Friday, 26 September 2008

Investing Carefully

Finance correspondent, Lorna Tan of The Straits Times has this parting message, "No One Has Your Interests At Heart Except Yourself" in her write-up of September 26 on the hundreds of investors who have bought structured products linked to failed US investment bank Lehman Brothers; and are now crying foul.

Many claimed that the products were sold as "safe" and some say they were given the wrong impression that their principal sums were guaranteed.

There is certainly some truth in what Lorna has to advise readers, although I prefer to qualify her parting message with some kind adjunct to placate those financial consultants who have been and/or still conducting themselves professionally and ethically.

But, many of these professionals could not stay long in their financial consulting careers as they have ever increasing targets to accomplish.

Faced with a widening gap between the given target and actual performance, it is never easy for any consultant to lay bare all the facts and figures at hand for the client to decide on taking up the investment.

The more the client comes to know about the caveat emptor that he/she has to be exposed to in taking up the investment, the higher the tendency for the client to hold back the decision.

The consultant is primarily employed by the financial institution to sell its products. The consultant is not there to give out free and independent advice to potential client who walks into the premises, even though the institution may profess to provide such a free service.

Too much advice without closing sufficient sales would definitely not reflect well on the consultant. Very soon, the superior would be breathing down the consultant's neck all the time.

For new launches, the consultants are often not adequately trained and enlightened to advise the clients adequately and confidently.

In attempting to close the sales opportunities (especially, if the clients have big sums to invest somewhere), some consultants might find it hard not to act unjustly and unethically.

Even if a client has all the information and clarifications to make an informed decision, it is not uncommon for the client to seek the consultant's personal advice on the risks involved.

Well, it is unthinkable for an average consultant over here to be able to advise that a 158-year-old prestigious establishment could crumble overnight.

The reliability of the 'AAA' rating which used to be a benchmark for any aspiring financial institution has also taken on a new understanding in the current financial tsunami.  For the consultant to advise that it is 'safe' to proceed with the investment is not surprising after all.

Perhaps, the adage that one should not place all his eggs in one basket is still relevant. Likewise, do not act in haste. If there is doubt, it is always advisable to bounce all that you have learned from one consultant or institution against another independent source of advice until you are adequately confident of what you are getting into.

Note: This posting was published on ST Online Forum on 30 September 2008, titled "Investing Carefully: Perhaps, the adage that one should not put all one's eggs in one basket is still relevant".

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