Financial Conman

NEVER deal in cash.

Misappropriation of funds is the top complaint against private retirement scheme and unit trust consultants, according to the Federation of Investment Managers Malaysia.

The federation, its spokesman says, views very seriously complaints of consultants receiving cash from the investor and not remitting the money to the fund management institution.

Consultants aren’t allowed to receive cash under any circumstances because it doesn’t leave an audit trail. At least if a deposit is made into a consultant’s account, the deposit slip can be used as evidence if there’s any hanky-panky going on, the federation spokesman explains.

While accepting cash is a breach of conduct, absconding with the investor’s money is criminal embezzlement. If any of the country’s 50,000-odd consultants are found guilty of receiving cash and embezzlement, they will be de-registered and barred from dealing with investors indefinitely, he assures.

Getting investors to pre-sign or place their thumbprint on investment forms to transfer funds from their Employees Provident Fund (EPF) account for investment under the members investment scheme, he reveals, is also a problem.

“EPF allows you to transfer your money for investment purposes once every three months. Some consultants get the investor to sign forms authorising the transfer and investment ahead of time. There are also those who lie to the investor, claiming that the additional forms are a ‘back up’ in case the first set is rejected. In reality, these unscrupulous consultants are using the forms to further invest without telling the investor,” he says, adding that the federation has a complaints management and disciplinary committee that deals with complaints.

Securities Industry Dispute Resolution Centre CEO Sujatha Sekhar Naik laments how investors want to make money but refuse to put in any effort to understand and monitor their investments. People are blinded by the promise of high returns. And it’s the educated ones who are signing their money away. Their excuse is that they have no time to read the documents, she sighs.

“Yes, it’s more convenient to sign stacks of blank forms but if you want to invest, surely you must do some work. Cash is the biggest way to perpetrate a fraud.

“Even if the consultant is a friend or relative, there’s no guarantee that the cash or cheque is going into your investment account. You can trust them with many things – just not your money.”

Most of the issues that the dispute resolution centre sees stem from disgruntled investors who didn’t read what they signed. They only look at the documents when a problem hits.

Thinking about and taking responsibility for your money isn’t something you can delegate to anyone, Sujatha says. And asking questions is something Malaysians just don’t do enough.

“When you go to the market to buy fish, you look to see if it’s fresh. You check the eyes and take a sniff to gauge its freshness. Why is it when it comes to signing forms and parting with a lot of money you’re not as careful?”

Advising the public to only invest their disposable income, she says dipping into an emergency fund or using money set aside for daily expenses for investment could land you in debt. And she tells investors to take their business elsewhere if a consultant refuses to entertain their queries.

While the Federation of Investment Managers Malaysia represents industry players, it also plays a regulatory role in ensuring that all consultants are qualified before they are licensed by the Securities Commission, its spokesman points out.

“When we receive a complaint, we are impartial. But we only deal with the conduct of our consultants. If you have a monetary claim, you’ll have to go to the dispute resolution centre or initiate civil action in court.”

While there are only a few bad apples in the industry, the federation is adamant about being transparent. Details of errant consultants are online for all to see (fimm.com.my). Promoting professionalism is high on the federation’s agenda, its spokesman insists.

Besides sitting for an entry exam, every consultant must undergo continuous professional development through courses and seminars for their yearly licence to be renewed. Plans are also underway for consultants to have access to e-learning and investment planning courses. This, he says, is to prevent them from becoming mere “product pushers”.

“This is aimed at further boosting professionalism in the industry. Consultants tend to highlight the returns rather than the risks of an investment. We want professionals who can analyse the financial state of investors and give sound advice based on a fund’s risks,” he says, adding that a social media video animation of investor “dos and don’ts” is being produced to raise awareness of financial literacy.

The federation has also introduced a guide to simple language and effective drafting practices for the industry as some of the terminology and financial jargon in brochures are too technical for the lay person. “We’ll be seeing more user-friendly content soon. Brochures that are very complex put people off so hopefully this will make things better,” he says.

The dispute resolution centre’s Sujatha reminds investors to always clarify terminology if they’re unsure. If anything is guaranteed, find out what exactly it applies to and make sure it’s in black and white.

“For example, ‘capital protected’ just means that the approach to managing an investment will take into account that you are conservative with your money. It’s not a guarantee that your money will be safe from market movements. You can still make a loss.

“And ‘capital guaranteed’ just means you’ll get the capital invested back. Profits are still subject to market performance,” she explains.

Lauding the EPF’s move to remove the 30% foreign securities cap under the members investment scheme, the Federation of Investment Managers Malaysia says it will see over 100 funds being offered to investors soon. The advantage is that EPF members can now put their money in other countries to diversity their investments.

Asked if investing in foreign markets is riskier, the federation’s spokesman says asset class is more a factor than the location of investment.

“Whether the risk is greater depends on the asset class. If you’re investing in equity funds in Malaysia and you do the same abroad, the risk profile is the same. Other markets have their own regulators. It’s just a diversification of markets.

“If your money is concentrated in one market – for example, Malaysia – and the market tanks, you’re exposed 100%. But if you have investments in other markets, the loss is mitigated.”

What’s more important is for investors to look at the fund manager’s strategy. It’s a case of “buyer beware”, the federation spokesman points out.

Investors, he says, must also know how much they are being charged for investing.

“Charges differ depending on whether you invest with a consultant, online or with a bank. You’ll have to pay more if you go to a consultant because of the level of service you get. This includes going to your doorstep to collect forms and advising you on the products.

“If you buy online, it’s cheaper but this is only for savvy investors.”