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SINGAPORE: Investment products sold to retail investors will have a risk rating report in future.
The Securities Investors Association of Singapore (SIAS) hopes this will help consumers make an informed choice.
Angry consumers who invested in failed structured products have turned up at the Speakers' Corner to voice their unhappiness after their money went down the drain. It is a scene the SIAS wants to prevent in future.
It is working with the Monetary Authority of Singapore (MAS), the Singapore Exchange, financial institutions and industry associations to come up with a risk rating report for all investment products sold to retail investors.
SIAS will work with a panel of independent experts to provide risk analysis on financial products launched by banks and financial institutions. The panel will rate the products on their level of risk and complexity on a scale of 1 to 10, with 10 being the most risky.
With this risk rating report, SIAS hopes retail investors can make an informed decision and understand what they are buying into.
SIAS president and CEO, David Gerald, said: "When you buy stocks, you have analysts' reports; when you buy funds, you can also ask them for funds reports. So we've various analysts analysing equity products.
"So we need to have some sort of analysis on these products in terms of the risk, the complexities of the products."
SIAS is also working on a set of key questions investors should ask before signing their money away. The questionnaire, in English and Chinese, will include questions like "Will capital be guaranteed?" and "When will there be zero returns?"
Mr Gerald said: "We've been very heavy on stocks, unit trusts, bonds and other instruments. These products are rapidly coming on now. And I think there's no let-up on the part of the FIs (financial institutions) on creativity.
"They're going to come up with more and more such products. But the bottom line is they want to make more money, that's something throughout the world. We need to warn investors as to whether or not these products are suitable for them."
Talks are underway with the financial institutions and the MAS to see how the plan for risk rating reports will work. SIAS said full details will only be available in about two to three months.
Meanwhile, the Association of Financial Advisors said financial institutions should tighten the training and compliance standards for their sales representatives.
Mohd Salim, president of Association of Financial Advisors, said: "Different companies have different standards. Obviously, there are some companies which may focus a little bit more on business development and they might, well for any reason, be less stringent with the T&C (training and compliance) process.
"Business is important, and they'll just do the minimum standards to get by. But of course, the risk of doing that is that you may have reps who may not think that it's an important aspect of the process, and they too will focus on business procurement and that's why problems occur.
"To a large extent, it depends on the management of the firm. The management of the firm has to place enough emphasis as far as T&Cs are concerned."
The association hopes that by raising the bar on these standards, financial institutions will move beyond the tick-a-box approach and work on understanding their customers' needs better.
- CNA/ir
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