Tan Kin Lian responds to Minister Lim Hng Kiang’s remarks in Parliament
Tan Kin Lian / Columnist
Several questions were asked in Parliament on 20 October 2008 about the failure of the structured products linked to Lehman Brothers. In his reply, the Second Minister of Finance said, among others, the following:
- MAS’ approach is one that balances regulation with the responsibility on the part of the institution to ensure that consumers are given a fair deal, and the responsibility on the part of the investor to understand the products he invests in.
- MAS requires financial institutions and issuers to properly disclose the features and risks of investment products to investors.
- MAS has put in place the necessary infrastructure to support this approach. There are two key pieces of legislation – the Securities and Futures Act, and the Financial Advisers Act.
- The issuer must include in the prospectus all information that an investor would reasonably need to make a proper assessment of the securities being offered.
- The issuer and its advisers are responsible for ensuring that the prospectus complies with the law. MAS checks, based on information provided by the issuer and its advisers, that the prospectus discloses the risk and product features, and that there are no false or misleading statements.
- MAS registered the prospectuses for the Lehman Minibond Programme, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes as they met the requirements for registration under the SFA.
Prospectus
I searched the MAS website for the prospectus of the four structured products that they have approved as meeting the requirements for registration under the SFA. I was not able to find these prospectus.
I could locate the prospectus of several hundred products listed under the category of “collective investment schemes”. Why are the prospectus of these structured products, which are approved by MAS, not listed in their website?
Nature and risk of the structured products
Many investors have stated in writing and in letters published in newspapers that they were misled into believing that these structured products were invested in the bonds of the six reference entities and that all of these entities had to fail before they were to lose their entire invested sum. They were assured that the structured products were “low risk” and that the invested sum is “capital protected”, implying that they will get back the invested sum at the end of the term.
The investors in both the “vulnerable group” and the “non vulnerable group” comprising of educated professionals and others”, were horrified to find that these structured products are “extremely high risk” and are worse than investing in equities.
They now learn that the structured products face the risk of a substantial portion or the entire invested sum being wiped out under the following circumstances:
> the failure of any one of several reference entities
> the failure of a certain number of a specified large number of the underlying assets
> the failure of the swap counterparty
The term “failure” is not used in the prospectus. The actual term used is a “credit event”. The credit event is defined in certain wordings, but it is difficult for the investor to figure out what they actually mean.
It is now clear that these structured products have quite high risks. We now have to ask these questions: Are the risks adequately described in the prospectus? Is the necessary information about this important matter easily located in the prospectus?
The Minister said “The issuer must include in the prospectus all information that an investor would reasonably need to make a proper assessment of the securities being offered. “
Perhaps the Minister can read the prospectus to see if he has the information that he would reasonably need to make a proper assessment of the securities.
False or misleading information
With the benefit of hindsight, I suggest that MAS should now go through the advertisements, sales brochures and prospectus, to see if the information provided are false or misleading, which is an offence under the Securities and Futures Act.
If the information is provided clearly and fairly, why are several thousand investors, including the educated professionals and the financially-savvy persons, misled into believing that they are investing in “low risk” bonds? Are these people so careless and irresponsible with their money?
Dishonest concealment of material facts
Section 200 of the Securities and Futures Act states that it is an offence for a person to induce another person to deal in securities through “dishonest concealment of material facts”.
An important piece of information is the risk of losing the entire invested sum. What is the extent of this risk? Is it 1%, 5%, 10% or 50%, during the lifetime of the investment?
Does the issuer know the extent of this risk? They probably have some idea, based on the premium received by them for providing the insurances to the counter party under the credit default swaps involving the reference entities and the underlying assets.
Should this material information be provided by the issuer in the prospectus? By failing to provide this material information, is the issuer committing an offence under the Act?
Fair dealing outcome
The Minister has also said that MAS’ approach is to ensure that the “consumers have a fair deal”. Perhaps it is appropriate for MAS to see if the structured products meet this test.
The product issuer does not disclose in the prospectus the total income received from the various investments of the structured products, including several highly risky credit default swaps. Where does this income go to? How is the income shared between the issuer, distributor and the note holders (i.e. the retail investors)?
Is the portion of the income, i.e. the target return of 5%, a fair outcome given the high risk of the structured product as reflected in the income streams?
I am not aware that any statement of account has been given to the investors in any of the structured products. Is there any breach of the Trustees Act? Does the product issuer (or product arranger) and the trustee have any fiduciary duty to look after the interest of the investors and render a full and complete statement of the affairs?
Spirit of the law
My final appeal to the Minister, Mr. Lim Hng Kiang, and the Monetary Authority of Singapore, is to see if there is a requirement under our legal system in Singapore that parties should observe both the spirit and the letter of the law.
I hope that appropriate action be taken to restore the confidence of the people in the fairness of the system in Singapore and to restore the reputation of Singapore as a financial hub that the Singaporeans and foreigners can trust to leave their money here safely.
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Read also Leong Sze Hian’s response to the minister’s remarks: Mis-selling 101.
And: Investors petition Lim Hwee Hua.
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/// I agree with your point however about high return = high risk. In this case, the minibond series 1 was paying only 4%. If I had wanted high returns I would have gone for equities where the upside is unlimited. ///
Yes, equities will probably give you a better return. But did it??? Just this year alone, most stock markets and most stocks are down by 50% to 60%, some even more. As I mentioned earlier, no one in the right mind 2 or 3 years ago would have or could have foreseen that such a blue-chip stock such as UBS, Goldman Sachs, Citi, AIG, Lehman and Merrill Lynch could have come to such grief. Be honest with ourselves and cast your minds back to 2 to 3 years back – don’t you think Lehman’s Minibond was perceived to be much less risky than equities?
This financial crisis is very severe. Will you be happy if you had invested in say DBS at $24.90 and it is now around $10?
Hi H.Pepperkamp (#46) (aka L Haversack)
If there event is 1 in 100 years and there are 6 entities, the probablility is 600% in 100 years (and not 6%). It is certain to happen, many times.
Whatsoever (#49) believe you. So, you have started a school in wrong maths calculation already.
It is difficult to find the prospectus.
Take a look at the MAS Opera website, under the column Debenture.
You will find a lot of propsectus publised there. But you cannot find the High Notes or Pinnacle Notes. You can find some propectus posted by DBS and Morgan Stanley, but they do not tell you if these are the prospectus for the High Notes or Pinnacle Notes.
There is a prospectus posted by a company that has the Minibond name. But, you do not know if it is for series 1, 2 or whatever.
Try reading the prospectus. The ordinay layman (includign me) cannot understand what is written there.
Mininster Lim Hng Kiang should try to read the prospectus and see if the has “all information that an investor would reasonably need to make a proper assessment of the securities being offered.” If he does not, why does MAS allow the securities to be sold to the public with this type of information?”
/// The purchase of any Notes to be issued under the Programme involves certain risks. You should ensure that you understand the nature of the Notes, in particular, the section headed “Risk Factors”, and should carefully study the matters set out in the relevant Pricing Statement, before you invest in the Notes. There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes. ///
Kin Lian – see 39) above. What don’t you understand? I thought the above paragraph written in bold on the front page of the Lehman Minibond prospectus is in clear simple English. THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.
Which word you cannot understand?
Mr Tan, we need more people like you , who display a great level of moral authority not typically seen elite leaders. You have the interest of the common man at heart and have repeatly stood up for them. Well most of us know how effective the leadership is in fixing, so please trend carefully for the sake of the common man who needs you.
To T 9.31 pm
“This financial crisis is very severe. Will you be happy if you had invested in say DBS at $24.90 and it is now around $10?”
You seem to have missed my point. If I went into equities I would know exactly what risks I am in for. If I had made a loss in the stock market, I have no one to blame but myself. But it is done with money ear-marked for equities.
The risk for this product was understated. In 2006, Mr Ian Croft in a newspaper article was quoted as saying, “Mini-bonds are designed for the defensive investors seeking exposure to high grade assets that provide steady and enhanced yields…. Investors are at risk if one of the above six underlying entities experiences a default on its debt obligations or files for bankruptcy. In such an event, investors will only get back an assessed value of the company that has defaulted…If company X defaults and it is worth only 50 cents on the dollar, the investor will only get 50 per cent of his invested amount in the bond”.
I think this is the usual sales pitch which may not exactly represent a true and complete picture of the product. The impression given by the sales people is that there will be a residual amount to be distributed in the event of a credit event.
Let’s take a look at the warning on the front page of the prospectus. THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.
The average investor will interprete the warning that they may lose all or substantial part of their investments as referring to a situation where a Reference Entity fails not where in this case, there has been no credit event.
Please note that the warning on another page states: “The Notes will be redeemed early and the Credit Event Redemption Amount … will be likely be less, and could be significantly less, than the principal invested.” There is no mention that the investor can lose all the monies invested. Is this a deliberate attempt to mislead?
/// The average investor will interprete the warning that they may lose all or substantial part of their investments as referring to a situation where a Reference Entity fails not where in this case, there has been no credit event. ///
Tiang – I think that is just assumption and speculation on your part. The key words are ANY ENTITY, not Reference Entity.
NO GUARANTEE
LOSE ALL OR A SUBSTANTIAL PART
Without this once in a 100 year financial tsunami, the Notes will be a lower risk than equities.
Tiang – put your hand on your heart and answer this truthfully – two years ago, would you have foreseen AIG, Merrill, UBS and Lehman getting into this mess?
Would you think they were risky entities?
“I thought the above paragraph written in bold on the front page of the Lehman Minibond prospectus is in clear simple English. THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.”
Does the word “ensure” cover communication, representation and positive remarks by the issuers’ representatives.
Is this simple clause (e.g all inclusive clause) enough. If it is so important a matter, why was THIS NOT THE FIRST AND FOREMOST THING TO BE HIGHLIGHTED MORE THAN ANYTHING ELSE. Is this simple enough English to you.
“two years ago, would you have foreseen AIG, Merrill, UBS and Lehman getting into this mess?”
You are right on this point but again why most of us would not have foreseen this. Simply because we never really have a public platform / culture for such things to be readily and openly discussed and drive the education in a more detailed manner across to those general public.
Unfortunately, a lot of us out of a sudden will have this free foresight, albeit at a high costs for some.
You will find a lot of propsectus publised there. But you cannot find the High Notes or Pinnacle Notes. You can find some propectus posted by DBS and Morgan Stanley, but they do not tell you if these are the prospectus for the High Notes or Pinnacle Notes. – Tan Kin Lian
What was provided is only the base prospectus, which is supplemented by the pricing statement. The pricing statement is actually a brochure that states for each series of debenture, what the reference entities are and the interest rate one can expect from purchasing the investment product. Unfortunately, the base prospectus and the pricing statement are supplied individually.
/// Does the word “ensure” cover communication, representation and positive remarks by the issuers’ representatives. ///
No, it doesn’t. Read the prospectus again. The onus is on you, the buyer, to “ensure”. The exact wordings are: “You should ensure that you understand the nature of the Notes, …”
You should ensure. The issuers’ reps do not have to ensure…
57) T on October 24th, 2008 1.37 pm
“put your hand on your heart and answer this truthfully – two years ago, would you have foreseen AIG, Merrill, UBS and Lehman getting into this mess?
Would you think they were risky entities?”
I guess a lot of those affected people have put their hand on their hearts and probably at the same time their middle finger from the other hand into the air, and rightfully realised that after two full years from two years ago that all along they have been so scre*ed and quite perturbed that there are people like you giving the impression that it is quite alright to get scre*ed.
They may also be equally puzzled by kaypoh people like you who will virtually not lose a single cent if they do get some form of compensation. Unless again, you are some errand boy hired to do the dirty PR work.
I guess if you & so much of your own money have been scre*ed so nicely, the emotion shown should be rather truthful & real and the last thing they will need is people who are probably overnight-expert in prospectus like you.
“60) T on October 24th, 2008 5.32 pm
No, it doesn’t. Read the prospectus again. The onus is on you, the buyer, to “ensure”. The exact wordings are: “You should ensure that you understand the nature of the Notes, …”
You should ensure. The issuers’ reps do not have to ensure…”
You still do not get it.
The onus is on the investor to ensure and this I agree. Don’t you think the word “ensure” also cover seeking clarification from issuers’ reps with verbal “communication, representation and positive remarks” as part and parcel of the whole buying / selling process which unfortunately not everything is always evidenced in writing.
So it is no-brainer for “extremely smart” people (let alone lawyers) like you feeling smugly triumphant to pick up after the fact this “THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.”
The onus is on the investor to ensure and this I agree. Don’t you think the word “ensure” also cover seeking clarification from issuers’ reps with verbal “communication, representation and positive remarks” as part and parcel of the whole buying / selling process which unfortunately not everything is always evidenced in writing
In another words, the prospectus is written to protect the issuer, the arranger and the distributor. This is where MAS should stand in ensuring the prospectus should be written for the retail investors in mind too.
63) Donaldson Tan on October 24th, 2008 6.36 pm
Don’t you find it surprising (perhaps it is to be expected here on this site) that when innocent people are already losing good money, there are still meddlesome croachroaches like T, U, V, W, X, Y & Z around aggravating the already stressful environment.
Look here, I take no pleasure in your suffering. i am just pointing out the facts here. As Donaldson said, the prospectus are drawn up by the issuer and it is biased towards the issuer. They literally cover all aspects of their arse. These are drawn up by lawyers over the year.
I started to respond to Tan Kin Lian. First, he said he does not understand. I just pointed out it is in simple English. Which word don’t you or he understand?
I am not from the issuers, and I sympathise with those who lost money. All I am saying is, legally, the investors have no case. But ethically, some (not all) have good grounds of misrepresentation or mis-selling. Of course, there will be some who perfectly know what they were getting into, but can now claim they don’t understand no Engerrish.
Please follow my responses carefully.
Kin Lian,
As what ” T” had pointed out correctly in the context of the prospectus (particularly the first sentence in the front page as you have attached the link in other article), I bet any poster here would have understood it without a single doubt what it really meant. This is altogether a separate issue from ascertaining whether RM or FInancial Advisors had mis-lead investors and being empathetic towards affected investors.
However laudable and much you have done a good effort in helping the poor souls on this minbonds saga, I find your calim beyond believe and think you have execerated to a great extend when you said: “Try reading the prospectus. The ordinay layman (includign me) cannot understand what is written there. ” when you as a former CEO of NTUC, a person who provide financial advise in insurance and a guest writer of this site. Please be fair with your judgment and do not let emotion rule over your head. Likewise to those posters And frankly, for those who think posters like “T”, Blade…etc who differ from your views are unsympathetic and detached because they are not affected.
Sorry I meant “exaggerated” instead of execerated. Apology for the misspelling..
T,
where does the issue of misrepresentation and mis-selling arise? from prosepectus or the RMs? What do you mean legally investors have no case and ethically they have? Have you got yourself into knot or not?
To Observer(SG-HK)
You could understand or could read the prospectus?
68) zhummmeng on October 25th, 2008 12.00 am
Are you challenging me?
Read what I have commented again. I am referring to the first statement of the prospectus. Printed and Bolded like what “T” pointed out in response to Kin Lian’s claim.
68) zhummmeng on October 25th, 2008 12.00 am
Are you challeging me?
Please read my comment again. I am referring to the first statement of the prospectus printed and bolded just as “T” pointed out in response to Kin Lian’s claim.
Oops. mistake. Challenging instead.
68) zhummmeng on October 25th, 2008 12.00 am
In case you are puzzled what I meant. My comment is in reference to this bolded statement in the prospectus.
“The purchase of any Notes to be issued under the Programme involves certain risks. You should ensure that you
understand the nature of the Notes, in particular, the section headed “Risk Factors”, and should carefully study the
matters set out in the relevant Pricing Statement, before you invest in the Notes. There will be no guarantee from any
entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part
of your investment in the Notes.”
Granted, I understand emotions are high for those affected investors. I cannot agree more that Kin Lian had put in a great effort to help these people. That I applaud his effort but not when he exaggerated his claim in referring to the statement above as what “T” pointed out.
And for your information regarding your challenge to my understanding of the prospectus. I have ceased investing since 1982. If I ever do invest these days, I certainly will consult my attorney for this kind of investments.
T,
“THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.”
It makes me wonder whether you are making of fool of Tan Kin Lian, Donaldson, Observer ?
Such “bombardistic” statement cannot be qualified as a excuse to get away from consequences of mis-selling or representation. Why are you insisting that it hold water ? Are you showing that just this statement alone will protect the bank from blame and compensation ? Let me ask one question. Which insurance product, financial product doesn’t have such statement to protect themselves ? Call it Kiasu, kiasi but these statements exists in all these financial contract in one way or another in a very creative way (remember credit event ?). So does that mean that the statement is above everything else ?
Do you think the banks will use this statement to protect themselves from compensation ?
“THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.””
The answer is NO and no sensible bank guilty of mis-selling and representation will use this statement unless it is the last resort and on verge of bankrupty. For banks to use such a statement if they found guilty will severely destroy their reputation and credibility, and they can stop talking about expanding oversea because no country will ever entertain such a irresponsible bank.
Here is my reply to T(#54)
First, can you identify yourself and state whether you are an investor, a non-investor or representing the MAS or financial institution.
I confirm that I understand the words in BOLD, i.e. the warning that the investor can lose substantially or all of the entire investment on the occurence of a credit event. I remember that these words were also mentioned in the advertisement, but in small print.
Most people were misled into thinking that this risk is remote. They were told (wronlyt) that all the reference entities had to fail, before they lose all their money. If some reference entity fails, they will lose their money proportionately.
Many were misled into thinking that their money was invested in the bonds of these reference entities. In some cases, they received in writing the assuarnce of the sales representatives (i.e. the so called “relationship manager” of the financial institution). If the sale representatives had this belief, you can be sure that they tell it to all the people that they sold to.
Can you now read the proposectus and see if it meets this test specified by the Minister Lim Hng Khaing, i.e. “The issuer must include in the prospectus all information that an investor would reasonably need to make a proper assessment of the securities being offered. ”
Did the prospects explain clearly, the product as it actually is (which we now now what it actually is?)
Should the product state clearly that the structured product is:
a) provides insurance that if any one of the six (or whatever number of) reference entities faces a “credit event”, the investor will lose all of his money
b) that the money is actually invested in a portfolio of other assets (and not in the reference entities) and if a cerftain number fails, all of the invested money will be gone?
The chance of a total loss of the investment is xx% a year or xx% over the term of the structured product? (The issurer is able to compute this figure, based on the premium that they receive from covering the risk.
If this is explained clearly, most investors would have avoided the investment, as they are risk averse. The other investors, who are willing to take the risk, cannot claim to be misled.
Clearly, this is a case that thousands of people have been misled into investing in the product, due to its complex nature, and the manner in which it is described in the prospectus.
In many cases, the propsectus were given to the investor only after they invested in the structured product. Even now, many investors could not find the prospectus. I cannot find it in the MAS website.
Under the Financial Advisers Act, the representative (acting for his employer, the financial institution) has the responsibllity to ensure that the “recommended product” suits the consumer that is being sold to. These products are being sold as an alternative to fixed deposits. It is the duty of the financial adviser to prove that they are suitable.
But,
we know that in 100 years it is only 6%. (for 6 entities)
So I concluded that you might have done a wrong math.
– H.Pepperkamp (#44)
Your math is wrong. Let me rephrase Mr Tan Kin Lianś example.
If the risk is 1 in 100 years, it is 1% per annum.
For 6 entities, it is 6% per annum.
For a period of 5 years, the risk for 6 entities is 30%.
For a period of 16 years, the the risk for 6 entities is 96%.
For a period 100 years, the risk for 6 entities is 600%.
Clearly, it is bad idea to hold the mini-bond for 16 years, since a credit event is surely to happen. However, even 30% risk is too much for an investment product to be considered as an alternative to fixed deposit.
The fixed deposit scheme guarantees up to S$20,000 should the bank that holds the deposit collapses, but in this case, the mini-bond product only guarantees that you can get back 100% of the liquidated value of the mini-bond at maturity/termination, which is not necessary more than the capital invested.
I can´t even carry out simple valuation of the investment product on my own since all the important information for required for risk evaluation cannot be found alone in pricing statement and the base prospectus alone.
What I find it shocking is the weightage of the individual financial instruments and information regarding cash flow is not included. Also, other important information is lacking, such as the business models of the entities, so that one can evaluate the risk objectively by assuming bad, moderate and optimistic conditions to evaluate the upside and downside.
Can omitting essential information out of the prospectus be considered as mis-representation since there is possibility of proving the prospectus as half-truth?
Kin Lian,
Thank you for clarifying your stand. Appreciate it. I hope you understand where I am coming from. We want to be seen as people with fair judgment in our call. This is a differentiator from the MSM.
As far as understanding the entire prospectus, even lawyers will have a hard time figuring it our without the help of Senior FInancial Advisors to work out the Math contained within to advise serious investors. Most prospectus in general (including Insurance Policies underwriting) are in favor of the issuer in case of dispute (such as the minibond debacle). It can generally be said that the rest of the world (people who invested and including institutions) had been taken a ride by the US who instrumented these strutured products.
The US congressional inquiry is going on and you even heard the former Fed Chairman admitting that the lack of regulation on these derivatives (CDS) which these MiniBonds are related.
Anyway, here’s my apology if I sounded insulting in my comments to you. I hope you continue to upkeep the good work you and your colleagues are doing.
Hi Donalson Tan (#75)
It is important that relevant information should be disclosed. The risk of default is most relevant. I think that the issuer has some idea about the risk (as it is determined by the premium that they received from the swap counterparty). But they did not disclose this risk. So, the issuer can be faulted under section 200 of the Securities and Futures Act for “withholding relevant information”.
MAS should have disapproved the issuing of this product, as it lacke the relevant information. MAS cannot expect the retail investors to figure it out for themselves.
Note: My estimate of a 30% risk of failure of the referene entities over 5 years could be over-stated. At that time, the actual risk could only be 15%. Even so, it is still high. There is the additional risk of failure of the underlying assets and failure of the swap counterparty (i.e. Lehman Brothers).
If one considers that there are so much uncertainty, the product certainly cannot be sold to the ordinary public. It is not sufficient to have a statement “you may lose substanitally or all of your investments in the event of a credit default”.
Hi Observer (SG-HK) (#76)
At an appropriate time, we should take up the issue of all types of prospectus that are written in complex language that the retail investor is not able to understand.
If the securities (minibonds or shares or unit trust or whatever) are to be sold to the public, it must pass the test of being comprehensible to the public. If it is not understandable to the public, it CANNOT BE APPROVED FOR SALE. (This is the duty of MAS).
I like to quote an example from the medical field. Suppose a manufacturer introduces a new medication that is potentially risky and is asked to put this disclaimer: IF YOU CONSUME THIS MEDICATION, YOU FACE THE RISK OF DYING FROM THE SIDE EFFECTS.
Should this medication be approved for sale with the disclaimer? There is a high risk that the consumer may not be aware about this warning, or the pharmacy store salesperson may say, “Don’t worry. It has been approved by the Health Science Authority. You can ignore this warning”.
Kin Lian,
Without a doubt I agree with you that at an appropriate time we should take up the issues of all the prospectus that contained dubious statement. The crux is whether the authority will heed the advice and spear head the effort is altogether another matter.
I am not a strong advocate of over regulation in open capitalist market (even I have ceased making any stocks or bonds investment) but clearly, more regulations are needed now to safeguard the investments of ordinary unwary folks who otherwise find their hard earned money depreciating in just ordinary bank savings.
I think the current regulatory body seemed to me are unperturbed by these events happening. They need to come out of the dark and restore public confidence before the market collapse further which is of no benefit to all even those who are bystanders will be dragged into this. Any sort of positive moves seen by the public is a wlecome sign. At least more stringent rules to regulate profiteering by unethical business conduct of those listed companies.
Hi Observer (SG-HK)
Can you contact me at kinlian@gmail.com. We can continue our discussion off-line.
Mr Tan, can you also review and look into the current sales processes whereby the products are sold without presenting the prospectus to the retail investors. The sales is based on the impressive brochures and sales pitch by the RMs.
Hi Cancer (#81)
The root of the problem is the freedom for the product creator to create the product and to add on an undisclosed amount for profit and marketing. This allows the sales representative to push the product that pays the highest commission. The high cost usually means poor value for the customers.
Many products fit into this category:
> land banking
> time share
> life insurance
> structured products
The regulator must set limits on the amount of charges, or require them to be disclosed clearly.
oops! maybe this T guy is TKL’s ex.colleague or what, why get so worked up on just words that don’t sounds good to the other.
If a prospectus is purposely designed to confuse, then very few people, no matter how professional they are will understand. Those who claim to understand are the real liars. Those who insisted that others must understand have hidden agenda.
I support better observance of fair play in the market, both to the (consumer) investors and the (product) providers. There needs to be as much INDIVIDUAL RESPONSIBILITY as BUSINESS ETHICS.
And, of course, I believe achieving such balance is a very difficult task. Even the smartest brains and sophisticated political system in the US can allow the mortgage crisis to surface.
There are certainly both unethical distributors and greedy investors. Although I don’t know specifics in the Lehman bond case well enough, I suspect it is unlikely that the provider will compensate all consumers without strings attached. Any move by the government bowing under political pressure to please everyone (by buying back the bonds), although emotionally satisfying, is still unfair in principle.
Lesson learn: it’s easy and too late to get angry with 20/20 hindsight. Damage control is a shitty job, so it’s best not to let it happen in the first place (by both the individual and the provider).
I also wonder if the Unfair Contract Terms Act would be applicable in the case of all lehman-related investment product. This is from Clause 4, Part 1 of the Act:
Unreasonable indemnity clauses.
4. —(1) A person dealing as consumer cannot by reference to any contract term be made to indemnify another person (whether a party to the contract or not) in respect of liability that may be incurred by the other for negligence or breach of contract, except in so far as the contract term satisfies the requirement of reasonableness.
(2) This section applies whether the liability in question —
(a) is directly that of the person to be indemnified or is incurred by him vicariously;
(b) is to the person dealing as consumer or to someone else.
MAS believes in hands off approach…Over regulation can stifle. FIs are free to do anything they deem good and can make more money so they can pay more corporate taxes. Contracts are biased in favour of the FIs. To encourage more consumption by rolling ‘new’ products to excite the consumers. The merits of the products MAS will not interfere. Toxic or not is left to the consumers to find out,.
Caveat Emptor is the basis of all tracsactions. Consumers get cheated can report.
Insurance agents and RMs can misrepresent so long they are not caught.They are encouraged to qualify for MDRT , COT or TOT so they can pay more income tax. Blur and old consumers must learn to read prospectus and insurance benefit illustration so that they can make informed decision.Putting everyhting in one basket is the vogue theory of diversion-fication. It makes easier for RMs and insurance to close more sales.More risk more return. If don’t want put in CPF and be rich and you can get a statement every month. It is caveat emptor. If you make wrong decision too bad. Everybody must be like the professor Ho Yew Kee of NUS business school with financial knowledge to make caveat emptor decision. Consumers wishing to buy structured products are encouraged to enroll for MBA course in NUS business school where prof Ho will teach how to unravel the intricacies of the complicated structure products and invest in these products wihtout fear and tear.,. Public education will help the the Ah Peks and AhSohs to understand the prospectus better so to make INFORMED DECISON. They are expected to know evrything before investing.Maybe Mr .Lim HK, the deputy chairman of MAS should conduct a course on how to make informed decision for financial products.
Lastly,Alan Greenspan is available for hire after the Congressional Grilling and Barbeque session. . MAS should consider hiring him to tap on his expertise on non regulation and lassier faire . It is greed and fear that cause the financial turmoil and nothing to do with regulation.
Dear all,
I think I have to make myself clear as there are some here who are so blinded by fear and helplessness that they will attribute ulterior motives to anyone here who offers alternative views. With passions running high, it is important that I state where I am coming from to prevent any misunderstanding.
First, let me declare that I am not from MAS (or any authority or government department) and I am not from the issuer financial institutions. I have never worked with or in NTUC Income and I do not have any axe to grind with NTUC Income, its current CEO, or its ex-CEO. In fact, I have been and still am a customer of NTUC Income.
I have not bought any of those affected structured products. But I do have investments in equities, and as we speak, I am down by more than 50%. As, the current financial crisis joke goes, this is worse than a divorce – I have lost half my assets and STILL stuck with my wife. I reckon my loss is higher than 95% of those who bought the affected products. So, I hope those who think I am unaffected or uncaring will be more miserly with your pinch of salt.
The only reason I am sharing my views here is what I thought this website is all about – exercising my right and obligation as an online citizen.
All of us want justice and equity to be done, and seen to be done. However, the way some of us here are going about it, is, in my opinion very wrong and smacks of double standards. Remember, justice and fairness works both ways. Just because we are hurt financially, does not mean that the financial institutions or those financial reps who sold those products are not hurt. In fact, they are hurt more.
Those affected can be grouped under four categories:
a) Wrong target market – too old or illiterate
b) Misrepresentation by the financial reps
c) Those who are aware of the risks
d) Sophisticated investors
Now, of the roughly 10,000 investors who were sold those affected financial products, those in a) and b) ought to be compensated, or have their contracts revoked. My comments and views were and are targeted at c) and d), which could range from 10% to 50% of the 10,000 investors. Now, for these investors, I don’t think they should be compensated at all.
We talk about justice for the poor investors. What about justice for the financial institutions if those who bought the products knowingly also pretend to suddenly become financially and linguistically illiterate? They are literally fishing in murky waters and taking advantage of the situation to wriggle out of their losses.
Now, in our eagerness and appreciation to someone who champion our cause, we cannot be so partition and biased as to give the champion a blank check to exaggerate or tell little white lies. Just to avoid any names, let me cite a hypothetical case. Image if someone who used to run one of the biggest financial institution in Singapore were to claim that he is a layman financially, or do not understand the prospectus, then what hope is there for the rest of the citizens (or any investors) who have not worked in a financial institution at all?
The implication of this is dead serious. What this means is that every single investor in Singapore can wriggle out of any bad trade or investment. If an ex-CEO of a financial institution cannot understand an investment, then who can? So, the issuer banks should compensate every single investor. Clearly, this is grossly unfair to the banks/FIs.
There is no need for T (#90) to continue his insult and remain anonymous.
T objects to this statement made by me: “Try reading the prospectus. The ordinay layman (includign me) cannot understand what is written there. ”
The choice of words was unfortunate. The statement could have been more properly written as ““Try reading the prospectus. The ordinary layman cannot understand what is written there. Even a knowledgeable person like me cannot understand it”.
There is no justification for T to call me a liar, just for this mistake. Whether I am a layman or not does not change the meaning of my message.
I do not like T to put words in my mouth, which is what he has done in the last paragraph of his #90. I have stated myself clearly in my posting #74.
T is obviously well educated and wish to argue a point of view strongly. It is time for him to declare his identity.
Those affected can be grouped under four categories:
a) Wrong target market – too old or illiterate
b) Misrepresentation by the financial reps
c) Those who are aware of the risks
d) Sophisticated investors
Now, of the roughly 10,000 investors who were sold those affected financial products, those in a) and b) ought to be compensated, or have their contracts revoked. My comments and views were and are targeted at c) and d), which could range from 10% to 50% of the 10,000 investors. Now, for these investors, I don’t think they should be compensated at all. – T (#89)
If you had actually read all of Tan Kin Lian´s blog posts since the MAS/DBS/Lehman Saga begun, you would have realised that Tan Kin Lian´s position on the above matter is similar to yours. My position on this incident is also similar. The problem here is not Tan Kin Lian providing civil society leadership to defend investors that fall under (a) and (b), but rather investors that fall under (c) and (d) choose to jump onto Tan Kin Lian´s bandwagon.
You are targeting the wrong person.
Those affected can be grouped under four categories:
a) Wrong target market – too old or illiterate
b) Misrepresentation by the financial reps
c) Those who are aware of the risks
d) Sophisticated investors
Now, of the roughly 10,000 investors who were sold those affected financial products, those in a) and b) ought to be compensated, or have their contracts revoked. My comments and views were and are targeted at c) and d), which could range from 10% to 50% of the 10,000 investors. Now, for these investors, I don’t think they should be compensated at all. – T (#89)
Dear T (#89),
If you had actually read all of Tan Kin Lian´s blog posts since the MAS/DBS/Lehman Saga begun, you would have realised that Tan Kin Lian´s position on the above matter is similar to yours. My position on this incident is also similar. The problem here is not Tan Kin Lian providing civil society leadership to defend investors that fall under (a) and (b), but rather investors that fall under (c) and (d) choose to jump onto Tan Kin Lian´s bandwagon.
You are targeting the wrong person.
Hi Donaldson Tan (#92)
i am not sure if there are people in category (c) and (d). If the financial institutions had been aware about the actual nature and risk of the structure and had represented in correctly to the investor, then these categories exist.
It is for the financial instituton to come forward and say, “We have provided the appropriate training to our sales representatives and given them these information to disclose clearly to the end customers”. If they have given the right training, it is easy for them to show proof that their representatives had given the correct information on the product to the end investors and reject those in the categories (c) and (d).
Petition #2 ask MAS to check the training materials of the financial institutions to verify this point. Let us see if MAS is able to give a statement on this matter, after they have done their investigation.
I ask the retail investors who claim to be misled to sign a statutory declaration – so that the bandwagon jumpers have legal liability on their statement. MAS said that it is not necessary. Maybe, MAS should change their stance on this matter.
My comments and views were and are targeted at c) and d), which could range from 10% to 50% of the 10,000 investors. – T (#89)
i am not sure if there are people in category (c) and (d). – Tan Kin Lian (#93)
T (#89),
Seriously, who knows what the actual figures are? Nobody can confirm, even. Tan Kin Lian isn´t sure if anyone falls under categories (c) and (d) while your estimate (10% – 50%) is as good as a random guess.
TKL,
I noticed that each time you lost an argument, you will resort to calling people rude or insulting you. If there is anyone who is doing the insulting, it is you. You are the one insulting the intelligence of everyone here by claiming you are a layman and do not understand prospectuses written in clean plain English.
How has T’s words insult you? To me, he’s just pointing out what you wrote is not correct. And how would the fact that asking him to reveal his identity change the facts of his statement? Assuming T is Tan Ah Kow, would his argument be less true?
Come on TKL, you made an astonishing statement for an ex-CEO of a financial institution, T pointed out your error, and instead of correcting yourself, you made it worse by calling him rude and insulting.
I notice you have climbed down a bit, by referring to “The choice of words was unfortunate”. What a cop out. Does that mean the issuer banks and Lehman can now say, “their choice of words was unfortunate as well”. That they meant the investment has some risks, and not low risks?
Donaldson, if you have actually read all of T’s posts, you would know that he’s only objecting to TKL’s calling himself a layman. By doing so, he is as good as saying no one in Singapore will be able to understand these products or their risks. TKL is clearly very partition – on the investors’ side. As champion, he should be more fair-minded. At least T is balanced in his views. And T does not appear to be targeting TKL, only his misrepresentation of himself as a layman. Mind you, this whole thread is all about misrepresentation and mis-selling. And you have an ex-CEO of one of the biggest home-grown insurance company selling billions of dollars of insurance products and equity-linked investments claiming that he is only a layman and don’t understand prospectus. Now you tell me who is doing the misrepresentation here?
#60 T : Read the prospectus again. The onus is on you, the buyer, to “ensure”. The exact wordings are: “You should ensure that you understand the nature of the Notes, …”
You should ensure. The issuers’ reps do not have to ensure…
Thank you T, Finally I understand why RM cannot be trusted. They don’t have to ensure the customer understand the prospectus. They only need to ensure the customers signed on the dotted lines. I will passed this new knowledge to as many people as possible.
T,
as many have replied, there is nothing wrong about this statement
“THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.”
But it is something wrong when this statement is purely used as basis of investors of not getting any money back in case of mass mis-selling or mis-representation.
If it is a normal case when investors place money and , and get burn, and it is not due to mis-selling/mis-representation (as there is no complain), I saying this statement that you mention is valid,
but in this case where you have whole lot of investors complaining that RM did not tell them what they need to know then the statement cannot be justified as a repercussion of mis-selling/mis-representation. And That is why commenters here are very frustrated over your significance of the statement.
In other words, Mis-selling/mis-representation cannot be condone based on this statement
“THERE WILL BE NO GUARANTEE FROM ANY ENTITY TO YOU THAT YOU WILL RECOVER ANY AMOUNT PAYABLE UNDER THE NOTES AND YOU COULD LOSE ALL OR A SUBSTANTIAL PART OF YOUR INVESTMENT IN THE NOTES.”
By doing so, he is as good as saying no one in Singapore will be able to understand these products or their risks. TKL is clearly very partition – on the investors’ side. – Umpire (#95)
Of course, TKL has to take side. He is championing the interest of investors who fall under:
(a) Wrong target market – too old or illiterate
(b) Misrepresentation by the financial reps
You have to take side if you are pushing for action. Choosing middle-ground is only applicable if Tan Kin Lian is a messenger for MAS to the victimised investors and a messenger from the victimised investors to MAS.
The choice of words was unfortunate. The statement could have been more properly written as ““Try reading the prospectus. The ordinary layman cannot understand what is written there. Even a knowledgeable person like me cannot understand it”. – Tan Kin Lian (#93)
Given that Tan Kin Lian has rectified his statement, there is no need to continue to pursue something so trivial. Accidentally labelling himself as a layman is stretching the definition of layman at best, since he is a qualified actuarian and not a chartered financial analyst.
And you have an ex-CEO of one of the biggest home-grown insurance company selling billions of dollars of insurance products and equity-linked investments claiming that he is only a layman and don’t understand prospectus. Now you tell me who is doing the misrepresentation here? – Umpire (#95)
This logic is flawed. A CEO´s job is to make good strategic decision in face of limited business intelligence and a lot of uncertainty. The CEO doesn´t actually micro-manage the investment portfolio of investment fund related to the investment-linked schemes.
Micro-managing the investment fund is the job of professional investment managers, not the CEO. If the CEO can´t understand the way the investment manager manages the fund, then the investment manager isn´t doing a good job in presenting to the CEO.
No doubt, the CEO´s understanding in the micro-management of the investment fund will improve as he attends more presentations by his subordinate investment managers. Hence, Tan Kin Lian is knowledgeable individual.
So, the issuer banks should compensate every single investor. Clearly, this is grossly unfair to the banks/FIs. – T (#89)
Fairness depends on how you perceive the overall environment. Remember that MAS inaction would cost more for the investors than the financial institutions. Your claim of grossly unfair would only be applicable if the regulatory environment is not what it is prior to MAS/DBS/Lehman saga.
Donaldson,
/// Given that Tan Kin Lian has rectified his statement, there is no need to continue to pursue something so trivial. ///
Did TKL rectify the statement? He made it sound like an honest mistake. He still think I am insulting him. I disagree with you strongly that this is trivial. He is fighting for those who claimed not to understand the risk. By misrepresenting himself to be just another Joe the plumber, he is in fact saying that everyone can claim ignorance, however well qualified they are. He is in fact opening the door for all and sundry to “buat bodoh”. I didn’t say a CEO should micro-manage. But the list I expect of a CEO from a FINANCIAL INSTITUTION to be more knowledgeable than the average Joe, Jane, Jamal or Jayakumar.
Donaldson, yes he can take side. But there is a huge difference between taking side when facts are on your side, and misrepresenting. Being partition give you the licence to suddenly become a layman without any financial understanding.
Donaldson, you mentioned “Mis-selling/mis-representation cannot be condone based on this statement.” Now, answer me honestly, can misrepresentation of one’s competence/knowledge be condoned? Especially if it opens the floodgate for those in c) and d) to also feign ignorance. This is key. It is not trivial.
Sorry, last paragraph should be directed to Daniel.
I do not wish to engage in argument with anonymous people (i.e. T or Umpire). I do not know if they are the same person or different people.
T did called me a “liar” in a post that has since been deleted. He continued his insult by mentioning something about ex-CEO of a financial institituion. It does not matter.
I have explained why I do not understaand the prospectus. The wordings of the 50 to 100 pages are in English, but the meaning is hard to fathom. It is easy to be misled. – and many people have been misled.
My explanation is in #74.
I still ask T to declare his identity. I ask if he is a lawyer involved in writing the prospectus.