I previously suggested 3 basic, must-ask questions for a unit trust consultant whom engages you for investment products sale.
Before continuing to read further, you need to realize that any investment carries its own unique risk. If you are not at this stage yet, then you will always look for a guarantee before putting your money into any investment vehicle. It is true that FD returns are guaranteed*, but no one ever got successful in wealth accumulation by putting money in FD alone. Prudent investment decision is about minimizing the risk of monetary losses, not by avoiding the risk.
We always blame financial agents for their promises made on the investment returns which cannot be fulfilled. I am starting to think that agents are unintentionally and indirectly "coerced" into giving the misleading info in their sales pitch due to the the fact that people always want a guarantee in any investment. In other words, it could be our own's doing! Of course, given the fact that the agent whom you are dealing with is a competent UTC, not purely a sales guy focusing solely on meeting his sales quota.
That's totally absurd.
So what would you do?
In selling investment products, you probably have downplayed the risk involved, and highlighted the potential returns - which was what the client wanted to hear. 2 years down the road, during a downturn in business cycle, you client questioned you when his portfolio shrunk. He accused you of being incompetent or worst, deceitful. It's a lose-lose situation, your client is now upset because he loses money, while your reputation goes down the drain. Although this seemed like your own doing, it is not. The real root cause is that the "irrational" public wants an investment which yields high return with zero risk factor. In my mind, there is only one scheme fits this description - Ponzi scheme or the Bestino Golden House Gold Scam.
The Investors' side of the Story
The win-win solution to this, from buyers' perspective.
Ask your financial agent if he invests his own money into any fund he is recommending to you. And ask him WHY.
A good financial agent who has his own money invested in means he believes in what he is selling. It is probable that he has done the due diligence himself. I will ditch the financial agent if he does not walk the walk. Ask him to show you how much he's invested in any of funds for the UTMC he is representing. Well, it's true that he is not obliged to disclose his whole investment portfolio but I am not asking too much here - just the specific fund(s) he is proposing to you, not his whole portfolio. What if he still refuses? Well, don't you get suspicious if a financial agent's money is not into any funds he is recommending to you? That is akin to a chef not eating his own cooking. It's disturbing. Disappointing, to say the least.
What are your opinions, readers?
A little disclaimer here, I am a UTC of OSK-UOB Investment Management Berhad. However, I am not actively prospecting; as the initial reason I became one is getting a 20% discount off my CFP course lecture and exam fees. I only channeled my own EPF savings into Kidsave Trust, a Balanced Fund for upfront fees of 1.35% which is even lower than Fundsupermart. Kidsave Trust is one of the fund with relatively strong performance, high resilience and low expense ratio. It is on FundSupermart recommended list.
*Fixed Deposits are guaranteed by PIDM (Perbadanan Insurans Deposit Malaysia), up to RM 250k. Unit trusts are not. So what makes you think anyone can guarantee you a return even in the lowest risk unit trust fund?
Before continuing to read further, you need to realize that any investment carries its own unique risk. If you are not at this stage yet, then you will always look for a guarantee before putting your money into any investment vehicle. It is true that FD returns are guaranteed*, but no one ever got successful in wealth accumulation by putting money in FD alone. Prudent investment decision is about minimizing the risk of monetary losses, not by avoiding the risk.
We always blame financial agents for their promises made on the investment returns which cannot be fulfilled. I am starting to think that agents are unintentionally and indirectly "coerced" into giving the misleading info in their sales pitch due to the the fact that people always want a guarantee in any investment. In other words, it could be our own's doing! Of course, given the fact that the agent whom you are dealing with is a competent UTC, not purely a sales guy focusing solely on meeting his sales quota.
The Agent's side of the Story
Even if you are an honest man trying to make a living by working as an insurance intermediaries or UTC, you will face a problem if 9 out of your 10 clients require a guarantee on their investment return before committing their money. You will be in a dilemma. No way you can convince your client to invest his/her money with you if you disclose all the risks involved. Asking your client the amount of money he can afford to lose to judge his risk appetite (before recommending the appropriate unit trust class) is NOT going to help you close the deal. This is a classic Catch 22 scenario - you client demands high returns, yet he also needs a guarantee not to lose ANY money.
That's totally absurd.
So what would you do?
In selling investment products, you probably have downplayed the risk involved, and highlighted the potential returns - which was what the client wanted to hear. 2 years down the road, during a downturn in business cycle, you client questioned you when his portfolio shrunk. He accused you of being incompetent or worst, deceitful. It's a lose-lose situation, your client is now upset because he loses money, while your reputation goes down the drain. Although this seemed like your own doing, it is not. The real root cause is that the "irrational" public wants an investment which yields high return with zero risk factor. In my mind, there is only one scheme fits this description - Ponzi scheme or the Bestino Golden House Gold Scam.
The Investors' side of the Story
The win-win solution to this, from buyers' perspective.
Ask your financial agent if he invests his own money into any fund he is recommending to you. And ask him WHY.
A good financial agent who has his own money invested in means he believes in what he is selling. It is probable that he has done the due diligence himself. I will ditch the financial agent if he does not walk the walk. Ask him to show you how much he's invested in any of funds for the UTMC he is representing. Well, it's true that he is not obliged to disclose his whole investment portfolio but I am not asking too much here - just the specific fund(s) he is proposing to you, not his whole portfolio. What if he still refuses? Well, don't you get suspicious if a financial agent's money is not into any funds he is recommending to you? That is akin to a chef not eating his own cooking. It's disturbing. Disappointing, to say the least.
What are your opinions, readers?
A little disclaimer here, I am a UTC of OSK-UOB Investment Management Berhad. However, I am not actively prospecting; as the initial reason I became one is getting a 20% discount off my CFP course lecture and exam fees. I only channeled my own EPF savings into Kidsave Trust, a Balanced Fund for upfront fees of 1.35% which is even lower than Fundsupermart. Kidsave Trust is one of the fund with relatively strong performance, high resilience and low expense ratio. It is on FundSupermart recommended list.
*Fixed Deposits are guaranteed by PIDM (Perbadanan Insurans Deposit Malaysia), up to RM 250k. Unit trusts are not. So what makes you think anyone can guarantee you a return even in the lowest risk unit trust fund?
@LCF, I agree with you 100%. There is alot of people expecting HUGE gains with zero/low risks. This is something almost impossible.
ReplyDeleteBeing a UTC, has its advantage of getting discounts for various professional courses which can be very expensive on certain modules.
Low upfront fees is always good :)
Now , i see a trend from local banks to push for Fixed Deposit campaigns/products. Maybe it is a sign that the housing loan (lucrative) is getting dried up?
:) Thanks Kris. Yea, a lot of engineer friends fall under this category of people expecting Huge gains w/ zero risks.
ReplyDeleteI wonder what is the value proposition for FD products when bank try to market those? You could be right as I also read from BTimes they expect BLR to go down by 20-30 basis points by next year. And now, housing loan eligibility is based on net income instead of gross income.