Are we too quick to point our fingers at the failure of the US banking system for the current global financial crises? Perhaps so, considering that the local financial institutions are facing their own issues with errant traders and financial advisors.
I have done various projects for financial institutions and one of them was to develop a system for tracking churns by financial advisors.The system tracks the trading activities of investors to check if trades were motivated by profit taking or mooted by some unscrupulous financial advisor so that he can maximize his commissions and earnings.
What was revealing was the fact that investors were receiving kickbacks from advisors for each trade. Since the liberalization of the FSI sector in October 2002, various FA representatives have been incentivizing their clients to draw down their CPF funds for investments through the various investment platform providers in Singapore.
The markets gave exceptional returns from 2004 to 2007 which created a superficial win-win-win situation. A win for the investor for taking profits; a win for the advisor in terms of increased remuneration; and a win for the firm in terms of extra fees earned. So nobody complained. However, these unscrupulous activities caused a severe leakage in our national savings and it was none other than our CPF board! I do not know the extent of this damage but it is conceivable that the amount lost through such errant trades may be significant.
The markets obviously couldn’t sustain itself with all these mindless churning. It eventually collapsed. However, the problems are still there and the errant FA reps are waiting for the next upturn to exploit the situation once again!!!
The Monetary Authority of Singapore steps up efforts to monitor errant financial advisors.
ReplyDeletehttp://www.asiaone.com/News/The%2BBusiness%2BTimes/Story/A1Story20090313-128375.html
It is funny that so much publicity has been generated world wide about Lehman, Merill Lynch, Madoff, Stanford and yet in Singapore not much attention has been given to address what the least transparent approach of the process of rewards and fees determination.
ReplyDeleteIn particular risk rating agencies were giving A rating or better to particular investments to entice investor about risk level.
Another issue is the reward system for the service provider. This has not been clearly spell out. As long as there is an upfront fee investors will be like paying tips for an investment made. Isn't investment alone good enough reward for the financial institution given some less than transparent wheeling and dealing between players. Like in supermarket, you buy goods that display the nutritional content,health label, date of manufacture, expiry, importer, country of origin, etc. All this full information will give buyers a better sense of what to decide. Putting such equivalent information in place for the investment is good as it promotes transparency, better investor education etc so that better quality decision can be made. This will also prevent some FI from product pushing that earns them highest revenue to one that truly matched the investor needs for investment security in the product range. MAS should form a national focus group on various issues on how to restore confidence in the industry and not just assume that confidence will return eventually.
Once bitten twice shy
Agents offering illegal kickbacks to investors. Read this article in wordpress.
ReplyDeletehttp://arthurkwok.wordpress.com/2008/03/21/agents-offering-illegal-cpf-cash-rebates-resurface/