Quora Answer: Can Robo-Advisors Replace Financial Consultants?

The following is my answer to a Quora question: “Can robo-advisors replace financial consultants?” 

Robo-advisors are digital applications which provide financial advice based on algorithms.  These algorithms are designed by financial consultants, and investment managers, and coded by software programmers.  These algorithms do not require human intervention to impart financial advice to a client.  Based in set parameters determined through a series of questions, the software automatically allocates, manages and optimises clients assets according to risk appetite, investment horizon, and other forms of discrimination.  That being said, until we have true artificial intelligence with machine learning, a robo-advisor can never replace a good financial consultant. 

These algorithms are coded by humans.  These algorithms are created according set patterns, and assumptions, and are limited to these very assumptions.  A robo-advisor cannot address a situation that falls outside these parameters.  They are limited to the pre-set options available.  A good financial consultants is not limited to these parameters.  He is able to consider developments that are not limited to these set assumptions, and can give better advise. 

Robo-advisors have a role.  They are meant to service the lower end of the market, where the clientele is not as sophisticated in terms of their preferences, with specific categories of budget, all the way to the lower end of the mass affluent spectrum.  Clients that have very specific issues such as tax mitigation, sophisticated investment structures, trust considerations, or are high net worth, would require the services of an actual financial consultant or investment manager.

Quora Answer: What Can be Done to Promote SPAC Activity in Singapore?

The following is my answer to a Quora question: “What can be done to promote SPAC activity in Singapore?” 

SPACs, special purpose acquisition companies, are also known as “blank cheque companies”.  They are shell corporations listed on a stock exchange with the sole purpose of acquiring a private company.  This allows the acquired entity to bypass the strictures of the initial public offering process.  There are pros and cons to this. 

The obvious advantages of going public with a SPAC merger over an IPO  is the faster execution than an IPO.  A SPAC merger usually occurs within 3 to 6 months, on average, while an IPO usually takes 12 to 18 months.  SPACs also provide the possibility of raising additional capital.  A good SPAC will raise debt or private investment in public equity (PIPE) funding in addition to their original capital.  The intent is to not only fund the transaction but also to fuel growth for the merged company.  This backstop debt and equity are intended to ensure a that the transaction is completed, even if some SPAC investors exit, or partially exit. 

That being said, one of the main concerns of a SPAC merger is existing shareholding dilution.   SPAC sponsors usually own up to around 20% in the SPAC through founder shares, in addition to warrants to purchase more shares.  SPAC sponsors further benefit from an earnout component, which allows them to receive more shares when the stock price achieves a specified target, within a stipulated timeframe.  This, of course, leads to further dilution.  My personal concern about most SPACs is the possible shortfall in future capital, because SPACs want to all further rounds of funding to go through them.  Essentially, we are betting on the sponsors of the SPAC being able to monetise their network to the degree required by the company to raise funding.  The other concern of regulators is the narrower scope of financial diligence performed since a SPAC process does not require the rigorous due diligence of a traditional IPO.  In a traditional IPO, the underwriter ensures all regulatory requirements are met, but since a SPAC is already public, the target company does not have an underwriter.  This is a compliance concern. 

There is already increased SPAC activity in Singapore, and MAS has issued further compliance and regulatory guidelines.  I do not think we need to promote SPAC activity.  SPAC activity is already increasing as it is.  Whilst it has its benefits, I am quite sceptical of SPACs because of the more lenient reporting and underwriting required, which means there is risk that the SPAC may not perform, and investors will get burned.

Quora Answer: Do You Pay Capital Gains Tax When You Sell a House Managed by a Trust?

The following is my answer to a Quora question: “Do you pay capital gains tax when you sell a house managed by a trust?”

Singapore has no capital gains tax.  The realised gain from the sale of the property itself has not tax.  However, there are the conveyancing fees.  If the property is sold within four years, you would also need to pay the seller’s stamp duty, and this is a variable cost depending on many other factors.  In summary, while there is no tax liability for the realised gain itself, there are still costs and fees related to the sale of the property itself.

Quora Answer: Can a Global Minimum Corporate Tax Make Singapore More Compelling as an Investment Hub?

The following is my answer to a Quora question: “Can pushing for a global corporate tax deal make Singapore a more compelling investment hub?” 

Singapore is not in favour of the global minimum corporate tax.  The G20 have agreed on a 15% tax rate.  Singapore’s base corporate tax rate is 17%.  On the surface, it looks like Singapore’s tax rate is higher than the proposed global minimum.  However, with incentives, tax breaks, and other factors considered, corporations based in Singapore can pay even less than 10%.  The proposed G20 rate undercuts our tax advantage. 

Currently, this is a moot argument because for the EU to be on board for this, it has to be a unanimous decision.  Ireland, Estonia, and much of Eastern Europe is against this.  The Biden administration proposed something higher, but even the compromise 15% will have problems being accepted by both House and Senate, with all the Republicans and some Democrats against it.

Quora Answer: How Does Singapore’s Security & Intelligence Division Compare with Other Intelligence Agencies?

The following is my answer to a Quora question: “How does Singapore’s intelligence agency, the Security and Intelligence Division, compare with other more well-known intelligence agencies around the world?” 

There is no way to compare them because the nature of an intelligence agency is one of secrecy.  There is no ranking table, no scoring system.  What we can do, however, is to look anecdotally to the state of the nation’s interest, its stability, and its influence to have an idea of whether it is effective.  Admittedly, Singapore has several intelligence agencies, all with different mission profiles. 

What we can say is this.  Singapore survived a major communist insurgency.  Singapore was relatively unscathed during the Konfrontasi.  Singapore was a major centre of espionage activity during the Vietnam War, and its aftermath, with the boat people.  Singapore coordinated the ASEAN response to the Vietnamese invasion of Cambodia.  Singapore is south of the Golden Triangle.  Singapore was a major place of dialogue and fund raising during the Sri Lankan Civil War, the independence of Timor Leste, and later on the meeting between the American and North Korean presidents.  In all this, the average Singaporean had no inkling that anything major was happening other that what they read in the news.  That is quiet efficiency. 

When the Americans started their so-called War on Terror, Wahhabi terrorism became a concern in the region.  There was the rise of Al-Qaeda, then ISIS, then Jamaah Islamiyah, and groups such as Abu Sayyaf.  ISIS was even able to field an entire brigade of fighters from Southeast Asia, Katiban Nusantara.  After ISIS were defeated, up to 5,000 such fighters were expected to come back to Southeast Asia.  Not one Singaporean who joined ISIS came back alive.  That is brutal efficiency. 

In an era of increased cyberespionage, Singapore has managed to stay out of news despite being a major financial and shipping centre.  In an era of increasing upheaval due to climate change, our policies have been forward facing.  Singapore has quietly propped up governments around the region, whether it is loaning Indonesia $10 billion after the collapse of their currency, to ending Vietnam’s diplomatic isolation, to brokering Timor Leste’s independence, to advising the Philippines in Mindanao, to sending aid and equipment in the wake of national emergencies to our neighbours.  The alternative is massive people displacement, increased crime, regime change, and war. 

That is what intelligence agencies actually do: identifying threats before they are manifest and neutralising them at the roots.  Very little of this is Hollywood action.  Most of the time, it is not even exciting.  It is reports, logistics, and deployment of assets.  It is engaging in dialogue and gathering information.  It is reading reports, articles, and correspondence.  When do have to send in operators, they go in quietly, do their job, and leave.  No one even knew they were there. 

The result is a Singapore that is safe and secure, confident of its place in the world stage, and influential beyond its size.  The result is racial and religious harmony, a growing economy, peace and prosperity, and a nation that is the envy of the world.  If that is the measure, then our intelligence service is the absolute best in the world.

Quora Answer: How are the Wealthy Affected as More Tax Havens are Forced to Comply with International Regulations?

The following is my answer to a Quora question: “How well do the super-rich avoid taxes as more tax havens are being forced to comply with developed nations?”

Tax avoidance is part of financial planning.  Tax evasion is a crime.  They are two sides of the same coin, with a fine line in between.  Tax avoidance does not need a tax haven.  There will always be jurisdictions with lower taxation, and there will always be areas in any tax code that can be exploited to lower tax exposure.  The idea that “tax havens” can be forced to comply with developed nations is not reality.  Countries or even jurisdictions on the same nation with lower taxes will always exist and be labelled tax havens. 

The current discussion is about a global minimum corporate tax rate.  That is just one type of tax.  As it is, it would be difficult to envision the European Union accepting it as it is, because countries such as Ireland and Estonia are not in favour of the proposed tax rates, which would undermine their competitiveness.  The EU needs a unanimous vote to implement it, and it not going to come anytime soon.  Countries such as Singapore and Qatar are also not in favour. 

The problem here is that the high corporate tax rate is needed by countries such as France, Norway and Germany to fund their welfare programmes, among other things.  They cannot depend on the income tax due to a shrinking and ageing population.  The US wants to increase the tax rate to fund their infrastructure bill.  It is a means to cover structural inefficiencies in their economies.  This is not about the redistribution of wealth and closing the wage gap.  In effect, they are punishing growing economies to erase their competitive advantage. 

This does not impede the flow of wealth to financial centres such as Singapore.  For example, Singapore does not tax capital gains.  This encourages companies to be based here, and invest in the economy.  The idea is to tax consumption, not profit.  Singapore also does not have an estate tax.  Personal taxes are relatively low.  More importantly, the country is noted for strong governance, ease of movement, strong rule of law, and political stability.  Taxes are just a small part of the equation. 

If we are talking about pure tax avoidance, there are many ways to game the system, from the use of blind trusts, to creative accounting that expenses out gains through personal consumption, to converting income into other forms of assets that are not liable to tax, or taxed lower.  Tax havens are not required for this.

Quora Answer: Would a Pure Democracy Where Citizens Vote on All Government Policies Theoretically Work?

The following is my answer to a Quora question: “Would a pure democracy where citizens get to vote on all government policies theoretically work?” 

That is a terrible idea.  The average citizen is an idiot.  They are ignorant of the finer points of government policies, and the consequences of supporting or rejecting them.  There would be immediate chaos, and the breakdown of order.  Some people are meant to rule; most people are meant to be ruled.  The average citizen will only vote out for their immediate self-interest.  This would result in a government that has no ability to plan long-term.  People cannot see beyond their immediate needs, and governance would devolve into an idiocracy that is ruled by the tyranny of majority. 

Another point of consideration is that the larger the crowd, the lower the intelligence.  People would be moved by emotive arguments, and demagogues would be able to whip up the electorate against a litany of perceived enemies of the people.  People would be moved by the emotions of the moment to vote against their self-interest, and eventually vest more and more power in a person or party, resulting in a form of dictatorship or authoritarianism. 

There is no such thing as a pure democracy, and such a form of government is absolutely untenable.  What we have are limited democracies, where people vote for their representatives, or slate of representatives, and expect them to do the thinking and business of government for them.  Ultimately, people do not want democracy.  They want enough freedom to pursue their activities of living, but not so much that other people pursuing their own activities of living annoy them.  So they compromise, and they call it security or stability, or whatever is the catch phrase of the day.  As long as authoritarian governments are able to provide that security, economic growth, new jobs, entertain them, and identify enemies of the system, people are satisfied.

Quora Answer: Why Do the Wealthy Buy so Much Insurance instead of Self-Insuring through Savings?

The following is my answer to a Quora question: “Why do the wealthy buy so much insurance instead of self-insuring through savings?” 

A wealthy person would never think to ask such a question, because it demonstrates a fundamental misunderstanding of wealth and leverage.  The purpose of insurance is to manage risk, and mitigate exposure to risk.  If you are using your own funds, you are not managing that risk at all. 

For example, insurance is a means to mitigate the risk of loss of income.  That loss could be due to critical illness, disability, death of an income generator, or loss of ability to generate income through changes in the economy, or loss in business.  You cannot self-insure for that by simply saving, since you have not addressed the loss of the source of income, which generates those savings. 

For example, insurance is a means to generate and protect wealth in the event of loss of investments through various business, personal, legal or other factors.  If you have your savings garnished by creditors due to an adverse court judgement, that savings is not going to “insure” you.  If you have a divorce, and half your assets is taken away as part of the settlement, that means you have half those savings. 

These are just two examples.  Wealthy people, and people who aspire to wealth, buy a lot of insurance.  The more you have, the more you have to lose.  People also buy insurance with a death benefit, not because they are going to die, but because their family is going to live on after them, and they need to be protected from loss of income, and inherited debt.  There is no such thing as self-insuring through savings.

Quora Answer: Is Singapore a Possible Model on Eliminate Homelessness & Containing Substance Abuse?

The following is my answer to a Quora question: “Is Singapore a possible model of how a nation can eliminate street people from cities and contain substance abuse?” 

We can never truly eliminate vagrancy and indigence, or substance abuse.  What we can do is manage it, and address the conditions from which these arise.  People may find themselves homeless for a variety of reasons besides substance abuse.  One of the ways this is addressed is by ensuring that housing is provided at a huge discount, or rental at nominal costs.  It is cheaper to give someone a house than to create shelters to support the homeless.  The homeless are still homeless, and they contribute to the crime problem by being criminals or easy victims.  Homeless people are also disenfranchised from society, and have no stake in its betterment.  Part of policy is to enfranchise them so that they will contribute to the economy.  This means creating a system that houses them, addresses their medical issues, and offers opportunities for job matching and skills upgrade. 

People are a resource, and when that resource is not managed, and groups slip through the system, they are a loss to society and the economy.  If more nations saw it the way Singapore does, they would invest more into managing the issue, instead of having a homeless community.  Charity has a place, but policy needs to address economic realities as well, because we cannot depend on people’s good graces.  Altruism is not a dependable factor for running a society.  It is too arbitrary. 

Substance abuse has two main channels to be addressed: the supplier and the addicts.  From the supply side, the law is strict, with an emphasis on capital punishment and asset seizure.  The idea is that no one should profit out of the misery of others, other than the state.  Capital punishment is not just about security, but an economic exercise.  Drug trafficking robs the state of people, and turns them into a burden on society.  In Singapore, drug trafficking beyond a certain amount, according to the schedule of the Misused of Drug Act, carries the death penalty.  This has a strong deterrent factor.  Once all the appeals are done, the convicted dealer is hanged until he is dead.  This is a lot cheaper than keeping people in prison for a long custodial sentence.  Dead men do not need to be fed and sheltered on tax payer’s expense. 

From the addict side, there is an emphasis on treatment and rehabilitation, instead of pure custodial sentence.  The underlying economic and social factors need to be addressed to that addicts have a chance to get back into society, and contribute to the economic machine of the state.  People need to feel that they are part of a greater whole, and this includes the same job matching, counselling, and other programmes. 

In a society that looks at these factors from an economic perspective, these programmes make perfect sense.  It must be a society that values the collective over the individual, and frown upon wanton libertarianism, where the wants of the individual are perceived to have greater value than the needs of society.  It is a question of societal values.  This is why we are not likely to see more states addressing the issue in the manner Singapore does.

Quora Answer: Who Buys Treasury Bonds, Even at Low Yields?

The following is my answer to a Quora question: “US Treasury bond rates are currently, as of June 2021, extremely low.  Who buys these bonds, and why?” 

Contrary to what most investors might think, institutions, major funds, and sovereign funds do not buy sovereign bonds for their yield in excess of inflation.  Rated sovereign bonds such as US Treasury bonds, represent safety and an ironclad guarantee.  They are bought to mitigate the risk of equities and other investments.  Rated sovereign bonds are meant to be a safety net.  In the event that the value of the rest of the portfolio is caught up by a market downturn, the value of rated sovereign bonds remain stable.  They also give a steady return on investment.  While that yield is low, it is still a return, which mitigates loss elsewhere in an investment portfolio.