Jan 3, 2010
Financial lessons from the decade
Scandals and dubious practices from the past can help investors avoid pitfalls
But my timing couldn’t have been better because, fortunately for me, the party began after I joined the paper.
The pace of change in the personal finance space began to hasten and, as new legislation was introduced, traditional lines separating banking, stockbroking and insurance products blurred.
The emergence of new distribution channels, such as independent financial advisers and bancassurance – the selling of insurance products through banks – made a huge impact on the industry. And I was in the hot seat covering all that.
Looking back, most Singaporeans were generally ill-prepared for the influx of financial products that hit them at almost every turn. Many were too complacent to find out what they were really getting into. Instead, they put their complete trust in their insurance agent or adviser, a costly mistake for some.
I, too, learnt my lesson the hard way. I remember investing $50,000 – split equally – in two technology funds at the peak of the Internet craze just before joining The Straits Times. Needless to say, my investments headed south with the bursting of the Internet bubble in 2000.
Measures were then taken to raise the standards of sales practices.
In 2001, advisers began to conduct a financial-needs analysis exercise with customers, and key market conduct rules like a ‘reasonable’ basis for recommendation of products as well as disclosure and competency standards were laid down.
Despite these, many consumers were still caught short when they overestimated their risk appetites or made the wrong investment choices either through their own fault or having been misled by advisers.
As we begin a new year, here’s a look back at some of the financial issues I uncovered in the past decade and the actions that have been taken.
2003: AIA’s ‘critical year’ issue
Nub of the matter: Thousands of policyholders had bought insurance with a unique ‘critical year’ feature.
Action taken: Eventually, AIA offered a compensation package to affected policyholders.
2005: Suitability of investment-linked insurance policies (ILPs)
Nub of the matter: Regular premium ILPs are unsuitable for older policyholders. This is because they might be unable to continue with premium payments if they have a short investment horizon as insurance charges will rise to outstrip the premiums and may also eat into the value of the investments.
Action taken: Most insurers now acknowledge the pitfalls by imposing cut-off ages and minimum duration periods for these plans. Policyholders should not be allowed to enter these plans too late, or insurers should encourage a longer tenure to build the maturity value.
2007: Sunshine Empire
Nub of the matter: Sunshine Empire was a multi-level marketing firm that had attracted investments of almost $190 million from Singaporeans.
Action taken: The CPF Board issued warning letters to 35 financial advisory representatives. Seven of them have since been suspended. It also stated the penalty for guilty CPF members – a fine of up to $2,500 for a first offence and up to $10,000 subsequently.
WHAT WE CAN LEARN
There is much we can learn from past financial scandals and mistakes of consumers. Besides equipping ourselves with more financial knowledge, we should also learn to understand our own attitudes to risk-taking and greed. Above all, we should take responsibility for our own investment decisions.
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I also lost some money doing the 2008 financial crisis.
If I do invest in the future, which is not likely, I’ll make sure I know how the money is spent by the investment. If I’m investing in wine, is the money going to the fertilizers, workers? Amazingly, not many advisors know, and don’t care. But this is really important because you need to know if your money is put into good use.
After I lost money, I don’t really believe in passive investment anymore. Business return on investment is just so much higher. Risk is minimal if you know how to minimize them.
Parka
Most people lose money last year – only the very blessed made money from their investment. I am also poor with investment.
However I believe those who buy houses during that down turn may have reap some profits now if they sell. At least they buy at the low side.
Gilbert
[...] Financial lessons from the decade (Sunday Times 3 Jan) [...]
multi-level marketing can really give you lots of profits if done right:–
no one can beat multi-level-marketing schemes when it comes to the sheer amount of money you can get from it**`
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