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Beware of the new-age financial wolves

The investment industry is a remarkable industry. There is so much innovation in a space where the nuts and bolts have always been the same. Put them in the hands of investment bankers and you will see them conjuring up products to sell to you. Whether that is to your advantage is another matter.

We always advocate that going to a fee based advisor is a better route due to less economic bias in their advisory service. Yet this article by FELDER Report highlights the CON ARTISTS are shifting to a fee based model. And you may not be there to gain:

Make no mistake. There are plenty of wolves left on Wall Street. They just don’t call themselves wolves anymore. In fact, they do everything in their power to look like innocent, cuddly sheep. They setup as RIAs now. Many even preach a low-cost, passive or index-based approach to investing, aligning themselves with the likes of Burton Malkiel, Warren Buffett and Jack Bogle, some of the most respected names in the business.

It’s the ultimate hypocrisy. You see, while they preach a low-cost approach and may actually use low-cost products like index ETFs, they’ll charge you an arm and leg for the privilege – as much as 2% per year. As Meb Faber put it, “you’re a predator if you’re charging 2% commissions and or 2%+ fees for doing nothing.”

This doesn’t seem surprising to Singaporeans, considering the Infinity Global Index Fund cost 0.95% in expense ratio! In Singapore, the index ETF are low in liquidity, high in expense ratio compare to their US and UK counterparts.

That chart above shows the growth of $100,000 over 40 years assuming a rate of return of 9.68% for the index fund (the return over the past 40 years) and 7.68% for the investor paying 2% to his adviser. The DIY guy ends up with a little over $4 million and the guy with the wolf, I mean adviser, ends up with a little less than $2 million. That’s right, the wolf ends up eating over half of your profits.

Many failed to realize the benefits of these index ETF or funds is firstly about COST Advantage and secondly the passive nature of the fund. The most simple analogy is that, if you purchase a HDB flat, you would sourced for the lowest interest rate.

Suppose on your $300k mortgage over 25 years, you found a fixed interest of 2.6%. Your total interest paid over 25 years equals $106k ( bet you might not realize your interest is almost 1/3 of your mortgage. Compounding works negatively as well!)

You found a competitive mortgage at 1.6% fixed interest. Your total interest paid over 25 years equals $63.7k. You save 40% in interest.

Think about what you can do with the $42k interest saved.

You can rationally evaluate this proposition, yet you cannot evaluate high cost investment products the same way.

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.

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My 15 HWW

Thursday 18th of September 2014

Hi Kyith,

Another example of "framing" which you emphasized very strongly about during our conversation.

Guess people are more affected by a situation when they have to "pay more" (loans) rather than another when they "earn less" (high expense ratio) , even though the amount we are talking about could be the same $40k.

I guess product designers understand these biases really well.


Thursday 18th of September 2014

Hi 15hww,

Thanks for sharing . finance products are the only products that the consumers are perfectly OK when you don't tell them the cost of things when you contrast this to the house where all the stamp duties and commission are laid out upfront.

Another reason is that they felt its perfectly justifiable to pay for that,not knowing, that at best they stick really close to the index.


Thursday 18th of September 2014

Some of our trading platforms like OCBC, VIckers allows us to buy US stocks. So are we allowed to buy ETFs from their exchange?


Thursday 18th of September 2014

Hi Caleb , yes you are but do be aware of dividend withholding taxes and death taxes which makes things more complicated .


Thursday 18th of September 2014

The STI ETF (ES3) by State Street has an expense ratio of 0.3% and is one of the more liquid ETFs listed on the SGX.

For S&P500 ETF by State Street I suggest buying directly from the NYSE AMEX instead on the SGX. Expense ratio is 0.1%.

Vested in both.


Thursday 18th of September 2014

Hi jw, yes only the sti etf is non synthetic and looks to be worth it but if I were to be honest the expense ratio is even higher than a vanguard world stock index etf. It should be cheaper than that If u ask me


Thursday 18th of September 2014

still waiting for vanguards to hit sgx


Thursday 18th of September 2014

Hi Steven,

Check out my comments to James, I felt that the market may be too small for them. This space is waiting to be disrupted.


Wednesday 17th of September 2014

I hope there'll be a low-cost (<0.5% expense ratio) method to invest in Vanguard ETFs. The ETFs trading on SGX are just too illiquid.


Thursday 18th of September 2014

hi James,

it is all our dreams, but Vanguard have been here serving the instituitional clients for some time. perhaps the size is not large enough or mature enough for an ETF

Best Regards,


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