Why Regulation for Minibonds...?

In one of the latest developments in Singapore's Minibond saga, Tan Kin Lian, champion of the burnt minibonds investors, has released a request for proposals to lawyers for services for collective legal action by the minibonds investors against the bankers and brokers who sold them the minibonds products.

Also, the 84-page minibonds prospectus is available on the TOC website, here. A brief browse into the contents of the prospectus reveals some interesting information. On page 17, under "Risk Factors," we see:

Risks relating to the nature of the Notes

Suitability of the Notes

The purchase of the Notes involves certain risks including market risk, credit risk and liquidity risk. Investors should ensure that they understand the nature of all these risks before making a decision to invest in the Notes. In addition, on the occurrence of a Credit Event (as defined herein) in respect of a Reference Entity, Noteholders could lose all or a substantial part of their investment in the Notes. This Base Prospectus and the Pricing Statement are not and do not purport to be investment advice. You should conduct such independent investigation and analysis regarding the Notes and the other assets on which the obligations of the Issuer under the Notes are secured as you deem appropriate. You should make an investment only after you have determined that such investment is suitable for your financial investment objectives. You should consider carefully whether the Notes are suitable for you in light of your experience, objectives, financial position and other relevant circumstances.

From the outset, the prospectus explicitly states several important points for that investors should do and take note of:

Noteholders could lose all or a substantial part of their investment in the Notes.

It also clearly states,

You should conduct such independent investigation and analysis regarding the Notes and the other assets

In one paragraph alone, the prospectus clearly instructs the investor in what are sound principles of investment analysis. Always do your own homework (independent investigation and analysis).

Ultimately, then, the investors who bought the minibonds cannot fault Lehman brothers with the argument that they depended on the RMs to advise them, as Lehman had clearly stated in the prospectus that the investors need to do their own independent analysis.

So the problem, then, are the RMs & brokers guilty of anything? The investors claim they were deceived and misplaced their trust in the advisors who sold them things they should not have been investing in.

That, my friends, is why regulation is needed - NOT because of some supposed higher cause of justice, but instead to prevent idiots from destroying their retirement accounts with their own stupidity, and also to prevent un-ethical misrepresentation of securities by financial 'advisors'

The government also can't really be faulted... because the RMs had a duty to inform the 'investors' that they had to do their own homework. This was not the government's responsibility.

Hence, the best way to protect yourself is to just automatically adopt the attitude that one must do his own homework. And if you find that you do not understand what you are analysing, just stay away. Abdicating the responsibility of investment analysis to someone else is a sure recipe for disaster. If the 'investors' (aka fools) had actually bothered to adopt this principle, they would not have been misled by the RMs.

Don't be a fool. Don't let ignorance destroy your retirement account. The best way to protect yourself from fraud is to do your own homework!!!

No sympathy from me for Lehman Minibonds investors

After the collapse of Lehman Brothers, Bear Stearns, and the unwinding of the credit markets over the past year or so, several Singaporean investors have found themselves burnt, having dumped significant portions of their retirement savings in credit derivatives and other similar financial instruments. One of these products in particular, Lehman's Minibonds, has been completely wiped out following the Chapter 11 bankruptcy of Lehman brothers.

Now, several of these investors (losers), are crying and complaining to the MAS, claiming that the authority did not do enough to protect them from the risks of these investments that are now close to worthless. As quoted in the Straits Times...

ST Sep 24, 2008
Minibonds worry: 'How is the layman supposed to beware when the prospectus is filled with jargon that even the sellers do not fully comprehend?'

MY WIFE and I are joint account holders of Maybank Singapore. We purchased $100,000 of the Minibonds Series 5 from Maybank's investment banker around August last year. We were under the impression then that these were supposedly very safe bonds.

Every few months, I would even call up Maybank to ask about the performance of our Minibonds and whether I should still hold on to them. Each time, I was informed that these bonds were still sound, and there wasn't any need to bail out.

Now that Lehman Brothers is bankrupt, and the public disclosure that our Minibonds investment has, in fact, nothing at all to do with bonds, but are instead Collateralised Debt Obligation (CDO)-related derivatives, we are extremely disappointed, distressed and upset with Maybank's lack of professionalism and poor product knowledge.

The investment advisers are more interested in closing the deal and going through the motions during the investors' risk-analysis.

We fully understand the concept of buyer beware. However, in this situation, how is the layman supposed to beware of what they're being sold when the 60-odd-page prospectus is filled with legalese and technical jargon that even the sellers themselves do not fully comprehend?

Ngo Chee Keong

Nice try mr Ngo, but I think people like you are idiots.

If you don't understand the legalese and technical jargon in the prospectus, WHY THE HELL ARE YOU TOUCHING THE INVESTMENT?

And, if you know that the sellers themselves do not fully comprehend the jargon, WHY ARE YOU STILL BELIEVING WHAT THEY SAY?

Anybody with any knowledge about investing will have heard one of Warren Buffett's principles of investing: Only invest within your circle of competence.

DON'T TOUCH WHAT YOU DO NOT UNDERSTAND

Obviously mr Ngo did not heed Warren Buffett's advice, just like thousands of other 'investors' who got burned by Lehman's bankruptcy.

And now he looks like the idiot he really is.

The minibonds saga should be a poignant lesson to everyone on why you should NEVER TRUST 'FINANCIAL ADVISORS'. Always DO YOUR OWN HOMEWORK. And DON'T TOUCH WHAT YOU DO NOT UNDERSTAND.

Those who diligently do their homework, educate themselves on financial instruments and how to invest well don’t get FOOLED by these so-called ‘financial advisors’

Any tom dick or harry can get a CFP or become a personal banker. just talk to insiders and they will tell you how selfish, mercenary and unethical these financial salespeople are. All they care about is getting their commission.

They DON’T GIVE A SHIT ABOUT THE WELFARE OF THE PEOPLE THEY ARE SELLING TO.

The best and only real protection for your retirement savings is to arm yourself with knowledge and financial education.

The best investors have never depended on the regulator to protect their downside.

These are universal principles of investing that will stand the test of time. Whether it was the go-go- years, the tech bubble, or today's credit crunch. Follow them and you will avoid the hazardous damages to your retirement nest.

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update:

The former CEO of NTUC, Tan Kin Lian, has now called on the MAS to be pro-active, and to 'protect' the small investors' interests:

"I hope that the Monetary Authority of Singapore or the Attorney General can take similar action on behalf of retail investors in Singapore, who had been misled into investing in the Mini-Bonds and similar structured products. These investors were clearly misled by the relationship managers into investing in these products on the advice that these investments were safe.

It is time to hold the financial institutions accountable for their mis-selling activities and for our regulators to be pro-active."

Indeed, how easy it is to point the finger at the bank, the broker, and the fund manager for misleading you. It is easy to point the finger at the regulator.

But, it looks like somebody agrees with me. here's a letter countering Tan Kin Lian's statements in the st forum:

ST Forum - Sep 25, 2008

Ultimately, it's buyer beware

I REFER to Tuesday's report, 'MAS tells banks to give priority to worried investors'.

It may be presumptuous of Mr Tan Kin Lian to assume that the banks erred in selling structured products to retail customers. These products are regulated under the Financial Advisers Act and the Securities and Futures Act. Only qualified advisers can market and give advice on such products. They must have a reasonable basis for any recommendation that is made on structured products and must provide investors with a fair description of all material information.

Be that as it may, investors looking to invest in these complex structures should exercise extra caution before entering into such financial transactions. The decision to invest should be based on your own judgment and not solely on advice given by the bank or its advisers. Before investing, you should consider whether the products fit with your financial goals, risk appetite and personal situation.

Understand the features of structured notes. Even in the case of a 'principal protected' product, the principal may only be insured by the issuer and, thus, may be lost in the case of a liquidity crisis or other solvency problems with the issuer.

Structured products are not suitable for all investors. Each product can exhibit very different characteristics as well as associated risks and rewards. They may appear to be fixed-income instruments, but may contain embedded options which do not necessarily reflect the risk of the issuing credit. These options may be 'plain vanilla' or highly leveraged exotic options.

As each is unique, the risks inherent in any one structured note may not be obvious. Hence, read carefully the prospectus or pricing statement, which explains the risks, tax treatment and other important information in detail.

Ultimately, it is your responsibility to protect your own interests. If you do not understand how the product works, seek clarification with your adviser. Don't buy anything that you do not understand.

Jag Kuo Soon Yong