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The new insurance sales tactic: Buy Term Invest the Rest in Unit Trusts

What I hear from some of my acquaintance is that there is a change in tactics of  some advisory firms.

They do see the prevailing trend that because of the internet, more people know about the virtues of Term Life Insurance and see Whole Life Insurance as costly insurance (see here)

Being the ever evolving salesmen, the tactic have shifted to

  • recommending term insurance through the buy term and invest the rest plan
  • sell the invest the rest through many unit trust

This in turn use a prevalent generally good methodology to make people accept the idea. The cheap insurance component also makes it more appealing.

Since money is freed up, it allows the advisor to recommend a suite of unit trusts where they can earn recurring commissions from.

Because most are concern over low interest rates in savings and the need for protection, it is likely this is easy to sell.

The caveat for the consumers are these:

  • The advisor is not well train in advising setting up a portfolio that is balanced, aligned to the customers risk profile
  • The advisor and the customer buys into the latest fad, where they usually do the worse due to reversion to the mean
  • Unit trusts are actively managed and majority don’t do well versus indexed ETF which are available to Singapore investors
  • The sales charges and expense ratio result in long term high hurdles which active managers are unable to beat

Overall the situation financially is perhaps better for the consumer versus old sales practices but the consumer can still do better.

Some slides

Numbers here show the % of funds for each year that UNDERPERFORM the index. This means that you pay a manager thinking they can manage the money better than you, keep you from losing money.

This basically show that consumers have a high chance of selecting a fund that will do poorly versus a mechanical means (so basically why pay them management fee at all)

I would even admit that as an active manager of my own funds I do struggle to beat the performance index as well.

The hedge fund managers are suppose to be the smartest guys around, assess to the best resources so they should do better than the unit trust isnt it. This article here (Hedge fund is for suckers) outlines that the majority of the hedge funds actually didn’t anticipate this rising bull from 2009 onwards.

The unit trust manager earns an annual fee as high as 2% on top of the sales charges you pay when you buy. That’s possibly 4% per annum cost.

If the long term return of equities based In the past is 6-7%, before the war you have already lost 4%.

Index ETF in Singapore at most cost an expense ratio of 0.65% and the commissions if you invest in lump  would cost around 0.256% (if you use a platform like Standard Chartered Trading) for a total of 0.9% (verus 4%)

This chart shows the difference 1% will make to your return.

Stick to a low cost ETF investment strategy

For most folks who lead a normal life, and do not want to get into the active participation part of investing too much, an investment into 2 broad based ETF would be a better strategy

  1. Set up a brokerage account like Standard Chartered Online trading
  2. Buy a domestic based ETF – SPDR STI ETF or Nikko STI ETF
  3. Buy a global stock market ETF – Vanguard Total World Stock Market ETF listed (Ticker VT) in US or Vanguard FTSE All-World ETF (GBP) (Ticker VWRL) in UK. Singapore’s ETF majority are synthetic unless a viable alternative, it will be better to stick to these choices

To get started with dividend investing, start by bookmarking my Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.

Make use of the free Stock Portfolio Tracker to track your dividend stock by transactions to show your total returns.

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Wednesday 24th of July 2013


I refer to the first graph showed, it is a graph data of actively managed funds and the percentage of actively managed funds that underperformed the index, grouped accordingly to value/blend/growth stocks.

However, there is no data of passively managed funds for comparism.

Or Do i just get the wrong understanding from the graph?

I actually agree that sometimes paying these fund managers whom you thought possess more skill and knowledge don't quite work out. Some funds change their fund managers too. And suddenly we become forced to accept their way of investment - which may not be something i agreed for initially.

Or maybe I just haven't had a fund who changed their fund manager for good.


Friday 9th of August 2013

Hi Sophia, for passive managed funds you can take a look at the record of DFA and Vanguard.

the issue for passive index funds and ETF are the tracking errors, which should be quite close to the index.

it is much more drastic for active funds as they have a stress to beat the index.

then there are the closet indexes who leech more fees but just stay close to index.

the fund managers will say the do a group decision making, so one manager leaves do not make a diffference.

2 issues, a good manager even for bill miller who have a long track record of being the index consecutively only to severely underperformed in the great financial crisis.

the underperforming funds get combine into better ones. so this table you see is actually the result of the best of the best. and it still look rather bad

Daily Gains Letter

Wednesday 17th of July 2013

Hi In my opinion it is a great post about the new insurance sales tactic.I think term investment is very good option.Anyway thanks for this great sharing.


Tuesday 16th of July 2013

Hi for the info of your readers, standard chartered may be providing a lousier exchange rate when u trade in the US market, as compared to using another broker.. Also, the dividends received will be taxed 30%. Just something to consider when you decide to buy a vanguard etf in the US market (:


Tuesday 16th of July 2013

Hi for the info of your readers, standard chartered may be providing a lousier exchange rate when u trade in the US market as compared to the local index etf. Also, the dividends received will be taxed 30%. Just something to consider when you decide to buy a vanguard etf. (:


Tuesday 16th of July 2013

Thanks for informing. But which would you think is better. A better tracking etf at lower cost or illiquid etf that you need to buy with a larger spread


Sunday 14th of July 2013

Hi Drizzit, wondering how can one purchase the VT or VWRL in Singapore? Would it be through a brokerage firm, or is there another way of doing it?


Monday 15th of July 2013

you will need a brokerage firm that allows you to trade in the US stock exchange (in the case of VT) or London stock exchange (in the case of VWRL)

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