ST letter by Stanley Jeremiah
I REFER to Thursday’s letter by Mr Jag Kuo, ‘Ultimately, it’s buyer beware’. Mr Kuo makes several assumptions which may not be borne out by the facts.
He assumes that, because only ‘qualified advisers’ can sell these products, they must have had a reasonable basis for recommending these products.
In many cases, one has to question the reasonableness of the recommendations. For example, selling high-risk products to retirees. The older you are the less risk you can take.
The second is about persuading clients to put a large part of their savings in one product. The general rule is ‘diversify your investments’.
Where a significant portion of a customer’s savings are put into a high risk product, there is a compounding of the risk.
Mr Kuo states that investors are provided with ‘a fair description of all material information’. I am a lawyer who specialised in financial services and products. Yet, I am often baffled by the product descriptions and contract terms provided by financial institutions, which are seldom ever in plain English.
Mr Kuo is right – structured products are not suitable for all investors. Financial institutions sell these products through ‘qualified advisers’. If that is so, it is their responsibility to ensure that they give proper advice.
If a lawyer gives wrong advice, isn’t his client entitled to hold him responsible for his negligence?
The layman does not have the necessary knowledge and skill. He relies on ‘qualified advisers’, in whom he puts his trust. Those who hold themselves out as having special knowledge and skill to give advice, have a responsibility to exercise due care and skill. A ‘qualified adviser’ who disregards the interest of his clients or allows his own interest to conflict with the client’s, should be held accountable.
‘Buyer beware’ cannot work when there is significant financial disparity between the parties. For a retiree, losing $50,000 on a bad investment is a lot of money. It is money he will probably never earn back. However, in practical terms, it is not big enough a sum, to start a lawsuit. The aggregated losses of many individuals, however, amount to hundreds of millions.
The financial institution’s clout allows it to easily resist individual customers, one at a time because the customer’s loss when compared to the cost of litigation does not make the prospect of going to court viable.
The regulator must protect the consumer’s interest. ‘Buyer beware’ is not a concept that any First World economy applies to the retailing of financial products.