Spotted in today's ST:
"Risks listed in bold, but...
Investors went ahead despite clear warnings
By Lorna Tan
MUCH has been written about the sad plight of investors who have suffered hefty losses after buying doomed investment products linked to bankrupt US investment bank Lehman Brothers.
But little so far has been mentioned of the warnings of the risks involved which were printed clearly and unequivocally on key documents provided to investors.
Of course, it is devastating for an investor to be told his nest egg is now worth nothing, or close to nothing. After all, the main motivation behind making an investment decision is to make money.
At the height of a stock market bull run, it is easy to get caught up in the euphoria of snagging a seemingly sure bet - and just as easy to play down or even ignore potential risks. The rude reality sets in only when one realises, albeit too late, that the investment was not as it seemed.
One question being asked is whether warnings that came with products like DBS Bank's High Notes and Lehman's Minibond series were clear enough. And if they were, can financial institutions really rely on them to absolve themselves of blame?
On the first issue, a close look at the marketing material for these products shows investors could have claimed ignorance of the risks only if they had simply not read the literature.
Many consumers generally dislike reading the thick prospectuses or instruction manuals that come with most sales transactions.
But in the case of these failed investment products, there was no need to plough through pages or to scrutinise the fine print, to learn about the risks.
For instance, this was on the front cover and first page of the DBS High Notes 5 pricing statement: 'If a Credit Event or a Constellation Event occurs before the Maturity Date, investors may lose their entire investment and may not receive any principal amount on the Notes'.
In other words, the investment could become worthless under certain circumstances.
To attract the attention of investors, it was even printed in bold.
Also, on page four under the scenario analyses segment of the same document, this was stated for the worst scenario of a credit event occurring under their reference notes: 'If a credit event, for example, bankruptcy, occurs under the reference notes on the day...the Notes will terminate immediately and the investor will receive zero payout.'
This is part of the main text on a page by itself along with two other scenarios relating to early redemption and if the notes were held to maturity, respectively. There was a similar layout for the Chinese version of the product description.
A similar warning was printed on the cover of the pricing statement of Lehman Minibond Series 3: 'There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes.'
And on page three of the same document, it said 'the Notes are not principal protected nor capital guaranteed'.
As we now know, the worst case scenario has happened - the bankruptcy of Lehman Brothers and the triggering of credit events that have subsequently made these investments almost worthless.
To be fair, the risk and its consequences would have been plain to see for investors who took the trouble to read a few pages of the literature.
So why didn't they? Why did investors go ahead with these investments despite the warning labels?
The answer goes to the heart of the current debate about who or what is exactly to blame for the investors' predicament, and whether the presence of these clearly labelled risks alone absolves financial institutions of wrongdoing.
Here are some possible reasons:
· According to some investors, the product prospectus and pricing statement were given only after the point of sale when the customer was already convinced to buy.
· Investors have also said that they trusted their relationships managers so much that they simply went with whatever was recommended and did not bother to read the documentation.
· Others say the risk of the worst case scenario happening was played down by relationship managers who genuinely believed at the point of sale that the possibility of a credit event was close to zero.
· Finally, it is possible that investors were aware of the risks but decided to go ahead as they themselves believed that the possibility of a credit event or the product issuer collapsing is very low.
Whatever the reason and whoever is to blame, the lesson here is that investors need to take their investment decisions more seriously.
Investment advisers routinely offer these basic tips: Firstly, understand your own investment objectives and risk appetite and ask yourself if the product is for you.
Secondly, never put all your eggs in one basket.
Last but not least, find out what is the worst- case scenario and ask yourself honestly if you can stomach that risk.
And the answer to that is definitely worth a read." (emphasis added)
I am sick and tired of the whining. Quit whining. Seriously. Ok, you lost your money - boo hoo. But the fact of the matter is, unless you can prove that the pricing statement was not given to you before you purchased the product, or that you are illiterate (and not just poorly educated) and the relationship manager did not explain the risks to you, then you should not come crying over spilt milk.
I sympathise with you and I'm sorry to hear about your loss. Really. But that's all. Save in the two circumstances laid out above, there is no basis for people to now cry foul and demand for compensation from the banks or the government. Why should the banks or the taxpayers be subsidising your own unfortunate decision to buy a product with the risks clearly spelt out? You chose to take the risk, so be gracious and accept the loss.
There is always risk in investment. If you go to a casino and lose all your money, are you then in a position to demand that the casino or the government compensates you? Surely not. And the same applies to this situation. You lost the gamble. Sorry. If you are literate and didn't bother to read the pricing statements, then too bad for you. People slog to draft these things, and if you can't be bothered to read, then you can't expect anyone to bother with your whining when you lose.
Labels: commentary, news, The Straits Times