SINGAPORE – When retired human resources professional Tye Hua Swee bought an investment-linked fund launched by a well-known insurer in Singapore, he believed he had a clear understanding of how the product worked.
Only after making a partial withdrawal did he discover terms he said had not been explained when he bought the product, including $1,000 monthly penalties if he did not top up his investment. He added that he was later told he would forfeit his remaining investment if he terminated the policy.
Tye later also realised the company that sold him the product was a sales agency rather than an advisory firm linked to the insurer, as he had been led to believe. The agent then became unresponsive after the sale, leaving him to navigate the issue himself as he sought to stop the monthly deductions and pursue recourse.
Three months on, Tye said he has made little progress in seeking recourse, but remains determined to pursue the matter.
His experience comes as the Monetary Authority of Singapore (MAS) seeks public feedback on proposals to broaden retail investors’ access to a wider range of investment funds.
The central bank is proposing changes to its regulatory framework to speed up the approval of new fund products by giving itself greater flexibility to accommodate a wider range of investment funds, while maintaining appropriate investor safeguards.
The intent is to enable the industry to respond to demographic shifts and investor needs, while strengthening Singapore’s position as a leading asset management and wealth hub in Asia.
Still, these developments raise broader questions: As investment choices become more sophisticated, are retail investors here equipped to understand the risks, and do they have adequate avenues for recourse when things go wrong?
More support and recourse options needed
When asked what he thought about MAS’ proposal, Tye questioned whether consumers are knowledgeable enough to assess increasingly complex investments.
One concern is the way some investment products are sold. Based on his experience, Tye said some sales agents are primarily incentivised to secure sales, but have little motivation to provide after-sales support because much of their commission is paid upfront when the sale is made.
“If this can happen to me, what about retirees or younger investors who may be more susceptible to aggressive sales tactics or ‘reassured’ by the branding of a well-known company?” he said.
Tye is not alone.
Like him, Madam Lim, a retired architect who declined to give her full name, believes some fund providers and distributors are more focused on making sales than ensuring retail investors fully understand the risks of the products they are buying.
She cited her own experience investing in a real estate investment fund, saying she was surprised to discover after investing that the fund had multiple “sub-funds” that were not explained to her during the sales process.
“Why does one fund have so many sub-funds, and how do investors know which one they are buying?” she said, adding that she lost several thousand dollars within a month of investing.
Wider variety of funds to come
Even as these concerns linger, insiders note that retail investors in Singapore are becoming more sophisticated with greater access to investment information, education and tools, and are seeking more options when constructing diversified portfolios.
The central bank has so far received market interest to offer two new fund types to retail investors: futures-based single-commodity funds, and a wider array of single-country government bond funds.
This could soon grow if the changes it proposed are approved.
James Ong, group head of asset management at investment firm CGS International, explained that once MAS has set the ground rules for a new type of fund, the next manager offering something similar can be cleared in about three weeks, compared with a few months currently.
“For everyday investors, it means access to strategies that were harder to offer here under the existing rules,” said Ong.
Kwok Keng Han, chief marketing officer of Lion Global Investors, noted that investor interest is increasingly expanding beyond conventional equity and fixed income investments to alternative sources of return, as uncertainty in the markets grows.
“Increasingly, investors are looking for more sophisticated ways to access markets and manage portfolio risks,” said Kwok. He noted that interest in areas such as precious metals, commodities, and income-generating and alternative investment strategies has been rising.
Kwok added that Lion Global has received interest in a number of emerging exchange-traded fund (ETF) categories, including leveraged and inverse single-stock ETFs, covered call ETFs, defined outcome ETFs and ETFs that combine public and private market constituents.
Better disclosures, access to recourse
Still, some retail investors like Lim reckon that if MAS wants to widen retail investors’ access to more investment funds, it should also expand the options available to protect investor interests, including opening up more avenues for them to seek recourse when disputes arise.
Lim added that fund information should be presented more transparently and in a way that is easy for ordinary investors to understand, especially since many retail investors are salaried workers investing their savings.
To this end, the central bank will strengthen safeguards for retail investors buying complex investment products by enhancing product disclosures. It will also introduce pre-transaction alerts reminding them to understand the product, assess whether it suits their financial circumstances, and seek financial advice where necessary.
In addition, investors who fail a customer knowledge assessment will be warned that complex products may not be suitable for them.
MAS will also retain additional safeguards for vulnerable investors, including requiring a trusted individual to accompany them during the sales process and pre-transaction calls by financial institutions to verify their understanding of the product.
MAS is currently proposing to strengthen avenues for retail investors to seek recourse when they suffer losses from market misconduct.
This includes allowing an independent representative to coordinate and bring legal action on behalf of affected investors, and introducing a grant scheme to help fund meritorious cases.
MAS is also working on making it easier for investors to pursue compensation by simplifying legal procedures, broadening the types of enforcement actions they can rely on in civil claims, and removing statutory caps on compensation awards.
Ultimately though, retail investors will continue to bear primary responsibility for understanding the products they buy and determining whether the products are suitable for their financial circumstances.
David Gerald, president and chief executive of the Securities Investors Association (Singapore) (SIAS), noted that while greater choice is a positive development, investors should not mistake wider access for lower risk.
“Investors should take the time to understand how these products work, the specific risks involved, and whether the investment is suitable for their financial objectives, investment horizon and risk tolerance,” he said.
