Every now and than there will be new innovative investment products coming out. Some of which are toxic waste while others are good. The man in the street is overwhelmed by such choices. To understand regulation in Singapore, consumer must understand that not all investments are regulated by MAS. As far as the Financial Advisers Act is concerned, it only regulates “investment products” (Unfortunately the definition of investment products is quite weird. For example, Term insurance which has totally no investment element is regulated under this regulation.) When a new innovative product emerges, the regulator can choose to regulate it or ignore it.

For example, previously Structured Deposit was sold to any tom-dick-and-harry and causing many people to think that it is as safe as plain vanilla deposits (anyway many old ladies and old man still think that way.) It was only in 2 Dec 2005 which MAS declares that Structured Deposit as an investment product. After that, Structured Deposit becomes regulated by the regulator. But on the other hand, products such as Landbanking remain unregulated by the MAS. Their idea is that since it involves property, it is not an “investment product.” But ask any man in the street and they will know that landbankers are selling such product as an investment. Common, anyone who puts money into something for X years with a projected return of Y% pa is treating that object as an investment. MAS is very out of touch with the real world. Thus I feel landbanking must be regulated as an investment product. In the United Kingdom, their regulator is more responsible and pro-active. Their stand is that landbanking could be viewed as a Collective Investment Scheme (CIS) and thus should be regulated. Even their regulator’s website gives some warnings (see HERE)

Very often, the man in the street has very simple reasoning. I conducted a seminar once with a group of educated audience. They asked me about landbanking. I told them that it is an unregulated investment product. They did not understand what I meant and their reasoning was that if the government did not ban it and permit it for sale in Singapore, than it must be good and endorsed by the regulator. The logic is that if it is something bad, it will be banned. I know where they are coming from. They expect the government to act like baby sitter who takes care of its citizens all the time. This incorrect attitude is quite common as many Singaporeans expect the government to take on all responsibilities. We cannot change the wrong attitudes of people. I have a suggestion:

There will always be new an innovative products emerging. Some of such products have unknown risk characteristics (e.g. who would know that mortgaged can be securitized as bonds in the past? CDOs caused great misery in restrospect.) Instead of trying to pay catch up with new products and to figure whether to include or exclude from regulation, I suggest that the regulator focuses more on regulating anyone who give advice or transact for investment products. Firstly, the definition of investment products have to be clearly defined. As it is right now, the definition investment products have to be defined by the regulator. No, the regulator should just define investment product based on its characteristics such as “any product which has the capacity of losing its capital” Next, the regulator should regulate the financial adviser.  The option of “No Advice” option should be disallowed. The Financial Adviser is already regulated under the Act but it is not enough. If it is enough, why it seems there are people still complaining about mis-sold products? If consumers keep on complaining, it means something is still wrong. From what I see, there is already enough rules in the regulation governing the behavior of financial adviser such as reasonable advice basis, prohibition on churning. The problem is with enforcement. Why is there so little enforcement? Is there anyone enforcement these rules? No point having rules in the school when there is no disciplinary headmaster.

Before I continue, financial advisers who are competent are not stupid. If a product marketing brochure says that the lock-in period is 5 years but historically the lock-in period had been 10 years, they can tell their clients that the product is useless because it had failed to deliver its promise to previous clients. This isn’t so difficult right? But incompetent advisers just sell on commission instead of finding out these simple facts.

While there are minimum competency and training requirement for financial advisers, I felt that these “minimum” competencies requirement are too low. It is so low that the barrier of entry of financial advisers entering this industry is too easy. Thus almost tom-dick-harry can enter the industry. Many professionals in the industry require a minimum bachelor degree. It is a joke that the minimum academic qualification for financial adviser is just an “O” level. While there are exams to take, come-on these exams are easy. The regulator should insist that the financial adviser should have at least one basic degree. If there is a desire to join the industry, that adviser should be made to go for some post-graduate studies in financial advisory. I heard there is a post-graduate study in financial planning oversees but not in Singapore. In Singapore if an “O” level can become a financial adviser, NUS, NTU and SMU will have no student studying for financial planning as a post-grad!