Gold Investment Firm Placed on MAS Investors Alert List

[Musicwhiz]

It's cruelly ironic too that those who are not financially literate will also not be aware of an "MAS Investor Alert List", and probably will not know to check it either to identify potentially suspicious companies......

[kazukirai]

The alert lists serve no purpose. Who actually check it? As what some forumers say, by the time it's on the list, it's too late... regulation and enforcement is needed here. it's just too cruel to see hard earned money being siphoned away, especially for those who are not financial literate.

I note that many forummers advocate greater regulation and enforcement.

Why not education?

[Musicwhiz]

I realize most people do not like financial education, likening it to be boring and "sian" process. I guess they do not realize how much they can benefit from it if they were to manage their money properly. Truthfully, I myself only found this out in recent years....

There are also people who dislike numbers or may not be strong in numbers, and so have a natural resistance to education. These people will prefer it if the authorities have more "teeth" to regulate and clamp down on unscrupulous practices.

[d.o.g.]

I note that many forummers advocate greater regulation and enforcement.

Why not education?

Financial education goes beyond merely detecting scams. It also includes budgeting, compound interest, insurance and investment.

With respect to financial education, we should distinguish between self-education and formal education.

Self-education is generally undertaken by those who are already interested in financial matters. These people are motivated enough to do their own reading and ask around when unclear. They are usually financially literate to some degree and less likely to fall prey to scams.

It is the people who are not interested in financial matters (except how to get rich quick) who are not financially literate and at risk of being conned. These are the people that formal education campaigns should target.

However I personally do not have any faith in formal education because those best equipped to teach the public are the banks and insurance companies. Unfortunately, if they teach the public, they will be acting against their own interest, since their most profitable products are almost always the ones which are the worst for the customer. For example:

1. Better budgeting = smaller loans, less interest income
2. Paying off credit cards and credit lines = less interest income
3. More use of index funds = less sales commission / fund management fees
4. No whole life policies = no more captive revenue stream
5. No personal accident plans = less underwriting profits
6. Read the T&C = less sales commission from structured products

The kind of techniques used to spot and avoid likely scams like The Gold Label, Genneva, OilPods, Profitable Plots et al are the same as those used to spot and avoid perfectly-legal-but-suitable-for-nobody products like Minibonds.

So if the banks and insurers actually do educate the public, they will have a much harder time in future convincing the customers to buy their most profitable products. Since none of them wants to "spoil market" they prefer to keep quiet. Or rather, they advertise to the public that personal credit lines are a great way to fund holidays, toys etc.

[Musicwhiz]

Since none of them wants to "spoil market" they prefer to keep quiet. Or rather, they advertise to the public that personal credit lines are a great way to fund holidays, toys etc.

I was reading your post with much amusement. It seems that formal financial literacy education requires the banks to literally shoot themselves in their own foot, so to speak! This is probably why it is so tough to get formal financial education on matters of personal finance; most of the information on how to manage loans, pay off credit card bills comes direct from parents and/or friends. There is a tendency to "monkey see, monkey do" when it comes to young people, therefore it is important for them to have a role model when it comes to financial discipline so that they can learn when young on how to control their spending impulses/urges and budget prudently.

And I can never understand the part about personal line of credit used to fund consumption items. Don't people realize the interest rates are a surefire killer for your retirement? I always get such (crap) mail in my mailbox and spend time tearing up all these useless enticements. Mind you, that's a LOT of paper to tear up because it is always inserted along with my credit card bill!

[kazukirai]

Hi d.o.g.-san,

Nice to hear your views. As you said, the best ones to educate would be the very ones that stand to lose the most from that course of action. However, I was thinking more along the lines of education from a neutral party (i.e. governmental/stat board) as many forummers have suggested regulation/enforcement which would come from such a party.

To fellow forrumers, I think I should provide further clarification that I'm not implying that one method would be more efficient than the other but that thought came because I find it a little ironic that many of us complain about our ministries/stat boards' ability to regulate/enforce/manage things like the building of HDB flats, COEs and the like and yet in areas such as these, we call for more enforcement and/or regulation.

As for education...To think about it, the courtesy campaign and road safety campaign taught in schools's isn't much better is it?

[d.o.g.]

However, I was thinking more along the lines of education from a neutral party (i.e. governmental/stat board) as many forummers have suggested regulation/enforcement which would come from such a party.

I do not know if there are any truly neutral parties with both the interest and the resources to educate the public.

The government is not a neutral party. It is riven by conflicts of interest.

On one hand it would like to develop a more sophisticated financial market in order to attract more foreign investors, who then attract more financial institutions who create jobs and pay taxes, who then attract more investors and so on.

This means that structured products like Minibonds are implicitly encouraged as they are not the usual "boring" stocks, bonds, cash and property that we all know. New products = innovation = good. The more fancy the products, the more sophisticated the financial system, and therefore the more successful the government can claim to be.

On the other hand it would not like retirees to lose all their savings to unscrupulous salespeople peddling unsuitable products. Destitute retirees become the government's problem. Their hospital bills are high, and their existence is proof that the government has failed the working class. So they are both expensive and embarrassing to care for.

The simplest way to sidestep this issue is to ban all structured products i.e. what you see is what you get. This will protect most retirees as only the traditional and fairly well understood stocks, bonds, cash and property will be available. The fewer retirees get hurt, the less bad press and fewer medical bills the government gets, and the more successful the government can claim to be.

These opposing standpoints are modified by some important factors:

1. There are only 3 large local banks, each with about 1/3 share of the banking system.

The more prosperous the banks, the less likely the government will have to help them in a crisis. But the most profitable products are the most sophisticated and most opaque products which defy easy analysis. Restricting sales of structured products will impact the banks' profitability, and increase the likelihood the government will need to intervene in a crisis.

2. A precedent has been set via the CPF Investment Scheme

The government first allowed people to invest their CPF money many years ago. It was a huge disaster for the citizenry as most people lost money. But it was a huge success for the unit trust industry as it made a very big pool of money available for them to tap.

The government has since progressively narrowed the scope of direct investment to only 35% in stocks, but has retained the full 100% eligibility for unit trusts, apart from the first $20k which cannot be invested.

This discrimination has at least 2 possible interpretations:

a. the government decided that professionals would probably do a better job than CPF members; and
b. the government wanted to keep the unit trust industry fed (fat?) with CPF money

This policy established a precedent where the financial industry was given priority i.e. they could invest 100% of members' money while members themselves could not do so.

3. Education is hard work

No government body will want to take on this unenviable task, especially when facing the vested interests of the banks and insurers. It is high cost, generates no revenues, and turns powerful interests into deadly enemies.

Unless someone at the very top decides that something needs to be done, the victims will likely be viewed as collateral damage along the path of Singapore's evolution towards a "sound and progressive financial centre" (quote taken from MAS website).

===

That said, I think the best effort the government has made to educate the public so far comes from the CPF Board. Their IM$avvy portal is a good attempt in theory, but unfortunately in practice it is still stuffed with promotional material from the banks and unit trust managers and financial product distributors. They also left the Doctor $avvy Q&A section to be answered by the industry. You can guess what kind of answers they give to questions like "Is it a good idea to buy life insurance on our children?"

As usual, YMMV.