I have picked this article which is very timely reminder of what "keen small time investor" should be careful and not jump on the wagon start of 2010 and get into "hot soup"........
By Lorna Tan, Senior Correspondent
I joined the Money section of The Straits Times in May 2000. Back then, the personal finance sector, made up of banks, insurers and broking houses, was like a sleepy giant. Each party operated in its own silo and cross-selling was uncommon.
Looking back, most Singaporeans were generally ill-prepared for the influx of financial products that hit them at almost every turn. Many were too complacent to find out what they were really getting into. Instead, they put their complete trust in their insurance agent or adviser, a costly mistake for some.
Measures were then taken to raise the standards of sales practices.
In 2001, advisers began to conduct a financial-needs analysis exercise with customers, and key market conduct rules like a 'reasonable' basis for recommendation of products as well as disclosure and competency standards were laid down.
Despite these, many consumers were still caught short when they overestimated their risk appetites or made the wrong investment choices either through their own fault or having been misled by advisers.
As we begin a new year, here's a look back at some of the financial issues I uncovered in the past decade and the actions that have been taken.
2003: AIA's 'critical year' issue
• Nub of the matter: Thousands of policyholders had bought insurance with a unique 'critical year' feature.
They were allegedly told they could stop paying premiums when they reached this 'critical year' because by then, the policies would have become self-funding.
Because of the falling investment market, this did not happen, and they had to continue paying, leaving them feeling cheated. It led to a public outcry. Some disgruntled policyholders also took legal action.
• Action taken: Eventually, AIA offered a compensation package to affected policyholders.
A new investors' guide on policyholders' rights on the critical-year issue was issued. There were guidelines that insurers should follow when dealing with policyholders.
It was also decided that compensation for mis-selling could not come from the insurer's life funds, and the issue also initiated a review into facilitating class action suits.
2005: Suitability of investment-linked insurance policies (ILPs)
• Nub of the matter: Regular premium ILPs are unsuitable for older policyholders. This is because they might be unable to continue with premium payments if they have a short investment horizon as insurance charges will rise to outstrip the premiums and may also eat into the value of the investments.
• Action taken: Several affected policyholders were compensated, but no details were given. A guide to ILPs was issued.
2006: Suitability of some endowment policies
• Nub of the matter: Insurer Great Eastern (GE) Life came under the spotlight when two policyholders complained that their maturity payouts were lower than the premiums they had paid for their 18-year endowment plans.
It turned out that GE had sold them the plans even though they were in their 60s.
What happened was a greater portion of their premiums had gone into paying for the insurance against death and disability. These costs eroded any 'positive' cash benefit they might have got.
Action taken: Most insurers now acknowledge the pitfalls by imposing cut-off ages and minimum duration periods for these plans. Policyholders should not be allowed to enter these plans too late, or insurers should encourage a longer tenure to build the maturity value.
2007: Sunshine Empire
• Nub of the matter: Sunshine Empire was a multi-level marketing firm that had attracted investments of almost $190 million from Singaporeans.
Consumers were lured by generous cash rewards, but it is alleged that the returns simply came from funds pumped in by new investors.
• Action taken: The people linked to Sunshine are now facing charges of running a fraudulent business and criminal breach of trust.
2009: Churning of investments using Central Provident Fund (CPF) savings
• Nub of the matter: Some CPF members who are desperate for fast cash are working in cahoots with unscrupulous advisers who 'churn' investment products using their CPF money.
This involves the improper buying and selling of investment products for no good reason other than for the advisers to earn more commissions. In the process, these CPF members receive cash rebates.
This violates CPF rules as such rebates should be credited back to the CPF member's account. The CPF member also loses out as the transaction costs eat into his CPF savings.
• Action taken: The CPF Board issued warning letters to 35 financial advisory representatives. Seven of them have since been suspended. It also stated the penalty for guilty CPF members - a fine of up to $2,500 for a first offence and up to $10,000 subsequently.
My advice to keen investors is to hold their horses and do alot of checks and probes and consult the expert before diving into the "deep sea" where there could be many ups' and downs', profit or loss..... Do not gamble your luck away.
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