Dear Mr. Tan,
MAS statement says that only 600 people filed their complaint. Why so few? There are more than 8,000 people affected. Can you get more people to file their complaint? In Hongkong, more than 6,000 people have filed their complaint already.
REPLY
The Hong Kong Monetary Authority set up a hotline and service center for investors to file their complaint. This is more convenient to the investors. The service center takes down the complaint and make investigation later. This approach is more effective.
The system adopted in Singapore is for the investor to file a complaint with the financial institution that sold the product. Few people file the complaint because they were not clear about how it can be done. Several people who filed the complaint reported that they were badly treated. They were challenged by the officer receiving the complaint. The process is badly handled. Some of their reports are published in this blog.
I suggest that the investors can take the following steps:
1. See a lawyer to write an affidavit. I have arranged with one lawyer willing to do this work for a fee of $120. You can approach another lawyer if you wish, using the template given here:
http://tankinlian.blogspot.com/2008/10/affidavit-statement-made-under-oath.html
2. Use the affidavit to file your complaint.
3. If the matter is not resolved within three weeks, you can use the affidavit to lodge your complaint with FiDREC (http://www.fidrec.com.sg/)
4. This affidavit can be used if you decide to take collective legal action at a future date.
Friday, October 10, 2008
Rebuilding the Global Financial System
It is time for people to think about how to rebuild the global financial system. Do not rely on the old experts, who build the old system based on financial engineering, greed, free market and dishonesty. They have led to the collapse of the system and loss of life savings of many ordinary people.
When Lehman Brother collapsed, it had debt of 30 times of equity. The debt is funded largely by short term credit, which has to be rolled over every 30 or 90 days. Many hedge funds have similar funding structure. When the credit could not be refinanced, they had to sell shares and bonds at any price, leading to the collapse of the markets.
The size of the unrglated credit default swaps (CDS) is USD 50 trillion, more than twice of the global stockmarkets!
The new financial system should, in my view, be build on the following pillars:
1. Stronger regulation
2. Regulated companies, e.g. financial institutions and listed companies, should have debt of not more than 1 time of equity, and it should be funded by bonds of at least 5 year duration.
3. Deriviatives should be regulated and traded on exchanges
4. Complex financial products, build by financial engineers, should be banned
The experts will argue that the "risk based capital" approach can help to prevent the collapse. I agree with this approach, but it has to be considerably simplifed.
We will have a simpler financial world, but a safer and fairer world. There will be less multi-million dollar jobs for financial experts, who milk the old, now collapsed, financial system.
When Lehman Brother collapsed, it had debt of 30 times of equity. The debt is funded largely by short term credit, which has to be rolled over every 30 or 90 days. Many hedge funds have similar funding structure. When the credit could not be refinanced, they had to sell shares and bonds at any price, leading to the collapse of the markets.
The size of the unrglated credit default swaps (CDS) is USD 50 trillion, more than twice of the global stockmarkets!
The new financial system should, in my view, be build on the following pillars:
1. Stronger regulation
2. Regulated companies, e.g. financial institutions and listed companies, should have debt of not more than 1 time of equity, and it should be funded by bonds of at least 5 year duration.
3. Deriviatives should be regulated and traded on exchanges
4. Complex financial products, build by financial engineers, should be banned
The experts will argue that the "risk based capital" approach can help to prevent the collapse. I agree with this approach, but it has to be considerably simplifed.
We will have a simpler financial world, but a safer and fairer world. There will be less multi-million dollar jobs for financial experts, who milk the old, now collapsed, financial system.
High cost of life insurance at older ages
Dear Mr. Tan
I attended a briefing session by a Financial Advisory company that talks about some of the pitfalls in investment linked insurance (ILI)
One of it that struck me was the net cash value in the policy will peak at some point and start to drop drastically. There will be a point where the net value is 0.
The reason given was quite logical. Any ILI premium will be split into 2 parts, one for insurance, another for investment.
At the start, when the policyholder is young, premium for insurance is relatively low, and most of the money will be channeled to investment of funds. But as he ages, the insurance premium will increase, and there will be a point where the money accumulated under investement needs to be withdrawn to subsidise this part. The time will come when the money will be depleted.
Question:
Frankly, I don't see a way out of this. Premium for insurance for elderly people will skyrocket. This is inevitable. The outcome seems certain. Whatver accumulated in the earlier years will be used to pay for these premium, unless investment is so successful that the returns are so high year after year (outperform the premium rise rate). And I do think all insurance have the same practice. Otherwise, they won't be able to cope with the cost esp when the national population ages.
Does that mean that whe one ages, perhaps it is better for one to take the chance and close the policy and take back all the money generated, and be without insurance?
What would be your advice?
REPLY
My advice is shown here:
http://www.tankinlian.com/faq/savings.html
Buy a decreasing term assurance for 30 years and invest your savings in a low cost investment fund.
I attended a briefing session by a Financial Advisory company that talks about some of the pitfalls in investment linked insurance (ILI)
One of it that struck me was the net cash value in the policy will peak at some point and start to drop drastically. There will be a point where the net value is 0.
The reason given was quite logical. Any ILI premium will be split into 2 parts, one for insurance, another for investment.
At the start, when the policyholder is young, premium for insurance is relatively low, and most of the money will be channeled to investment of funds. But as he ages, the insurance premium will increase, and there will be a point where the money accumulated under investement needs to be withdrawn to subsidise this part. The time will come when the money will be depleted.
Question:
Frankly, I don't see a way out of this. Premium for insurance for elderly people will skyrocket. This is inevitable. The outcome seems certain. Whatver accumulated in the earlier years will be used to pay for these premium, unless investment is so successful that the returns are so high year after year (outperform the premium rise rate). And I do think all insurance have the same practice. Otherwise, they won't be able to cope with the cost esp when the national population ages.
Does that mean that whe one ages, perhaps it is better for one to take the chance and close the policy and take back all the money generated, and be without insurance?
What would be your advice?
REPLY
My advice is shown here:
http://www.tankinlian.com/faq/savings.html
Buy a decreasing term assurance for 30 years and invest your savings in a low cost investment fund.
Class action against Lehman Brothers in USA
Dear Mr Tan,
In US, there is a class action lawsuit against banks that misled retail investor to purchase Lehman Brothers Preferred Stock, Series J.
I think all affected investors must demonstrate the perservence and will power to want to go to this stage if necessary. Those FI / banks who misled / misrepresent must be taken to task. This is also for the benefit of the next generation of Singaporeans. If not, the young ones will come to the conclusion that it is ok to misled / misrepresent as long as there is legal loophole to take cover in! Also, to others not affected in this saga, do not be too happy or count yourself lucky that you are not invoved. You NEVER know when these FI / banks will outsmart you and you fall victim to it. Just look how they engineered the entire package (names) / coupled with young RM with quotas / approval from MAS / Legal paper and etc. We all become wiser after this eposide but they will also evolve even more...especially when the regulator say " ...no power..."
http://biz.yahoo.com/iw/081009/0441470.html
"The class action lawsuit alleges that the statements made in the Offering Circular by the underwriting syndication were materially false and misleading. Many investors were advised by their financial advisors that the Lehman Brothers Preferred Stock, Series J was a suitable investment for risk adverse investors. Brokerage firms are obligated to give and investors are entitled to rely upon brokerage firms for, competent, suitable investment advice in accordance with the Financial Industry Regulatory Authority (FINRA) Rules and Regulations. Sales practice violations by financial advisors, such as the recommendation of unsuitable investments and concentration in a particular security or sector, are both violations which may qualify an investor for an individual arbitration claim with FINRA."
In US, there is a class action lawsuit against banks that misled retail investor to purchase Lehman Brothers Preferred Stock, Series J.
I think all affected investors must demonstrate the perservence and will power to want to go to this stage if necessary. Those FI / banks who misled / misrepresent must be taken to task. This is also for the benefit of the next generation of Singaporeans. If not, the young ones will come to the conclusion that it is ok to misled / misrepresent as long as there is legal loophole to take cover in! Also, to others not affected in this saga, do not be too happy or count yourself lucky that you are not invoved. You NEVER know when these FI / banks will outsmart you and you fall victim to it. Just look how they engineered the entire package (names) / coupled with young RM with quotas / approval from MAS / Legal paper and etc. We all become wiser after this eposide but they will also evolve even more...especially when the regulator say " ...no power..."
http://biz.yahoo.com/iw/081009/0441470.html
"The class action lawsuit alleges that the statements made in the Offering Circular by the underwriting syndication were materially false and misleading. Many investors were advised by their financial advisors that the Lehman Brothers Preferred Stock, Series J was a suitable investment for risk adverse investors. Brokerage firms are obligated to give and investors are entitled to rely upon brokerage firms for, competent, suitable investment advice in accordance with the Financial Industry Regulatory Authority (FINRA) Rules and Regulations. Sales practice violations by financial advisors, such as the recommendation of unsuitable investments and concentration in a particular security or sector, are both violations which may qualify an investor for an individual arbitration claim with FINRA."
Is MAS at fault?
Dear Mr. Tan,
You are a bold person. Please tell me frankly. Is MAS at fault for approving the sale of the Minibonds? Is this why MAS is reluctant to take action now? Are they trying to hide their mistake?
REPLY
I think that you should send this question to your Member of Parliament and ask your MP to bring this question up in Parliament.
The approach taken by MAS in the past was to require the risks to be stated in the prospectus and the advertisement. I was able to see the fine print in the advertisement that said, "In the event of a credit default, you could lose a substantial part or all of your investment". It is difficult for anyone, even an expert, to know what is the extent of this risk. This is why I had recommended against making such an investment.
Sadly, many retail investors relied on the advice of their financial institution representative to explain what this statement meant. The representative did not give them the right explanation and misled the investor into believing that the risk is very remote (when the real situation is quite different).
A better approach, which can only be done in the future, is to ban these types of risky products from being sold to the retail investors. It is difficult for a retail investor to know if a product is risky. This has to be the responsibility of the regulator in approving the product for sale. If the regulator is not able to make an assessment of the risk, how can they expect the retail investor to make this assessment?
The Hong Kong Monetary Authority also took a similar approach in the past and allowed the sale of the structured products. This is why so many investors in Hong Kong have been misled into investing in these products. But the HKMA is now quite pro-active in helping the investors to seek redress. They are now considering a ban on the sale of such products to retail investors in the future.
You are a bold person. Please tell me frankly. Is MAS at fault for approving the sale of the Minibonds? Is this why MAS is reluctant to take action now? Are they trying to hide their mistake?
REPLY
I think that you should send this question to your Member of Parliament and ask your MP to bring this question up in Parliament.
The approach taken by MAS in the past was to require the risks to be stated in the prospectus and the advertisement. I was able to see the fine print in the advertisement that said, "In the event of a credit default, you could lose a substantial part or all of your investment". It is difficult for anyone, even an expert, to know what is the extent of this risk. This is why I had recommended against making such an investment.
Sadly, many retail investors relied on the advice of their financial institution representative to explain what this statement meant. The representative did not give them the right explanation and misled the investor into believing that the risk is very remote (when the real situation is quite different).
A better approach, which can only be done in the future, is to ban these types of risky products from being sold to the retail investors. It is difficult for a retail investor to know if a product is risky. This has to be the responsibility of the regulator in approving the product for sale. If the regulator is not able to make an assessment of the risk, how can they expect the retail investor to make this assessment?
The Hong Kong Monetary Authority also took a similar approach in the past and allowed the sale of the structured products. This is why so many investors in Hong Kong have been misled into investing in these products. But the HKMA is now quite pro-active in helping the investors to seek redress. They are now considering a ban on the sale of such products to retail investors in the future.
Unhappy with bank's complaint handling process (3)
Comment posted in my blog
The "investigation" consisted of the person telling me how I should have been smarter as a consumer. It was a lesson on how not to be stupid. No answers were documented or statements written down by them. Not even notes were taken I was also told that I would probably get nothing back. "Move on" was the message.
The tone was patronising and the body language hostile and bored in turns. It was a charade. It was tokenism at best. At worst it was arrogance and contempt for the customer. So much for care for the common investor and investigation of mis-selling! Shame on them!
Rachel
The "investigation" consisted of the person telling me how I should have been smarter as a consumer. It was a lesson on how not to be stupid. No answers were documented or statements written down by them. Not even notes were taken I was also told that I would probably get nothing back. "Move on" was the message.
The tone was patronising and the body language hostile and bored in turns. It was a charade. It was tokenism at best. At worst it was arrogance and contempt for the customer. So much for care for the common investor and investigation of mis-selling! Shame on them!
Rachel
Hong Kong - selling of structured products
South China Morning Post (Hong Kong) - October 10, 2008
Author: Joyce Man and Peter So
The Hong Kong Monetary Authority is considering a ban on banks selling complex investment products such as minibonds. It is one of the possible measures to be taken to protect small investors from financial turmoil.
The authority may also raise the minimum investment in such products to a level that would deter unsophisticated investors.
The possible steps were revealed yesterday by its deputy chief executive, Choi Yiu-kwan, amid continuing calls for relief for small investors facing heavy losses on minibonds and other complex derivatives issued or guaranteed by bankrupt US bank Lehman Brothers.
Meanwhile DBS Bank (Hong Kong) became the first local bank to say it would consider full compensation for losses on one such investment product - but only if its investigations showed buyers had been misled by the bank's sales staff.
At the same time, banking sources said banks were inclined to accept a government proposal that they buy back such products at current market value but that some questions still needed answering, including whether a buy-back would be legal.
The Monetary Authority will submit recommendations for changes in policies covering the sale of complex investment products to Financial Secretary John Tsang Tsun-wah within three months.
"Whether banks should be an investment adviser on such products could be one of the issues," Mr Choi said. The authority could also consider raising the minimum investment in them to US$1 million, so that they were out of the reach of small investors who could not handle the risk.
Banks have been selling minibonds in lots of as little as HK$100,000.
The authority has received 7,730 complaints of mis-selling of minibonds and other products issued or guaranteed by Lehman Brothers.
It has opened investigations into 41 cases and is seeking more information before deciding whether to investigate a further 189. The cases under investigation involve nine banks.
Investors complain they were misled into believing the minibonds - sold as proxy investments in well-known companies - were low-risk and unaware of the Lehman Brothers link. In fact they are high-risk, credit-linked derivatives.
Mr Choi said the authority had contracted 45 people to join more than 70 full-time staff already working on the complaints.
He noted that the authority had told banks in 2006 that they must take special care when dealing with vulnerable customers such as the elderly, illiterate or visually impaired and assess their tolerance of risk.
More than 70 worried purchasers of one such complex investment - called structured notes - met DBS Bank executives yesterday to seek a full refund for their losses.
The notes, issued by Constellation Structured Retail Notes, included some linked to Lehman Brothers. The bank will appoint an independent accounting firm to assess the products' remaining value, allowing customers to redeem them early.
"If we find any case of misleading sales, we will not rule out repaying the client's full investment," Linda Wong, regional head of consumer banking, said. Each case would be considered separately. The bank said it would not buy back structured notes unconditionally.
Billy Mak Sui-choi, associate professor in the department of finance and decision science at Hong Kong Baptist University, said structured products were securities linked to a broad class of financial instruments and their value could move with changes in interest rates and the prices of stocks and other assets.
Lawmakers who accompanied the DBS customers to yesterday's meeting questioned the independence and transparency of its in-house investigation of sales tactics.
Audrey Eu Yuet-mee, leader of the Civic Party, said the investigation should be conducted by a third party.
Author: Joyce Man and Peter So
The Hong Kong Monetary Authority is considering a ban on banks selling complex investment products such as minibonds. It is one of the possible measures to be taken to protect small investors from financial turmoil.
The authority may also raise the minimum investment in such products to a level that would deter unsophisticated investors.
The possible steps were revealed yesterday by its deputy chief executive, Choi Yiu-kwan, amid continuing calls for relief for small investors facing heavy losses on minibonds and other complex derivatives issued or guaranteed by bankrupt US bank Lehman Brothers.
Meanwhile DBS Bank (Hong Kong) became the first local bank to say it would consider full compensation for losses on one such investment product - but only if its investigations showed buyers had been misled by the bank's sales staff.
At the same time, banking sources said banks were inclined to accept a government proposal that they buy back such products at current market value but that some questions still needed answering, including whether a buy-back would be legal.
The Monetary Authority will submit recommendations for changes in policies covering the sale of complex investment products to Financial Secretary John Tsang Tsun-wah within three months.
"Whether banks should be an investment adviser on such products could be one of the issues," Mr Choi said. The authority could also consider raising the minimum investment in them to US$1 million, so that they were out of the reach of small investors who could not handle the risk.
Banks have been selling minibonds in lots of as little as HK$100,000.
The authority has received 7,730 complaints of mis-selling of minibonds and other products issued or guaranteed by Lehman Brothers.
It has opened investigations into 41 cases and is seeking more information before deciding whether to investigate a further 189. The cases under investigation involve nine banks.
Investors complain they were misled into believing the minibonds - sold as proxy investments in well-known companies - were low-risk and unaware of the Lehman Brothers link. In fact they are high-risk, credit-linked derivatives.
Mr Choi said the authority had contracted 45 people to join more than 70 full-time staff already working on the complaints.
He noted that the authority had told banks in 2006 that they must take special care when dealing with vulnerable customers such as the elderly, illiterate or visually impaired and assess their tolerance of risk.
More than 70 worried purchasers of one such complex investment - called structured notes - met DBS Bank executives yesterday to seek a full refund for their losses.
The notes, issued by Constellation Structured Retail Notes, included some linked to Lehman Brothers. The bank will appoint an independent accounting firm to assess the products' remaining value, allowing customers to redeem them early.
"If we find any case of misleading sales, we will not rule out repaying the client's full investment," Linda Wong, regional head of consumer banking, said. Each case would be considered separately. The bank said it would not buy back structured notes unconditionally.
Billy Mak Sui-choi, associate professor in the department of finance and decision science at Hong Kong Baptist University, said structured products were securities linked to a broad class of financial instruments and their value could move with changes in interest rates and the prices of stocks and other assets.
Lawmakers who accompanied the DBS customers to yesterday's meeting questioned the independence and transparency of its in-house investigation of sales tactics.
Audrey Eu Yuet-mee, leader of the Civic Party, said the investigation should be conducted by a third party.
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