Sales ethics?

The current financial saga have lead consumers like me to think, is the front line staff at the bank or financial insituation well equip to serve our best interest?

Although this article would attempt to increase the rights and protection of the common consumer. Do keep in mind that it is the responsiblity of we the consumer to do some homework and it is in the mind of the bank to make profit, so keeping the balance between consumer power and power of the FI is not an easy task.

Below are some suggestions. Some of which may have been implemented by certain FI. Do bear with me if there are repeats. The seller shall be called RM. The rules are not arrange in any order.

1. The seller of the products bears full responsiblity for everything he said and for everything that is written on the prospectus.
2. Should there be a conflict between what was said and what was in the prospectus, what was said would dominate.
3. All fine prints must be explained to the client. This include their meaning, their impact on the investments, and other information deem important by the RM
4. All returns are to be stated in annualized terms and in local dollars.
5. If risk adjusted return is use, the risk that is use must be clearly stated. RM must explain the differences between the various risk that can be use. This is irregardless of whether the FI use them or not.
6. Bench mark for comparision must be clearly stated. This include the rationale, the period of comparison etc.
7. RM must truely understand the products they are selling. This include the risks. The risk must be explained to and fully understand by the client. RMs cannot reply on fine prints or the prospectus to explain risk.
8. RM would be held liable for everything that is deem material, and was not communicate with the client directly. By directly it mean face to face contact. Material information include information that may be beyond access by the RM. It is the RM responsiblity to make sure that all the material information are at their finger tips. Material is any information that may impact decisions about the investment, directly or indirectly, now or in the future.
9. Do not use returns as a mask for risk. A statement such as "although the risk is high but look you earn super high returns"
10. Do not use risk as a mask for returns. "This return is low, but afterall it is a risk free investment"
11. If an investment is capital protected. Explain how much of the captial is protected and under what circumstances it would now. Also tell who protect the capital and what methods or tools did they use to protect the capital.
12. Explain the investment methods and techniques. This include asset selection methods, asset allocation methds, how performance is measured and monitor, etc
13. Explain risk management. This include how risk is measured and managed. This also include what the manager would do in event of unexpected occurace such as serve counterparty loss, natural disaster, bankrupcy etc.
14. All direct risk must be explain to the client. Indirect risk must be mention, the client can however request a deeper explaination on indirect risk. Direct risk are credit risk, market risk, liqudity risk, foreign exchange risk, structure risk. Indirect risk are operation risk, counterparty risk, model risk, counter party risk, and other risk that is deem indirect. Any risk whether classified as indirect that directly impact decision making and directly affect investment value is to be classified as direct.
15. All risk must be mention, this is irregardless of whether they are known or not. If risk is uncertain, the uncertainties must be explain to the client. This also include methods in which the manger would managed the uncertainties.
16. The prospectus should be sent to the client at least 48 hours before the meeting
17. After the meeting the client would have 24 hours to look at the prospectus without interuption
18. During the 2nd meeting, RM must reconfirm that the client understand the products and the risk.
19. after signing the agreement the client would have 240 hours to cancel the investment at no cost.
20. What appears in the contract must be the same as what is in the prospectus. If there is conflit, the prospectus material would dominate
21. A though return and risk analysis must be done in order to determine the suitablity of the products for the client
22. A total portfolio concepts must be look at. The RM would be liable for loss that affects other investments in the portfolio even if that investment is not under the RM mandate and or the client did not disclose the investment. It is the RM to discover the total portfolio of the client. In events that the total portfolio of the client cannot be discovered, a proper documentation stating the steps the RM has take and the consequences of not having a total portfolio view must be clearly communicate to the client.
23. Investor past experience does not indicate his risk ability and torrelance
24. RM must stick to the investment process statement or what ever statement the bank calls it. No chances in methods or allocation can be made without written consent of the client.
25. The RM must disclose all direct and indirect compensation that is resulted in the sales of products. Such as commission and any direct or indrect compensation including performance bonus
26. RM must explain the role of his company in the product, this include being a market maker, a trust manager etc.
27. RM must explain any conflict of interests. This include RM owns the products, is about to own the product or owns the products previously.
28. RM must obey all rules laid by the authorities like MAS at all time. In event where there is conflict the stricter law would dominate. If unable to decide which law is stricter, the authories would be followed.
29. Clients goals, constraints, needs must be acess and respected.
30. If there is conflict between goals and risk, the client must be educated.
31. It is the responsiblity of the RM to inform the client that the product invested and the portfolio consructed would change in performance when market changes. Down market performance of the portfolio and product must be explain to the client.
32. Any material changes made to the investment, investment process, performance measurement, risk management must be communicate with client over the phone and voice logged. Any indirect material change can be mailed or email to the client.
33. The structure of the investment must be explain to the client. This include how the investment is structure and the flow of Cfs from one party to the other. For example all the traches, and party of a CDO structure investment must be explained. This include what would happen if one party default. If other tranches have priority claims to the cfs or if the tranches that client invested provide protection of any kind this is direct risk. If the tranches that client is investing is protected, who and which is giving protection and the consequences if the protector fail must be clearly communicated to the client. This again is direct risk
34. Client must be updated with product changes at least every 3 months by writting.
35. Client IPS must be updated and review every one year at mininium.
36. When investment matures, RM would no longer allow to reinvest at their will. Normally RM would roll over the investment in some fixed deposit account. For now unless the client agreed in both writting and speech, the mature investment would be credited to client current account. If client have no current account, the RM must inform the client to do other arrangements.
37. Do not use comparision as a tool for marketing the product. "Our fund out performe 10 funds in singapore in sharpe ratio". "look at how much you are losing out if you put your money in the fixed deposit that pays only 1.5%, while our investment reap you an average of 4%". The first statement can be made if the comparision is clearly define to the client including how the benchmark is selected and how the performance is being measured. The second statement or that of similar nature must not be made. This is simple because it make the client think that the product is superior without him understanding the risk that make the product superior.
38. Everything said and written must be base on facts. Statements like "due to my 20 years of experience this investment is a winner" must never be made
39. Reputation is no longer use as a risk management or mitiagation tool. statement such as "I personally gurantee this investment" or "My company is very well establish and financially sound" must not be made. You do not have to tell client your company is well establish the client would know that. If he is in doubt he would ask and you can expain to him.
40. Do not use agressive sales tatics. This include but is not limited to. Interupting the client in any means (including excessive coughing), when he is reading the prospectus, over emphasising on returns, talking too fast, talking too slow, rushing the client, staring at the client when he is reading. Statements like the following are agressive. "if you dont invest now the oppunity would slip." "you should invest as many people are investing in this product" "this offer is for limited time only." "if you dont invest you may not meet your financial goals" "look at this grandmother who did not buy a good investment and end up living on cardboards" "better buy the insurance now, or one day you may be face with the trouble of being rejected by an insurance company" "all my investment have made money for you in the pass, you should trust me on this one" and so on.