You’ve worked hard, saved diligently and at the end of the year, you see a tidy sum of money in your bank account. Now what? Why, invest it of course, we all know that. And what product to invest in? Walk down Shenton Way and you’ll be swarmed by colourful ads, all vying for your eyeball, urging you to put your money to work through their investment products. Queue up at any bank and someone will talk to you about putting your money into funds. More interestingly, flip the newspapers and you will see advertisements about alternative investment products: foreign properties, gold coins, time share, or even courses that teach you how to “earn a five figure salary monthly” through their forex and commodity trading lessons.
Since January 2012, banks are required to conform to a slew of new guidelines and requirements. For example, bankers are now required to assess their customers, in an effort to ascertain that prospects are ‘fit’ to buy. Sales people have had to take additional examinations on product knowledge and analysis. Front desk staff are required to let the prospect understand the mid-to-worst case scenarios instead of selling strongly on a best case outcome. Customers are required to be able to at least understand what the salesman is talking about before signing an agreement.
These are fair arrangements: when a deal sours, someone will claim ignorance and shove the bulk of blame to the company. Risk is about the very real possibility of losing money, not a masochist attitude. No investment is risk free and when loses do occur, you can almost be sure that someone, either business or client, will feign ignorance or claim he/she was cheated. Risk means just that – you will lose money and there is no one you can blame but bad luck, or your own lack of due diligence.
Whilst banks, insurance and property agents are required to comply with strict regulations set by the MAS (Monetary Authority of Singapore), there are other investment products that do not classify as “financial instruments” and thus skirt around MAS requirements. Land banking for example, is easy to participate in and the idea is very simple: it works like a REIT (Real Estate Investment Trust) you pool your money together with other buyers to purchase a parcel of land. When the land develops, it appreciates in value, you gain. Companies that are pushing these products face the challenge of convincing investors to trust them. The land in question is usually far away in another country, is subject to another legislative system and you have to have faith that this land is actually put to work and sold. (Using this theory, you can even invest in land parcels on the moon – and there is already a company doing this). You can invest in almost anything – wine, gold, art… whatever your choice, there is sure to be a market and an established business that wants to sell you a product.
“I’m skeptical of such programs. Recently someone has been trying to get me to put money for land in Europe. But with interest rates so low, why would developers reach out to public investors when they can get a better deal from the banks”? questions Mr. Zheng, an ex-Relationship Manager. Scepticism exists not only in investment products. It is the same with courses on trading through commodities, securities and forex. The ads claim that you will be able to build a machine that would make money ‘in good times and bad’. It is difficult to have these claims verified – whether you’ve made money or not, few people want to talk about the experiences that they went through. A forex professional shared with us, “You can try. But if you do not have strong working knowledge, experience and technical know-how, I would not advice it”.
The market is not all doom and gloom, according to Rosalind Tan, a consultant dealing with land in Germany. She tells us that there are many of her personal friends that have put money in the system and already realised a profit after 10 months. I quizzed her about the challenges she faces with new prospects, “Scepticism does exist of course, so whatever we sell comply with MAS guidelines as much as possible, this includes training and disclosure about our products”. Rosalind shares the extra effort her company puts into creating transparency and confidence for her customers. “We keep in very close contact with clients through regular meetings and meet-ups, we allow clients full access to the land, we let them speak with our foreign counterparts and although not encouraged, clients are contractually free to exit at any point of time they wish”.
Singapore is a free market and the freedom to conduct a legitimate business should not be restricted. In many countries, it is not so easy to setup a business. Take India for example, it can take up to 29 days to work through red tape, paperwork, many layers of bureaucracy and licensing before a company can come into existence. The freedom and flexibility we enjoy must come with certain tradeoffs. Be warned, this does not mean that the law is lax. There are legal systems in place to offer protection to the customer, for example: regulations against unorthodox practices in multi-level marketing (you can only profit from sale of products, not through recruitment), blatant ponzi schemes carry a fine of up to $200,000 and/or up to five years jail.
In 2007, a Singaporean bus driver Vincent Leo, hastily sold his property to invest in a company called “Sunshine Empire”. The scam operated through the sale of ‘lifestyle packages’, ranging from $240 to $12,000 and offered attractive bonuses and incentives. Investors were promised high returns, however the returns were paid out, not from genuine profit but by the recycling of funds from new participants. Eventually, the company’s founder James Phang, was sentenced to a 9 year jail term and a fine of $60,000. His former director Jackie Hoo, was sentenced to a 7 year jail term. Phang’s wife, Neo Kuon Huay, 48, was fined $60,000 for falsifying payment vouchers.
It is not possible to create a bubble of protection for consumers. Even if someone did try, this would be far too stifling for the business environment and nearly impossible to police. When a criminal case crosses international borders, the difficulty of redress becomes complex and very difficult to bring to justice. Ashamed and embarrassed, many victims keep silent and some refuse assistance to the police. Many of these investments are pegged to the performance of products overseas, so if your local principal folds up, runs away or goes into bankruptcy, there is little chance you will see your money again.
The best protection against scams is through education, discernment and for each consumer to keep in close contact with CASE (http://www.case.org.sg/index.html) and the police. A clue to a possible scam, could be embedded in their claims. If an investment sounds “too good to be true”, you might want to hold it under scrutiny. Under the Consumer Protection (Fair Trading) Act, it is unfair practice for a retailer to make false or misleading claims.One of the principles of the Singapore Code of Advertising Practice is that of truthful presentation. This means that advertisements should not mislead in any way by inaccuracy, ambiguity, exaggeration, omission or otherwise. More specifically, advertisements should not:
- Misrepresent any matter likely to influence consumers’ attitude to any product, advertiser, or promoter;
- Misrepresent any information to mislead consumers into believing any matter that is not true, such as the source of the product, quality of the product, obligation (or non-obligation) in using a trial product, and others;
- Mislead consumers about the price of goods or services;
- Underestimate the actual total price to be paid;
- Mislead consumers to overestimate the value or mislead consumers regarding the conditions on the terms of payment such as hire purchase, leasing, instalment sales and credit sales; or
- Mislead consumers regarding the terms or guarantee, delivery, exchange, return, repair and maintenance; and mislead consumers regarding the extent of benefits for charitable causes.
- If a presentation (such as a speech, documentary and newsreel) is substantially an advertisement, it should be clearly stated as an advertisement.
It is far too convenient to say, “let the buyer beware”. Rather, let us work together, share knowledge and contribute to a social immune system. Through cooperation, Singaporeans can make it unprofitable for scams and allow for genuine ones to thrive.
Note: We used the name “alternative investment products” for the reason that these are not mainstream, financial instruments.