Misleading advertisements

Dear Kin Lian,

Mr. Heng Swee Kiat, the Managing Director for the Monetary Authority of Singapore, is reported to have said, inter alia, ... "This group should have understood the risks of investing in these products and take responsibilities for their actions" [Sunday Times, Oct 26] when he expressed assurance that all investors’ complaints of mis-selling would be reviewed, with regard to their investment in structured products linked to bankrupt Lehman Brothers. Was it fair of Mr. Heng to pass such a comment? If mis-selling is considered a legitimate ground for seeking restitution, then it would have been more constructive if Mr. Heng had said: "Any bank or institution that has mis-sold or misrepresented must bear the loss suffered by the investor."

Some examples of mis-selling are clear-cut, and have been discussed in the local newspapers. An advertising pamphlet [M-pamphlet] produced for public consumption, for Minibonds Series 3, is a case in point. This M-pamphlet was produced with these enticing statements:

"Invest on solid foundations and earn 5% pa paid every 3 months for 53/4 years" and
"With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind"

As a marketing ploy, these adverts make the product look attractive, but M-pamphlet was designed with deception in mind nevertheless, notwithstanding a disclaimer clause, in almost illegible fine print, placed at the bottom of the pamphlet. When the institution responsible for this M-pamphlet instructed the investor to sign on a modified version of M-pamphlet, the investor was probably not aware of the slight but crucial disparity between this modified version and M-pamphlet. And one cannot be faulted for saying that many, if not all, investors could have seen M-pamphlet and relied on the enticing statements mentioned above. And what is this disparity?

The disparity is that this encouraging and enticing statement "With our Minibond Series 3 credit-linked to six major financial institutions, you can enjoy the returns you deserve with peace of mind" and the disclaimer clause do not appear on the modified version. Any investors must still be given credit if they had noticed this disparity but had thought nothing of it. But if no one had noticed it they could not be faulted. It is clear that the advertising pamphlet was designed with a preconceived intention of misleading the public.

If MAS is serious in holding distributors responsible for mis-selling, MAS should ask for specimens of advertising materials/other documentation used by distributors when they were flogging these products, and critically examine them. The verbal input given to investors by relationship managers is no doubt an area of equal importance, if not more so, as a source of evidence for mis-selling or misrepresentation.

If any risk analysis completed for an investor shows the investor was NOT a high-risk taker, then the distributor was prima facie irresponsible for selling the product to the investor concerned and must now reimburse the investor for the loss. Should any distributor be found to be clearly at fault for mis-selling or misrepresenting a particular product, then MAS would do well to tell the distributor to reimburse all investors to whom they sold the product.

Richard Woo