Last Updated on 10, April 2014
I read with dismay about a case in which a man left nothing to his legally married wife upon his demise. Instead, it appears that the only insurance – dependants protection scheme – was left to his children born from previous marriage through nomination. You can read about it on Mr. Tan Kin Lian’s blog post: HERE. It is difficult to comment on the case as little facts are presented. But in my experience as a financial planner, majority of the Singaporeans are like this but they do this unintentionally. Most of the time it is due to ignorance and careless attitudes. For example, I cannot understand why parents love to buy endowments for their children’s education when their (parents) own coverage is only $50,000 usually in just a whole life policy. Can a young child survive with a death proceed of just $50,000? If the expense to raise a kid is say $1000 per month over 20 years, it does not take a genius to calculate that the total cost is at least $240,000. Add in existing mortgage loan, support for other children, own elderly parents and inflation etc it will easily require at least $500,000 to $1 million in sum assured for a sole breadwinner.
Another matter that is out of most people’s priority is estate planning. No point buying insurance when the proceeds are distributed to the wrong people. Even if it is distributed to the right people, it ends up in the wrong hands. In the above post in Mr. Tan Kin Lian’s blog is a classic example of poor estate planning – or rather lack of it. At the end of the day, the one who suffers is the immediate family.
Most people in Singapore do not appreciate the work of a professional financial planner. Instead, they choose to engage the services of financial practitioners which they can see immediate results. For example, many people would be keen to talk about investments and saving plans with their financial advisers because investments return can be quantified quite easily while single premium endowments that provide a minimum guarantees give people the confidence of gains. Such short term quest for immediate gains and the desire to see quantifiable results from their financial advisers often mean that their financial well being is not taken care of.
The true work of a professional financial planner focuses of matters that are preventive in nature. Preventive financial planning are: insurance (real one and not those fake insurance), estate planning and retirement planning. These three disciplines in financial planning produce no immediate result. Often, the results will never be seen by the direct customer. As an example, a client will never see the death proceeds of a term insurance because by definition the insurer pays death claims upon death of the life assured. Instead, the “result” is experienced by the client’s family like the client’s surviving spouse and children. If children are still small, they will have no clue what is term insurance. If the spouse was not involved in the decision making process in purchasing the term insurance, he or she will never appreciate the fact that the financial planner earns little or nothing from the term insurance. The surviving spouse will be thanking the insurer for the payout rather than the financial planner afterall the payer of the cheque is the insurer – not the planner. Moreover, the financial planner may have already retired from the industry and thus will never be informed by his ex-insurer that a claim is made against one the policy he sold. In other words, it is highly unlikely that the financial planner’s work will ever be appreciated or known.
Similarly in terms of estate planning, the surviving spouse and family will never know why the client took up the recommended estate plan proposed by a professional estate planner. The surviving family may think that their daddy/mummy cared for the family but little do they realized that those decisions made by the demise were proposals and hardwork done by someone else called the professional estate planner. By the way, writing a Will isn’t estate planning and I’ve never come across anyone who has done estate planning. Similarly (and negatively), surviving spouse and family will never be able to understand why their daddy left nothing to his family and worst, left whatever miserable assets to someone outside their family such as an ex-spouse. Little do they realized that it is often ignorance that is the source of this problem.
Medical practitioners such as physicians and surgeons often earn high income because their clients (patients) are willing to pay a high fee as the skill of a medical professional can be judge on a short-term basis. A successful operation can be known almost immediately after the operation. A cancer patient with no relapse over a 5 years period is considered successful to most man-in-the-street. Because medical practitioners’ skills can be easily judged based on the short-term outcome, their skills are highly priced. The market rewards them with high income and prestige.
Quite the opposite, the skill set of a financial practitioner cannot be judge over a short-term basis. Even if his skill results in a positive outcome, as I have already mentioned the direct client will never know and his surviving family members would never come to realization who exactly was responsible for their daddy’s good decisions. Because many financial advisers eventually come to this realization of non-appreciation for good financial planning, they have decided to focus on selling products that produces tangible short-term results namely in investments and savings. That is why the Life Insurance Association statistics shows that the average sum assured of regular premium policy sold was only $53,535 despite 72% of the sales done through partial or full fact find. Also, 89% of the payout by insurers has noting to do with insurance. You can read about this in my blog: LIA's Robust Sales Figure of Life Insurance Unrelated to Insurance
Remember, poor financial planning results in suffering of one’s love ones. It does not affect the client directly.
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