Look Before You Leap

Case Study: Four friends registered for a preview seminar on options trading. Two signed up for the actual course after attending the preview seminar. After 3 years, one gave up trading options after incurring huge losses while the other is still struggling to make a profit. Upon reflection, one of the friends who did not sign up for the course felt that the trainers at the preview seminar did not present a balanced perspective on options and had focused only on a few main attractions: leverage or the potential to make large gains with little upfront cash; the potential for limited loss and unlimited gains and the potential to make profits under all market conditions.

Participants often have mixed views about the effectiveness of these investment seminars and courses. There had been skepticism about claims of easy money made. Some participants shared that they have lost money in addition to paying hefty course fees up front. Others sought refunds from the seminar organizers, failing which they approached CASE and the Small Claims Tribunal for recourse. There were also complaints of hard-selling tactics and being misled when expectations were not met. However, there were also instances of participants who found such courses useful.

This article explores what to look out for before signing up for such courses or seminars. Below are some questions you should ask yourself before signing up for such courses/seminars/products:

• Am I suited to fast-paced transaction-making?

If you are contemplating learning to invest in a product new to you, consider whether the product and the effort required is suitable for you. For example, trading in options or foreign exchange can be fast-paced, requiring round-the-clock vigilance on the market and quick decisions to be made. Not everyone will be suited for such demands or able to devote the required time and attention. Understanding how the markets for such products require much effort and such knowledge does not come instantly too. The same applies to other investments.

• Are these returns realistic?

Some returns are obviously outrageous while others appear exceptional, but still plausible. Without knowing the underlying investment or the risks associated with the investment, it is difficult to assess what the expected return should be. Do take time out to research the asset class, e.g. stocks, foreign exchange or bonds, that you are interested in. Do note that although past performance is not necessarily a reliable indicator of future performance, you will at least have some feel for what is plausible.
Generally, the higher the returns, more risks will be associated with the investment. Do ask questions and make sure you understand what the investment is all about. For example you should ask how returns are generated, what factors or risks can impact the returns and what the costs are. The investment should also be aligned to your financial goals. If you are not clear or feel that you are unable to assess all this, then perhaps the product is not for you.

• Did I feel compelled to sign up?

Aggressive sales tactics can be subtle. Sieve out anything that might come across as an enticement such as encouragement not to get left behind, a free gift or something else that might appeal to you in some other way:
- "This opportunity / membership / product is offered at a special rate now, for a limited period only."
- "Many people have signed up for this. What are you waiting for?"
Here are some tips when dealing with aggressive sales tactics:
- Make sure you know something about the person you are dealing with. At least, get his name, the company he represents and contact details.
- Never rush into a decision. Take your time to understand what is being recommended (returns, risks and costs). You can always ask for more information or a follow-up call.
- Before you make an investment, consider if it is in line with your financial goals, risk profile and personal circumstances.
If you are not interested, say "No" and end the conversation promptly, even if the contact person had been very courteous or had spent a long time explaining the investment or course to you.

• Is the person licensed by MAS?

Do check if the person and the product or scheme he is offering is regulated by the Monetary Authority of Singapore (MAS). MAS’ regulatory regime aims to safeguard the interests of retail investors by requiring that
- regulated persons and the schemes they offer comply with business conduct standards; and
- regulated persons are fit and proper.

Do note that if you choose to invest in unregulated schemes or deal with unregulated persons, such schemes and persons do not come under MAS' purview and are not subject to MAS' regulations.
In addition, you may also not be able to take any action against him at all if the person does not have a physical presence in Singapore or cannot be traced. Further, if you have a dispute with such a person, you would not be able to seek assistance at the Financial Industry Dispute Resolution Centre. 

Here’s what you can do to establish the identity of the person you are dealing with:

• Ask for the person's name, his company’s name and contact details These details will help if you need to lodge a complaint later.
• Check the Financial Institutions Directory on www.mas.gov.sg for a list of financial institutions regulated by MAS. Be sure to note what activities it is authorised to conduct in Singapore. 
• Check the Investor Alert List on www.mas.gov.sg which is a list of persons whom MAS has received information on as undertaking financial services without being licensed or authorized by MAS.  It includes those claiming to be based in Singapore, as well as those based overseas.  Bear in mind that this list is not exhaustive.
• If the entity is based outside Singapore, do check with the respective overseas authority if the entity is regulated.  Usually such entities claim to operate from well known financial centers and to have offices world wide.
• Find out as much as you can about the firm and its staff before you part with your money. Find out more about its track record and the background of the key people running the operation.  Make it a point to meet with the representatives.
 
Conclusion

We are all responsible for our own decisions, investment or otherwise. Do take time to make sure your decisions are made with a full understanding of the product and your own financial needs. Never be afraid to reject someone’s offer outright if you feel uncomfortable about. Afterall, it is your hard earned money.
For more information, refer to the following alerts on www.moneysense.gov.sg
• If It Is Too Good To Be True, It Probably Is
• Pitfalls of Dealing With Unregulated Persons
• Protect Yourself Against Bogus Investment Opportunities
If you require CASE’s assistance and advice, please contact CASE at  64611811 or email CASE at sayit@case.org.sg.

This article was contributed by the Consumers Associaton of Singapore (CASE) as part of the MoneySENSE national financial education programme.