The World of Finance As You Know It, Is Changing


24 Jul The World of Finance As You Know It, Is Changing

A series of events happened over the past couple of weeks and I would like to pen down some of my thoughts.

How to invest if you have 20k or more. 

An article with the above title appeared in the Sunday Times over the weekend. At first glance it was innocuous enough and some sound advice was being dispersed.

It recommended people to ‘define your investment objectives, time horizon of different types of investments, aim for overall savings to yield at least as much as the inflation rate, assess your risk profile and do your homework‘. It goes on to suggest that investors should adopt an investment strategy that they are comfortable with.

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Good old conventional advice I thought, there was nothing I could disagree with. Then I read a little further and it started to go downhill. The writer interviewed a number of finance professionals (read: head of their respective departments in our local banks) and based on their input came up with a set of recommendations for the retail investor. It read like this

image: straits times

image: straits times

I was disturbed to say the least. I find it hard to accept the logic of building a portfolio off unit trusts.

Alvin has written a scathing response earlier this week. He has clearly listed out two reasons why unit trusts are not good vehicles to invest in. If you have not read it yet, I strongly urge you to. Judging from the responses and emails we have received, it is safe to say that we are not the only ones who felt that way.

The Agency Problem

More than two years ago, I wrote an article called Does your Agent have your best Interest in Mind. I shared the story of my friend R, whom while house hunting, found a place he liked. He was encouraged by the agent to increase his offer price in order to bridge the gap between his offer and an existing one.

The agent promised to embargo the higher offer and only present R’s offer to the owner. R did exactly as the agent suggested and ended up buying the apartment eventually. It was years later while surfing the web that he realised that the agent is in fact the legal owner – a fact she intentionally tried to hide in order to obtain a higher sale price. She had every intention to deceive. #truestory

In the same article I also presented something social scientists term as the Agency Problem. This problem arises when the interests of the agent does not align with the interest of the Principal or Client. Hence, even though the agent is expected to take the best course of action to benefit the client, self interest would be the foremost consideration and the agent would act to preserve his or her own interest ahead of everything else.

In this case, the interest of bankers is not the success of retail investors. It is the sales of their products.

Exchange Traded Funds

At BigFatPurse we have been long time advocates of Exchange Traded Funds (ETFs). They are cheap to buy, sell and own. They are plentiful in their geographical and sector diversification. They are highly liquid and easy to transact. An investor can easily own many different asset classes such as stock, bonds and commodities vis ETFs.

Yet, precisely because they are so cheap to own, there exist little margin to factor in marketing and distribution costs. Without an attractive commission structure, why would the financial advisors even induce their clients to go for ETFs? Without a good budget for getting the word out, how would the retail investor in the street even know about the attractiveness of ETFs?

They end up being extremely slow to catch on. Case in point, there are two ETFs tracking the Straits Times Index in Singapore – the Nikko AM STI ETF and the SPDR STI ETF. Despite being in the market for many years now, their combined Net Asset Value is but a drop in the ocean at approximately S$400 million. No matter how loudly we shout out to retail investors about it, ETFs remained largely unnoticed.

Exhibition for Property Investment and Crowdfunding (EPIC) 

A couple of weeks ago, we attended the Exhibition for Property Investment and Crowdfunding (EPIC) organised by CoAssets. This year’s version had a Financial Technology (FinTech) element to it. The trade day itself was a gathering of many players in the crowdfunding and financial services and technology industry. It was a great learning experience.

Fintech, as the name suggests, is a marriage of technology and finance. The most recognized example would be Paypal. Paypal’s platform allows the transfer of funds between one account and another seemlessly. It has transformed many traditional businesses. Without paypal many online retailers would not be able to exist.

Without a doubt, FinTech is the next big thing and the operative word here is disrupt. The word disruption was banished like a sword in a samurai duel – fast and furious. No one could seemingly get enough of it. Using technology to disrupt the current way of doing business seemed particularly sexy. According to Forbes, just this year alone fintech companies have raised over 8 billion in funding.

With the right technology, many companies will go out of business in the future.

The Dance of the Disrupted

And almost serendipitiously, I came across this article written by Ashwath Damodaran. Professor Damodaran is a faculty member at the Stern School of Business at the New York University. His speciality is in the valuation of equities and he blogs

In the article titled The Dance of the Disrupted: Observations from the Front Line, he shared three characteristics businesses that are liable to be disrupted share. They tend to have a sizable economic footprint – finance is massive and everywhere. Many of them suffer from inefficient production and delivery mechanism. And finally, businesses waiting to be disrupted are protected vaguely by outdated competitive barriers and inertia.

Damodaran went on to explain how he has been dealt with a front row seat to witness the disruptions in three activities he is involved in – education, publishing and financial services. These are almost exactly the fields that BigFatPurse is involved in. It got me thinking about what we are doing and the pieces are finally coming together.

The future of financial education.

Bigfatpurse is a financial education company. We see our role as improving the financial literacy of the society. We want to see everyone with a functional knowledge of the workings of personal finance.

Money is the language everyone must learn to speak. Understanding the language will bring about a more meaningful existence in our capitalistic society.

Regular readers will realize by now that we have been conducting evening workshops on a range of topics from bonds to properties to insurance and tracking finances. We charge $9 per session and they are wildly popular, often selling out within three hours.

We have invited experts in their own field to speak. They include Christopher Tan from Providend, Vina Yip otherwise known as Property Soul, Teh Hooi Ling from Aggregate Asset Management and Calvin Yeo from Dr Wealth.

We approached them not simply because they are good at what they do. We approached them because they and the companies they are representing are all very similar in one aspect – they all have an investor centric approach to how they conduct business. They respect the retail investor and not treat them as someone out to be fleeced.  We could do with more such people out there.

By working with them, we hope to educate retail investors in the right and proper ways to manage money and approach investing. With this transference of knowledge, we are confident there many traditional businesses serving the retail investor will have to find new ways to operate.

We may not be tech, but we can be disruptive in our own ways. As another of our working partner Moolahsense CEO Lawrence Yong likes to put it, we are all doing our bit to democratize finance. We believe that is what financial education is really about.

Is it really the best way to invest your 20k?

Coming back the newspaper article mentioned when we first started. I read a quote a long time ago that the quality of the press is telling of the intelligence of the society. For society to progress, the press must lead the way. (I missed out the source. If you know where it came from do give me a shoutout).

While I am not convinced that the mainstream press, with its outdated competitive barriers and inertia is in fact going to be a driver of investor education and information in Singapore, I am heartened to see the onus being taken up by my fellow financial bloggers. We may never replace traditional media, but we will be a force to be reckoned with.

Why are we doing this? 

We get this question a lot. Before I answer it, I would like to share Damodaran’s response.

If you are wondering why would I disrupt businesses that I am part of, I have three responses.

The first is that, with four children, I am a consumer of the products/services of these businesses and I am sick and tired of paying what I do for textbooks, college tuition and minor financial services.

The second is that it is so much more fun being a disruptor than the disrupted and being in a defensive posture for the rest of my life does not appeal to me.

The third is that with Asia’s awakening, we face a challenge of huge numbers and the systems (education, publishing and financial services) as we know them just do not measure up.

At Bigfatpurse, we cannot agree more. We are retail investors and hence we are in the same shoes as everyone else. By educating others, we are learning ourselves. It is great fun to be a disruptor and finally, the financial education industry in Singapore simply does not measure up.


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  • My 15HWW
    Posted at 14:03h, 24 July Reply

    Hi Jon,

    Kudos to your team for organising those seminars!

    I was intrigued by the point you made “that the quality of the press is telling of the intelligence of the society.” I guess it’s somewhat true.

    Many members of the public probably still prefer to “listen to the experts” wholeheartedly rather than doing some form of verification, which can explain why UTs are more popular than ETFs.

    An agency problem? If I were curt, I would call it a conflict of interest. And seriously, once there’s a whiff of that, alarm bells should start ringing in one’s head.

    • Jon
      Posted at 23:03h, 24 July Reply

      Thanks for dropping by,

      I read the press part some time ago but for the death of me I cannot remember where or who wrote it. Essentially what it means is that a well informed populace will not tolerate rubbish from the press while a brilliant paper will find no audience if the people are not able to match up. So looking at what and how the press acts, one will be able to gauge the level society is at.

      And while we and many others are getting splitting headaches from the alarm bells, many are blissfully unaware…

  • Ivan Lu
    Posted at 15:05h, 24 July Reply

    Hi Jon,

    RE your comment about investors lacking interest in the SGX ETFs. I think the problem is that the STI doesn’t represent the broader market at all. For eg. Singtel and the 3 banks make up 45% of the index, a clear over-weightage. Unlike the US, we have no broader S&P 500 index here.

    Also I have no idea why companies like Noble, Olam, HPH Trust, Golden Agri, and BOTH Jardines are included in the STI while Yangzijiang is left in the reserve list. Maybe if they sort this out more people would take interest.

    • Jon
      Posted at 17:13h, 04 August Reply

      Hi Ivan,

      Sorry for the late response. From your remarks I can sense that you are a seasoned investor. The STI is not perfect. It overweights certain stocks. The representation is skewed.

      But the STI ETF does what it sets out to do very well ie. track the STI.

      Competent investors who know what they are doing could outperform the STI by picking their own stocks. For the majority of retail investors who have no interest in reading annual reports, following corporate news and tracking their own picks, they are better off sticking to the STI ETF – despite its apparent flaws.

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