Financial products to rip off the consumers

[Trade2win]

A good article from Tan Kin Lian:

Financial products to rip off the consumers

Many consumers lose large sums of money by investing in bad
financial products. The rip-off occurs at two levels- creation of
products and distribution of products.

Creation of products:
The following types of products are bad for consumers:
a) Products designed to cheat consumers, e.g. charging them a price
much higher than the market and not telling the consumers. Examples
are land banks (sold at 15 times of the market price) and gold bars
(sold at 25% above the market price). The product issuers think of
clever ways to hide the fact from consumers and to mislead them into
thinking that they are getting a good deal.

b) Products that have high margins taken from the investment yields
of the consumers, e.g. structured products and life insurance policies.
The underlying investment can earn say 5% per annum, but after
deducting the charges (not told to the consumers), the net yield to the
consumer is 2% per annum or less. The consumers are usually locked
into the investments for 5 to 30 years, and can only exit the
investments by paying a high penalty.

c) Products designed to cheat consumers, e.g. Ponzi schemes. The
promoters collect money, promising high returns, but as they are not
able to earn the yield to pay the investors, they will disappear with the
money in a matter of time. So long as more people are putting in
money, compared to withdrawals, they can continue their operation.
When the money stops coming in, and they cannot pay their liability,
they will disappear with all of the money.
You can search my website, www.tankinlian.com/info.aspx and enter
the keywords, such as “land banking”, “gold bar”, “ponzi”, “structured
products” to get my articles on these topics.

You can come to my office at Sin Ming Lane (see
www.tankinlian.com/contact.aspx) and buy my two books (financial
planning, and life insurance) to get many examples of these bad
products for your research.

Distribution of products
The mis-selling occurs in two ways:
a) The distributors (e.g. financial advisers or bank relationship
manager) were naïve and were not aware that they are selling bad
products. They were themselves conned into believing that the
product are attractive and they approach their friends and relatives,
out of ignorance. These distributors are usually young people, who
badly need a job. The manager tells them a pack of lies and they
believed the lies and go to tell their friends. When they learn about
what they had done, they feel bad and leave the industry.

b) Some of the distributors know about the bad products but continue
to sell them, because they can earn a good commission and get rich.
These people are morally bad, but their greed overcomes them. They
tell blatant lies and half truths and hide essential information from
consumers, just to get them to buy the product. Later, they will con
the young people whom they recruit to sell the products (and they can
take a cut of the commission).

Summary
It is bad for a country to allow these types of crooks to operate freely
under a deregulated environment. It is not possible for consumers to
be educated sufficiently to be smarter than the financial crooks who
are out to con them. The regulators (i.e. government) have to step in
to stop the cheating of consumers.
Tan Kin Lian
28 February 2010

[wemakebread]

Thanks Richard.

We are fortunate that people like Tan Kin Lian, Leong Sze Hian and Dennis are speaking out and warning people about "toxic investments".

Strange that the regulator of the land isn't that active by comparison.

There is a saying that "Knowledge is Power".
I do hope more and more enlightened individuals will help to empower the people, by helping them to see clearer & learn how to fish.