10 Jan 2025
SOURCE: CPF Board
Financial decisions such as retirement planning and growing your money can be made easier with financial advisers. These professionals help to provide guidance to build wealth and secure the financial future of their clients.
Just as there are dedicated individuals who prioritise the interest of their clients, there are also those who may engage in questionable practices that are driven by sales targets or commissions.
With the announced closure of the Special Account (SA) in 2025 for those aged 55 and above, there has been an increase in the promotion of retirement planning products.
This has unfortunately led to concerning sales practices where investment products promising unrealistic yields of 6% to 12% are promoted as low-risk options. These products incorporate high-yield bonds and options, which typically carry greater risk.
There have also been reports on individuals who have received calls from financial advisers promoting various investment products, often accompanied by misleading claims with inaccurate comparisons between private products and CPF LIFE payouts. One example is the inaccurate claim suggesting that interest would not be earned on CPF LIFE premiums.
In this article, we'll explore three major red flags to watch out for when choosing your financial adviser, with expert insights from Ms Eunice Chua, CEO of the Financial Industry Disputes Resolution Centre Ltd (FIDReC) - an independent and impartial institution that aims to solve disagreements between consumers and financial institutions.
Red flag #1: Unrealistic investment proposals
A major red flag involves investment proposals that seem too good to be true. Ms Chua highlights several warning signs to watch out for:
Risk-free high returns
Any promise of high returns without corresponding high risks should be treated with extreme scepticism. While higher returns are often correlated with higher risks, there is no guarantee for such investments.
No written information provided
A lack of detailed product information or an adviser's reluctance to provide it in writing should raise serious concerns.
Unverified credentials
Always verify that your adviser is a registered financial representative and works with a MAS-licensed institution. You can check this information on the MAS Register of Representatives and the MAS Financial Institutions Directory.
Making sound investment decisions
When evaluating investment opportunities, Ms Chua emphasises looking beyond just returns. Consider the following too:
Your financial timeline
Assess both short-term and long-term financial needs before making investment decisions.
Risk tolerance
Understand your risk comfort level and recognise that some products are long-term investments where early termination can lead to significant losses.
Do not sign documents blindly
Some financial advisers may provide investors with a blank form and instruct them to sign it while the adviser completes the remaining information. An important rule of thumb is to never sign documents without reading and understanding them fully. Your signature indicates that you've read, understood, and accepted all terms.
Red flag #2: High-pressure sales tactics
One of the most concerning signs when dealing with a financial adviser is the use of pressure tactics to influence your decisions. According to Ms Chua, these tactics can take various forms:
Premature product pitching
Some advisers may start promoting product benefits and potential returns before conducting a proper financial needs analysis. This "hook first, analyse later" approach suggests they're more focused on making a sale than understanding your needs.
Technical Jargon Overload
Using complex technical terms without proper explanation can be a deliberate tactic to confuse or intimidate clients into compliance.
Artificial urgency
Watch out for advisers who create a sense of urgency by emphasising "limited-time offers" or "exclusive promotions." This is often a tactic to play on your fear of missing out (FOMO) and push you into making hasty decisions.
Misleading bundle claims
Some advisers might falsely claim that certain products are mandatory requirements or come packaged with other services you're interested in. This is a deceptive practice that should raise immediate concerns.
How to protect yourself
To guard against high-pressure sales techniques, Ms Chua recommends several protective measures:
1. Take your time
Never feel pressured to make immediate decisions. It's perfectly acceptable to tell the adviser you need time to think things over. Repeat this assertion as many times as necessary.
2. Do your due diligence
Use this time to conduct independent research, compare alternatives, and seek advice from trusted sources.
3. Remain firm and direct
If you're uncomfortable, say "no" firmly and remove yourself from the situation. You don't owe anyone an explanation for protecting your financial interests.
4. Report misconduct
If you encounter high-pressure sales tactics, file a complaint with the financial institution and report the misconduct to the Monetary Authority of Singapore (MAS).
Red flag #3: Questionable communication and behaviour
The third red flag category involves concerning behaviours and communication patterns from financial advisers. Ms Chua identifies several warning signs:
Resistance to written communication
Be wary of advisers who insist on in-person or phone conversations only and refuse to put things in writing.
Vague responses
An adviser who can't or won't answer questions directly and clearly may be hiding something or lack proper knowledge.
Unsubstantiated claims
Be cautious of advisers who make hyped-up predictions about market performance and “sure” or “guaranteed” returns without these being backed up by data or documentary evidence.
Essential questions to ask your financial adviser
To ensure you're receiving appropriate financial guidance, Ms Chua recommends asking your financial adviser these five useful questions:
1. "What are the risks involved with this product?"
2. "What are all the fees and charges?"
3. "What's the maximum loss I could face in a worst-case scenario, and how might that happen?"
4. "Can I cancel or modify this product early without penalties?"
5. "How specifically will this product help me meet my financial goals, both short-term and long-term?"
Selecting the right financial adviser in Singapore
A good financial adviser should prioritise understanding your needs, be transparent about risks and costs, and never pressure you into making immediate decisions.
If you are looking for a financial adviser to entrust with your hard-earned money, take the time to find one who demonstrates these qualities and shows genuine concern for your financial well-being.
---
Ms Eunice Chua is the CEO of the Financial Industry Disputes Resolution Centre Ltd (FIDReC). Prior to her appointment at FIDReC, Ms Chua was an Assistant Professor at the Singapore Management University School of Law. She remains a Research Fellow of the Singapore International Dispute Resolution Academy at the School.
The information provided in this article is accurate as of the date of publication.
