Bank’s Responsibility?
I read the article on TheStar here where hundreds of Singapore investors were sold investors thinking they were safe investments.
Hundreds of distraught Singaporean investors flooded a park Saturday to express their anguish at losses from structured notes issued by Lehman Brothers Holdings Inc. that they say were sold to them by banks as safe investments.
One of my customers here in Malaysia also bought such bonds and until now, there is no news from the people who sold him the investments. Investors are off course crying foul over what they thought they bought vs what they actually bought. It is usually when things go wrong that people start the blame game.
Central banks do regulate people that sells investments to a certain extent to prevent mis-selling. Having the proper license etc but in banks, the people who well them are probably recruited as sales people. They probably have left the bank and only now that complaints have brought this issue to light.
On the other hand, many investors don’t know what they are investing in. It could be lack of knowledge, laziness, or inability to read prospectus or just being plain sold the wrong type of investments.
I clearly remember such a case when a retired member of my family was sold an fixed deposit like saving with high returns for 2 months. What was not presented was that a significant portion of the money invested is NOT in fixed deposit but invested in a high risk fund! Is this mis-selling or mis-representation? Clearly here they were NOT told what they were investing in.
You have to know that banks today are not only in the lending business. They are more into the sales business. Taking your money on deposit is a liability on their balance sheet. They owe you money. Next they have to lend the money out to good customers so that the risk of default is low. And as the pool of first rate customers are gone, it is more and more difficult to get more in to sustain growth and income.
So what does banks do? Sell investments off course. Some form their own fund management companies and others are agents for other unit trust companies. Both of them sell funds and income is generated from fund management activities. Risk is borne by the investor instead of the banks compared to lending activities. So banks still earn income but now their risk is reduced!
As I say, when you understand the motives of the bank or any financial institution, the battle is already half won. You will be wary of being sold what seems to be high returns investment. There is not such thing as low risk, high returns.
Whatever is the case, I think it is important as an investor, that you know what you are investing in. If not, either ask until you do or don’t invest in such an investment. Structured funds are one such type you need to pay attention to. Unit trust companies can structure them to sound like anything. They are so complicated in some cases, it takes time for even a trained person to understand exactly how it works.
Remember the first rule of investing here? Don’t lose your money.