, parking, ERP, tax, insurance, maintenance,
income of $3 to $5 million, the allocation towards consumables and the occasional “cons” by car
the purchase of a home could significantly affect mechanics. Assuming a car price of $100,000,
the owner’s nest egg. Now, let us find out the downpayment of 30%, interest rate of 2.5% and a
difference between buying a $500,000 versus a hypothetical loan term of 10 years, the true cost
$1,000,000 home. of car ownership is about $1,500 per month. The
8■
November 2017 Financial Planning Association of Singaporealternatives to car ownership are bus, train, taxi, more than a local university. With the internet,
cycling, car sharing and ride-hailing platforms. distance learning and twinning programmes have
Grab and Uber have made transportation more seen increasing popularity. Students need not
convenient to consumers. Now, anyone can be travel so far to another country, spending extra
chauffeured by a “private” driver. A mixture of money on lodging and food. Having an overseas
the various transport alternatives could cost much degree also does not mean a higher starting salary.
lower than car ownership. In fact, it takes longer to breakeven on education
costs. Even though this is the case, there is a well-
Own Car Transport Invest
For Alternatives difference known saying that it is not what you know but who
10 Years @ 3% you know. Studying in prestigious schools may
Initial Cost $30,000 $0 $30,000 connect you personally to people in high places if
you network diligently. Social media like LinkedIn
Monthly $1,500 $750 $750
Expenses are trying to replicate that but nothing beats a
face-to-face communication. The table shows the
Financial Impact in 25 Years $220,000
approximate difference between local universities
You can see from the table that the long term and overseas universities. Note that specialised
consequence (25 years) of owning a car for just 10 courses like medicine and tuition fees of elite
years is more than $200,000. Imagine how much schools cost much more.
another 10 years of car ownership would reduce
your retirement fund by. Tuition Fees List of
Only Local Universities
Education Singapore $40,000 to
$80,000
Nanyang Technological
University (NTU)
We have gone pass the era where parents are proud
National University of
of their children who wear the square academic Singapore (NUS)
caps which indicate a high level of education that U.K. $80,000 to
$240,000 Singapore Institute of
in turn secure a good future ahead. Graduates are Technology (SIT)
rare in those times. Today, having a bachelor’s Singapore Management
degree is not that uncommon. The value of a Australia $120,000 to University (SMU)
$160,000
bachelor’s degree has been called into question Singapore University of
where technological disruptions are happening in Social Sciences (SUSS)
almost every industry. Bill Gates, Steve Jobs and U.S.A. $120,000 to Singapore University of
Mark Zuckerberg are all school drop-outs. Jack $200,000 Technology & Design
(SUTD)
Ma was rejected 10 times by Harvard University.
The idea here is not to quit school but to examine
the cost and value of tertiary education. In conclusion, we should earn enough money
in our lifetime for retirement. The key is to choose
With 6 local universities providing courses in our expenses wisely. The first 2 tables are illustrated
different fields, there is little need to venture using a conservative rate of return at 3% per annum.
overseas to get a tertiary education. The difference The difference is even greater when the returns are
might just be an experiential one. Moreover, an higher.
overseas tertiary education cost several timesGuest Writer:
Singapore Millennial Parents see
value in Academic Qualifications
to ensure their Child’s Future
By Deepak Khanna,
Head, Wealth Development, HSBC Bank (Singapore) Limited
• 80% of millennial parents have started making
plans for their child’s education even before they Average parental spend on
Country their child’s education
start primary school
(USD)*
• 32% of millennial parents will sacrifice their “me
Global 44,221
time” to support their child’s education
Hong Kong 132,161
• One in two millennial parents will consider an
UAE 99,378
overseas university education for their child
Singapore 70,939
S
ingapore parents are spending the most (USD USA 58,464
70,939) among their South East Asia peers on Taiwan 56,424
their child’s local education from primary
China 42,892
school up to university undergraduate level,
Australia 36,402
according to Higher and higher, HSBC’s report in
The Value of Education series. Malaysia 25,479
UK 24,862
Of the over 8,400 parents in 15 countries and Mexico 22,812
territories surveyed, parents in Singapore ranks Canada 22,602
third globally after Hong Kong (USD 132,161) India 18,909
and the UAE (USD 99,378), to contribute the most
Indonesia 18,422
towards all aspects of their child’s local education
Egypt 16,863
costs, including school/university tuition fees,
educational books, transport and accommodation. France 16,708
10 ■
November 2017 Financial Planning Association of Singaporefunding their child’s education using a specific
Millennial parents just as ‘family
education savings or investment plan.
focused’ as previous generations
De-bunking stereotypes of being inwardly focused, While parents recognise that educating a child can
family is central to millennials’ lives – even more be expensive, it is easy to underestimate the full
so than previous generations in some instances. and long-term costs. While majority of Singapore
parents have started to plan and for their child’s
HSBC’s research found that 80% of millennial education, more needs to be done as still a large
parents in Singapore have started making plans proportion of Singapore parents are forfeiting
for their child’s education even before they start other priorities to help their child reach their full
primary school (82% for generation X parents). potential.
Millennial parents are more likely than baby
boomer parents (32% vs 19%) to have forfeited Practical Steps
their “me time” in order to support their child’s Below are some practical actions drawn from the
education. research findings for parents to consider when
planning for their children’s education:
International education on the
rise 1.
Start planning early: Early planning and
Possibly linked to millennials’ extra financial and saving for education can help your children
personal investment in their children’s education, fulfil their potential and limit the strain on
is the growing preference for overseas education. family finances. Seeking professional advice
can help you plan and make better informed
According to the HSBC report, millennial parents choices
(54%) are more likely to consider university abroad 2.
Be realistic about the costs: The costs of
than either generation X (43%) or baby boomer educating your children from school to
(36%) parents. university can be very expensive. Be sure
to allocate enough money to support their
In today’s highly competitive global job market, development and attainment through all stages
education has never been more important. of their education
Singaporean millennial parents’ future ambitions
for their children means they are investing their 3.
Consider university abroad: A university
time and money to help their children get the best education abroad can help your children to be
independent and enhance their job prospects.
start in life including an overseas education.
Make sure to plan for all the implications
including higher tuition fees, international
An education plan but what
travel and exchange rates
about a plan to fund it?
Millennial parents’ forward-looking education 4. Prepare for the long term: Parents can still
plan for their children is not necessarily including be paying for their children’s education when
a plan to fund it. they are well into their twenties. Understand
the extra costs of them studying for longer and
Despite starting with financial planning early in consider putting plans in place to fund these
the child’s life, half of the surveyed millennials should the unexpected happen.
said they wished they had put more money aside
for their child’s education, compared to 38% of The full report can be accessed at
generation X parents. https://www.hsbc.com.sg/1/PA_ES_Content_
Mgmt/content/singapore/hsbcpremier/pdf/value_
Relatedly, 67% of parents across all generations in of_education_singapore_report.pdf
Singapore are funding their child’s education from
day-to-day income, while 49% are using general
savings, investments or insurance, and 20% are
■ 11
November 2017 Financial Planning Association of SingaporeDoes SRS Need a
Promo Code to Increase
Exuberance?
By Joseph Paul Kennedy , CFP®
I
f you have taken a ride hailing platform for your individuals could immediately discover if they
transportation needs lately you are probably are in a good position to benefit from SAV SRS
well aware of the interest and sometimes and how the NVST SRS begins to reduce their
exuberance over the promotions available using projected retirement needs gap. “I’ve got the
the promo code and its corresponding savings. extra positive cash flow this year and am happy
“How much discount am I getting with this code. to contribute X amount of the maximum $15,300
That’s a great deal. I think I’ll WhatsApp my closest (citizen/SPR) or $35,700 (foreigner). This promo is
friends to share the news that rides provided by the great! I’m going to save X dollars on next year’s tax
X Company today are free.” payments and at the same time accumulate assets
for my retirement”.
The sharing of promo codes seems to spread
like wildfire. Why not give the Supplementary Folks, we advisors are this app at the moment. We,
Retirement Scheme a promo code to help it to who meet potential beneficiaries everyday can help
spread even further to those who can benefit? SRS to spread the word.
has effectively been a promotion since 2001. It
is a tax savings promotion that expires every 31 It is encouraging to see the take up for SRS continue
December. As advisors, we can help spread two to grow. There were more than $7 billion cumulative
mock promo codes: contributions by the end of 2016 from more than
1) SAV SRS – contributing to the scheme 127,000 account holders. Anecdotal evidence
2) NVST SRS – investing the contributions tells us that a surprising number of individuals
have either never heard of the scheme or have not
Type these codes into a future phone app and investigated to see if it is suitable for their specific
12 ■
November 2017 Financial Planning Association of Singaporesituation. We still have work to do to spread the client education would likely bring this number
word of the SAV SRS mock code. We should be to a more appropriate level. The three SRS operators
involved to help clients review regularly since their pay an annual interest rate of only 0.05%... and then
situation changes frequently. there is inflation.
Perhaps even more surprising is the lack Not everyone is a good candidate for
of use of the NVST SRS mock code. The statistics SRS, but for those who are, let’s share the mock
provided at the MOF website show that almost promo codes. As we share, here are common
35% of the $7 billion is cash. While holding this objections followed with some information for
asset is appropriate under certain circumstances, discussion.
Concern #1:
Aren’t the investment options quite limited?
Investment options include shares, bonds, unit trusts, fixed deposits and insurance products. This offers a
wide range of investments - many of which we likely recommend outside of the SRS.
Concern #2:
If my client dies prematurely, wouldn’t the estate experience a hefty tax liability with 50% of the entire
SRS holdings taxed in one year? The client would no longer benefit with the option to spread the
withdrawal over a full 10-year period of time.
Up to $400,000 tax exemption for withdrawal upon death or terminal illness under a prescribed formula
has been available since YA 2016. There could be no tax on the first $400,000 meaning 100% could go to
your estate under the scenario you presented.
Concern #3:
With a withholding tax charged on my permanent resident and foreign clients, why would I
recommend SRS to them?
Take note that withholding tax is not the final tax. Depending on their tax residency, they may get a
refund from this withholding tax and pay at a rate that justifies the contributions. Run the numbers, they
can be quite favorable under many scenarios.
Concern #4:
My client prefers something much more flexible than an investment that can only be taken out at age
62. Why would I want to lock up my client’s money?
Encouraging individual to set aside money for retirement is one of our value propositions. The SRS is
more flexible than many of the solutions we offer our clients. Take note that there is a 5% penalty fee
and tax must be paid on any premature withdrawal. However, compared to other insurance policies that
have a long duration, SRS may hold up quite well. In fact, SRS may be able to be used for some of those
policies.
Concern #5:
Doesn’t paying tax on the profits of my SRS investments make it less than desirable?
Fifty percent of the entire SRS amount withdrawn has tax liability. However, it is expected that most will
still pay 0% or little tax on the 50%. Currently the first $40,000 of SRS withdrawal draws 0% tax if there is
no other income for the year.
■ 13
November 2017 Financial Planning Association of SingaporeConcern #6: I’m concerned that income tax rates may be higher at the time of withdrawal. Should I be concerned? This is an unknown. Taking advantage of known tax savings would be my recommendation in lieu of being overly concerned about the future that is out of our control. Is it possible that tax rates could be lower in the future? Concern #7: What happens if the withdrawal age changes from 62 to 65 or even age 70 in the future? When will my clients be able to start taking out SRS assets? As long as the first contribution was made during the time when 62 years of age was the legally prescribed withdrawal age, you can be certain that it will age 62. Concern #8: My client receives much tax relief in the form of Working Mother Child Relief. Why should she contribute to SRS? The personal income tax relief maximum limit has been set at $80,000 beginning with YA 2018. SRS contributions would not be a good recommendation for individuals who will not receive any tax benefit. Concern #9: My client has a high income but currently cannot afford the contributions. He is having difficulties with his cash flow. Should we try to take advantage of SRS? Affordability is a key consideration for savings and investment planning. This is not likely to be the right time to contribute, but keep it in mind, when the cash flow allows him to safely take advantage of SRS, do so before 31 December. In some cases, he may have an asset that is inappropriate for a healthy portfolio in terms of diversification, for example. The redirection of that investment into SRS could create a better overall portfolio while reducing his tax liability. You have likely heard similar objections from in previous November FPAS Magazine articles fellow advisors and clients. Let’s do our best and stay updated by visiting the SRS section on to get the appropriate clients excited about the Ministry of Finance website. Get acquainted tax savings and interested to review if it is and share it as if it has a promo code. suitable for them. More SRS details can be found 14 ■ November 2017 Financial Planning Association of Singapore
Book Review
Adaptive Market Hypothesis by Andrew Lo
Review by Yash Mishra, CFP®
T
his Book is a very insightful read. The author The consultant can assist managers and investors in
develops a qualitative and descriptive framework dealing with preferences in a more serious fashion.
referred to as the Adaptive Market Hypothesis Instead of simply matching an investment product
(AMH) that develops concrete insights when applied with a buyer, the consultant can offer three far more
to practical settings such as asset allocation, risk valuable services:
management, and investment consulting.
1. Educating investors and managers about
Modern Investment theory and Practice is currently preferences, expectations, and potentially
based on the Efficient Market Hypothesis (EMH). The detrimental behavioural biases.
construct is on the notion that markets fully, accurately 2. Assisting investors in articulating, critically
and almost instantaneously incorporate all available examining and, if necessary ,modifying their
information on market prices. Underpinning this risk to suit their stated investment objectives,
further is the assumption that all market participants are constraints and current market conditions;
rational economic beings, always acting in self-interest 3. Matching an investment manager’s preferred
and making optimal decisions by trading off cost and investment process with an investor’s suitably
marginal utilities all statistically weighed up. This has modified risk preferences.
come under question given documented departures
from rationality by a psychologists and experimental These new services may be more challenging than they
economist. It has shown specific behavioural biases seem. In many cases, consultants will be the bearers of
that are apparent and easily exhibited in human bad news. However, that is the essence of fiduciary’s
decision making especially under uncertainty. Several responsibility to have the client’s best interests in
of these are not desirable a outcomes for an individual mind, and how else can a client’s best interests be
s economic welfare. determined except through a deep understanding of
his or her preferences?
In the book, for example, the AMH implies the
following thesis: The very best consultants already do this in an
• Equity risk premium is not constant through time informal and intuitive manner by investing time and
but varies according to the recent path of the stock effort in establishing long-term relationships with
market and the demographics of investors during their clients and their managers.
that path
• Asset allocation can add value by exploiting the However, a more systematic approach using the latest
market’s path dependence as well as systematic innovations in psychological testing and investment
changes in behaviour technology is likely to yield even more significant
• All investment products tend to experience cycles benefits and for a broader set
of superior and inferior performance of consultants. It also requires
• Market efficiency varies continuously over time and the financial consultants to
across markets; and be sensitive to the changing
• Individual and institutional risk preferences are not nature of financial markets
likely to be stable over time and the ebb and flow
of investment products
The aspect that I found particularly interesting as a and market and must
financial consultant is the envisaged ‘Evolving Role monitor not only current
of the consultant’. It lays out the argument for why performance characteristics
independent third parties, investment management but also the cyclical nature
consultants are ideally positioned to play a central role of each asset class and
in the asset management industry. Within the context how it relates to current
of the AMH and behavioural finance, the consultant business conditions.
can provide several valuable services that are currently
not available such as the following:
■ 15
November 2017 Financial Planning Association of SingaporeGuest Writer:
Will Investors Adopt Robo-
Advisors, Traditional Advisors
or Hybrid Model? By Niti Guhathakur, CFPCM
I
n a recent interaction with a distinguished This raises a question in most of our minds whether
group of financial advisors and investors, I was a robo-advisor is merely an enabler or would it
asked what is it that you define as a common substitute human intervention altogether? The slow
objective of a robo-advisor and an advisor. The first adaptation of robo-advisory in the financial world
though that occurred to me was both exist to serve as compared to all other sectors clearly showcases
the investor and so the ‘financial well-being’ of the that human intervention is required when investors
investor has to be the biggest objective of all in the want to invest their hard earned money. Thus a
financial industry. HYBRID model appears to be a win-win strategy
and most investors seem to be moving towards it.
A robo-advisory is an algorithm based platform
that provides a financial plan based on the The hybrid model facilitates risk profiling, goal
investor’s risk profile, goals, monetary and physical setting, creation of model portfolio basis the risk
assets.profile of the investor and an automation model advisors that can share latest developments, products
to inform the investors about the value of their and refer clients to ensure the investor’s portfolio is
existing investments. This report could be discussed well managed and the advisor does not miss any
and shared with the advisor to formulate a further opportunity to enhance the investor’s portfolio. An
customised detailed financial plan. advisor must spend at least 60% of his time and effort
doing the following four major activities:
What’s next?
The financial planning industry appears to be at 1. Advertising and Marketing: Let the world
an interesting juncture with the fast developing know you are in business. Most importantly,
FINTECH industry. Advisors can benefit from they should know you are an expert in this
this opportunity through a detailed understanding subject. You could write blogs, publish articles
of the investors behaviour and needs. If you have on LinkedIn, Facebook and be present on B2B
made the choice to be a financial advisor, you and B2C platforms where both investors and
should commit enough time to meeting more advisors exist.
people, sharing knowledge, dispelling fears and
encouraging action. 2. Sales: Have a strong value proposition. You
should be able to explain the significance and
We are now in a flat global economy and everyone transformation you can bring into the life of
clearly understands the importance of portfolio an investor. Your sales pitch should be able to
diversification across asset classes and across illustrate the benefits in a simple language in a
geographies. Thus, it is imperative to stay connected mathematical manner.
with the industry and form a global community of
3. Client Management: Keep your client’s best
interests in mind. Keep updated on your client
portfolios and connect with them regularly to
maintain and grow revenue. Focus on this the most.
4. Business Management: Optimise and benefit.
It is imperative that every advisor upgrades
and works towards raising the bar. Evaluate a
customized B2B model that could support your
sales, client management and business strategy
with an AI (artificial intelligence) robo-advisory.
You could evaluate the recently launched
assetpie.com that covers all the areas that an advisor
would need to maximize revenue in the most cost
efficient manner. Assetpie is a global financial
marketplace that connects investors with advisors
and advisors with other advisors. A true B2B and
B2C platform that is set to revolutionise the financial
services industry with its robo-advisory enabled
hybrid model that benefits both investors and
advisors.
■ 17
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20 McCallum Street #07-01 Tokio Marine Centre Singapore 069046 (Company Reg. No. 194800055D)Past Events
A series of soft skills training was piloted as part of FPAS Membership Benefit initiatives. It was conducted
during our Tea Time Talk from June to September 2017. This was in collaboration with Momenta Group, a
people development company. Our members gained knowledge and tips on that helps expand their network.
Part 1 of 3: 19 June 2017 – Executive Branding & Power Networking by Pang Li Kin
3 Key takeaways:
Look the part – identify and develop your executive brand and style that is aligned with your professional
goals
Stand out to succeed – project a powerful presence through your appearance and deportment
Network with confidence – equip yourself with networking tools and practice how to manage and handle
difficult conversations
Part 2 or 3: 16 August 2017 – Effective Prospecting by Carl Thong
3 Key takeaways:
Improve your selling chances by capturing the attention of your prospect
Leverage the power of referrals
Increase the “permission to proceed” from the first few seconds of engagement
■ 19
November 2017 Financial Planning Association of SingaporePart 3 of 3: 13 September 2017 – Consultative Selling by Carl Thong and Marco Low
3 Key takeaways:
Understand the psychology of “buying” decisions and leveraging the “buying process”
Discover what clients truly value and articulate your unique value proposition
Develop “best practice“ sales habits
FPAS Tea Time Talk: 19 July 2017 – Half Year Market Review
A half year market outlook in collaboration with Thomson Reuters who has invited the following speakers for the
talk; Dennis Quah from Columbia Threadneedle, Ned Phillips from Bambu and Rick Lloyd from Thomson Reuters.
We’ve been making friends
in Asia for over 25 years
Your savings, investments and protection partner
www.fpinternational.sgExternal Events
7 September 2017: Singapore Institute of Landscape Architects
(SILA) – LA Week: Financial & Legal Talk
FPAS participated in SILA LA Week giving a Financial talk to their students – “Think Big, Start Small,
Build Deep” by Ms Kee Siew Poh, CFP®.
SILA’s youth wing enjoyed an interactive financial session with Ms Kee and a forum with Ms Elaine
Phang and Mr Timothy Wu, lawyers affiliated to Asia Law Network.
9 September 2017: National Senior Volunteer Month by
RSVP Singapore
RSVP Singapore’s third run of NSVM! It was a day of fun-filled activities and talks by other voluntary
welfare organisations, corporations, and government agencies.
GOH was Minister Chan Chun Sing and special guest appearance by President Halimah Yacob.
FPAS participated in conducting a talk on “Investing Wisely during Your Golden Years” by Daniel Tan.
■ 21
November 2017 Financial Planning Association of Singapore27 September 2017: NTUC U Associates Exchange Event between FPAS and IEA (Institute of Estate Agents, Singapore) The inaugural NTUC U Associates Exchange event in collaborations with IEA and special guest speaker Mr Lee Chiwi from Rockwills. The event provides networking opportunities for exchanges of knowledge and skills between the two practitioners from financial planning and real estate. 22 ■ November 2017 Financial Planning Association of Singapore
TAKING TRUST
TO THE NEXT LEVEL
You have reached the pinnacle of trust. What’s next?
Trust is the foundation beneath every relationship. Trust is gradually built over time, like charging a rechargeable battery. Let’s call it the “Trust
Battery”. You work consistently on gaining your client’s trust to fill up the battery.
The above analogy sounds easy, but on the ground, we know that trust building is easier said than done.
Many of us start off, hand holding clients through the jungle of financial products and services out there, asking questions which prick and pry at
the clients’ “Great Wall” to unravel the slightest hints of their needs.
The trust building starts to form as we begin to know more about our clients and how we can position ourselves to add value to them.
As we present them with workable solutions to their needs, they begin to appreciate our efforts. Over time, we meet more of their needs and
soon, on their own initiative, they ask us for advice. At this point, the Trust Battery is 50% charged.
Let’s pause for a moment here, as I can hear your violent objection at my writing that the Trust Battery is only 50% charged. Do hear me out. It is
aptly at 50% because the clients can choose whether or not to act on your advice. The decisions lie with the clients.
Time passes and soon you have built a track record for yourself. The clients have seen that you could deliver professionally and now hand you
a sum of money and ask you to manage it on their behalf. You have reached the pinnacle of trust with the clients and the Trust Battery is now
fully charged.
You can take this trust to the next level by managing clients’ funds on a discretionary basis. In this role, you are now the decision maker on how
to invest clients’ funds and your actions will need to be transparent to the clients to maintain their trust.
by Anthony Hoe, CFP®, Chief Investment Officer and Sebastian Goh, Portfolio Manager, Managed Account Services with Phillip Securities Pte
Ltd. Phillip Securities has core and independent portfolio managers who manage clients’ monies under its Managed Account Services.
Independent Portfolio Manager
Taking it to the next level
Are you already advising your clients on their investment decisions and documentation of your investment executions.
needs? You would have earned the trust of your clients who Requirements
act on your financial advice. Now, you can take this trust
to the next level and scale your AUM business by managing • Degree holder
your clients’ funds at managed account service level on a fee • Experience in financial advisory, equity research, dealing
sharing structure. or portfolio management would be an advantage
• Good interpersonal and communications skills (both
Capitalize on an exciting opportunity to run and manage verbal and written)
your own investment strategy. Leverage on the PhillipCapital • Ability to build and retain a client base for Managed
brand, investment platform and support and your years of Accounts
investment expertise to take your business to greater heights. • Meets the Guidelines on Fit and Proper Criteria, including
but not limited to, competence and capability and
As an independent Portfolio Manager, you will be responsible financial soundness and have the prerequisites to apply
for marketing Managed Account services and managing for a Representative Licence for Fund Management
these portfolios. You are required to engage with the
account holders and be responsible for the performance If you are looking for an environment of growth and
and asset growth of their portfolios. You will actively engage opportunities, please direct a full resume, stating present and
in the investment process including securities research expected salaries to the HR Department at:
and selection and maintain the basis for your investment recruitment@phillip.com.sg
We regret that only shortlisted candidates will be notified.
Brought to you by Phillip Securities Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197501035Z.You can also read
