Sunday, April 26, 2009
Creating or destroying value?
Business should create products that give value to customers. If the cost is $X and the value to the customer is $Y, then the business is entitled to keep the difference to cover its marketing cost, expenses and profit.
For tangible products, the customer can assess the value of $Y by looking at the price of similar products.
For financial products where the future value is uncertain, such as shares, structured products, life insurance and land banking products, it is difficult for the customer to know the real value. This allows the experts (i.e. financial advisers or businesses) to exploit the ignorance of the consumer by giving misleading advice.
The technique is to give the promise of a future value that is not likely to arise. For example, that the asset will appreciate in value. Usually, this is based on looking at the price movement in the past and selecting a period that shows the most favourable results. This is misleading.
All businesses, if it is runned well, will give a modest rate of return. If inflation is 2% per year, a return of 5% is reasonable. If the business projects a return of 15%, it is not reasonable. The business is taking excessive risk, e.g. through leveraging, or playing a speculative bubble, such as the US housing market (funded by subprime mortgages).
The promoters of these financial products take in a lot of money from investors by making unachieveable promises. They take away a large portion of their money in marketing expenses and profit. The leave the investors with assets that have depleted in value. Eventually, the investors have to realise their investments at a big loss.
Look at the history of many time share, land banking, structured products and life insurance products. While some of these products, give good value, the majority of these products destroy value for the investors.
Be careful about these types of financial products. Do not believe that the assets will appreciate in value. Often, there is someone behind that will cream off your gains and leave you with a poor yield.
Tan Kin Lian
UK: Banks face fine for poor service
I hope that MAS will implement similar measures in Singapore. Read this.
Saturday, April 25, 2009
China Daily: Secret Lehman report to be aired
HONG KONG: The Legislative Council (LegCo) subcommittee inquiring into the Lehman Brothers minibonds saga Friday decided to ignore the Hong Kong Monetary Authority (HKMA) request to keep parts of the authority's report confidential.
Subcommittee chairman Raymond Ho Chung-tai told reporters after a meeting Friday that the subcommittee disagreed with HKMA chief Joseph Yam's argument that disclosing the portion would violate public interest, the Banking Ordinance, and affect the authority's investigation.
"The chapter six (the portion in question) of the report is not targeting at any individual bank and person. It only contains some general information," he said. "We believe that disclosing the information will help the investigation. The disclosure will only create positive impact, but not negative ones. It is more appropriate to disclose."
It is expected that the concerned portion is related to the problems observed by the HKMA in 238 cases.
The problems can be classified into five categories. Half of the cases are related to the sales of the products to elderly, persons with low education, or those who invested excessively in the products. Some of the cases involved inaccurate assessment of clients' capability to bear risk, others concern lack of signatures on documents.
But the HKMA has not reached any conclusion on these cases, and the Securities and Futures Commission is still following up.
The LegCo subcommittee will have an open hearing Tuesday, which will have Yam continue his testimony.
Kam Nai-wai, a subcommittee member, said a special meeting will be held should the HKMA launch a judicial review against the disclosure.
He said disclosing the information will help investors who may have been victimized by unethical sales practices, to settle with banks.
"The public will know what the HKMA has found over the past months concerning the sales practices of banks. The public and the victims of the saga will know what constitutes bad sales practice, and know what practices are adopted by the banks," he said. "This helps us find out the truth."
Chan Kwong-yue, spokesman for the Alliance of Lehman Brothers Victims, supported disclosing the report.
"We will know more about the structural bad sales practices of banks," he said. "We will then know what kind of bad practices are recognized by the HKMA."
But Hong Kong Association of Banks chairman Peter Wong had reservations about disclosing the information.
"Clients' personal information may be contained in the report. This will affect Hong Kong's role as an international financial center because clients will not do business in Hong Kong if their information is at risk of being leaked," he said. "At this stage, we cannot see how the disclosure will help the tackling of the incident."
A spokesman of HKMA declined to comment.
Subcommittee chairman Raymond Ho Chung-tai told reporters after a meeting Friday that the subcommittee disagreed with HKMA chief Joseph Yam's argument that disclosing the portion would violate public interest, the Banking Ordinance, and affect the authority's investigation.
"The chapter six (the portion in question) of the report is not targeting at any individual bank and person. It only contains some general information," he said. "We believe that disclosing the information will help the investigation. The disclosure will only create positive impact, but not negative ones. It is more appropriate to disclose."
It is expected that the concerned portion is related to the problems observed by the HKMA in 238 cases.
The problems can be classified into five categories. Half of the cases are related to the sales of the products to elderly, persons with low education, or those who invested excessively in the products. Some of the cases involved inaccurate assessment of clients' capability to bear risk, others concern lack of signatures on documents.
But the HKMA has not reached any conclusion on these cases, and the Securities and Futures Commission is still following up.
The LegCo subcommittee will have an open hearing Tuesday, which will have Yam continue his testimony.
Kam Nai-wai, a subcommittee member, said a special meeting will be held should the HKMA launch a judicial review against the disclosure.
He said disclosing the information will help investors who may have been victimized by unethical sales practices, to settle with banks.
"The public will know what the HKMA has found over the past months concerning the sales practices of banks. The public and the victims of the saga will know what constitutes bad sales practice, and know what practices are adopted by the banks," he said. "This helps us find out the truth."
Chan Kwong-yue, spokesman for the Alliance of Lehman Brothers Victims, supported disclosing the report.
"We will know more about the structural bad sales practices of banks," he said. "We will then know what kind of bad practices are recognized by the HKMA."
But Hong Kong Association of Banks chairman Peter Wong had reservations about disclosing the information.
"Clients' personal information may be contained in the report. This will affect Hong Kong's role as an international financial center because clients will not do business in Hong Kong if their information is at risk of being leaked," he said. "At this stage, we cannot see how the disclosure will help the tackling of the incident."
A spokesman of HKMA declined to comment.
Survey: Job satisfaction of Singaporeans
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