Tuesday, October 28, 2008

Misleading advertisements

Dear Kin Lian,

Mr. Heng Swee Kiat, the Managing Director for the Monetary Authority of Singapore, is reported to have said, inter alia, ... "This group should have understood the risks of investing in these products and take responsibilities for their actions" [Sunday Times, Oct 26] when he expressed assurance that all investors’ complaints of mis-selling would be reviewed, with regard to their investment in structured products linked to bankrupt Lehman Brothers. Was it fair of Mr. Heng to pass such a comment? If mis-selling is considered a legitimate ground for seeking restitution, then it would have been more constructive if Mr. Heng had said: "Any bank or institution that has mis-sold or misrepresented must bear the loss suffered by the investor."

Some examples of mis-selling are clear-cut, and have been discussed in the local newspapers. An advertising pamphlet [M-pamphlet] produced for public consumption, for Minibonds Series 3, is a case in point. This M-pamphlet was produced with these enticing statements:

"Invest on solid foundations and earn 5% pa paid every 3 months for 53/4 years" and
"With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind"

As a marketing ploy, these adverts make the product look attractive, but M-pamphlet was designed with deception in mind nevertheless, notwithstanding a disclaimer clause, in almost illegible fine print, placed at the bottom of the pamphlet. When the institution responsible for this M-pamphlet instructed the investor to sign on a modified version of M-pamphlet, the investor was probably not aware of the slight but crucial disparity between this modified version and M-pamphlet. And one cannot be faulted for saying that many, if not all, investors could have seen M-pamphlet and relied on the enticing statements mentioned above. And what is this disparity?

The disparity is that this encouraging and enticing statement "With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind" and the disclaimer clause do not appear on the modified version. Any investors must still be given credit if they had noticed this disparity but had thought nothing of it. But if no one had noticed it they could not be faulted. It is clear that the advertising pamphlet was designed with a preconceived intention of misleading the public.

If MAS is serious in holding distributors responsible for mis-selling, MAS should ask for specimens of advertising materials/other documentation used by distributors when they were flogging these products, and critically examine them. The verbal input given to investors by relationship managers is no doubt an area of equal importance, if not more so, as a source of evidence for mis-selling or misrepresentation.


If any risk analysis completed for an investor shows the investor was NOT a high-risk taker, then the distributor was prima facie irresponsible for selling the product to the investor concerned and must now reimburse the investor for the loss. Should any distributor be found to be clearly at fault for mis-selling or misrepresenting a particular product, then MAS would do well to tell the distributor to reimburse all investors to whom they sold the product.

Richard Woo

11 comments:

Anonymous said...

i liken this to a story told to me by a foreign friend when we were talking on the issue of the susceptibility of vices when overseas and on dangers of stds

the woman can be naked with a neon sign blinking safe sex only and beckoning you, just YOU

but you dont have to respond and can hop on the next ride back home where the next safest alternative belies

problems only arise when YOU dont do so. whether you are CEO, a father of two, or a principled and respected man of umpteen years will make no further difference.

Folly conducted is Folly conducted.

Zhi Yuan said...

Hi Mr Tan,

I have received unconfirmed insider information that some officials in MAS and the government is not very happy with you.

I am sure you are aware of this. Please watch your back. The signs are telling:

Some senior officials distrust Tan Kin Lian and have expressed their displeasure privately at his “antics” which has not been helping their work. During a high level meeting last week, one official was said (unconfirmed) to have uttered the expletive ”What the hell is Tan Kin Lian doing ?” to his colleague.



Mr Heng Swee Keat let loose a freudian slip in Sunday Times alluding to Mr Tan Kin Lian subtlely when he said this:

‘I understand that affected investors are anxious and looking for solutions. Unfortunately, I think some of the advice they are receiving is not helpful because it has generated anxiety and confusion.’

The authorities now find themselves stuck in a quagmire. They cannot reprimand Mr Tan Kin Lian openly without incurring the wrath of ordinary Singaporeans many of whom now rever him as the “Champion of the underdogs”, yet it is becoming a torture to allow him to continue stealing the show which rightfully belong to them.

Read full article here:

http://wayangparty.com/2008/10/28/what-the-hell-is-tan-kin-lian-doing/

Anonymous said...

DBS has already admitted that there are cases that do not meet the standard held by the bank. This shows that there are mis-selling and we want to see how the authority is going to hold the bank responsible for such unbecoming behaviour.
The bank in its pricing statement for HN2 stated that the product is designed for defensive investors. But now it openly explained in the newspaper that the product is not a low-risk product. The phrase "defensive investors" is now missing. So is this misrepresentation? I believe similar misrepresentation can be detected in the pricing statements or other series of high notes and structured products such as minibonds and pinnacle etc. These are the FIs that is causing the agony to the investors and damaging the reputation of our financial hub.

Wealth Journey said...

Quite rightly, advertisement/marketing collaterals should reflect the truth within the fine fine prints.

I think that is where CASE falls short as an authority.

The govt should think about revamping CASE to better regulate all advertising activities as well as anti-competitive behaviours.

I've always been enamoured by the fair-go behavior of the Australians and their Consumer and Competition authority, ACCC.

Please look at the link below to get an idea of how strict it is.
http://www.accc.gov.au/content/index.phtml?itemId=815331&Go.x=8&Go.y=9

The ads displayed must tell the truth, the whole truth, nothing but the truth. They don't really want ads to engage in creative semantics of words.

Jeremy said...

I agree with Wealth Journey on the bigger role that CASE has to play. As a consumer advocate, they've recently managed to get Air travel advertisers to print the hidden costs like airport taxes in the same font size. Similar guidelines should be applied to investment product advertisements.

Anonymous said...

I mentioned many times that some of these insurance products came out from the womb of the marketing department and not the actuarial.The ads often engage in the play on the semantics. Like revosave from NTUC, the ad plays on saving money and yet having money to spend at the same time. It is confusing to consumers. It is not straight forward.Ads for financial products should be close to being informational like ads for drug and medicine with full disclosure of benefits and contra indications.

zhummmeng said...

Consumers must demand that MAS enforce the laws that are meant to control the financial products and the behaviour of the advisers
Especially Section 27 of the FAA should be the standard practice to regulate the way RMs, consultants and insurance agents approach your financial needs.Just like you demand that the doctor examines you before prescribing the medicine. All financial advisers MUST do that first otherwise the products sold to you might end up like the miniBOMBS.
It is a mystery despite having these laws malpractices by advisers ,RMs and insurance agents are still rampant and blatantly committed before your eyes daily at the banks, at the mall, at the mrt roadside stalls that peddle dubious and toxic products without regards to your needs.
To make the environment safe the consumers must demand that MAS implement these laws and enforce them proactively. Tell MAS to send out more auditors to check on these salespeople or advisers, insurance agents or RMs and at frequent interval or spot checks or random check.Make the CEOs and the senior management responsible for all the misconducts by the salespeople.Fine them and discipline them.This is to deter these salespeople from cheating you by pushing products that are not suitable to you .As consumers you have the RIGHT to responsible and competent advise by HONEST advisers.
MAS must also be seen doing that.Sometimes it is unbelievable that EVERY ONE KNOWS that malpractices are committed in every insurance company especailly by salespeople who qualify for MDRT, COT and TOT and yet MAS doesn't know. Is MAS waiting for the companies to submit "here is a list of mdrt, cot and tot agents who committed mis-selling, misrepresentation and who cheated their cleints?"
Come on , something is wrong. Wonder what MAS is doing; who is MAS protecting; the consumers or the FIs and their sales representatives?
MAS, be like your counterpart in Hong Kong. The CEO of HKMA says that the financial industry is created NOT to make insurance agents rich and qualify for mdrt, cot or tot or RMs to earn huge commissions to buy posh cars or the FIs executives to splurge on lavish holidays and incentive trips and get big fat salary and huge year end bonus at the expense of the consumers. Remember this money is conusmers' money....The industry is created to serve the financial needs of the consumers, to help in meeting their retirement needs .You, consumers demand your right or lose it.

Anonymous said...

Mr Tan
From earlier comments stated here,you are probably viewed as an irritant by the institutions.You have already done a lot for the affected investors, myself included. I personally would not wish to see you adversely affected by your brave efforts. Perhaps it's time for you to let the matter run its course as advice has already been given by you.As a private individual, you should be enjoying your good health and family time.Our 'environment' does not take kindly to those who 'rock the boat'.Godspeed!

Anonymous said...

Of course MAS and the gahmen not happy with Mr. Tan. They want Singaporeans to be meek and under their full control and must not make any noise.
Nobody in Singapore dare to stand up and speak for the investors but now they have Mr. Tan ! As a result, they are able to voice out our grievances weekly in Hong Lim Park !

Why are the authorities irritated ? Because their true face is finally revealed to the public - they did not help the investors but kept quiet for long time despite their pleas. They also tried to wash their hands off by telling the investors to go complain to the FIs and also have 'don't come and bother me' attitude.

Why must tax payers pay them million dollar salaries when Mr. Tan can do it free of charge to help ??

MAS and gahmen not happy ??? We investors are even more unhappy with them !!!

Anonymous said...

MAS kelong

Anonymous said...

I think the only way to show our displeasure on the attitude of MAS and the government is through the coming elections. We should vote for more opposition to check on the government and their high almight agencies. Lets unite!

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