Tan Kin Lian's Blog: Elderly get hit the most!

Sunday, October 05, 2008

Elderly get hit the most!

It is very sad to see many elderly people lost all of their lifetime savings in the structured products. Many lost several hundred thousand dollars, representing many years of hard work and savings by being frugal.

These folks are risk adverse. They place their money on fixed deposit to earn interest. In recent years, the interest rate dropped to 1%, way below the inflation rate. Each year, the interest earned on their savings is insufficient to provide a decent income for them to live on.

The financial institutions employed marketeers to recommend the structured products to these folks. This is highly irresponsible. These products have high risk, including the risk of losing their entire savings on a "credit event". Regardless of how small the risk, this type of financial product is NOT suitable to elderly people. They cannot afford to lose their entire savings on a gamble that the "credit event" will not happen.

There is clearly a strong case for the Monetary Authority of Singapore to take against the financial institutions. So far, MAS does not want to step in. They expect the elderly folks to be able to deal with the financial institutions. How is this possible?

I hope that MAS realise the pain that they have caused to so many helpless, elderly folks - first by allowing these toxic products to be sold to them, and now by not stepping in to help them seek suitable redress.

Why are these products "toxic"? They can cause the entire loss of the savings. This is much worse than investing in a diversified fund of equities.

14 comments:

ym said...: MAS regulates the use of derivatives very tightly for financial institutions..

Insurance companies are only allowed to use derivatives for hedging purposes becoz of the "potential significant losses" (refer to MAS104 for insurance companies)..

One has to ask why MAS allowed such products with hidden derivatives to be sold to the retail investors?.. (non-bankers age 60++ probably have no idea wat's a derivative)...

Why RMs and marketing banks pushed these complex derivative products to these old folks since it's common knowledge that derivatives are highly speculative?..

Answer : They were negligent!; October 05, 2008 2:05 AM
Anonymous said...: I believed MAS logic is that if you have hundreds of thousands of dollars then you must have enough brains and intelligence to differentiate what is good for you. How else can one have so much money if do not have good judgement?
Anyway, the MAS chairman is none other than our SM Goh, who is popular with the people of Singapore. He has already let known his view that if you want your money to be safe, then you can put it into CPF to earn 4% interest. By law, you can actually top up your CPF and your parents CPF with your money and transfer it into your special account to earn the 4% interest. Why didn't you all do that. The CPF will be very safe since it is guaranteed by the govt that you have overwhelmingly voted in. Don't you all trust your votes? If you do trust your votes, why aren't you all putting your money where your vote is. Why do you all put your money with the Minibonds and High notes. Would you vote the management of these notes and your RMs as your representatives?; October 05, 2008 3:25 AM
Anonymous said...: Mr. Tan,
Thank you very much.
Now I understand the meaning of "Service to the people".
Please take good rest & maintain good health.; October 05, 2008 7:40 AM
Anonymous said...: In Spore, Elderly are the ones who have the greatest faith in spore's system & regulation.
Hope the regulatory auth. can help them by doing somethings to regain their trust.; October 05, 2008 8:00 AM
Anonymous said...: A toxic "Financial product" is much worse than a "toxic food".
Hope the persons selling should feel guilty, and help the affected.; October 05, 2008 8:37 AM
symmetrix said...: Your logic is beautiful.

Now, if only CPF-SA/RA can give a return that is comparable to inflation, even my grandfather would transfer all his money into CPF.; October 05, 2008 10:06 AM
Anonymous said...: I hope the situation in Singapore changes. Let me cite you a true similar example that happens with other regulatory authorities,

Health industry
---------------

In medical negligence cases, MOH will advise the victim to settle the case with hospital directly. What they do, is quality assurances, that hospitals are safe to visit. In the event of medical negligence, they will NEVER step in to seek redress for the victims.

Quoted from http://app.subcourts.gov.sg/Data/Files/File/Media/New%20Way%20to%20Seek%20Redress%20For%20Medical%20Negligence.pdf

"New way to seek redress for medical negligence"

They can get on board an early-action programme which allows them to seek
explanations or discuss their cases with the doctors or hospitals without having to file
a suit to get their attention.

As written above, medical negligence cases often drag and "put" the victim's family into comfort zones and in the end (often years) they still have to sue.

Back to the Banks-and-MAS vs public case, what did the authorities recommend? Basically, they are saying, go and talk to the banks directly, it's none of our business we only regulate the industry, perhaps in the future, we will look more closely into the introduction of new finance products. For now, you are on your own.

Having said that, seems like lawsuits are unavoidable.

Cheers to the leaders in this crusade and I hope you ll keep pushing yourself forward and force the banks into settlements.; October 05, 2008 11:26 AM
Anonymous said...: The problem with tranferring fund to CPF is that once in, there is no assurance that regulatuions governing cpf would not change to delay withdrawal.

That is the risk consumers have to evaluate versus instant withdrawal from the banks.; October 05, 2008 3:30 PM
Anonymous said...: Can any one tell me how to transfer money to CPF? even with only 2.5% interest in the CPF ordinary account, but it is still better than putting money with the bank for just 1% interest.; October 05, 2008 5:31 PM
nhyone said...: You can find the information on CPF's website: http://www.cpf.gov.sg .

There's a limit how much you can top-up your CPF a/c per year, but this will be removed from November.

If you are young, I feel it is not advisable to put too much of your money in CPF. It's almost a one-way street (can only use for approved purposes), and you may never be able to see the whole amount as a lump sum again in your life. (The main reason is due to the minimum sum.)

Even worse is to transfer to SA for the 4% interest. It is even more restrictive and one thing you can be sure is that the rules will get even more restrictive over time.; October 05, 2008 8:09 PM
Anonymous said...: The Anonymous who asked "Why you all did not put your money into CPF to earn 4% interest in special account" has not done his home work. The sum you can tranfer into special a/c has a limit and once you have been working like a donkey for years, you are likely to have hit the limit and you cannot put any more in and also you cannot draw them until the day you retire!; October 05, 2008 9:09 PM
Anonymous said...: The needs of most people are very simple, they just want to know the yield to determine if it is worthwhile to buy, and want to have capital back on maturity.
Surely such need is very easy to ascertain.
Making the product very complicated to lure people to buy is in itself not ethical.
Using "buyer beware" to tie people down ("catch" people?) is even worse.; October 05, 2008 9:49 PM
nhyone said...: 9:09 PM, is it really so easy to hit the SA limit, which is the prevailing minimum sum ($106k)?; October 06, 2008 7:49 AM
Anonymous said...: Haha, if I am not mistaken it was SM Goh who was asking people to put in their money into CPF if they wanted it to be safe. Are you saying that SM Goh did not do his homework? We all paid him millions a year and he did not do his homework? Haha...; October 08, 2008 12:43 AM