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11-05-2012, 07:35 AM
A timely reminder!
The Straits Times
May 11, 2012
Commentary
Beware investments too good to be true
Esoteric products may be unregulated so buyers have no legal recourse
By Magdalen Ng
INVESTORS now have access to a smorgasbord of investment products. Gone are the days when equities and bonds were the main tools by which investors could grow their money. A large variety of investment products ranging from straightforward 'vanilla' products to complex derivatives catering to the sophisticated investor are easily available.
But as interest rates sink to all-time lows, many of the investments traded on recognised exchanges are also failing to deliver satisfactory returns.
Investors are being tempted by much more esoteric investments that range from land banking, wine and gold-dealing, to even livestock. These are very attractive investments which promise returns that can be as high as 30 per cent or more.
But these returns clearly come with heightened risks.
Most, if not all, of these alternative investment products are unregulated.
Unlike unit trusts and other regulated financial investments, which can be sold only by licensed financial advisers, brokers who deal with such alternative investments are not.
Similarly the marketing materials for regulated products are subject to stringent regulation such as the font size of disclaimers and fine print details.
Consumers find themselves on shaky ground should the investment company go bust.
For example, when 1,400 investors were left in the lurch by local land banking firm Profitable Plots, there was little recourse for investors as the company was not regulated by any specific statute.
The firm did not come under the Financial Advisers Act, for example which is legislation that gives the Monetary Authority of Singapore (MAS) regulatory powers over such advisers.
Neither does land banking come directly under the Securities and Futures Act as the investors are holding a direct interest in small plots of land which they hope to sell en bloc at a later price, as opposed to them acquiring securities related to the land.
MAS has long held the stand that it strongly encourages consumers to deal only with regulated entities. A list of these firms can be found on their website. For those who choose not to heed the advice, the old adage of 'buyer beware' applies.
What the MAS does do is maintain an Investor Alert List which names unregulated persons who, based on information received by MAS, may have been wrongly perceived as being licensed or authorised by MAS.
When the list was first put out in 2004, the MAS said that this was to provide an 'early warning' to consumers that if they dealt with these unregulated entities, they would not be protected by the MAS.
Potential investors will have to protect themselves by conducting the requisite background checks on the companies or investment schemes in question.
But during this period of low interest rates, many investors cannot help but be drawn to the attractive returns dangled by these investments. Should more regulation be put in place before another large collapse occurs?
Investor watchdog Securities Investors Association of Singapore (Sias), is one party that has called for the regulation of such investments.
Mr David Gerald, president of Sias, said: 'Currently, there are sufficient laws to protect investors from mis-selling or fraud, but the MAS needs to intervene in the case of complicated products which may not be easily understood by the regular investor.'
Certainly, not everything can or should be regulated. To do so would be to place a huge administrative burden on the agencies involved. There is also an inherent tension between allowing consumers free choice, and protecting the mostly unwitting among the general public from being cheated.
But more can be done.
Singapore could take a leaf from the books of countries such as the United Kingdom, and regularly review the scope of its regulation and consider extending it if necessary.
Since 2000, collective investment schemes - including land banking - have been defined as a regulated activity under their Financial Services and Markets Act 2000.
Under the Act, anyone who operates a collective investment scheme will have to be an authorised person, unless he is specifically exempt by legislation.
An agreement made in contravention of the Act will be unenforceable, and monies paid to a person flouting this rule can be recovered on top of compensation in respect of losses incurred.
Mr Justin Ong, asset management partner at PricewaterhouseCoopers, also noted the vastly different legal culture and landscape between Singapore and the United States, for instance. In the US, individuals are generally more litigious, and they can also rely on a very comprehensive and robust set of consumer protection laws to take action against the investment scheme operators.
Where regulation is not feasible, perhaps the Government could give more 'legal teeth' to consumer watchdog Consumers Association of Singapore (Case) in the case of these unregulated investments. Case currently has limited powers to demand restitution from companies in respect of complaints on alternative investments.
Such grounds could include the omission of material information, misrepresentation, misleading information, or taking advantage of persons of unsound mind.
But it always takes two to tango, and the onus should remain on the customer to do as much homework as possible before making any investment decision.
The discerning consumer should turn away from products he does not fully understand, or which seem too good to be true.
Failing that, he will have only himself to blame, and have to grin and bear the consequences if he ends up poorer.
songyuan@sph.com.sg
The Straits Times
May 11, 2012
Commentary
Beware investments too good to be true
Esoteric products may be unregulated so buyers have no legal recourse
By Magdalen Ng
INVESTORS now have access to a smorgasbord of investment products. Gone are the days when equities and bonds were the main tools by which investors could grow their money. A large variety of investment products ranging from straightforward 'vanilla' products to complex derivatives catering to the sophisticated investor are easily available.
But as interest rates sink to all-time lows, many of the investments traded on recognised exchanges are also failing to deliver satisfactory returns.
Investors are being tempted by much more esoteric investments that range from land banking, wine and gold-dealing, to even livestock. These are very attractive investments which promise returns that can be as high as 30 per cent or more.
But these returns clearly come with heightened risks.
Most, if not all, of these alternative investment products are unregulated.
Unlike unit trusts and other regulated financial investments, which can be sold only by licensed financial advisers, brokers who deal with such alternative investments are not.
Similarly the marketing materials for regulated products are subject to stringent regulation such as the font size of disclaimers and fine print details.
Consumers find themselves on shaky ground should the investment company go bust.
For example, when 1,400 investors were left in the lurch by local land banking firm Profitable Plots, there was little recourse for investors as the company was not regulated by any specific statute.
The firm did not come under the Financial Advisers Act, for example which is legislation that gives the Monetary Authority of Singapore (MAS) regulatory powers over such advisers.
Neither does land banking come directly under the Securities and Futures Act as the investors are holding a direct interest in small plots of land which they hope to sell en bloc at a later price, as opposed to them acquiring securities related to the land.
MAS has long held the stand that it strongly encourages consumers to deal only with regulated entities. A list of these firms can be found on their website. For those who choose not to heed the advice, the old adage of 'buyer beware' applies.
What the MAS does do is maintain an Investor Alert List which names unregulated persons who, based on information received by MAS, may have been wrongly perceived as being licensed or authorised by MAS.
When the list was first put out in 2004, the MAS said that this was to provide an 'early warning' to consumers that if they dealt with these unregulated entities, they would not be protected by the MAS.
Potential investors will have to protect themselves by conducting the requisite background checks on the companies or investment schemes in question.
But during this period of low interest rates, many investors cannot help but be drawn to the attractive returns dangled by these investments. Should more regulation be put in place before another large collapse occurs?
Investor watchdog Securities Investors Association of Singapore (Sias), is one party that has called for the regulation of such investments.
Mr David Gerald, president of Sias, said: 'Currently, there are sufficient laws to protect investors from mis-selling or fraud, but the MAS needs to intervene in the case of complicated products which may not be easily understood by the regular investor.'
Certainly, not everything can or should be regulated. To do so would be to place a huge administrative burden on the agencies involved. There is also an inherent tension between allowing consumers free choice, and protecting the mostly unwitting among the general public from being cheated.
But more can be done.
Singapore could take a leaf from the books of countries such as the United Kingdom, and regularly review the scope of its regulation and consider extending it if necessary.
Since 2000, collective investment schemes - including land banking - have been defined as a regulated activity under their Financial Services and Markets Act 2000.
Under the Act, anyone who operates a collective investment scheme will have to be an authorised person, unless he is specifically exempt by legislation.
An agreement made in contravention of the Act will be unenforceable, and monies paid to a person flouting this rule can be recovered on top of compensation in respect of losses incurred.
Mr Justin Ong, asset management partner at PricewaterhouseCoopers, also noted the vastly different legal culture and landscape between Singapore and the United States, for instance. In the US, individuals are generally more litigious, and they can also rely on a very comprehensive and robust set of consumer protection laws to take action against the investment scheme operators.
Where regulation is not feasible, perhaps the Government could give more 'legal teeth' to consumer watchdog Consumers Association of Singapore (Case) in the case of these unregulated investments. Case currently has limited powers to demand restitution from companies in respect of complaints on alternative investments.
Such grounds could include the omission of material information, misrepresentation, misleading information, or taking advantage of persons of unsound mind.
But it always takes two to tango, and the onus should remain on the customer to do as much homework as possible before making any investment decision.
The discerning consumer should turn away from products he does not fully understand, or which seem too good to be true.
Failing that, he will have only himself to blame, and have to grin and bear the consequences if he ends up poorer.
songyuan@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/