The mistake was in allowing this type of "gambling" product to be sold to the general public. There is no way that any investor will be able to assess the risk of losing all their money. They had to rely on the advise of the financial adviser (i.e. insurance agent) and the credit rating agency. The Monetary Authority of Singapore should not have allowed the general public to gamble away all of their money for a small increase in interest rate.
Great Eastern Life made the mistake of selling this product, but several other insurance companies also sold similar products. NTUC Income, which was managed by me during this period, avoided this type of product, resulting in a decline in our market share.
Most policyholders who bought the product were probably told that there is a risk, but were probably assured (wrongly) that the risk is very small. It would be fair for the policyholders to take partial responsibility and bear a portion of the loss. Some policyholders might not have been told of the risk, or might have been misrepresented about the risk, but this is a separate matter.
It is magnanimous (highly generous) of Great Eastern Life to offer a full buyback of this investment product. I congratulate them for this goodwill gesture, which is costly to their shareholders. I hope that all policyholders who got back their money understand that they have been generously treated.
Great Eastern Life has to write off a loss of $250 million. It could be more, if the credit market continue to deteriorate. It could be less, if the credit market improves in the future. No one knows what the future will hold.
I like to wish all the best to Great Eastern Life and hope that they will be rewarded for their generosity, through an improvement in the credit market. In the best possible case, they may fully recover the $250 million that was set aside. At that time, I hope that the policyholders will not ask for the interest to be paid to them (as it would be an unfair expectation).
Whatever the outcome, Great Eastern Life would probably be rewarded by the goodwill gained from the compensated policyholders, their families and friends and the general public in Singapore.
I call on the other insurance companies who have sold similar products to offer a buyback arrangement. It does not have to be as generous as Great Eastern Life, but it should share the loss (or gain) equally between the policyholders and the insurance companies. This would be a fair settlement.
Tan Kin Lian
19 comments:
I hope the mgt of Hong Leong Finance is reading TKL Blog. They are the most sympathetic towards the MB investors i.e. highest compensation in no. of people and $.
HLF, don't get tie up with the 10 FIs group agreement, do the right thing and get it over with. Follow HK example and move on. With your example, the rest will follow. Why continue to prolong this standoff and watch your once loyal and sincere customers suffer in silience. Why be like MAS or Govt and not listening to your heart to do the right thing?
By MB3 investor burnt by Phillip Securities.
I totally agree with Mr Tan. All these pseudo-gambling products and (now) losses were the result of poor judgement and poor decision making of ALL parties involved (including MAS). All parties should now share the losses in proper proportion. In this particular case, GEL has been magnanimous to shoulder the full loss. In other cases, such as Lehman Minibonds, MAS has been most disappointing for denying any failure of responsibility on their part. It reflects the true character of MAS' management.
I don't agree that GE is magnanimous. Yes, they are better than the FIs but still GE must bear the responsibility of product failure and the $250 millions is a small price to pay for the mistakes of miselling of the agents and the product design as compared to UK FSA which fined an insurer recently for more than 500 million pounds in fine and compensation and it was an annuity product only.
Imagine, if consumers shun them, the damgae is far greater.
Anyway, MAS must look into it, the product and the behaviour of the agents. MAS must do what is right.
Cannot agreed with you more on FI selling investors gambling products. MAS need to address the problems of FI using financial instruments in their products to gamble with investors money as well.
The cause of the collapse of DBS HN5 is due precisely to DBS using the Credit Default Swaps instrument to gamble with investors' money.
DBS uses investors money to buy a basket of so called 'Collateral Securities'. These securities were placed by Constellation with DBS under a swap agreement. (this is to ensure a constant income for investors).
At the same time the Securities were used as collateral by Constellation to provide insurance covers for DBS in the form of the Credit Default Swaps instrument. The insurance cover was for DBS to bet on 'Credit Event' happening to any of the 8 entities listed in the prospectus.
DBS does not own any of the bonds of the 8 entities. What it did was to used investors money to gamble on what they term 'Credit Event' happening to any of the 8 entities.
And that event happens when Lehman Brothers collapsed. The investors were left with nothing when the values of the CDOs have by then declined substantially due to the sub prime crisis in the States.
This is a question that MAS have so far not address. Are they going to provide more guidelines and regulations regarding used of questionable financial instruments by FIs in their products?
No, MAS is not. MAS say it is not their problem and they got nothing to do with it.
They say "FIGHT YOUR OWN BATTLE, PEOPLE!"
In Hokkien "Eat yourself, I am too busy talking at investment seminar about things are slow."
Shame on you, still dare to go to investment seminar to cut ribbon and talk about something that everyone knows. Do real work, man. That's what you are pay for.
Is margin trading risky? Should MAS allow it?
Is derivatives trading risky? Should MAS allow it?
Is commodity trading risky? Should MAS allow it?
Is property flipping risky? Should MAS allow it?
Every instrument carries a risk - as along as the risk are explained clearly and transparently, it is up to the consumer to decide whether they are stomach the risk or not.
Why should MAS be involved in deciding what risk a consumer can take?
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So scary.
Even the "insurance products" also can be so risky.
How can we trust the so call "Life-long annuity"?
I respect the GE agents who are willing to return their commissions.
For the agents of other FIs, please return us your "ill-gotten" commissions.
We can't get a single cents back just bec we could "read". Is it fair.
NTUC Income is a great company. I read that the company now is growing strong and it has a very good service.
So scary? often it is not the product but the insurance agents who screw things up. No matter how risky the products are if the agents are for you and care for your interest they would be very careful about the products being recommended to you, ie. they put your interest first. But alas, your beloved insurance agents are greedy, unscrupulous and would lie to make you buy.This is where everything goes wrong.The MBs went wrong because the RMs were interested to make the fat commission only; the GLC went wrong because the GE agents were greedy to make the 2.5% commission.Your interest took a back seat to their greed. Whether your long term financial life is secure is none of the agents' business. Their business is make quick commission and retire. They are all salesmen.They are no financial consultants or planners, they are shit unethical , unscrupulous product pushers pushing for high commission. This is a fact and don't listen to their crap. If these agents do care for you they should upgrade themselves to service you better but majority are still incompetent and unqualified even to advise on life insurance let alone investment.
The Jury
They are no different from drug pushers and peddlers.
Having good reliable, honest and competent agents is important. A good agent will evaluate and conduct product due diligence to see if they are good for their clients and there is no toxic. To further safeguard their clients they will conduct need analysis to see the products can fit into the clients' needs.
Unfortunately there are very few inusrance agents who will do that.
Agents will sell anything that their company produces without caring whetehr the products are toxic or not.They are motivated by the commission and they will learn all the tricks, truths and untruths to sell them.Their trainers will train them what to say and what not to say. This is waht is going on in the product training; how to up play and down play and NOT THE WHOLE TRUTH.
It is the agents, the middlemen, the human beings who are dangerous in the sales equation.
Black can become white and white can become black.They say anything, do anything just to make you buy. That is their intention and not your goals or needs. So, don't be fooled by them. There are very few qualified advisers in Singapore with professional degree level qualifications. The rest are salesmen at the best and who use the 5Cs to make you part with your money.
Beware of the wolves in "financial consultants' clothings"
My agent is good but the securities house told them the product was safe and ask them to sell and incentified them by setting quota. Now they say the customers are at fault because they signed on the dotted lines.
The bad and irresponsible company is Phillip Securities who is hiding behind Phillip Capital and they are hidding behind 30 years of experience.
Reply to Comment of 6 August 6:18 PM
Margin, derivative and commodity trading is transparent. Those involved in these trading know that they are gambling on the price of these products. If they lose money, they will know about it within one day.
It is quite different from the "gambling" nature of the credit default swaps. These swaps are misrepresented as investing in the bonds of the reference entities. This is why so many people were really misled. These gambling products should not have been allowed for sale to the public.
August 08, 2009 11:50AM,
If your agent is good he or she should make it his or her responsibility that the product is not toxic instead of relying on the master's words. It is the duty of agents to conduct due diligence on the product before recommending to their customers. If he or she is NOT qualified or don't know or not sure they MUST NOT recommend to their cleints. They cannot push the blame to the FIs and argue that they were forced to sell. Agents owe a duty to their clients by being competent and knowledgeable. If they are NOT competent they should not be in the business. This is NOT an icecream or TV sales position. This is a job akin to a doctor and a job that requires to follow certain steps before recommending the product. It is NOT a product pushing or selling or peddling a koyok at pasar malam. The agent must bear the blame of the failure becuase he or she IS the person who PUSHED it to the customers. I have no doubt they pushed for the commission.
The Watchman
NTUC Income is probably the most conservative insurance company. Income will be my first choice for insurance.
REX comments as follows:
A couple of posters here places the blame on the agents who sold the 'toxic' products and demands "justice" from them just like Great Eastern is doing.
Let us think deeper. Before the crisis, nobody knew what is "toxic" product. Hardly anybody knew about CDO and subprime crisis, which are the two Wall Street factors that started this whole mess. The terms are such highly technical terms that most people don't bother or couldnt understand even if they have read the prospectus. The products were designed by the bosses of the agents - the FI's Marketing Departments - and passed down to the agents (Sales department) to sell. We have to understand that in any company there is a Marketing (Product Development) and Sales Department, and make sure we know the functions of each.
It seems fair to conclude that the average agent (Sales Department) DOES NOT HAVE THE INTELLIGENCE OR TIME to understand the details of what they are asked to sell. They treat it as a product their boss asked them to sell. Just like in the case of safe products (e.g. endowment policies), the agents go about their duty and hope to get high commissions just like the endowment polcies (which are not toxic). Quite possibly most if not all of the agents cannot distinguish the difference, to them it is just another product the Marketing Manager designed and passed down for implementation. WHY PENALISE AND FIND FAULT WITH THE AGENT AND LET THE MASTERMIND FREE?!!!!!!!!!!!!!!!!
The person who mastermind the project is the main culprit, certainly not the agents.
Therefore, i find it unacceptable for Great Eastern to ask the agents to return the commissions. IT is absurd, unscrupulous, irresponsible, unjust action!!!!!!
The marketing or business development managers are the ones who should be made to pay back, not the hundreds of small agents who implement the project. There is no justice in making the agents pay back the commission!!!
If i were an agent i will seek a lawyer, approach MAS, or do whatever is necessary to protect my rights, because in all probability many agents themselves do not have sufficient knowledge to understand the complex product at that point in time (as we know even very well educated persons are conned, because the designers of the scheme, the mother of all evils actually originate outside of singapore).
Spare a thought for the agents, and look up the chain of command, do some justice. i say this to Great Eastern especially, if you are generous you should not make your own staff bear the costs of a bad product not created by themselves, but by your own marketing department staff who are earning a even bigger salary than the numerous salesmen down the line. Whilst the action of GE is popular with the investors, this action would make GE a very unfair employer who turns around and bites its own staff - the wrong staff is bitten.
REX
agents have a duty of care toward their clients. It is because of them that their clients got poisoned. The agents should check the products first. If they don't have the knowledge don't sell. How can they sell something without knowing how they work for their clinets. They must have bullshitted their way and to the detriment of the clients. This is a irresponsible. It is very common that in tied agency the agents will push any damned thing the company puts out, all because of the commission.In GE's case the commission was very good , it was 2.5% on the single premium. Greed and dishonesty are cousin.
Good agents will think of their clients, and will evaluate first before dumping on their trusting customers.Without them the product wouldn't have landed in the hands of their customers. Rememebr the clients trusted the agents and the agents mustn't exploit this trust. But unfortunately, the greed and dishonesty got the better of the agents. According to FAA they should be fined $25K for each case of misconduct or license revoked.
GE has poor internal compliance and governance that this fiasco happened. It must be fined heavily , perhaps for $500 millions which is not unusual in UK. UK FSA recently fined an insurance company for more than $200 million pounds other the compensation it made the insurer to pay the aggrieved annuity policyholders. The company and their agents must be deterred for breaching the laws.
Don't speak too soon. NTUC is no longer the same company Mr. Tan KL once helmed. Don't be fooled by constant use of the words social enterprise . The devil never said it was an evil one.Wiat till you know more about the company and the despicable agents you used to know. You might have robbed right under your nose.
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