Mr. Tan
I started my career as an investment consultant which requires formulating advice from client's interest point of view. I had done some work with banks on asset allocation models and fund selection (thinking from customers' interests point of view).
Two and a half year ago, I decided to join a bank to carry on this work.
It is an uphill task to convince people within the bank to embrace the investment approach of diversifying investment risks for the interests of customers. This directly clashes with corporate interest of meeting sales target and paying high bonuses, via selling high margin high risk products.
To be more specific, areas of conflicts include:
1. Most products are high risks in nature. Recommending broadly diversified products will lead to cannibalising the business of those narrowly focused products (including structured products). Killing these high risk products mean threatening the jobs of those people making profits out of these.
2. People are generally excited by new products and not old products. So, there is an IPO mentality - new products are better than old. As broadly diversified products are considered old products, it is obvious that no bank will run a promotion on the newly launched global stock funds or global bond funds because they aren't any. As the room for innovating structured products is unlimited, excitement and hype can be easily created around these products to boost profits.
3. The compensation structure of people selling investment products is commission based, and it is difficult to drive sales on products with lower commission. Unfortunately, products that work for customers (e.g. Term Policy, ETFs, global diversified funds) are usually low in commissions.
I also sympathise with the sales people, who are not talented enough to be promoted out of their hot seats of having to sell highly risky products to vulnerable customers just to meet the forever increasing sales target. I suspect some of the sales people succumb to the lifestyle of closing deals that are not in the best interests of customers and enjoying high bonuses, while others with conscience are trying their very best to get promoted to become product managers or some other roles in the bank, or even consider moving out of the job of selling investment products to selling other safer thing like house, car etc.
I believe no sales person is happy with the consequences of causing losses on monies of customers with no intention to take any investment risks. I am sure sales people are also suffering significant degree of guilt.
The conflict of interests between banks and customers remain unresolved until today.
Unless this conflict is resolved totally, I remain uncomfortable working for a bank. And I believe most people who have worked in a bank will agree with me, while others who do not, may have numbed their conscience due to helplessness.
May be the banks now seriously need regulators to set specific governance framework, to help them counter the unsurmountable vested interests that are in direct conflict with customers.
(name deleted)
I strongly agreed with the writer on the excitement created by new products. As I have the same urge to divest my FD to some of this so call structured investments before.
ReplyDeleteThe point that I want to stress was that any investments products that required prospective investors to read thick book of documents call prospectus should not be market over the counter, as what was happening now whenever customers go to renew theirs FD often introduced to newly created and sound fancy alternative investment to FD.
It is also time for the regulator to seriously review the manner this kind products being allowed to be marketed.
It will be good that any complex investment products should only make available to prospective investors by proper trained staffs and not any RM manning the counters.
i know of a few associates in finance services who highlight their circumstances
ReplyDeletethey said their jobs usually do not pay a significantly high basic, a lot is based on commission, usually say 0.X% upwards and the margin increase tier to tier, meaning a better overall commission and/or a possible separate lump sum reward if he/she hit a higher target
but in good times, they had such easy hits that some could be drawing as much as 5digits monthly, of cos when nothing happened the whole world is at peace
they start to indulge or elevate their living standards, however they drop into a cycle where they can no longer 'rely' simply on a lower income threshold, their expenses for basic necessity or for placating social pressure, has been so expanded that they are almost driven to churn results, its like riding a tiger they cant afford to unsaddle, they cant simply downgrade their live styles amongst their peer groups, 'a lot' would be at stake
conscience or no conscience, at that point they had only one direction, kill or be killed
and since literally all those who are still in that sector had obviously understood the implication of their actions (they themselves might not be warned or aware of the fallout ahead), but having already done the deed, they would equally understood, unless there is absolute hard evidence followed by an outright signed stamped confession, no one would rather rake up a can of worms, for which had been so rewarding, to them least.
I am a "treasure" customer of the bank what sold me the HN. I was shocked when the RM told me my HN2 is close to being terminated because of the defaults of 3 companies in the basket of securities. This risk is unknown to me and was never explained to me. I have banked with this bank for more than 20 years and all along trust it to be a reliable national bank.
ReplyDeleteNow i feel humiliated. I feel silly whenever I step into the bank, as if everyone in the bank is grinning at me. I feel I cannot continue this relationship any longer and I hate to talk to my relationship manager. I started to withdraw my FDs and transfer my investments to another bank. I would not feel so bitter if the bank is just a distributor of the toxic product, but it is the creator of the toxic product that is sold to me, to poison me. I feel sad that our own bank has become so greedy that it is preying on our own citizens.
The solution is for the adviser or RM to go on a fee basis type of advisory service. The problem is that clients want cheap cheap cheap.
ReplyDeleteIn my case, I actually had a FD and was advised to pre-terminate and invest into a structured note. In the first place, this RM kew she is leaving the employment of the bank. A few weeks' later, she quit the job and joined an Investment House. She contacted me and wants me to transfer my investments from the bank to her. She even offered me a lower fee. I did not follow her advice. She is so unethical.
ReplyDeleteMy investment with the bank is also a structured note (I believe it is similar with the rest). The only thing is that it has not yet matured. We should not take pity on them. Who will take pity on us?
which was why i left the foreign bank i was with as an rm to a local bank to focus on home loans. the final straw was when my manager told me off for not selling enough investments/insurance ( i focused more on home loans due to conscience) and she commented i dont deserve the commission! simply because i was not bringing in the fee income the bank could have earned by doing investments and that i was hitting my target doing home loans!
ReplyDeletewell, i was one of the product developers... i know how u feel, i know how i felt when i was developing products that i did not like and yet i had to help sell them.
ReplyDeletei am ok with a product that ended up not losing money, but it has to be done with conscience and beliefs.. if your belief is wrong, fine.. but at least your conscience is clear..
i am fairly glad i am out of that cycle of life.. maybe i need to get back to earn a living (i am still sought after) but.. well.. what do i want.. its a tough mental struggle...
i think the point here is a call for greater regulation on the banks.
ReplyDeleteMAS cannot claim they don't want to 'over-regulate' and advocate 'personal responsibility' on the part of the investor.
it's only possible to take 'personal responsibility' if investor fully understands risks and rewards AKA perfect knowledge. but it's impossible to have perfect knowledge in the marketplace and worse, banks and investors have conflict of interest.
Thus: MAS HAS TO REGULATE MORE. not be left with egg on the face like Alan Greenspan who overly believed in the market. Banks cannot be trusted to self regulate and investors are simply NOT savvy enough to outwit the banks
Insurance companies cannot be trusted to self regulate too. Look at the products..Look at the agents , what they are doing.
ReplyDeleteThe products thses days are rotten. Thea agents are rotten and unethical and engage in mis-selling and misrepresentation.
This is just similar to selling drugs.u make a profit out of the innocent to fufill your luxurious lifestyle.
ReplyDeleteJust that u are protected by the law.the drug traffickers are not.
Those product that u knew is a high risk investment, push and recommend them to the innocent ppl by telling them only the half truth.
Do u know this is their life saving, may be need to use for serious medical conditions, children university edcuation,old age etc..
u have caused so much hurt and pain to those innocent ppl and their family.
Justice
This is just similar to selling drugs.u make a profit out of the innocent to fufill your luxurious lifestyle.
ReplyDeleteJust that u are protected by the law.the drug traffickers are not.
Those product that u knew is a high risk investment, push and recommend them to the innocent ppl by telling them only the half truth.
Do u know this is their life saving, may be need to use for serious medical conditions, children university edcuation,old age etc..
u have caused so much hurt and pain to those innocent ppl and their family.
Justice
Read the article "Flaw in Product"
ReplyDeleteProduct flaw: retail investors become "insurers" to CDS.
Sale process flaw: advisers provide misleading information.
customers flaw: sold to the wrong customers.
Good points.
actually everyone is blaming those RMs but ppl should look at the creators of the pdts and their managers. managers forced their staff with impossible targets to hit, RMs have to sell. When things go wrong, the RMs are being reported to MAS and the managers? They get away with everything. And few yrs down the road, the cycle will happen again.
ReplyDeleteFor insurance products, it is the Actuary who designed and priced and finally certified the products to MAS for filing.
ReplyDeleteHence for insurance products that are shity go after the Actuary. Kin Lian was the Actuary for NTUC Income.