“Forbidden fruit tastes sweetest”.

Many years ago when I heard this quote from St. Augustine in his “Confessions” (if my memory serves me right), I was reminded of the mangoes which we boys “picked” from the estate of a rich family. We did this at some risk because of the dogs which guarded the estate. How delicious those stolen mangoes tasted, and how assuaged our hunger was, but not the pangs of conscience!

We had to time how long the dogs would take from discovering us to the time they pounce on us. And we had to practice our shuttle run. At times, we had to place decoys or distracted the dogs in some ways. But there was always a way to beat the system.

If this cheeky streak remains kids’ play only, no harm done. But beating the system is becoming an adult preoccupation.

The daily papers throw up many stories of how people beat the system and how the law caught up with them. Some companies had resorted to having bogus employees on their payroll, in order to employ additional cheaper foreign workers, to beat the quota set by MOM.

Some employers pay their S Pass foreign employees less than $1,800 per month by requiring them to return a portion of their pay each month.

The grapevine abounds with stories of how certain Financial Advisers and financial adviser Representatives give incentives and cash rebates to induce prospects to purchase certain products. Since inducements are not permitted by the authorities, these cash rebates are given as “introducer fees” or “coffee money”. Where CPF investments are concerned, the cash rebates are actually certain percentages of the fees which are charged and should be returned to the CPF accounts, but since it is in cash form, it is easy to beat the system.

There is a thin line between the legitimate offering of rebates because of business reasons (for large sums, loyal customers, etc.) and using rebates as an inducement.

What is inducement anyway they ask? Who decides whether it is inducement? The fact is that if it is up to the prospect / client, then there will unlikely be anyone reporting it because it benefits him also.

But there are risks. In the case of inducements for investments, the risk is that insufficient attention is paid to the investment per se, and the prospect can end up losing more than what he gains in cash rebates.

In the case of insurance, where medical underwriting is required, offering inducements up front is often accompanied by the Representative filling in the medical questionnaire with answers that are favourable. The problem of misrepresentation or non-disclosure would only surface at the time of a claim. So when you encounter Representatives offering cash rebates at road-shows, be careful that you do not end up later with disallowed claims.

The question which will surely come to mind is what can be done to stop individuals and companies from beating the system?

The first thing to note is that given the financial “rewards” that forbidden fruit can bring, there will be many who will be tempted.

It has been observed that there are insurance broking companies which have been attracted to do Financial Advisory business, particularly investments, not by the legitimate way of distributing unit trusts, but by the money which can be brought in by “churning” of CPF investments using cash rebates as an inducement. The fact that there are “syndicates” willing to supply these firms with a steady stream of business makes it easy for them to be sucked in.

That there are licensed FA firms or groups within the firms which have succumbed to the temptation, is also circulating in the grapevine and presumably known to the authorities as well.

The second thing to note is that all these offenders presumably expect to be found out sooner or later. So why are they still continuing the offence? The answer is that they are prepared to terminate the “culprits” and if so be it, to stop their FA business. That was what happened to three companies in 2008, and the possible thinking of firms which have been doing the same thing but not found out yet, is that it is worth it.

It has been calculated that a firm which goes into heavy churning business can make millions in a few years before the law catches up with them. Anyway, if the shareholders and directors are of retirement age, they can go into a cash rich retirement.

The obvious deterrent to these firms or individuals beating the system is to be found out before they can make a pile, or for a heavy punitive punishment. There have been several suggestions of more effective deterrents:

1. If the firm is responsible or accountable (e.g. because the malpractice is rampant and obvious), the license to do even general insurance should be cancelled. This is because ceasing the FA business is not a penalty at all.

2. Fines under the Financial Advisers Act could be imposed on both the offending firms and the Representatives. This can be hefty.

3. Quicker action could be taken so that other firms would not be tempted to join the bandwagon. In addition, it is important that the public be educated on the disadvantages of churning.

Beating the system must not be allowed to go on unchecked. It is good that St. Augustine reached the place of repentance and confession for “beating the system” in his childhood.

While the temptation is always there to take advantage of other peoples’ follies and gullibility, it is important to keep to the straight and narrow road, and keep a clear conscience.

Forbidden fruit may taste sweetest, but it often leaves a bad stomach ache.

Laura L. Nash’s book “Believers In Business” is about resolving the tensions between Christian faith, business ethics, competition and definitions of success.

The book which is based on interviews with successful business people who are Christians, gives interesting and invaluable insights into seven tensions, namely:

1. The love for God and the Pursuit of Profit
2. Love and the Competitive Drive
3. People needs and profit obligations
4. Humility and the Ego of success
5. Family and work
6. Charity and wealth
7. Fruitful witness in the secular city

I like the choice of the word “tensions” to describe the competing demands of faith versus business.

There is good tension and bad tension, The right tension of a racket or guitar strings delivers the right shot or music. The tension caused by anxiety and worry is a bad tension which can cause sickness and failure.

There are many instances of tensions and hard choices. An employee who informs you that she is pregnant and has a weak womb and she is advised to take leave often during the pregnancy period to protect the baby – how do you react? Her work will be affected, her colleagues will have to bear her workload and she will be on maximum sick leave and possibly hospitalization leave. The loving thing is still to carry her, but it will be costly and will require the cooperation of all.

An employee who informs you she is undergoing treatment for an illness which will likely affect her work. The loving thing is to pray for her and support her and hope she recovers.

Commission based advisers who ask for better terms but which would affect the bottom-line. The loving thing is to see what can be done and to be as fair as possible.

A manager who asks for better overriding over his advisers’ production. Improving the terms would affect the compensation for others. The loving thing to do is to be as fair as possible and try to save on other costs so that there will be profits to share.

Just as managing tension can produce good, balancing the competing interests of different parties can bring about the common good. It requires maturity and love and humility to recognise that.

If one gets more from the pie, others get less unless the pie gets bigger – the zero-sum game. The answer then lies in increasing the size of the pie.

Many years ago, I was given the ultimatum by a small group of advisers who wanted to get higher compensation for their production. There was nothing wrong with their making this request. I explained the situation and encouraged them to increase their sales, but to no avail. They left, but years later when they started their own business, they realised that what they were given then was pretty good.

The cost of running a business is often underestimated by those not in the know. I often tell my clients while our service is free, it is costly to make it available. For the record, an independent financial adviser has to bear all the costs of running his business, which the agency managers in insurance companies don’t have to, because the cost is borne by the insurance companies.

So why are IFAs willing to bear the cost which runs into millions per year? Primarily to give choices to clients, so that they can obtain fair and competitive products.

Tied agencies are the most expensive way to obtain business for the insurance companies compared to IFAs and banks. Why then do insurance companies still have huge agencies? The answer is CONTROL. They can ensure that their own products are sold by restricting their agents from selling the products of other companies.

The business which IFAs bring to insurers is FREE of overhead expenses. The tension is between supporting their own agents (and exercise control) or depend on IFAs but having to leave the recommendation to them.

The player who holds the key to this tension is the customers.

They are the ones who can benefit from the tension by making insurance companies compete for business by going through IFAs.

With better competition and choices, there will bound to be improvements in products, servicing and claims payment.

The headline of Prime News in the Straits Times on Thursday March 26, 2009 caught my attention.

“Home of ex-bank chief attacked”

The report was of Mr. Goodwin, the former CEO of RBS who was said to have squandered millions while RBS ran up huge losses, and he had refused to give up his huge pension.

A Group calling itself “Bank Bosses are Criminals” claimed responsibility for vandalising Mr. Goodwin’s big detached home and his Mercedes S600 and added:

“We are angry that rich people like him are paying themselves a huge amount of money, and living a luxury, while ordinary people are made unemployed, destitute and homeless.”

Mr. Goodwin had refused to give up his £700,000 annual pension despite leading RBS into Britain’s biggest banking failure.

RBS had lost £24.1 billion in 2008 and necessitated a £20 billion bailout.

I do not support the action of the people vandalising Goodwin’s home, but understand their anger at his conduct. And Mr. Goodwin was not the only one who had held on to his legal rights while ignoring what could be called a matter of honour.

Many head honchos and senior staff in corporate America had similarly clung on to their bonuses and high salaries even though it came from the bailout funds.

“Honour” as used here refers to a “scrupulous sense of what is right; a high standard of moral behaviour or integrity”.

“Honourable” in this context means having high moral principles.

Larry Burkett drew attention to a few practices which are legal but are not honourable.

Examples

1. Using bankruptcy as a way out of paying one’s debts
2. Rewarding oneself at the expense of, or to the detriment of other stakeholders
3. Taking advantage of monopolistic powers
4. Huge income inequality

The Economist carried this sentence in the article “The rich under attack”:

“… Rising inequality – the top 0.1% of Americans earned 20 times the income of the bottom 90% in 1979 and 77 times in 2006 – and a sense that the greedy rich have cheated decent working people of their rightful share of the pie.”

What is an equitable income for CEOs or for that matter, political leaders like our ministers? And what is honourable for them to do when things are not going well like now?

The work of a CEO and definitely a leader of state is not easy and there should be fair compensation to ensure the right caliber of people are willing to do it. But there is the moral sense that perhaps a CEO getting 77 times the income of the average worker may be too high.

I have never had the opportunity to reward myself even 20 times the pay of the average worker in my firm and don’t know whether if given the opportunity, I will be a “monster” CEO. The questions that I think I have to answer first are:

1) Have I paid the staff fair wages for their work based on their performance and the company’s performance?
2) Have I retained sufficient reserves for the company to replace fixed assets and to keep up with technology and future staff training and other needful things?
3) Have I been practicing fair dealing towards my clients in giving them the best service and products, towards my suppliers in paying them on time, towards my competitors in not running any down unfairly etc.

My stint in the army and reading the biographies of military leaders remind me that soldiers will only be willing to give their lives for a good cause and when they respect their generals. Invariably, these are the generals who are willing to be in battle and risking their lives as well and enduring the same battle conditions and eating the same army food.

If CEOs take a leaf from the famous military leaders, they would not defend their high and mighty position and perks.

I remember how a few great people were discussing about how to start a new religion. One of them said it would be easy if he was willing to be crucified and to die and to rise from the dead. It takes this kind of sacrifice to win the hearts of people.

It was said to Jesus that “Though he was rich (the Son of God with all the privileges), yet for our sakes he became poor (a servant and ultimately to die the death reserved for criminals), that we through his poverty might be made rich.”

It is true sacrifice which wins over the hearts of people not riches, not power, not even empathy.
It is also honour and integrity which earn true respect and loyalty.

Our laws and institutions and capitalism have provided opportunities for the capable ones to prosper in good times and in bad, especially if they are too big to be allowed to fall.

But the people’s gut reaction is moral and ethical and not legal. Clearly, moral principle is higher than legal. We can be rich legally and corrupt morally.

Luke 16:19 – 31

The Rich Man and Lazarus

19″There was a rich man who was dressed in purple and fine linen and lived in luxury every day. 20At his gate was laid a beggar named Lazarus, covered with sores 21and longing to eat what fell from the rich man’s table. Even the dogs came and licked his sores.

22″The time came when the beggar died and the angels carried him to Abraham’s side. The rich man also died and was buried. 23In hell, where he was in torment, he looked up and saw Abraham far away, with Lazarus by his side. 24So he called to him, ‘Father Abraham, have pity on me and send Lazarus to dip the tip of his finger in water and cool my tongue, because I am in agony in this fire.’

25″But Abraham replied, ‘Son, remember that in your lifetime you received your good things, while Lazarus received bad things, but now he is comforted here and you are in agony. 26And besides all this, between us and you a great chasm has been fixed, so that those who want to go from here to you cannot, nor can anyone cross over from there to us.’

27″He answered, ‘Then I beg you, father, send Lazarus to my father’s house, 28for I have five brothers. Let him warn them, so that they will not also come to this place of torment.’

29″Abraham replied, ‘They have Moses and the Prophets; let them listen to them.’

30″ ‘No, father Abraham,’ he said, ‘but if someone from the dead goes to them, they will repent.’

31″He said to him, ‘If they do not listen to Moses and the Prophets, they will not be convinced even if someone rises from the dead.’ “

Thursday 12th March rained cats and dogs. If this wasn’t bad enough, our dog Rascal, a cold-loving Husky, slipped out of the gate and had a splashing time. He had done this before and had either found his way back or was escorted back by one of us who went after his heels.

But no one was free to chase after him this time, and hours later after the rain had stopped, he was nowhere to be found.

When my sons and I returned from work, we searched the neighbourhood. It was to no avail. There was no sight or sound of him.

Many thoughts came. Perhaps someone had taken him in and sheltered him from the rain. If so, they would return him once the rain had stopped.

Perhaps his sense of smell was affected by the rain and he couldn’t trace his steps back. I had always wondered about his eyesight too for he couldn’t see that well now that he is eight years old.

We decided to give SPCA a call on Saturday to report that our husky had gone missing. No one manned the phone as it was a weekend.

On Sunday, I decided to go walking around the neighbourhood and went as far as a mile’s radius to see whether Rascal could have really lost his bearings and was waiting somewhere for rescue. After an hour’s search, I called the search off. But what had made me mount another search?

It was the Biblical parable of the shepherd and the lost sheep. The shepherd left the ninety-nine sheep somewhere safe and went searching for the lost sheep. He was delighted and carried the sheep back and even threw a party for the neighbours, for he who was lost has been found.

The parable of the prodigal son or more correctly the loving father, was even more dramatic. The sheep could not be really blamed for losing his way, but the wayward son had asked for his share of the father’s estate even before the father’s death, and had squandered it in riotous living. It was only when he had come to his senses that he decided to return home and admitted he had sinned against his father and was not deserving to be accepted as a son, but could he be a servant?

The beauty and glory of the story was in the way the father greeted the return of his son “who once was lost but now is found”.

For the complete story, see Luke 15.

In light of these two parables, I prayed for my dog to be found and brought back. If not, may he find a dog lover who would take good care of him.

Wonder of wonders, after five long days when there was a strange quiet in our home, we received the good news – a man had brought him to SPCA on Tuesday morning. It wasn’t a chore at all to pick him and drive him back.

Not every story of a pet or a person lost ends with good news. But in a marvelous way, I am reminded of the greatest rescue mission which God launched to rescue lost mankind who like sheep had gone astray.

The father in the parable stands for God the Father and the prodigal son represents those who had chosen to go away from the Father, but who fortunately realized their mistake before it was too late.

There is always forgiveness for the son who returns. The tragedy in the parable was the elder brother who was not forgiving and begrudged the father celebrating the younger son’s return. He had not experienced grace and love. Otherwise, he would have been able to “Rejoice with those who rejoice, weep with those who weep”.

What is a story of a pet who was lost and was found doing in this business blog?

Many have lost a fortune or much of their life’s savings in the current economic crisis. Hopefully, there will be a way to recoup the losses. For those who will not be able to recover their losses, the way forward is to come to their senses and learn from their mistakes.

Good advice is important in matters which we don’t understand well. We take pains to select good doctors, good educators, good contractors etc.

We must take pains to get good advice on matters like financial planning and investments. And we must find caring planners and advisers who will feel for you when you lose – advisers who will search for ways to help you find that which was lost. Advisers with a heart who will always take care of your interest and will not find rest until you do well and are safe, and your investments are safe. Advisers who watch the investment landscape and horizon for you and who watch your back also. Advisers with the shepherd’s heart, not the thief or the robber who come to prosper themselves on your account.

Decades ago, the line of a pop song read: I.T.A.L.Y. means I trust and love you.

You don’t hear many women or men singing this “sentimental nonsense” anymore, lamentably. For trust, like love, is a many splendoured thing.

Sadly, we see more distrust than trust in recent years and the recent news of the Ponzi Scheme used by Bernard Madoff to swindle thousands of clients of billions of dollars does not help.

Back home, we hear of Raffles Education painfully writing off $34.6 million of its investment in Oriental Century which had inflated sales and cash balances and diverted money elsewhere.

Arising from this and other fraud cases, investors have begun to doubt whether claimed cash balances are really there, not only in S-chips but other companies, too.

The talk in most circles focuses on whether such cases of fraud could have been prevented and zeros in on what directors, especially independent directors, should have done to live up to their fiduciary duties.

Several big cases of fraud in the USA also brought into question the thoroughness of external auditors and their independence. One case some years ago brought into question the independence of an insurance brokerage of world renown. While it is necessary to put in place “checks and balances”, and hold directors and auditors accountable, we must recognise that fraud happens because of man’s greed, dishonesty, and thievery – three of the “thou shalt nots” of the Ten Commandments.

The axiom that business is built on trust should not be forgotten. When there is no trust, there is no trade. We have heard of “In God we trust, others pay cash”. How sad it will be if we retrogress to this state. The use of credit has enabled business to thrive as it is convenient, but it is ultimately based on trust. The credit crunch which has caused much business to seize up in the recent months is due mainly to fear that money lent out will not be paid and is hard to recover.

Banks which had been bastions of financial stability and were trusted institutions have come under question for not heeding their own advice to be prudent. Many have gone into the fee business and product selling, and got themselves into sticky situations of being accused of mis-selling and misrepresentation and having to make good. The Lehman Brothers’ failure brought product pushing to the surface after many years when the banks had it good and cornered 30 per cent of the insurance and investment market. Many customers had trusted them more than agents or advisers, but now have realised that they ought to be more careful. When anyone or any institution is driven by profits, there is a basic conflict of interest with customer’s interest, and customers must beware.

The customers must also recognise the fact that legally, bank employees represent the interest of the banks and not their interests, just like insurance agents represent the interest of their insurance companies and not the interest of the customers. The only ones who legally represent the customers’ interest are the independent advisers or brokers. Even then, care must be taken to select the ones who can be trusted, for they are only human.

How many “independent” advisers or brokers are truly independent? How many are truly objective and fair in their advice and product recommendation? Or are they influenced by some extra commissions given either overtly or covertly by one or two insurance companies? How many are influenced by the higher fees which they can get by persuading customers to “buy and sell” their unit trusts more frequently?

The notorious churning of customers’ investments by certain companies and advisers using CPF funds with rebates to customers has led to thousands of customers losing substantial amounts of their hard-earned CPF money. These customers may be gullible but were certainly taken advantage off by unscrupulous agents and advisers. The point is that customers must be careful to pick their advisers and appoint only those who can be trusted.

Now, who can be trusted? That is the question.