Sunday, November 2, 2008

What's the use of the fact finding and analysis exercise if its not binding?

Someone has actually initiated legal proceedings against one of the banks against mis-selling of investment products. This has been a long time in the making. The crux of the matter is that, if the customer has been identified as a low-risk investor, should he be sold an investment product that's above the risk profile?

From my layman perspective, the answer is NO. The basis of this fact finding and analysis exercise is for the financial adviser to understand the risk profile of the customer and recommend a appropriate product for the customer. Unless the customer has signed a special form indicating that they know that they are buying a high-risk product that deviates from their fact finding exercise, the adviser should not have sold this product to the customer. Just because the customer has bought high risk product before is of no excuse. There can be many reasons why this customer has shifted to low risk instruments.

The problem with the financial industry here is that there's a mentality of caveat emptor, meaning "Let the buyer beware". If you're going into it yourself (meaning DIY), then this rule applies quite appropriately. However, when you have an adviser advising you, then I would say this rule does not apply. Why? Because you have paid for a service. They are providing a service and they should rightly advise you on all aspects, and should understand the product workings before recommending it to you.

For example, if I apply for a HDB flat, the person handling the sale would highlight all the important points of the agreement to me. The document that I have is of many pages, but there are some highlighted points dictating some of the more important points of the document. This is proper service.

Just because the prospectus runs into 100s of pages is of no excuse. That's what the advisers are there for. Otherwise, why are they paid commissions? There must be a certain level of professionalism when you're providing a service. Some cases is that some advisers have sold products, without knowing the full workings and risks of it.

In the case of the high notes and minibonds, some advisers have touted it to be something like a fixed deposit. The facts? It's anything but a fixed deposit. In fact, looking at the product which is a structured deposit, it's even of a higher risk than investing in shares! How can low-risk investers be investing in it? Most has never heard of "credit event". It doesn't make sense.

Luckily my financial adviser is of the good sort, and has never introduced this kind of instruments to me.

If the fact finding and analysis exercise is just a paper document, then abolish that document. If it's of use, enforce it such that its binding. From my view, since that document states my risk profile, I should not be recommended any product that is of higher risk than what it is stated.

Why? Because the adviser knows the industry, I don't. The adviser should be warning me instead. It's just that simple.

No comments:

Visit Rhinestic's Knick Knacks @ Etsy for handmade goods and supplies!

Related Posts Plugin for WordPress, Blogger...