Tan Kin Lian's Blog: Understanding the technical terms

Wednesday, October 22, 2008

Understanding the technical terms

Dear Mr. Tan.

Thanks once again for helping the us, the victims.

- Can a chartered accountant understand the medical terms used by medical doctor ?
- Can a medical doctor understand the terms used by scientist ?
- Can a management guuru understand terms used by biologist ?

The answer to all these is yes or no - yes, because it is written in ABC (they could even be able to pronounce it), no for the meaning, they just cannot understand the meaning of the terms used.

So the comments "You are educated so you must be able to read the prospectus and understand it" is pure nonsense and cannot be eatablished as the proof of understanding the product because the prospectus is designed to protect the product provider and written in such a way that it is very difficult to understand, full of jargon like CDO, CDS etc. During the sales process, bonds are mentioned, but in the prospectus, the CDO and CDS appears. To lay people, it is assume,thus, that CDO and CDS are just bonds and hence the arguments start after the problem occured. A degree holder in language could be able to write an article in such a way that the articles could be explained in different meanings in different situation!

It is also very difficults when facing the personnel from the financial institution for lodging complain because they are all well prepared to use fine print in the procpectus for arguments.

One officer from a FI even change the wording of the prospectus for the argument. In the prospectus "....the product is designed for defensive investors ......" but in the newspaper the word defensive is taken out and hence declared the product is NOT LOW RISK because High Risk product are not suitable for defensive investors. How can a defensive investor knowingly agrees that the whole capital could be wiped out !!!!!

Just wonder why the authority did not discover this and take serious steps to reprimand the offender.

HS

4 comments:

Xtrocious said...: This is very true...

Even for those in the financial industry, not everyone understands or even knows what a CDS is and how it works...

And for those who do, they have to attend a course (or study) to fully understand and appreciate the risks involved...

And we expect layman to comprehend it even after just reading the prospectus?; October 22, 2008 11:53 AM
G C said...: In any purchase of investment products that required the investors to read the prospectus can never be understood in most of the cases if any, this is irrespective what back ground, education level that you may be from. The reason are:-

1 Who ever you may be, unless you wish to understand the prospectus for research or academic purposes, no one will spend time to read and understand what was written there. That assume you can interpret and fully understand the financial jargon and figures. So do any one believe that the investors understand the risk that are inherent in the products?

2 Can you imagine, you are just want to renew your money in FD, that you was approach by the RM for an alternative. You want told and it will emphases that the rate of return is very much higher than the FD. That was the main reason the RM recommend you and at that moment of time you have not even have the time to read the prospectus even you are told. You mind is only focus on the returen rate. The RM also will not highlight the risks involve not to mentioned that most RM may not even know what the actual products that he is selling/recommending. You also in a rush. So you are just sign and change from FD to this and that. and you gone home happy leaving RM happier as he has made a sell.

I am saying this as an accountant myself, have many time approached and have same scenarios that many retirees investors that are caught now.

NOW, the next question is also: YOU HAVE SIGN THE DOCUMENTS THAT MEAN YOU MUST HAVE READ AND UNDERSTOOD.

The moral is: Why in the first place this kind sell/promotions or what ever you wish to term it is allowed by FI and most of the targets are those people who have been placing their money in FD, which is straight forward and easy to understand ie . How long is the term and upon maturity you get how much on the fixed rate that have been agreed upon up front.

Why? Is that any body, the regulator may ask themselves?

Is this complex products suitable to be market in that manner?

This is the main question that need answer to avoid any repeat of this financial investment disaster in the future. Other wise history will repeat it self? Place you bet.

G C Tham; October 22, 2008 1:16 PM
Unknown said...: The FI are fully protected. As someone has mentioned, the investors would have all signed the waiver to all things and liabilities.

YET, MAS is expecting the legal due process to protect the investors???

WHat MAS did, is telling the investors..."Hey, you guys took this upon yourselves. Can't blame anyone, you just gotta bite the bullet".

I can't seem to find any other way of interpreting MAS's recent actions and press/media releases.

I Have been hoping I am wrong. And I wish I am having a wrong perception on this.; October 22, 2008 5:33 PM
Anonymous said...: I fuly agreed with you. I am also a degree holder who decided to buy the minibond based on 'PROFESSIONAL' recommendation/consultancy and RISK ANALYSIS presented by the 'PROFESSIONAL' bank adviser and the KEY SUMMARY of prospectus given by them. I believe trust in their professionalism played a part in the decision to take up the product(The base and series prospectus were only given after the conclusion of sale with the financial jargons.)

SO a degree holder should 'FULLY UNDERSTAND' medical jargons, Information Technolofy jargons, law terms etc - Why do we need professionals in different industries then ?

Some testings on the banking advisor can be carried out now by asking them about the product- I bet that they themselves could 'FULLY UNDERSTAND' the product and risks, let alone those professionals not in this industry.

A check on the past news that Lehman had already ecountered financial problems in US as early as 2007. Yet the bank adviser still PROFESSIONALLY recommend to buy this SOLID product - so do they 'FULLY UNDERSTAND' the risks involed - the authority professionals do not realise this or choose not to realise this?; October 23, 2008 6:41 PM