Thursday, October 16, 2008

Very costly to trust a financial adviser these days | $100,000 life savings gone | Retiree sues bank over losses

So what if the financial adviser is from one of the most trusted banks? Individual character varies & there are always people who care more about their interest than their customers'.

The following cases really make wonder if there should be a legal requirement for the banks to have the conversation between their so-called financial advisers and the potential victims recorded. In the worst case, any grievance aired against the banks, they in turn could use the recording as an evidence that they had done their explanation about the investment products & the risk involved properly.

From The Straits Times (16/10), "$100,000 life savings gone":

Case 1

One fateful decision was all it took to turn what should have been a comfortable retirement for Mr Ling Jun Zhi and his wife into a nightmare that threatens to destroy their golden years.

That decision was to trust a financial adviser and put their $100,000 of life savings into a structured product called Lehman Minibonds that was exposed to the now bankrupt Lehman Brothers bank.

A large part of their nest egg could now be gone, wiped out after a frenzy of incomprehensible financial market convulsions in New York somehow landed on the doorstep of the retired Bukit Timah shopkeeper.

Case 2
Investors have told The Straits Times similar stories of how they were convinced to invest.

'The relationship manager at DBS told me that my investment in High Notes 5 was guaranteed 100 per cent for five years,' said Mr Ang, a 68-year-old retiree.

'And from my understanding, that meant that if I remained invested for the entire five years, my principal would still exist.'

Mr Ang explained in Mandarin that he had invested $600,000 of his life savings in High Notes 5. He said he had thought the product was similar to a fixed deposit account.

All he had wanted to do was renew his fixed deposit at DBS, he said. Now, Mr Ang said, he faces the grim possibility of possibly losing the majority of his retirement funds.

Case 3
Another couple in their 50s, who spoke on condition of anonymity, said that while they do not feel like they were cheated by DBS, they felt somewhat misled and let down.

'DBS is like our national bank,' said the husband, who invested $100,000. 'How could they not tell us that we can lose all our investment just like that? I feel really disappointed but what can I do? My wife signed the papers.'

Case 4
Or take retiree Mr Tan, who invested $50,000 in High Notes 5.

He told The Straits Times that he has still not received or even seen the High Notes 5 prospectus from his DBS relationship manager.

'I never saw it, I just signed it based on my trust in DBS Bank as Singapore's bank,' said Mr Tan, who is in his 50s.

Case 5
Mrs Amy Loh invested $25,000 in High Notes 5, funds she had earmarked while between jobs. She told The Straits Times: 'What the relationship manager said was, 'Don't worry, this is very safe, even if one entity (out of a basket of eight reference entities) fails, you still have seven.''

She was referring to the fact that High Notes 5 included a basket of seven other stocks - called reference entities - apart from Lehman.

But many investors did not understand that High Notes 5 had a 'first-to-default' clause. If one of the reference entities defaulted or went bankrupt - as in the case of Lehman - the entire structure unwinds, triggering a credit event.

Read also TODAY's "Retiree sues bank over losses".

1 comment:

Ole' Wolvie said...

That would be good.

On top of that, also have them record all the conversations between those financial advisers and their supervisors who are "encouraging" them to push the product.