Is your financial adviser giving you the best of advice in investment? Are they doing their job properly?
In an effort to assist consumers seeking financial advice, the Consumer Council has surveyed the market to assess the service and advice provided by financial advisers at 33 financial institutions - banks, insurance companies and investment advisory firms.
The survey was conducted by people posing as potential customers from different backgrounds (age, family and economic status) in a total of 58 visits made to these financial institutions.
The results are quite an eye-opener to would-be investors. In the provision of professional advice to customers, financial advisers may sometimes be bound by their own rationale or limitation but are, without doubt, performing a most important service to potential investors.
Of particular concern are a number of areas which the Consumer Council would like to draw the attention of consumers.
Non-disclosure of licence or qualifications of the financial advisers was observed in some of the cases.
This is essential as particular products can only be sold by persons licensed or registered to carry on regulated activities such as securities.
Without such disclosure, consumers cannot ascertain if the financial adviser is able to offer a service that meets their individual financial management needs and expectations.
Second, in some cases, detailed information of remuneration was lacking. For instance, some financial advisers simply indicated that their service is free without disclosing that commission rebate may be derived from the recommended investment products or management fees charged against the total value of the managed funds. This could be deemed misleading by consumers.
Third, some financial advisers would appear to be preoccupied with pushing solely investment products of their company under promotion, without due regard to the status and financial management goal of the customers. The result is that some investment advice does not suit best the customers.
For instance, in one case, a 63-year-old in retirement was recommended to purchase an investment-linked assurance scheme that requires annual payment of US$80,000 for 3 years and a lapse of 9 years till the age of 72 years before receiving a monthly return of US$1,295 over the next 25 years.
To a retiree, it is far too long to wait and receive any investment return until the age of 72 years.
Alternatively, the 63-year-old retiree was also advised to put most of his bank savings into a life insurance policy that has no guaranteed return and promises an entitlement to payment of the entire paid premium only on the 5th anniversary of the policy (i.e. at 68 years old).
In another case, a retiree of over 65 years was asked to take out an insurance savings plan for his grandson that will run for the next 16 years.
Independent financial experts have this advice for the elderly investors: Note that some investment products have no guaranteed return, long maturity, and even lock-in period, etc. Besides risk assessment, they should pay attention to the liquidity of the investment product, and will do well to choose products that pay regular interest dividends.
Lastly, often only the benefits of a proposed investment are highlighted to the neglect of the potential risks involved.
For instance, emphasize the total sum of return of the investment to the customer but refrain from offering assistance in working out the annual rate of return and/or the possible risk and extent of loss that might be incurred.
Further, for long-term savings or investment plans, seldom are consumers clearly informed about the cost of early surrender due to penalty (administrative and management fees) charges.
Financial institutions are urged to take note of the findings of the Council's survey. As indicated in a recent Retail Investor Survey of the Securities and Futures Commission, the level of financial understanding and investment knowledge of retail investors needs boost.
It is all the more important that the industry should strive to provide sound and appropriate advice to help consumers make informed investment decisions.
Investors should also carefully assess and choose their financial advisers with understanding of their own financial situation and risk tolerance level.
And when in doubt or unclear, always ask questions, and never make hasty decision about long-term financial arrangement, or give up easily their basic investor rights such as by signing written statements confirming that they themselves made the investment decisions and only asked investment advisers to execute transactions on their behalf; thus implying they may be agreeing to waive their rights and protection.
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