Tan Kin Lian's Blog: Fair and balanced

Friday, September 11, 2009

Fair and balanced

MAS requires advertising and marketing materials on investment products to be "fair and balanced". What do you consider to be "fair and balanced"? Give your views here.

16 comments:

Tan Kin Lian said...: I consider the advertisement and marketing material to be "fair and balanced" if they meet the following criteria:
a) covers the relevant points
b) covers the positive and negative aspects
c) discloses the charges that is taken away from the product by the issuer
d) discloses the likely probablity of the various events, where the payouts differ
Basically, if the product is designed in a fair manner, it will be easy for the seller to describe the product in a "fair and balanced" way. However, if the product was designed to take unfair advantage of the customer, it will be difficult for them to make the truthful disclosure, as the excessive charges and profit margin would have been obvious.; September 11, 2009 10:33 PM
Anonymous said...: "Fair and balance" should mean explain fully in simple english whether it is on advertising brochure or newspaper.

Some grey areas do exist e.g. in 2007, marketing people will tag MB as low risk because all the ratings are BBB to AAA. The companies involved are strong and established companies.

So if one company failed, then investors will say that this product is a high risk product then why did the FIs labelled it as low risk.

Who then will decide product is of high risk or low risk?

I think as long as the FIs put in simple black and white the risk involved, it is up to the investors to use their own common sense to decide. To ask investors to read prospectus is as good as not selling at all.; September 11, 2009 10:50 PM
Anonymous said...: Maybe a system to describe risk instead of using the bogus rating which has can be falsified by rating companies. [House of Cards]

e.g. FD in UOB. Risk is UOB collapse i.e. 1 company default risk.

MB: Risk is 6 RE, 1 issuer, 1 guarrantor and 9/150 underlining securities. Risk 7 companies default & 9/152 underlining securities.

One can then understand that MB is more risky then FD in UOB and by rating alone is not enough.

Next, risk of losing all the principle.

e.g. FD in UOB. Risk of losing all deposit is Zero as Govt guarranteed deposit till 2010. After that, it is $20,000 [I think]

MB: Risk of losing ALL if 1 of 7 or 9 of 150 underlyning securities defaulted. Thus it is more risky than FD in OUB.

"Fair and balance" must use a easy to understand risk presentation when marketing the product. Most people use FD as a reference thus, product risk should use FD as a reference as low and list down all the potential risk that will cause a significant or total lost of principle.

The easy to understand risk presentation will prompt the potential investors to ask questions and to decide whether to move their FD to the product. As long as the critical information can be printed on a single page in big print, investors will be able to make the decision to buy or walk away. If that document is not truthful, then it is the intent of the financial company to misled. A 200 page prospectus can be summaries into a single page of critical information. The only constrain that FI refuses to be transparent because they know that it is hard to sell a product thus affecting their bottomline.

Dual currency trading account in bank. Risk is the bank goes bankrupt. Also risk is when the rate turn against you and will you lose all your principle. This critical information should be listed down on a single page. I have talked to banks consultants on this product and realized that investors can easily bought in if the consultant only talked about the good stuff & nothing on the downside. So a document listing the risk of losing principle is important especially with examples.; September 12, 2009 12:40 AM
A Tan said...: "To ask investors to read prospectus is as good as not selling at all"

Gd pt. When investors see a product that has a thick prospectus and the RM says, "No need to read". And "Trust me" or "Read this sheet", investors should be wary.

Hmm wonder why MAS, govmin never say this when defending themselves. Incompetent lot.

The sight of prospectus should scare any ord investor.; September 12, 2009 6:13 AM
Anonymous said...: Mr. Tan,
The term fair and balanced is very subjective but one can view from the environment that it is being interepreted. For example, if the regulatory authority viewed the minibond saga as fair and balanced, then it is best that investors stayed away from these products and invest only in stock and bonds which are straight forward. Otherwise, when you get burned again, then the eyes open big big interpretation will come in as what is fair and balanced and you loose everything,; September 12, 2009 6:48 AM
Anonymous said...: Based on the lively debate we have on this site, I can only say that what my textbook taught me is right:
"Fairness, like beauty, is in the eyes of the beholder."; September 12, 2009 8:26 AM
Anonymous said...: REX has some comments:
Fair and balanced ought to include:
- The product summary description shall not be allowed to use ambiguous, bombastic or non-standard words. (examples: "minibond" is ambiguous inf not misleading; "capital protected" is non standard)
- The statement for "effective annual return" fore EVERY specific Option associated with the product MUST be provided to the investor. At present this information is completely lacking in various products. Especially when products are structured with options where customers have to decide which to take, the customer is tricked into selecting the wrong option simply because he cannot calculate the effective annual return which is hidden in all the confusing data. All he sees are some nice bar graphs and more confusion.

REX; September 12, 2009 8:53 AM
Anonymous said...: Post 12.40 suggestin is very good.; September 12, 2009 10:18 AM
A Tan said...: Whatever is written in summary, the prospectus is still the impt doc.

If the summary is silent on something and does not contradict the prospectus, then if something goes wrong that is covered in prospectus but not in summary -- "they should have known better".

Moral -- See thick prospectus, and not willing to plough thru it, or no technical knowledge, give investment miss or take a risk that everything may go wrong.

Summary may not save yr money.; September 12, 2009 11:02 AM
Anonymous said...: Acid test on "fair and balanced" brochure.

FA/RM/consultant $ is measured by performance, quotas and commission, thus cutting corners will be happen again. It may not be now but it is coming, given economies are recovering and the bad CDS/CDO is still not resolve in USA i.e. all in the books of USA banks. Coupled with this, fresh grads entering the service industry, who have not experience the tormental MB Saga, will push, mis-represent, sweet talk & encourage people to take up risky products as safe haven.

One good way is to let FISCA publish brochure or brochure sent by members on the website. Public can discuss or vote the risk of this product. If a high number of comments indicate that the product is bogus, very likely the public is correct. It is like American Idol where the public vote and decide. People from all walks of life can read FISCA public opinion on the product listed. Heartlanders can make their own decision and from FISCA, they can ask the right questions.

E.g. Minibond brochure

The public will be able to flagout:

i) It is not bonds from the 6 reference entities
ii) Capital protected but not capital gurranteed and the difference between both.
iii) 9/150 underlyning securities are not published on brochure.
iv) Minibond Ltd and LB are also credit risk.
v) When one RE collapsed, all principle will be lost.
vi) When investor signed the MB application form, they signed away their rights for not fully understand the risks.

The forum or public view may not list all the above, just any one of the above is able to make a potential investor sit up and pay attention.

If this model is successful, then FIs will need to work with FISCA to educate the public on the nature of their product i.e. help to answer questions raised by FISCA members.

FIs cannot just cover themselves with all the legal documents and at the same time sell and market a product irresponsibily.; September 12, 2009 11:45 AM
Anonymous said...: "Summary may not save yr money."

Is there a better alternative? Presently, the business model is protecting the FIs and leaving investors high and dry.

Make the FIs accountable to the summary. Critical information is needed for potential investors to make decision. From the same training, each FA or consultant can come out with a different opinion. From MB, one FA says it is bonds from the 6 companies. Another says it is equity like bond.

A legal summary can straighten things out.

How would you like to have a summary that says that the summary is not complete and must be read together with the prospectus and the pricing statement.

And in the summary, it did not mention about Minibond Pte Ltd, LB as part of the credit entities. Also it did not mention about 9/150 as credit entities.

To make things worst, FI claim in FIDREC that they ran short of Pricing statment & Prospectus thus some customers don't have it due to popular demand of the MB product. And if a investor bought the product over the counter, his knowledge is only from newspaper advertisement and brochure. So no advise is worst than bad or wrong advise.

When you sign the Minibond application, there is a clause that says you have read the prospectus and fully understand the risk.

So you see, you are suppose to know the risk from the prospectus, but prospectus were not given due to short supply, not given or bought over the counter. Your FA or the marketing department conveniently or purposely omit those critical information so that you enter into the agreement and they can earn their commission.

With so many loop holes in the selling process, how does one prevent a reoccurrance? Depend on MAS to come out with one? You have seen what MAS can do, so this is not a option.

So may question is, do you have a better alternative?; September 12, 2009 12:06 PM
A Tan said...: "So may question is, do you have a better alternative?"

My point is that summary is not a cure-all. Read summary and buying without reading and understanding prospectus still carries a lot of risk.

And my other point is -- If see thick 200-page prospectus, don't want to read or cannot understand -- don't invest.

FI is not forcing you to buy.

Take the presence of prospectus as "danger sign"; September 12, 2009 1:14 PM
Anonymous said...: Opening a Phillip Securities online account yield a prospectus of terms and condition of 89 pages with a clause 14 indicating they are not responsible as they are execution-order only.

This is ok if it is purely online trading. But unfortunately it includes securities. So it means that while you are not given the MB prospectus, Phillip Securities is not responsible even if they advise you to buy MB wrongly. This also means the same if the MB prospectus is only 5 pages thick.

But if you look at Phillip Securities selling process of an on-line account, it is purely focus on low broker commission and free goodies. Because you have signed up, Phillip Securities then turn things around at FIDREC saying they are not responsible even if their advisors misrepresented MB under clause 14. But the account was opened years before the purchase of MB!

So, whether a prospectus is thick or thin, if the intention is to hid, then there is no way you can assess the risk. So how does an investor decide to purchase a product fairly?

Depend on MAS guidelines?
Depend on FA/RM honesty when they were also misled or motivated by cash reward?
Depend on Banks or FIs marketing flyers when we know the flyers hids many things?
Depend on the "if you don't understand, don't buy"

If Town Council can be misled by a group of professional financial advisors, how can a retail investor escape from a sweet talking FA/RM whose interest is covering up and they know you will never be able to understand the prospectus because they don't themselves.

FI is not forcing you to buy but they can educate you that you are losing loads of money keeping it in FD due to inflation. They basically impress on you that only a stupid person keeps money in FD when one can take a bit of risk and go for a higher interest product with risk that is close to FD on the brochure. But all other risks are hidden in prospectus etc.

I am suggesting FIs must be forefront about the risks of the product and the risk of losing all the principal upfront and not hiding it in the hope that the investors miss it. Or worst, not educating the FA/RMs on the risks involved in the hope they pull in as many unsuspecting investors as possible which unfortunately is the case of MB saga.; September 12, 2009 2:40 PM
Sanity said...: A fair and balanced marketing materials/ad should consider 3 main points

1) purpose of products - investing in what etc.

2) Benefits - payouts, interests etc

3) Risks - what are its risks eg RE, 120 CDOs (must identify the companies) and the risks if 1 or some defaulted. It should be detailed enough for people to understand what they are in for. An eg is if 1/120 CDO defaulted, the investor may lose 1/7 of his principles. If more than 7 defaulted, he may lose all.

All these must be on the main sheet, wording must be big enough for people to read. The risks should not be in fine print hidden somewhere in the disclaimer.

There should not be guess work here. Also the RM need to know the products well and explain their benefits and risks to the potential investors well. It should be an informed decision not "con" decision.; September 12, 2009 5:25 PM
Anonymous said...: “MAS requires advertising and marketing materials on investment products to be "fair and balanced".

Does this imply that it is alright to have unfair and unbalance advertisements and marketing materials in the past?

If MAS really serious about this, MAS should punish those institutions responsible for the misleading newspaper advertisements and sales brochures on minibond products and get these institutions compensate the minibond holders.

P; September 13, 2009 8:25 AM
Anonymous said...: 1. Many good points are mentioned. (eg describe the specific risks of the investment not just an "Investors may lose part or all of their investemnt" cover-all so that potential investors are in a better position to decide on the suitability of the investment.)

2. Knowing and able to do the proper thing Vs Sales Vol target? No contest. Regulations needs enforcement to be effective.; September 14, 2009 11:31 AM

Friday, September 11, 2009

Fair and balanced

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