Tan Kin Lian's Blog: Mistrust of financial products

Wednesday, December 10, 2008

Mistrust of financial products

Hi Kin Lian,

Read your blog. I have thought about many of the issues in your blog for a long time and having worked as in the banking industry for 20 years, I have been long concerned about the products the banks are pushing out. As I shared, some of the products are so sophisticated and 'well-structured' that even financial professionals have difficulty telling the risks they are taking.

Here ia an example of an option product I came across 8 years ago, which on surface yields a whopping 18% interest. However, this 18% is merely the premium for writing a put option on HSBC shares that my CFO bought from his private banker. If the strike price was reached, his shares would be 'switched out'. Actually, this is when the option would be exercised. I saw the danger of such a product and even plotted a graph to show him that his upside was capped and his losses were unlimited. That kept him sweating for a few months until this option expired. Luckily for him, he got to 'milk' the 18%. I thought the financial institution was the greatest gainer and reaped him off completely!!

Reply: There are many products like this. It is quite common. The financial institution sells an option and takes the exess profit, leaving the investor to take an unlimited loss.

I have for a long time mistrusted banks and regulators to look after my welfare. Never invested in any of those structured deposits or even buy shares. I get saddened whenever I see folks who get trapped into this. Every time my mum brings home a brochure, I told her to dump it. To me, the financial system will fail one day. What are we to do? We certainly cannot put our money under our pillows and in biscuit tins. Surely, there must be more sober and honest institutions in the making that will look after the needs of ordinary people. Do you have any idea what this institution should be like? Can we implement that legally from our own capacity?

Reply: I hope that someone can set up a new institution, similar to the Central Provident Fund, that invest money honestly in the interest of the investors. It is just a low cost mutual fund, similar to an indexed fund.

P

10 comments:

Anonymous said...: Re: Guaranteed That Poor People Will Squandered Away Their CPF Money

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Quote:
Originally Posted by clinton666
If we allow the lazy poor people to withdraw their CPF, they will develop a crutch mentality and who is going to take care of these dumbasses when they get old. I am certainly not going to pay huge taxes to feed these lazy goons.

Those poor people who claim that they can take care of their own CPF money are bullcrapping. If they knew how to manage their money, they would not be poor in the first place.

REPEAT. Giving these lazy riff-raffs access to their CPF money is akin to giving them crutches. They will never learn to walk again.

In fact, only rich people like me should be allowed to withdraw our CPF money since we are well educated and have proven that we have to know-how to take good care of our money.

My Central Provident Funds savings is my hard earned money, through my BLOOD, SWEAT & TEARS (not the pop group)!.

When I retire I want that sum of money, that was what the fund was started for in the first place in the year 1955!!!!

What I do with that retirement money, wether I am educated or not, that is my money, I worked hard for it, I did not steal it, is my business.

Wether I splurge the entire sum on whatever luxury within 5 mins I get hold of it, is still my money, I will be happy, just to spend it.

Don't go insulting all the hardworking people, who worked hard to get that savings.

In this rapidly eroding world, any cent obtain from CPF, is money in hand, we never know, one day, we may never get even a cent back!. Established fianancial institution that had been around for more than 300 years can collapse, Lehman Bros etc..comes to mine, why not CPF?

So, don not insult the lowly educated, who by their BLOOD, SWEAT & TEARS worked hard for their retirement money (CPF) and help built this country, whom we call, SINGAPORE!; December 10, 2008 9:58 AM
Anonymous said...: There is nothing evil about a put option or even some of the CDOs which were sold as long as they are fairly priced.

The problem is the the bankss exploited layman ignorance of how to price these products to earn supernormal profit.

What is worse is that the FI's employed an army of eager beaver fresh grads to sell these products to unsuspecting retirees.

The coup de grace was the packaging of such products to make them look like ordinary savings/fixed desposits with artifically low rates of return.

The problem was systemic in that it was not a single FI which did it but rather the entire industry.

I mentioned this to a senior policy maker who is currently residing on the 9th floor of the Treasury Building in Hill Street.

To be a doctor or a lawyer, you have to pass vigourous exams and certification before you are allowed to practice.

However to advise someone on how to manage his/her life savings, all you need are A-levels and you can call yourself a relationship manager.

What we have now was a tragedy waiting to happen.; December 10, 2008 10:07 AM
Anonymous said...: In this world..some people go job and save xtra money. SOme people retired got lots of money and want to make a little more easy dividend. SOme people do business need more cash flow. some people work and also do part time business.
Many smartest people use internet trading to trade and auction after works all nights long.

Investment is about circle of trusted friends, a community of helping each other to succeed. I was told Mamak runs their corner tea-tarik business, each new outlets, they loan 100K for new owner to start, so they planned and control their growth. They also return their investors and financiers good yield on their loan money .
I buy and sell items over the internet with high yield and fast turn over, As i need cash in short call and large amount, so as I call my funders would invest short term of 3..5% per month. I keep my words and trusts, so they are happy. they also trade and contra my aquired products. so that make me growth and growth for last 8 years. i make many investors happy, both buyers and sellers as well as funders.

The financial system will not fund me, i am deemed illegal.
Modern global financial system is they go round with the License, with the branded FIs and cons... What is this all about. 158 years brands just go down the drain....

You either involved, work on it, and know the fund you place in. Something you can see, you know what they do, else, just be contended.; December 10, 2008 10:24 AM
Anonymous said...: I agree. I have lost all trust of the financial institutions after my minibond losses.

No longer trust the bank, no longer trust my broker at UOB Kay Hian

Each time I see their names, I get really angry; December 10, 2008 10:40 AM
Parka said...: After my loss in the Minibond, I've lost trust in any bank.

If anyone from the bank would ask me to buy any financial products now or in the future, I'll tell them to shut the hell up.

This loss of trust primarily comes from their lack of competence.

Sure they are qualified to do banking, but are they competent? It's two totally different stories. One hell of a difference.; December 10, 2008 11:05 AM
Anonymous said...: Poor people need help and proper advice . The problem they are the most vulnerable people who are victims of insurance agents and financial conman.
The rich can get ripped off and they are still rich. Ironically they get richer because they have access to qualified and competent advisers.
The poor on the other hand entrust their hard earned , cannot afford to lose money, to thieves to mange for them. There are all kind of thieves. They MDRThief, COThief and TOThief. Look at the poor's CPF balances, reeling from losses. Since 2001 till now 85% of the CPF accounts lost money.The poor make up the majority. Who are these investment experts who lost for them? You can guess they are the insurance agents.
Mr. Tan . forming an association to look after this group of people is the right thing to do. Don't trust the FIs to self regulate.It is like engaging the wolves to manage your chicken coop.
As for MAS it is a irrelevant body .; December 10, 2008 11:37 AM
Unknown said...: i based my investments on one logic that pre-empt and/or altogether dispense with any element of consideration of trust, necessary or unnecessary

i ask myself, if the secret's that clear, WHY ARE YOU SHOUTING; December 10, 2008 10:57 PM
Anonymous said...: Wayang-
I had sat in the premier room and had witnessed the sales process of how FD was converted to bond investment of an elderly.
You r nologist, you may be smarter, but you may not know how dsperate they were trying to suck dried old people FD in the quickest and sweetest way... some kind of perfume make uncles all ' kong kong'...
this is call Bank..on; December 11, 2008 4:30 AM
Anonymous said...: wayang,

if your mother is one of the victims let's see how you perform the wayang, probably jumping up and down like a monkey performer.; December 11, 2008 9:31 AM
Unknown said...: Anonymous 4.30am and Most Especially to 9.31am

i think you are confused and too trigger happy to throw insults for no rimes reasons and worst in the wrong direction

i was precisely referring to why the FIs would need to SHOUT to convince the Investors are getting a GOOD deal, that it being secretive or otherwise!!; December 14, 2008 5:41 PM