By Lorna Tan, Senior Correspondent

MORE Singaporeans are being led by their unscrupulous financial advisers to buy and sell unit trusts rapidly in a bid to withdraw cash from their Central Provident Fund (CPF) savings.

The practice has led to the CPF Board issuing warning letters to 35 financial advisory representatives, and seven of them have since been suspended.

The Straits Times also understands that some financial advisers also work together with loan sharks to target hard-up Singaporeans who are in need for quick cash.

The practice, which is known in the industry as 'churning', is being targeted at lower-income CPF members who are desperate for cash.

This is how it works:

The CPF member is asked by the financial adviser to sign blank transaction forms which authorise the adviser to invest the client's CPF savings on his or her behalf.

The adviser then invests the savings in CPF-approved unit trusts or insurance-linked investment policies, earning a sales charge of between 2 and 3 per cent which is deducted from the principal amount invested.

Part of this sales charge is then given back to the CPF member in the form of a 'cash rebate'. The CPF member is happy because he gets the cash he needs, and the adviser also pockets part of the fee.

For example, a CPF member with investable funds of $30,000 could possibly pocket a cash rebate of $300 each time his investments are churned, with the rest of the sales charges going to his financial adviser, introducer (if any) and the firm.

A couple of weeks later, the adviser liquidates all the investments and re-invests the money in a new set of unit trusts, yielding a fresh round of commissions and cash rebates.

According to sources, the frequency of churning per account can range from twice a month to three times every two months.

ST also understands that some advisers are colluding with loan sharks to reach out to more clients.

Here, customers take loans from these illegal lenders, who then team up with unscrupulous advisers and pocket the steady stream of cash rebates that come from churning as payment.

Industry sources say that there are a few hundred rogue advisers doing this. They work in several financial advisory firms and insurance companies and perform thousands of transactions monthly.

The culprits typically reach out to their 'clients' via newspaper advertisements and flyers promising quick money. They target average and low income earners like taxi drivers and dispatch riders who are happy to pocket cash rebates as low as $50 a month.

When contacted, the Monetary Authority of Singapore (MAS) said that while it is generally satisfied that most major financial institutions take the issue of churning seriously, it is concerned about a small number of representatives who appear to be engaging in this activity to the detriment of their customers.

Financial experts warned that over an extended period of churning activity, the customer suffers because the savings in his CPF account are gradually eroded from paying a constant stream of sales charges. This is particularly disastrous if markets are flat or heading south.

MAS warned that under the Financial Advisers Act, financial advisers are prohibited from making recommendations to clients to switch between designated investment products in a manner that would be detrimental to the interest of the client.

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