24 Feb 2009
Enoch Yiu
'How much do you earn every month?" "How many overseas trips do you take with your family every year?" "Are you living in your own apartment?"
These are the typical questions asked by your banker or broker before you open an investment account. While the stated purpose is to ascertain risk levels, White Collar believes they can be a tool to sell high-risk products to those who can least afford them.
The experience shared by our readers is that these tests are not in any way standardised, with different questions and rankings set by the banks or brokers themselves.
With the Lehman Brothers minibonds scandal still fresh in our minds, these tests need to be more tightly regulated by the Securities and Futures Commission and the Hong Kong Monetary Authority to avoid mis-selling of risky products. Three readers with different backgrounds relate their experience with these tests.
A fund manager with more than 20 years of experience was asked to do a test as the banker wanted him to invest in risky equity-linked notes - an investment product linked to the performance of some stocks.
A judge who only put his money in time deposits was also asked by his banker to do the test and buy into these notes.
And a retiree, aged almost 80, was asked by his banker to do the test and buy these products.
The fund manager left without finishing the test, as he thought the questions were only intended to find out how much money he had.
"This was an infringement of my privacy. No matter what answers I gave, I believed the results would be the same - I would be sold the products the banker needed to meet the quota for that month," he said.
The judge was ruled capable of buying the high-risk product. But he insisted on putting his money in time deposits as he did not believe in complicated investment products.
"The time deposit does not offer a high interest rate but it is better than losing your money," he said.
The retiree did the test and was judged as someone who could afford low-risk investments. Even so, he was able to buy those notes and believed the products would be "safe". The result: his investment lost 85 per cent of its value.
"Why should an investor adjudged as being only able to afford low-risk investments be sold something that loses 85 per cent of its value?" the retiree said.
This is obviously a case of mis-selling. It is not rocket science and it really does not need any test to confirm an 80-year-old is not suitable for any risky products.
It appears that no matter how these tests are formulated, the result is the same. The bankers are selling products to meet their quotas. Our regulator friends at the SFC and HKMA should immediately curb this type of test to stop people from falling into investment traps.
At the very least, regulators should have a single, standard test for banks and brokers to gauge investors' risk appetite, or we are going to see mis-selling similar to the Lehman minibonds again.
It is not an uncommon practice in Singapore that risk profiling and fact finding exercise is a sham to 'satisfy' compliance. They are done AFTER the product is sold. The KYC is written to fit the product and not the other way round.The insurance agent already knew the product to recommend because the whole life product, the cure all product they are pushing fits all circumstances of the client. Why bother about KYC? It can be done later and the KYC is written in a way to rationalise the product.
ReplyDeleteThis is very common among insurance agents who push products.
This is the cause of mis-selling and conflict of interest.
Surely MAS knows this but is MAS doing something about it? Or is MAS only interested to see annual premium income growth? Is annual premiun a good and accurate indicator of how much consumers are insured? MAS should dwell deep into this figure.The truth is this growth comes from robbing unwary consumers of their hard earned money.Consumers are conned into buying whole life and endowment products that don't give them enough protection and saving. These
products only make the insurers and the insurance agents richer.
The annual premium figures only good for MAS statistics. There is NO growth in real wealth of the nation. For the consumers they are poorer.