Thursday, October 30, 2008


Christie Loh, Today paper

WHILE much public focus has been on the calls for compensation from distributors of Lehman Brothers-linked structured products, observers of the financial scene say that — while sales staff must act responsibly — investors should not forget their personal responsibilities.

The point was recently made by Prime Minister Lee Hsien Loong. "Ultimately, each person has to take responsibility for his or her own financial decisions," said Mr Lee last week during a media interview, where he set the controversy within the larger context of Singapore as a financial centre, and examined the Government's role.

The implications may be hard for the 10,000 people in Singapore whose investments plunged in value overnight when United States investment bank Lehman filed for bankruptcy last month.

Many investors, some of whom are elderly and fearful of losing their retirement savings, have accused the distributors of failing to reveal the riskiness of products, including Lehman Mini-Bonds and DBS High Notes.

Analysts, however, say the individual is not fault-free, especially not in a market that runs on theprinciple of caveat emptor, meaning buyer beware.

"When people make money, nobody complains," Associate Professor Lan Luh Luh of the National University of Singapore's department of business policy told Today.

Having read a flyer promoting one of the affected products, Assoc Prof Lan said the potential double-digit investment return advertised certainly looked attractive. But the academic has thus far avoided buying structured products because "I invest only in the things I understand".

She said: "If you want your money to work for you, you have to work hard for it, too. There's no free lunch in this world."

There was a similar message from Securities Investors Association of Singapore (Sias) chief executive David Gerald, who feels people should ask some basic questions before ploughing hard-earned savings into complex products. The controversy over structured products has led Sias to work on producing an investment handbook, which is slated to be out within six months.

"Don't get excited only by the upside. You need to also ask about the downside," said Mr Gerald, citing a check-list including questions like whether the product is suitable for you and whether you have the "stamina" to withstand losses until you recoup them.

It is this financial system of free will and flexibility that PM Lee espouses, instead of a paternalistic one where the government decides for the consumer what's risky and what's not, Mr Gerald indicated.

"I think this is the better approach. Let people make their own choices and decisions, but within a proper system, and with appropriate safeguards. We have progressively shifted towards this over the last decade," Mr Lee had said. "It cannot be that if I invested and it turned out well, then I am happy, but if I invested and it turned out badly, then I am entitled to compensation."

The Prime Minister added it would be a "moral hazard" for the Government to intervene due to political pressure in a situation where the banks had acted within the rules. In a major financial centre like Singapore, Mr Lee said, regulations must be "fair, consistent and transparent", not arbitrary.

Prof Lan said: "The Government's role is to make sure there's as much disclosure as possible. No company or institution should block any information."

There's a second thing that pundits feel the authorities must do: Punish those who breached the rules on financial selling.

An independent check into the internal processes of product distributors would settle the question of whether there was indeed mis-selling, said one industry observer familiar with the ongoing mediation process.

Echoing the view, Mr Gerald said that while he agreed the Government would be setting a bad precedent if it bailed-out troubled investors, he added the authorities must ensure that the financial institutions have been "doing the right thing".

Said the small-investor champion: "I expect the financial institutions to be fair to investors because they're going to them with trust. The way we have been doing business for a long time now is based on trust."


Anonymous said...

Buyer beware! buy at your own risk! These are the argument for the FI, seems ok, but the fact is twisted, we are sold on the benefit but not the risk of the product.
I remember some years ago, a celebraty who almost die because of Slim 10 product, she sued the distributor of the product for not disclosing enough risk and I believe she has won the case, any body can shed more light on this case ?


Mervin said...

You want to talk about "moral hazard"?

Then why is the government helping the banks to gurantee the deposits when it is the banks who took too much risks that caused them to be in this situation in the first place?

Anonymous said...

Obviously these people have missed the point including the PM. Yes, investing is risky and one has to take ownership. But the minibomb is different, is very complex compared to stocks and shares or those investments we are accustomed to.If professors don't understand, except Ass. Prof. Lan LL., how can the man in the street? Caveat Emptor is in favour the FIs and the sellers and is used to cheat the investors.
PM asked what if we make money do we complain? PM is ignorant of the law he help set up ,ie. the FAA.It is not surprised that these people finding twisting their tongue an art. These people are disgusting.

Anonymous said...

I would comment that Associate Professor Lan Luh Luh of the National University of Singapore's department of business policy was barking the wrong tree.

"When people make money, nobody complains," doesn't hide the fact that the risk of losing his entire investment without he being able to make an informed decision let alone the legal perspective of misrepresentation committed by the FA/RM.

As regards:
"...Having read a flyer promoting one of the affected products, Assoc Prof Lan said the potential double-digit investment return advertised certainly looked attractive. But the academic has thus far avoided buying structured products because "I invest only in the things I understand....".
In Minibonds, DBS HNs & Pinnacles Credit-linked notes, if they were advertised as potential double-digit investment return, an average educated people will easily be alert to the enormous high risk probally attached to them. In actual fact it was not and it might be a double-digit return investment nevertheless was packaged to a safe bond as perceived by investors in general for an about bond rate in the coupon rate offered, by those TOP BRAINS in deliberation for the investors to fall into the trap.

So what does 'Let's not forget about personal responsibility" mean? personal responsibilty for so easily be cheated or not educated to trust only yourself.


Anonymous said...

In other words, what PM and all the other people are saying is this:

You must not believe everything the seller tells you.

If you can't understand the prospectus and ask the seller to explain the product to you, you must not believe what he tells you.

If he tells you that the product is a bond, you must not believe him.

If he tells you the product is backed by 6 banks, you must not believe him.

If he tells you this product has low risk, you must not believe him.

It is ok for the seller to tell lies, because it is your responsibility not to believe him.


Anonymous said...

different case
different context
different outcome

case close

Anonymous said...

I think PM Lee still do not understand. These people did not know that they were investing, they were cajoled by these heartless Relationship managers to put their money in these structure products instead of putting in fixed deposits. To that Prof Lan, don't shame us NUS. The fact is people did ask these basic questions if it is risky. I am now finding these people have no emphathy.

Anonymous said...


Before you make comment on greed of the invstors. please make fact finding first.Otherwise you are not qualified to teach in university.Where do you get the info that toxic product offers Double digit return? (Open your eyes, we are getting only 4 to 5.5 % !!)

Don't just be an echo of PM or MAS. I know you learn from the press that they are commenting the investors must hold responsible on their own investment.

If Minibond offers double digit return, I would not have invested in it becasue it is too good to beleive.I understand high risk high return. I would have doubts on it. To me 4-5% returns sound resonable because it is 1 to 2% more than our medisave interest.

Anonymous said...

(Don't get excited only by the upside. You need to also ask about the downside," said Mr Gerald, citing a check-list including questions like whether the product is suitable for you and whether you have the "stamina" to withstand losses until you recoup them.)

MR GERALD what makes you think that the investors had not asked the questions. I highlighted to the RM that I was retrenched and jobless and this amount of money is very important to me. She claimed that it will benefit me as long as I don't withdraw before maturity.

In yesterday ST, it stated that HN5 was offered to the better-off DBS customers. Do you consider a jobless person as "better-off"?

C H Yak said...

In this article the PM was quoted :-

"I think this is the better approach. Let people make their own choices and decisions, but within a proper system, and with appropriate safeguards. We have progressively shifted towards this over the last decade," Mr Lee had said. "It cannot be that if I invested and it turned out well, then I am happy, but if I invested and it turned out badly, then I am entitled to compensation."

I would think the issue remains with what is "a proper system, and with appropriate safeguards". The PM considers that our system have progressively shifted towards this over the last decade. But is this really so, or are we just following what the US is doing by shifting towards and relying only on the free market mechanism and not regulating. Where are the appropriate safeguards? And who are responsible for these safeguards? The MAS putting in appropriate safeguards for investors or leaving it to the FIs to abide by a code of conduct as a safeguard for investors? If the products are registered with MAS, who should ensure that safeguards are in place ? Simple registration does not mean they are safe for investors. It merely ensures traceability if a problem should arise.

If there are no safeguards, how could we say our system is "proper" one?

Perhaps over the last decade, we might have progressively shifted towards the "free market" while leaving investors to decide; thinking they are ready and educated, but appropriate safeguards might not be there directly for these investors, while the MAS assumed that FIs would simply be obedient, decent and responsible corporate entities, expecting DBS (a Government linked bank) as a major market player to act as a role model.

I think this conflicting scenario and / or roles (with associated conlicting commercial interest) must be reconcile to make the system really "proper".

Anonymous said...

I am shocked that the Professor can comment without checking all his facts first!

Anonymous said...

MAS is avoiding and skirting the issue fearing that revelation of mis-selling sn misrepresentation might have repercussion on its image and creditbility.It is too late and it will be better for MAS to come clean and own up its regulating lapses . This will save time and money for everyone and stop giving false hope to the FIs.
Laws have been broken and MAS has been negligent and screw up in the administration of the FAA & SFC.
It failed to enforce the FAA.
It is an open secret in the industry that insurance agents who achieved MDRT, COT and TOT have baltantly committed mis-selling and misrepresentation. They have cheated their cleints to achieve the awards. They have short changed the clients' financial future. Where is MAS? You don't need to be a financial expert to know these people cheated. What did the FIs do? They were the first to know. What internal control they have? They only know the bottom line and the FIs would let the agents do anything and with help from them to achieve the desired bottom line.This is self regulation and it is, to their advantage. No FI will shoot their own foot.
Surely MAS, with a Harvard trained graduate guiding the body,has some commom sense. Why is it not enforcing the section 27 on these agents? WHY? This is the question on evrybody's lips. Is it worried that it might stifle the indsutry? Is it not worried that consumers not getting a fair deal?
Now MAS is hiding behind Caveat Emptor and hope it will get some sympathy. It does. The writer with professor to lend weight and the PM to give even heavy weight to Caveat Emptor.
Consumers, your fate will be treated differently from the "slim Ten" and the tainted milk. The victims of 'slim ten" were lucky that caveat emptor was not an issue. There was non disclosure of the toxic. The tainted milk toxic too was not disclosed to the buyers. What about the minibomb? The bomb and the toxic was not disclosed too but it is caveat emptor for the investors to uncover the toxic. Now these people are saying too bad you didn't discover the toxic.They only can say , sorry the bomb exploded in your face. We feel sorry for you. Next time be more careful when investing. You must take responsibility to find out the toxic.Please don't blame MAS. They are doing the job of non regulation so that Singaopore can become a financial hub AND THE FIs CAN PAY MORE TAXES AND THE AGENTS AND RMs PAY HIGHER INCOME TAX.

Man in the street.

Anonymous said...

Yup, it seems the people referred to in Christie Loh's article, and Christie herself, are not in touch with the ground.

All this boils down to a single question: Has there been any mis-selling by any distributor? If the answer is yes, then the case is a closed one for any distributor who has mis-sold or misrepresented.

Anonymous said...

hey is it ever possible that some agent had already sense the heading of things to come and sort prompted the major account holders to butt out while they could, even as early as 6mths or even a year back..

this is usually the case with key account management, priority customers are often offered first mover advantage

to extrapolate if this is indeed, would it be EVEN possible that many affected individual investors were actually roped in urgently and just before the final phase where visible collapse was beginning to pay for and pave escape bridges for these major account investors

AND what if some these major account investors had been public agencies!?... the thought is stunningly realistic and plausible

would this 'revelation' anyway affect SOME authorities investigative approaches, if investigation is whats they are claiming

would the REAL truth hurt much more

Anonymous said...

suppose in an election, people were sold by a reputable political party that it has a good prospectus in governing a country... then came a crisis, the people found out the politician not that capable, the reserve already squandered, the public housing were built in a manner unable to withstand tremors from nearby earthquakes-prone plates...

of course the people will ask for a full refund!

Anonymous said...

Although caveat emptor applies to investors when purchasing a financial product, it is the banks that have also failed in their part to exercise the proper duty of care they owe to their customers, resulting in multiple cases of mis-selling...

This has been acknowledged by DBS when they state that there have been cases that the selling process did not meet their own standards.

Had the banks in all instance fulfilled their obligations to the customers, this matter would not arise.

Unfortunately, many investors that purchased these structured products had actually been profiled by the banks themselves as risk adverse and conservative, and yet, the banks had recommended that they purchase structured products.

The problem the banks now face is that, since there are already a substantial number of people mis-sold the product, how do they prevent others, from piggy bagging on this, thereby absolving themselves from the principle of caveat emptor and claiming compensation.

This is something that the management should have thought of before they embarked on selling structured products to conservative and risk adverse customers. This may well be the price the banks have to pay for their folly.

Shareholders of banks should question the management why the selling process of structured products were so flawed that has allowed this wave of cries of mis-selling. CEO and top management had in the previous years received record bonuses and payout for the performance of the respective banks. It is now clear how some of those profits were derived. Perhaps shareholders can demand that compensation come directly from the top management of the respective banks.

Anonymous said...

In today's Forum page (ST), MAS stated that it has a set of regulations that reguire the FIs to comply with and MAS also take a range of supervisory measures such as thematic inspections, meetings with senior management and mystery shopping to reinforce these obligations.
Well, it is certainly good to have a set of regulations for the FIs. However how the banks are being supervised and how the various checks are being effectively carried out is another thing.
Most of us experienced the aggressive sales tactics of banks staff at their branches pushing all kinds of products. I don't believe that the MAS people have not been to the banks for their own banking needs and are not aware of such activities. The question is why the MAS people are not paying attention to what is going on in the banks' branches. Why do they ignore the fact that the banks staff are persuading uncles and aunties to put their FD money into structured products? If the gov does not try to protect the old and vulnerable, who will?
Sad to see that there are people who victimised our own citizens and those who seek to curry favour with the authorities.

Anonymous said...

The minibomb is my first strutured product that I bought because I thought I was buying into a diversified bonds porfolio. I have alawys avoided those products that claim to be able to pay a high % return irrespective of whether the pricipal is guaranteed or protected cause I just dont understand how the product work as it is not transparent.

But the minibomb, from the press advertisement and brochures, they are crystal clear. 5.1% return is like the bond type of payout. If they would have offerred anything higher, I would be more alert but....sigh!

Anonymous said...

It is time our government is doing the right thing. Stop harping on caveat emptor. By the way I attended a MoneySense program. Frankly speaking for the few hours lesson, I doubt I could interpret all the technical financial terms though I understand what is Bond. I would have assumed that minibond is bond.

G C said...

The basic theory of risk and return is higher risk higher return. But the the first question on this fiasco was the risk and return did not match at ALL.


Has FI discharge their duties to ensure that the investors understood the risk involved? This is the question that need an answer.

Thirdly, was the FIs marketing the products really understand the exactly nature of the products ie. if there is a better products available in the market which mean same risks but better return, then why the products should be recommended to investor.

After saying that we must also take into accounts the investors spectrum, form the report they are many who have shifting from low risk Fd to this so call alternative investment option that come with higher return, but the risks are high too.

Anonymous said...

In chinese saying "秀才遇到兵,有理说不清".
If people refuse to talk sense, there is no sense to talk about.

Unknown said...

Is this Prof Lan L L really a professor who doesn't know 5% is not double digit? 5% is about the coupon rate of a bond- that is why so many people are dubed into buying the 'bond' backed by world class banks, as promoted by the FIs. The RM's told you they were very safe but now their bosses tell you they are very risky. Even Proffessors and Financial experts find it challenging to understand the structured product touted as 'bond', what more lay people. Caveat Emptor is OK if there is transparency in the deal. Would those who champion Caveat Emptor in this structured products also say the same for the thousands of victims who consume melamine tainted milk? Nobody force you to buy the cheaper milk from China so caveat emptor applies to the victims? These people need to have their brains examined!

Anonymous said...

My God, I am shocked that a "prof" can make such statement like double digit return without careful study. How did she get her professorship? I hope she does not teach my child. May be I should not enroll him under NUS.

Anonymous said...

For those who wanted to know the professor credential, check out this link.

Anonymous said...

I think the professor is referring to flier for other products. I invested in Minibond and DBS HN3 and I know that both the minibond series and DBS HN series do not pay more than 5% for SGD tranche. However, both minibond and dbs hn series are fixed coupon notes and what the professor is referring to is those index/equity linked products that only provide "potential double digit" return and these are always subject to market conditions relating to index level or equity prices in the future. To make comparison between the two different type of products is incorrect. It is surprising to me that a professor cannot differentiate these products.

Anonymous said...

Christie, if your elderly father and/or mother now risk losing all or almost all their hard-earned life-savings in one of these structured products, would you have argued for caveat emptor, as you did?

If you cannot be honest with yourself, then the advice for you is to go to a quiet corner and suck-eggs!

Anonymous said...

All these pro FI articles are a last minute PR initiative by our national press to shore up their image. We see it every four years too. This is why we have eminent professors weighing in their so called views. What you all should do is to use caveat emptor too when the election comes and do not be so easily taken in by those claims of GST to help the poor. Get it?

Anonymous said...

i'll make sure my children wont take any courses by prof Lan!

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