The ins and outs of mis-selling
Mis-selling: it's been talked about in Parliament, used in headlines, and talked about from one corner of the island to another - but what is it? -AsiaOne
Ellen Joy Anastacio
Fri, Oct 24, 2008
AsiaOne
On October 17, the Monetary Authority of Singapore (MAS) announced that it was investigating allegations that retail investors were mis-led by financial institutions into buying risky derivatives linked to the collapsed US bank Lehman Brothers.
Mis-selling: it's been talked about in Parliament, used in headlines, and talked about from one corner of the island to another, as over 9,700 people stand to lose their life savings after buying Lehman Brothers-linked financial products.
| Related links: » Special: Money meltdown » Crisis glossary » Get familiar with financial terms |
Mis-sold?
But what is mis-selling?
According to Forbes Digital's Investopedia, it is "the ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service".
This means that an instance of mis-selling can be concluded if a financial sales person leaves out information or describes a product as something the investor urgently needs although logic would suggest otherwise.
Investopedia says that a good example would be selling a life insurance policy to a widower who has a large amount of savings and investments, and no dependents. Obviously, this person would not need a life insurance policy, so an insurance salesperson pushing a life insurance plan to this investor to protect his assets in case of his death is guilty of mis-selling.
Aside from simply misrepresenting a product, however, mis-selling also occurs when a financial adviser fails to properly disclose risks or does not complete a proper fact-find to ensure that the product suits the potential investor will also be guilty of mis-selling.
| Resolution If you feel that you have been mis-sold financial products, follow the two steps recommended by MAS: 1) Resolve your problem with a financial institution Make sure to have a clear idea on what your concerns are; prepare your account or policy number, customer reference number, and other supporting documents before approaching your financial institution. Keep proper records: note the name of the person you spoke to as well as the date and details of the conversation, make photocopies of all your documents, and keep records of all email or letters with the financial institution. 2) Approach an independent dispute resolution scheme If you cannot resolve your problem directly with your financial institution, an independent dispute resolution scheme can help in settling the problem. The Financial Industry Disputes Resolution Centre Ltd (FIDReC) can help with cases between banks and consumers with claims up to $50,000. Other options available are approaching the Consumers Association of Singapore (CASE), Singapore Mediation Centre (SMC) or Small Claims Tribunal (SCT) and taking your case to court. |
Not a new concept
The concept of mis-selling is not new. In 2003, the Financial Services Authority (FSA) in the United Kingdom issued a note clarifying what mis-selling is. In their Principles of Business, three of their statutory foundations are particularly relevant in the context of mis-selling:
"No 6: A firm must pay due regard to the interests of its customers and treat them fairly.
No 7: A firm must pay due regard to the information needs of its customers, and communicate information to them in a way which is clear, fair and not misleading.
No 9: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement."
In line with this, it emphasised that knowing the customers, their suitability requirements, and giving them extensive related guidance will allow firms to meet those standards in advised sales and discretionary decisions.
Similarly, in Singapore, Section 27 of the Financial Advisers Act (FAA), which governs the selling of financial products, says that the adviser must have a 'reasonable basis' when making a recommendation to the potential investor.
What now?
Singaporeans who are still grappling with the outcome of their failed investment are seeing a ray of hope.
Two days ago, DBS Bank, Maybank and Hong Leong Finance have all announced that they are working to help 'highly vulnerable investors', including the less educated and elderly in getting part or all of their money back.
DBS has further clarified that it will consider a product 'mis-sold' if the product does not match an investor's risk-tolerance or is found to be unsuitable to the customer, based on his profile. It is now starting the compensation process, which is likely to be completed by the end of the year.