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Tuesday, August 30, 2011
Beware of investment scams
Singapore has a pro-business environment and adopts a "buyer beware" approach towards business dealings. Under this lax regulatory environment, several investment scams have surfaced in Singapore. I became aware of these scams after the victims had written to me for my assistance.
I wish to share some of these shady investments or scams with you.
a) Gold bar. This investment product pays an attractive interest rate, say 2% every 3 months, and promises to return the full capital at the end of the period of 6 or 12 months. There is also a certificate to allow you to collect the gold bar from a trusted third party, if the buy back guarantee is not honored. The risk is that the promoter will not honor the buyback contract, citing cash flow problems and other reasons. When you get the gold bar, you will find that you had paid a higher price than the real market value of the gold . I know of a specific case where the investor had paid a price, quoted in SGD per gram, which was 30% higher than the market price of the gold (expressed in USD per ounce). Although the price of gold had appreciated, the investor has recover the 30% in inflated price, before seeing any real gain.
b) Wine investment. This promoter sells you a portfolio of wine and convinces you that you can earn an attractive return, say 50%, when the wines are auctioned off in three years time. Several investors waited patiently for the stipulated period and received excuses why the auction could not be carried, e.g. bad market conditions. They were then pressured to make additional purchases to make a sufficiently large portfolio for a future auction. In most cases, the investors were not aware that they were sold the wines at twice of their real market price. It would not be possible to auction off the wine at a profit, if the investor had paid an inflated price.
c) Land banks. The promoter sells land plots in foreign countries, usually under agricultural or green zoning, at a price that seemed incredibly low compared to land in Singapore. The promoter promised to apply for change of zoning within 5 to 8 years and allow the land to be sold at a large capital gain. Many investors waited patiently for the planning approval but it never happened. They were not aware that they had been sold the land at 10 to 15 times of the real market value. Under this situation, who would buy the land from them at a higher inflated price?
d) Spa packages. One promoter opened a chain of spas and sold spa packages giving discount on spa treatments to be carried out over the next 12 to 18 months. The promoter closed their operations and many customers were not able to get the treatment that they had paid for. Another spa operator took over the liability, but it is not clear if the customer had received the value for the money that they had paid.
Here is the lesson. Always avoid putting your money in investments that promise an attractive return offered by companies that are not regulated by the authority. Even if they are regulated, you have to read and understand the investment contract and be aware of the potential risk. Do not trust the assurance of the person who markets the investment to you, as the marketer might give you some wrong information due to the desire to close the sale and earn the commission. Even if the marketeer is your friend, be aware that he might have been ignorant of the real risk of the investment.
Tan Kin Lian
I wish to share some of these shady investments or scams with you.
a) Gold bar. This investment product pays an attractive interest rate, say 2% every 3 months, and promises to return the full capital at the end of the period of 6 or 12 months. There is also a certificate to allow you to collect the gold bar from a trusted third party, if the buy back guarantee is not honored. The risk is that the promoter will not honor the buyback contract, citing cash flow problems and other reasons. When you get the gold bar, you will find that you had paid a higher price than the real market value of the gold . I know of a specific case where the investor had paid a price, quoted in SGD per gram, which was 30% higher than the market price of the gold (expressed in USD per ounce). Although the price of gold had appreciated, the investor has recover the 30% in inflated price, before seeing any real gain.
b) Wine investment. This promoter sells you a portfolio of wine and convinces you that you can earn an attractive return, say 50%, when the wines are auctioned off in three years time. Several investors waited patiently for the stipulated period and received excuses why the auction could not be carried, e.g. bad market conditions. They were then pressured to make additional purchases to make a sufficiently large portfolio for a future auction. In most cases, the investors were not aware that they were sold the wines at twice of their real market price. It would not be possible to auction off the wine at a profit, if the investor had paid an inflated price.
c) Land banks. The promoter sells land plots in foreign countries, usually under agricultural or green zoning, at a price that seemed incredibly low compared to land in Singapore. The promoter promised to apply for change of zoning within 5 to 8 years and allow the land to be sold at a large capital gain. Many investors waited patiently for the planning approval but it never happened. They were not aware that they had been sold the land at 10 to 15 times of the real market value. Under this situation, who would buy the land from them at a higher inflated price?
d) Spa packages. One promoter opened a chain of spas and sold spa packages giving discount on spa treatments to be carried out over the next 12 to 18 months. The promoter closed their operations and many customers were not able to get the treatment that they had paid for. Another spa operator took over the liability, but it is not clear if the customer had received the value for the money that they had paid.
Here is the lesson. Always avoid putting your money in investments that promise an attractive return offered by companies that are not regulated by the authority. Even if they are regulated, you have to read and understand the investment contract and be aware of the potential risk. Do not trust the assurance of the person who markets the investment to you, as the marketer might give you some wrong information due to the desire to close the sale and earn the commission. Even if the marketeer is your friend, be aware that he might have been ignorant of the real risk of the investment.
Tan Kin Lian
Streaming of Financial Planning Talk
Here is your chance to learn about Financial Planning from the comfort of your home.
Presentation Video is at http://www.ustream.tv/
Monday, August 29, 2011
FISCA website - interesting articles
The FISCA website contains interesting articles on financial and consumer matters. A few articles will be posted each day. You can view them at www.easysearch.sg/fisca. Some articles will be available for the public (click on the information tab) and others will be available only to members (after login).
Visit the FISCA website a few times each week and keep abreast of these issues. The direct link is http://easyapps.sg/assn/Org/Information.aspx?id=5
Visit the FISCA website a few times each week and keep abreast of these issues. The direct link is http://easyapps.sg/assn/Org/Information.aspx?id=5
Be aware of investment risks
A few people have approached me for assistance regarding their investment losses. They entrusted large sums of money to the wealth managers working for the banks. The investors claimed that they were not aware about how their money were invested and trusted that the wealth manager would take care of their investments. They end up with large losses.
In some cases, the investors were not able to read the portfolio statements, so it is likely that they were quite ignorant about the investments.
Some of the investments were in linked investments or leveraged investments, which carried high risks. These types of investments are speculative, and depend on the skill of the wealth manager to make the right timing decisions. It is almost impossible to acquire this type of skill. Some timing decisions is similar to gambling in a casino - a lot depends on luck.
It is likely that the wealth managers who contributed to these bad investments are also inexperienced in this field.
The more experienced wealth managers are likely to give more prudent advice - such as diversification of risk and selecting the right asset mix. In these cases, the potential return is likely to be modest, after deducting the fee payable to the manager. The investor should accept the lower yield, that commensurate with the lower risk. If the investor wants a higher yield, the wealth manager is likely to be forced to take a more risky approach - which can lead to disaster.
It is important that the investor should be aware of the risk and should select the knowledgeable wealth manager. If the investor is not aware about the risk of investments, it is better for the wealth manager to decline to take the client - so as to avoid these potential problems.
My advice: never invest in any investment that you do not understand. Invest in your education by attending the financial planning workshop organised by FISCA (www.easysearch.sg/fisca).
Tan Kin Lian
In some cases, the investors were not able to read the portfolio statements, so it is likely that they were quite ignorant about the investments.
Some of the investments were in linked investments or leveraged investments, which carried high risks. These types of investments are speculative, and depend on the skill of the wealth manager to make the right timing decisions. It is almost impossible to acquire this type of skill. Some timing decisions is similar to gambling in a casino - a lot depends on luck.
It is likely that the wealth managers who contributed to these bad investments are also inexperienced in this field.
The more experienced wealth managers are likely to give more prudent advice - such as diversification of risk and selecting the right asset mix. In these cases, the potential return is likely to be modest, after deducting the fee payable to the manager. The investor should accept the lower yield, that commensurate with the lower risk. If the investor wants a higher yield, the wealth manager is likely to be forced to take a more risky approach - which can lead to disaster.
It is important that the investor should be aware of the risk and should select the knowledgeable wealth manager. If the investor is not aware about the risk of investments, it is better for the wealth manager to decline to take the client - so as to avoid these potential problems.
My advice: never invest in any investment that you do not understand. Invest in your education by attending the financial planning workshop organised by FISCA (www.easysearch.sg/fisca).
Tan Kin Lian
Understand the issues
Dear Mr. Tan,
Hang Lian
Well done on the recent Presidential Election.
I'm not a Singaporean and have no rights to vote, but I have been keeping myself updated on the events. I may be wrong, but all along, I think you will be somehow crippled in your ability to help ordinary Singaporeans if you become a statesman. So, although I'm not happy with the outcome, but I do think that it's not a bad outcome.
I admire your spirit and courage to step forward for the election, it must have been a hard and long 10 days for you and your family, but I believe it's a fruitful journey.
Having been in a position to see the differences between the policies in NZ and Spore, I see some of your points, eg. a minimum wage. Unfortunately, I think some issues are not appreciated by a certain portion of the population, for example the NS one, I suspect a significant number of the female population was put off as the perception is that it's going to "disadvantage" them. The misquoting by the media is not helping either.
Finally, a Hi5! to you, Sir.
Take care.
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