Leong Sze Hian / Columnist
I refer to the report “Be more ‘proactive’, MAS” (ST breaking news, Oct 20).
The report says:
“The Minister’s answers sound like the MAS shouting across the river, while watching a fire burning,’ said Mr Low (Khia Thiang), who suggested the Government could form a committee ‘to deal with the matter directly’.
Mr Low also asked if the investors’ plight was the result of a ‘less prudent regulation by the MAS’ and ‘the Government’s decision to liberalise the financial market’.
And on Mr Low’s question on disclosure and liberalisation, Mr Lim added that if financial institutions intend rolling out similar structured notes, they would have to go through a process to put out a prospectus that discloses details of the products, including a pricing statement that explains the risk.
‘So our rules allow them, if they are putting out a programme of notes like in the case of the Lehman Mini-bond series…these are all similar products, so they put out a general disclosure through a prospectus.’
Mr Lim also added that with each new series FIs put out, it would come with a pricing statement that explains the risk and set price.
‘It’s a better approach than to say that every time you put out one of a series of notes, you have to come out with a whole process of the full prospectus.’
Mr Lim also addressed Mr Low’s question on whether structured products were low-risk or safe.
The Minister said that the product’s prospectus would have outlined the risks: ‘These are explained in the first page or second page , that these are structured products and it’s in bold print, that you can lose everything.
‘So MAS has never said that these are risk-free products or low-risk products or safe products.’”
What is “mis-selling’?
I refer to the article, “Time to maker sellers beware not just buyers”, Dr Huang Shoou Chyuan’s letter “How will Govt help buyers of structured products ?” (My paper, Oct 16), and media reports that some financial institutions will in specific cases whereby evidence of mis-selling is established, they will take responsibility and compensate investors.
I checked a few dictionaries and Wikipedia, but there is no such word as “mis-selling”.
However, “mis” means “bad or wrong”, and “selling” means “to influence or induce to make a purchase”.
In the context of the structured products at issue, does “mis-selling” mean mis-information was given to the investor, or a mistake in the “selling” process ?
So, how does an investor prove “mis-selling” ?
Examine systemic issues
Instead of focusing on the sales transaction that took place, I would like to suggest that we also examine any systemic issues that may have contributed to possible “mis-selling”.
For example, what training, script, tools and marketing materials were given to and used by the representatives of the various financial institutions ?
In this connection, according to the Guardian newspaper of 8 October, the largest fine ever of 7 million pounds was meted but by the United Kingdom’s financial regulator, on a financial institution that was caught training staff to pressure customers into buying an expensive financial product.
Investors have also written to newspaper forums, citing that the product summary and brochures of some of the structured products in Singapore had wording like “for defensive investors seeking exposure to high grade assets that provide steady and enhanced yields”, “low risk and easy to understand”, etc.
In light of the above, has “mis-selling” occurred, in a sense, even before the sales transaction ?
What is “suitable” and “reasonable basis”?
I understand that according to the Financial Adviser’s Act, the investment product recommended must be suitable for the investor, and there must be reasonable basis for the recommendation.
So, what is “suitable” and “reasonable basis” ?
In my view, the test for “suitable” and “reasonable basis” is whether there is any conflict between the investment advice or product recommended, and the investor’s objectives, concerns, circumstances, risk profile, etc.
In this regard, I believe that most of the structured products’ sales transactions may have been documented as “no advice” or “product advice” only.
What this may mean could be that the question of “suitable” on “reasonable basis” may not arise, because the investor did not provide any information pertaining to his or her objectives, concerns, circumstances.
There will always be risk in investing. What in my view is the crux of the issue is not so much that some investors have lost money, but rather that so many people of modest means have lost their life savings in products which they thought were “safe”.
Notwithstanding the above issue on “reasonable basis”, the failure to address diversification , as enshrined in ISO 22222 (Personal Financial Planning), could be another consideration particularly for long-time existing customers who have their entire savings and investment portfolio with the same financial institution.
On hindsight, perhaps the lesson to be learned is that there is no free lunch in investing – how could one think that getting a few per cent more interest (payout) than fixed deposits, and some with the potential of extra returns, could be “low-risk” ?
MAS must address conflict of interest issue
I also understand that some investors have expressed concern about a possible conflict of interest, over media reports that the independent persons appointed to oversee the financial institutions’ own investigations into complaints, can negotiate their fees. To allay such perceptions, I would like to suggest that the Monetary Authority of Singapore (MAS) determine the fee and apportion it by charging the financial institutions involved.
Although the MAS’s proposed fair dealing guidelines for the board and senior management of financial institutions have not been implemented yet (consultation stage has been completed), the eyes of the world, may in a way, be on Singapore on the resolution of this saga.
The reputation of Singapore as an international financial centre may be at stake.
Financial institutions have an opportunity now to restore if not gain even the greater confidence of consumers.
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Video of the minister’s statement in Parliament:
Part One:
Part Two:
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49) Fredrick on October 22nd, 2008 4.16 pm
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Agree with you.
The system is such that businesses have the money power to engage great lawyers and contract specialists to craft a nice contract that can protect the businessmen such that when a naive consumer signs the dotted line, after ‘creative’ selling tactics is used by salesmen, they have actually signed to sell their soul, so-to-speak.
Believe me, there could be another round of Fiasco sometime later unless there is a Union for Consumers to make changes to the way business is done. There should be a way to ensure that contracts must be clear and easy to understand by all targeted consumers. Else, its simply unfair as salesmen can use tactics to make naive people sign a contract containing clauses not good for them. Its called business ETHICS. Which system ensures business is done ETHICALLY?
TOC – can you guys change the phot of LHK?
Everytime i visit this thread i get a fright – worse if it’s night time.
can change or not?
@comment #49 Which system ensures business is done ethically?
NONE. The closest you will get is that everything as trackable as possible – purchase orders can be traced back to other documents, invoices, receipts, etc. Staff can be tracked via NRIC # alone, or a combination like by family name and nationality. Everything as trackable and as accountable as possible. That system is known as the once-overhyped ISO systems.
BTW, I posted some info for investors and would-be investors to my blog. Take a look if you wish—> MyQute.com Sorry – blog half-baked and always under construction.
i know this remark is lame, but can someone remove his photo… this man is really ugly..
If you start rationalise that busineeses cannot be ethical and therefore why we should be ethical. This is the premise that insurance agents use. If I don’t cheat this consumer anyway he will be cheated by another agent so why not i cheat him first and cut off the other agent. So eventually you find only cheaters in the market.
The good news is that there were some who quit the RM job of malpractices.
In other words we can still find some ethical ones.
Like I posted the 95/5% principle., 95% are cheats and 5% are ethical.
The question is where to find the5%?
Well, insurance agents or financial planner or what ever terms you can call them they are still SALESMAN. So naturally salesman just do salesman talk lah.
But the big difference here is that the terms, conditions descriptions are all written by lawyers or at least vetted by legal department before putting out to the public. Unfortunately the people selling the products are not lawyers themselves. So cannot really explain the entire contract in layman term to the consumer. So is it the fault of the salesman? You be the judge.
But when anything happen, the salesman will most probably set aside and get the legal people to tell you that the contract does not cover this at that b’cos blah blah blah according to the legal language in the contract. So do you think it is fair to the consumer that when the company wants to sell the product, they get the salesman to give you the sales talk. But when you want to make a claim, they get the lawyers to tell you this cannot that cannot… Why can’t the salesman follow the case through? The excuse given is that sales people are not lawyers so that cannot tell you why is that and this. Hahaha..
So is the law set up to protect the rich? You be the judge again. Singapore is a place where we talk about justice. Our ministers swear by this system and use this system effectively too.
This is SINGAPORE.
These million dollars Ministers of the PAP govt. only actively act on our case if election time is close. They care most for their pockets…and kiasi to loose their seats and a million dollars in salary. These guys are living in ivory towers and dont have a heart for the citizen– every damn things have increase…
Why PAP govt invested billions of dollars of our money in those foreign bankrupted Ang Mo Banks and yet they claimed that it was good investment. I dont understand…
I say PAP also means “Poor also Pay”…..
The distributors of products should conduct talks and seminars for the public to educate them. For example, when there is a series of new and similar financial products, invite a speaker (an expert who is not linked with the distributor or the issuer of the product) to give a talk and have a Q&A after that.
Before that, work with the newspapers here to write some articles, and promote the upcoming talks. That not only begins to give the public an idea of the products, it allows them to prepare to ask questions. It is a win-win situation for all. Educate the public, promotes the product.
#59. Good opinions that I can “boost”!
Para 1. How many of you have signed something….like an insurance contract without reading it first?
Para 2. I am in the opinion that if a company or financial instituition wants to promote their products by educating their customers, they will have do much better than articles!
WHY? Cos many people hate reading! Pass them a prospectus, and they will bring it home unread till may be a few months later (or may be never even read it!)
3. Even a face-to-face meeting to answer some questions would be difficult because not every question can be explained in a way that investors can understand.
As such another person will have to tackle the question so as not to hold up the Q and A.
4. “Surrender” and “Withdraw” may mean the same thing but to some investors they don’t know. Have a glossary of the most commonly used “investing” terms first. And that means INVESTORS MUST LEARN TO LOVE READING! Learn to love learning!
If MAS forces every insurance agent to be competent , honest and follow a prescribed steps to take then the danger of having lousy deal is reduced. MAS must also make them responsible for any out come.
Currently, it is the law of the jungle.
Consumers have to protect themselves against the predators who are every where.
Reading the prospectors or benefit illustration of life insurance products doesn’t help very much. It makes you responsible for own action. Buying a car has less chance of going wrong. if there are defects there is warranty. Financial products expect you to be an expert. Don’t be naive. Professors, doctors, CPA need help and what makes you think the man in the street don’t need.The sellers are pushing away their responsibility; MAS is helping them; ministers said Caveat emtpor is fair.
I think having an honest,competent adviser is important . With MAS helping to make sure these advisers are competent and honest will keep malpractices under control. MAS must enforce the laws and come down hard on errant practitioners ..
This might not be new to most people out there:
There is a common say that two kinds of people deserve to go to hell after they are dead:
1. The Bankers
2. The Lawyer
I think this is especially truth in Singapore. Most importantly, you can find this 2 trade of people inside our Ruling party. Coincidence? Maybe ……
Psst. Isn’t it supposed to be ‘response’?