Tan Kin Lian's Blog: Where does the BUCK STOP?

Wednesday, October 22, 2008

Where does the BUCK STOP?

Posted in an online forum

It is now established that X is a high risk complex derivative which exposed the investor to risk of losing the capital invested for 5.5 year. This X is not a suitable investment product for retail investor, especially those who are looking just to grow the life savings for retirement.

Knowing that X is NOT suitable for retail investors and yet inappropriately recommend such a product to retail investors, the relation managers (RMs) were mis-selling.

X was marketed by RMs as a safe and low risk investment to retail investors and assurance were given that so long as investors can hold till maturity, the capital will be fully repaid. This was misrepresentation.

The bank’s claim that that there is no misrepresentation on the part of their RMs. Their argument is that since the details of the product and the risks are spelt out in the prospectus they have no responsibility. This is irresponsible as it is the responsibility of the RM to explain in detail not only the advantages but also the risks of the investment.

Someting is wrong here:

“Caveat emptor” is fair if the playing field is level but in a Bank and customer relationship it is NOT. The bank knows the complexity of the X and the high risk involved but the buyer don’t and they are not forewarned. Customers trusted the RMs because of the bank's name and the authority that regulates it. They were misled into investing in a high risk product the resulted in a loss of their life savings. The bank now pleads “caveat emptor”. It now hides behind legalistic protections in documents and shirks from their responsibility.

For now, the authorities are taking, what appears to be, a wait and see approach, as far as blame goes. However, all victims of misrepresentation suffered the same pain and loss. Why should they advocate categorizing the investor for consideration of compensation if they are completely unbiased? Are they saying that the educated young deserve to be cheated?

Investors who intended to go to the bank as a group to ask for early resolution were allegedly, according to press reports, “warned and threatened with arrest”. Are investors being bullied here? Investor groups are now feeling stifled and frustrated.

Group petitions and complaints for redress to the authorities have not yet yielded any resolution and investors were simply advised to file individual claim with the bank that sold them the investment. The insistence of a case-by case investigation by the bank appears to prevent collective action and disadvantage the individual investors.

Is this what one expects from a fair and equal society? I sincerely hope that the authorities are doing the right thing to ensure that justice is done.

7 comments:

zhummmeng said...: For financial products Caveat Emptor is NOT fair. It assumes the consumers are able to understand and have enough information and are able to make informed decision. This is not true. From the many postings in this blog you saw for yourself many professionals, CPA or doctors,were unable to understand the complexities of financial products. Don't be fooled by the argument that the brochures and prospectus or the presentation are enough to equip you to make a decision.Even the consumers are given months to digest the info in the prospectus they still can't make the decision let alone in 30 minutes.You mustn't even think that consumers can understand the seemingly simple products like life insurance.Don't let your pride be exploited.It is the responsibility of the advisers, the so called experts to guide you and to help you to make the informed decision. Caveat Emptor is pushing the blame to you. Caveat Emptor is the weapon used against you. You cannot let the FIs and the salespeople hide behind it and you are exposed to all sorts of dangers. Remember it is your hard earned money and all of you are vulnerable to the sales trickery and dishonesty of the salespeople like the insurance agents, RMs and consultants.Not just the old folks and uneducated, YOU too should be protected by MAS.; October 22, 2008 9:15 AM
vertigoer said...: Businesses that harm the society

Government stopped pyramid marketing when it first started and made it illegal because, it harmed the citizen involved in it.

Later, it was allowed with some better regulation.

In this case, FI business harmed citizens by doing inappropriate business where the people involved loose their life savings.

Gov should take action to stop this and do remedies instead of pushing responsibilities.; October 22, 2008 9:15 AM
zhummmeng said...: If MAS is serious about resolving the whole matter quickly it must be directly involved instead of pushing it to the wolves to do the housekeeping of the chicken house. You can expect a lot of cover ups and biased report in their favour.
The laws must be applied and the big stick to be used for breaches.; October 22, 2008 9:21 AM
Betsybug said...: Other common law jurisdictions have seen an evolution from caveat emptor to "seller tell all" consumer laws. Especially so given the complexity of modern products and services. So, zhummmeng says it is broken crutch that banks are relying on. But not too sure how is the CV principle framed in Singapore laws.; October 22, 2008 1:59 PM
zhummmeng said...: Caveat Venditor or let sellers beware mirrors Caveat Emptor. It means the seller is responsible for whatever he or she sells and guarantees that it works. EG. the seller must guarantee the appliance must work.These maxims apply to tangible products.
With financial products Caveat Emptor cannot apply. No way investor can understand the mechanics of the product wihtin 30 minutes. It is unfair.; October 22, 2008 3:23 PM
Betsybug said...: Oops, sorry. "So, zhummmeng says it is broken crutch that banks are relying on." shld read as:

"So, as zhummmeng says, it is broken crutch that banks are relying on."

Yes, agreed 30 minutes way too short. I understand Mr Tan + financial analyst took 2 day (?) to understand extent of actual/real risks in product.; October 22, 2008 3:53 PM
Anonymous said...: George says:

Dear Mr Tan,

It is wonderful and very fortunately for Singaporeans to have a fellow-Singaporean like you in our midst. You have my family's respect for being so frank and forthright in this issue which have undoubtedly struck a psychologically damaging blow to Singaporeans' continued belief and confidence in the competency of the govt. What we are all seeing unfold before us is a govt whose preoccupation isn't with the people's best interest but instead a very naked attempt at avoiding taking the morally proper step of ensuring that the people's interest is protected.

Instead, what is obvious is a hand's off approach leaving the FIs with lots of liberty and room to manoeuvre to minimise losses at the ordinary folks' expense.

No discerning Singaporean could be blind to the fact that the govt's behaviour arises from to self-serving standpoints:

1. It's ambition to be a financial hub, and therefore its anxiety to be seen to be 'pro-business' at every turn apparently even when its going to be at the disadvantage of its own citizen. It seemed prepared to offer its own citizens as sacrifices on the alter of its financial hub ambition. And all this it would rationalise with the by-now familiar, but far-fetched and hackneyed phrase that it is acting so for the 'good' of the nation! One wonders what is so 'good' when the people who make up the nation have to suffer in order for the nation to be good!

But, of course, many of us know only too well that we are only the means to an end, the govt's end that is, fully dispensible as far as the ruling party is concerned vis a vis its ambitions.

2. The second point is simple barefaced conflict of interest - a major player in the local scene. DBS, is to put it quite simplisticaly, a govt concern.; October 23, 2008 10:48 AM