Before we start pointing fingers at anyone, let us first explain what we mean by a “sub-par” financial product. And we will do this by borrowing a reference from the United States Of America (US). In the US, they call “sub-prime mortgages” as mortgages that are associated with borrowers that have a poor credit history who have lower probabilities of paying off their debt. In other words, “inferior”.
In the same way, we will define “sub-par” financial products as products that are generally inferior, compared to what else is available in the market.
Without mentioning any specific products from any specific companies, we know there are many such inferior financial products out there in the market. And yes, people buy them all the time.
1. Role Of The Consumers
One can always argue (and that’s what financial institutions do all the time) that inferior products would not exist if there weren’t people who actually bought them. It is reasonable to say that if everyone in Singapore were aware and informed about these products and the better alternatives, then sub-par products would naturally be phased out, since nobody would buy them.
However, common sense would tell us that most Singaporeans are not well informed about the various types of financial products in the market, and that it is in the interest of companies selling inferior financial products to not educate us. That’s why land banking and gold scams work all the time. People are lured by returns that are too good to be true and may not be able to differentiate between a good product and a inferior one. Because of this, there is another segment of the population that usually rely on the advice of their financial advisors instead.
2. Sales Based Financial Advisors
Financial advisors are supposed to provide good advice for their clients so as to equip them with the right information and advice to make good personal finance decisions. At least, that’s how the ideal situation should work.
However in the real world, financial advisors play the role of salesmen on behalf of the financial institutions that they represent, rather than as advisors to the clients that they serve.
To be fair, none of us can really blame advisors, since the majority of Singaporeans do not compensate advisors for the time they spend with us, unless we end up buying a policy from them.
Frequently, financial advisors are the first ones to be blamed when things turn sour, mainly because they are caught in between their clients and the financial institutions.
A client can accuse an advisor (right or wrongly) for not disclosing the full details of a financial product prior to purchasing it. At the same time, financial institutions can also hang an agent out to dry, preferring to blame the agent for not selling a product ethically or clearly, rather than to admit that the product was inferior to begin with, and that the only way to sell it would be to omit or distort certain critical information.
3. Financial Institutions Creating And Distributing Bad Products
Financial institutions design the products that exist in the market today.
Whenever an inferior financial product is designed, the likelihood of it being a high profit margin product for the financial institutions is higher. Examples include the large volume of sub-prime loans that were issued in the US and subsequently securitised and sold off to pension funds and retail investors in the rest of the world.
In our opinion, these financial institutions should bear a heavy responsibility for the creation and distribution of inferior products. Of course, the argument they can always fall back on is that they are merely creating products that some people are keen to buy.
Also, unless they are contravening the law by creating a scam, there is no reason why they can’t create financial products that they are confident of selling even if it isn’t really a great product. This happens in all other industries as well. You would not blame a restaurant for trying to sell inferior quality steaks or local carriers for trying to sell inferior mobile data packages.
4. The Authorities Playing A Passive Role
The authorities can always step in to restrict inferior financial products from ever reaching the average retail investor. One can even argue why certain financial products continue to be marketed and sold in Singapore, even after they have been put onto the watch list of the Monetary Authority of Singapore.
The authorities in Singapore appear to play a more passive, reactive role. They step in when required to ensure that practises are conducted fairly. Yet, they almost never restrict a free market approach, where financial institutes are allowed to sell products as long as investors have proven that they understand what they are buying.
And these “proof of understanding” usually exist in the form of the many documents that you need to sign to acknowledge that you understand what it is that you are buying. Thus passing the buck back to consumers in one nice complete cycle that takes any blame away from the authorities or the financial institutes.
What Consumers Can And Should Do
As consumers, there are a few things we can and should do for ourselves to protect our own interests, and those of the people around us.
For starters, it is important for the average Singaporean to be equipped with basic financial knowledge. This enables us to better identify sub-par products and say “no” to them. It also allows us to be able to raise questions to financial advisors or institutions if we feel there are some information that is being omitted.
By reducing the demand for these inferior financial products, we don’t reward financial institutions for creating them in the first place. At the same time, a better-educated population would also require financial advisors to increase their own standards. And to give us better quality advice, rather than sales based ones.
Lastly, consumers can also demand that the authorities do more to stamp out bad financial products, companies or individuals. We can start by helping the authorities to flag out shady business dealings and to ensure that our fellow citizens do not fall victims to these misselling or frauds as well.
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