Loss of $100,000 within a few days

Two years ago, a retired couple approached me for help. They trusted  $200,000 from a retirement gratuity to a relationship manager of a local bank. The RM told the couple that the bank would lend them $800,000 and the total of $1 million would be invested in certain currencies to earn a higher rate of return, compared to the interest payable on fixed deposits.

The RM invested the money in A$ which fell by 10% within a few days during the global financial crisis. As the total investment was $1 million (including the $800,000 lent by the bank), the investor suffered a loss of $100,000 within a few days. As they were not able to top up the loss, the bank closed their position and they realized a loss of $100,000.

They could not lodge a complaint with the bank as they had signed documents that absolved the bank from responsibility for the investment loss. Their mistake was to trust the RM who was not really experienced in managing this type of investment. The RM had to meet certain sales targets to sell the investment products. It was also a mistake to invest with borrowed money (i.e the $800,000).

There is also another bad aspect of this type of investment. If the A$ had gained 10%, the investor would NOT have earned $100,000. At most, the investor would have earned a slightly higher interest rate, due to the unfair nature of these "dual currency investments". If there is a gain, a major portion would be pocketed by the bank that issued the financial product - which may not be the same bank that sold the product. If there is a loss, the investor takes the full loss.

Tan Kin Lian