TODAYonline | Business | Structured products to be simpler

TODAYonline | Business | Structured products to be simpler

Stefan
Updated 11:40 AM August 26, 2010

Rather accidentally, I attended a seminar on structured investment products a few years ago. There were also a number of reps from MAS attending the same seminar. Going through the course material, it occurred to me that all those structures were essentially about the issuing bank getting financially naive clients into selling valuable optionality to the bank in return for a slightly higher coupon or capital protection. ALL these products are a rip off and the risk disclosures in the prospectuses totally sales driven and inadequate.

Confirming MAS' regulatory role wrt such instruments, one MAS representative told me later that the scope of their responsibility is to ensure that the prospectus is formally correct and not to protect the retail investor from buying such products... Investors who are offered such products (incl. old staples such as dual currency deposits) by their investment advisors or some bank staff approaching them while they are waiting for service in the bank hall should seriously consider taking their money elsewhere.

Investors should at least try to find out how much profit they give to the bank by asking how much the bank would pay them if they wanted to undo the investment immediately (e.g. next day) after they buy it. Promise: you will be surprised. You should also let them run a number of stress scenarios to gauge the risk on your investment if the market underlying your investment moves against you.