What should your Financial Planner ask you?

There are too many instances that Financial Planners emphasize more on their products than on understanding your needs. Given the skewed commission structure, it is no surprise that Planners tend to sell products that earn them the most commission, regardless of your financial objectives.

So what are the key questions should your FInancial Planner ask you?

1) Your personal situation

- Family Income, Number of Dependants, Assets (Other Insurance & Investments), Liabilities, Retirement age & needs. This forms the basis on which the Planner understands your situation.

2) Your Risk Profile

- The Planner is obliged to do a “Know Your Client” Form to assess your risk profile and financial objectives. This ensures that he recommends appropriate products for you. 

3) Charges and Commission / Recurring Premiums

- The Planner is required to disclose ALL charges (sales charge, management fee, trailer fee, switching fee, etc) as well as how much commission he is getting out of you. 

- For ILPs, what is the amount and frequency of recurring premiums? Can you afford it? He should be emphasizing this at least as equally as the projected investment returns.

Generally, a good gauge of a Planner’s sincerity is that he is focusing more on your personal needs than his product. His competency can be gauged by his knowledge of several products suitable for you. And ultimately, there is absolutely NO obligation to purchase anything on the spot. You can even request to communicate through email to be certain, and as a form of record-keeping.

Hope this helps!

Yangzijiang Folly

In the general blood-bath of the market in the last few days, Yangzijiang was one of the worst hit victims. Share price totally plummeted near its 52-week low of $0.78, on the threat of higher steel prices as Australian iron ore becomes more expensive.

Despite YZJ weakness to steel and labour costs, its main drawback as a stock is its massive 3.2 billion units of shares outstanding. I’ve bought the stock on its excellent ratios – Operating Margin 25.7%, Debt to Equity 0.7%, P/E 13, Quick Ratio 1.23. But my error was not checking the amount of shares it had issued.

DCF Analysis on WACC 11% and forecasted growth of 35% averaged over 5 years (based on Order Book) only gave me an intrinsic price of $0.23. Its second drawback was CAPEX expenditure, sucking 61% of Operating Profit in 2007, which effectively limited its Free Cash Flow generation.

Just to illustrate how shares outstanding can drastically affect intrinsic price – YZJ needs to buy back 2 billion units of shares for the intrinsic price to hit the current price of $0.79, at current earnings.

Potential opportunities that YZJ can exploit at this moment is to renegotiate its pricing terms and continue its aggressive buybacks at a bargain. Will be monitoring YZJ’s reactions to this selldown.

FSL Trust Mid-May Review

Leverage: Debt to Equity Ratio 116%

With the rather surprising acquisition of 3x containerships from Yang Ming Marine, FSL has exceeded its current credit facility of US$450 million, increasing its debt to equity ratio from 36% before to 116%, more than its leverage policy of 1:1. The 3rd ship due end October is still awaiting financing. In this case, the danger is that FSL might raise equity to leverage on more debt sooner than the expected date of 2009. This will cause a dilutionary effect on shareholder’s equity. However, FSL might instead take on more debt as a 1:1 ratio is considered a lower leverage band compared to its shipping trust competitors, ie PST with its d/e of 2:1. Will continue to monitor the financing situation.

On the DPU side, the 2 containerships will add US0.02c to Q2 and US0.18c to Q3. Including the 3rd ship, Q3 DPU can be expected to grow by US0.27c, bring the DPU per quarter to US3.14c, and for the year USD12.56c. Assuming exchange rate of US$1 = S$1.33, annual DPU = 16.7c, which at the current price of S$1.15 translate to a yield of 14.5%. Looks sweet.

However, if there is little capital appreciation in the unit price(as it looks to be), the management may have to take on more debt at increasing interest expense, instead of raising equity. Yet the equity issue looks inevitable given management’s aggressive acquisition spree.

 

 

 

Startup

This blogpage is inspired by the many friends and teachers in the blogging community that have not held back their investing knowledge. And i finally listened to your many suggestions that i start an investing blog/online journal myself, despite the unnatural pain of having to maintain 1x personal blog and 1x Facebook account already.

Well, to those who feel that your wealth could be better put to work than just rotting in your savings account, congratulations, welcome to the world of investing.

Why Wisdom Investments? Because they’re inseperatable. No matter your investing style or financial goals, without wisdom in managing your money, they will be put to waste.