Tan Kin Lian's Blog: Independent financial advisers are not able to compensate investors

Tuesday, October 21, 2008

Independent financial advisers are not able to compensate investors

Dear Mr Tan,

I am an independent financial adviser rep who was spared the ordeal of this Minibond saga as my firm was unable to market structured products.

As a bystander, I commend for your effort in standing out for the individual retail investors who would otherwise be taken advantage by big financial organisations.

I am indeed impressed by your dedication in this whole entire episode, esp on how the statement to financial institution should be written. It was simple and comprehensive to most
adults.

While I have no doubts that any act of mis-selling should be punished and appropriate compensation should be made to retail investors. I think some of my industry players in the IFA industry may have to file for bankruptcy if they have to compensate their clients.

As you may not be aware, most of them are not very profitable and in this current environment when revenues are decreasing and rental costs are hiking, this minibond saga has put them into bigger trouble. Unlike the banks with deep pockets, most IFA firms have little capital to withstand this crisis.

On the individual adviser representative level, what's worse is that as each financial adviser representative is individually licensed, that individual is also liable for any compensation and unable to hide under any corporate veil. I am not sure if professional indemnity insurance could be used in this case. If not, the impact would be equally catastrophic.

These individual advisers became insurance companies to their clients just like the investors who invested in the minibonds.

I am not against your actions and in fact very impressed with it. But I just feel that some of the casualties in this crisis were actually ppl who actually wanted to do a better job than the banks by providing independent and objective advice. But they were caught in this mess. I sincerely hope that they can survive this ordeal and become stronger.

You can quote my reply in your blog but please do not quote my name as I do not want to be seen as gloating over my competitors. I want to remain sensitive in this current environment. There is no need for me to make enemies. Everyone is only trying to make a living.

Regards.

REPLY
I believe that the professional indemnity insurance covers negligence. If the representative was negligent (and not fraudalent), it should be covered by the insurance. The firm should also be protected by insurance.

However, if they were fraudalent (i.e. they knew the risk but deliberately misrepresented them), then the cannot expect to be compensated by the professional indemnity insurance.

8 comments:

Anonymous said...: Yes I agree with you as independant IFA. I am not a IFA but I have heard a lot about IFA in the market through my friends. You must assess your own company? Are they profit and quota driven as a result you as IFA is being driven to do 'forced selling'. That is what is going on in FI. No different from FA. Are you attracted by the various incentives like trips etc given by insurers to increased sales? Are you selling other non-regulated products like LAND Banking etc? If all this is yes, you have to ask yourself whether you are in the 'right company'.; October 21, 2008 6:04 AM
Invest SGX said...: Is that means for a person to claim compensation/cover, he has to prove that he is 'incompetent'?; October 21, 2008 7:06 AM
Anonymous said...: I agree with Mr Tan, regardless of whether one is an independent financial adviser from a independent firm or not, as long as you have done wrong, as long as one has been fraudalent, you have to face the music and be punished.

Why? Simply because many people out there are 'punished' due to their 'financial advice'.; October 21, 2008 7:10 AM
Anonymous said...: There are financial advisors now who keep telling people to invest and that it is a good time because they really need business now. But be careful not to fall for their sweet words now.

The economy is real bad and jobs are not secured. Traditional savings may be a better way to go for most common people at this time.; October 21, 2008 7:22 AM
Everlearning said...: More than tens of thousands are distraught by this scams of capital protected and high-yield interests funds. What would happen if half of our population is affected? These products have been marketed to the public for a number of years and I find that the numbers could be much more!

Because of the huge compensation to be paid out to the affected invesotrs, many people might lose their jobs and finicial institutions might have a disclosure. Just yesterday's news the IR needs locals. These jobs have the priority of giving to Singaporeans. The Government has provided you an answer.

We must uphold dignity in SIN-GAP-ORE. More evils are surfacing in this world because all are blinded by MATERIALISM....GREED....; October 21, 2008 7:57 AM
Anonymous said...: As individually licensed FA, they have everything to lose and nothing to gain in misrepresentations. This is unlike exempt financial advisers such as those working in the banks, securities house and insurance companies that can always hide behind their corporate veil.

Unfortunately many of the younger and inexperience licensed FA behave like their exempt financial adviser counterparts. Often this is because of the company not able to educate their FA with regard to compliance. Some FA firms give their advisers so much in commission that the firm has no more budget left on compliance monitoring.

From what I understand, some licensed FA firm has been "blacklisted" by MAS in which MAS will take an unreasonably long time to approve grant of licensing for new advisers. Probably this is to prevent or even stop these firms from recruiting. (Also these firms typically give by high commission structure). To get around this problem, individual advisers would join firms that is in MAS "good books" and obtain their license very quickly (typcailly only 4 weeks). In the meantime, the adviser would receive training from the company. Once the license is obtain, the advisers would resign and join the "blacklisted/high commission" firm. I was told that the FA's license is portable as the amendment to an existing license is simplier.

As usual, it seems that MAS seem to be blur about this whole thing. I really wish MAS can be more pro-active and stop being so blur.

Another unethical practice is about churning in unit trust. Instead of enforcing punishment on advisers involved in churning, it seems that MAS has order the two main unit trusts platform providers to enforce churning problems. The poor unit trust distributors now act like a mini-MAS. This is another case of MAS taiji their responsibilities.; October 21, 2008 8:11 AM
Anonymous said...: I think all these people should go back to being called "insurance agent" or "insurance salesman".

And they are definitely no "Financial planner" or "Financial advisor". Especially when a commission for certain products are involved.; October 21, 2008 9:14 AM
Anonymous said...: According to the dictionary, Greed means a strong desire for more than what you need. When it comes to money, this definition is a bit hazy.. .. how you know what you "NEED". With the high cost of living especially this year onwards, for the average Ah Beng and Ah Lian of this country, and the less well of retirees, "Money no enough"..
So it is not reasonable to take the extreme view that ALL the cheated people are greedy..

I think that in this debacle, blame should be shared:
The government for approving investments of such nature without understanding the issues, and also allowing the use of CPF money to buy dubious products, creating the impression that such products are relatively safe.
The banks for packaging the products in deceptive ways.
The sales staff for aggressive techniques which could well be taught by the banks.
The investor for not carefully understanding the stakes before buying.

Unfortunately it is impossible to work out a formula to settle on who should take how many percent of the blame. Surely no one party wants to agree on any number without fighting tooth and nail!!

One should not take the extreme view of Goh Chok Tong that "it's life, if you want high rewards, high risk" and blame investors 100%. Neither can one take the other extreme view that the Banks must pay 100% since they are following MAS approved regulations in general.

The only thing which is crystal clear is that the MAS should take a more active role to resolve the issue since they are highly paid professionals, and should be more inteliigent and creative by definition.

It is not fair to expect Tan Kin Lians to help us, the poor (not financial sense of the word..) chap has volunteered his time and efforts so much and even get criticised occasionally. Tan Kin Lians owe nothing to us, but the MAS does.

REX; October 21, 2008 10:13 AM