Independent financial advisers are not able to compensate investors

Dear Mr Tan,

I am an independent financial adviser rep who was spared the ordeal of this Minibond saga as my firm was unable to market structured products.

As a bystander, I commend for your effort in standing out for the individual retail investors who would otherwise be taken advantage by big financial organisations.

I am indeed impressed by your dedication in this whole entire episode, esp on how the statement to financial institution should be written. It was simple and comprehensive to most
adults.

While I have no doubts that any act of mis-selling should be punished and appropriate compensation should be made to retail investors. I think some of my industry players in the IFA industry may have to file for bankruptcy if they have to compensate their clients.

As you may not be aware, most of them are not very profitable and in this current environment when revenues are decreasing and rental costs are hiking, this minibond saga has put them into bigger trouble. Unlike the banks with deep pockets, most IFA firms have little capital to withstand this crisis.

On the individual adviser representative level, what's worse is that as each financial adviser representative is individually licensed, that individual is also liable for any compensation and unable to hide under any corporate veil. I am not sure if professional indemnity insurance could be used in this case. If not, the impact would be equally catastrophic.

These individual advisers became insurance companies to their clients just like the investors who invested in the minibonds.

I am not against your actions and in fact very impressed with it. But I just feel that some of the casualties in this crisis were actually ppl who actually wanted to do a better job than the banks by providing independent and objective advice. But they were caught in this mess. I sincerely hope that they can survive this ordeal and become stronger.

You can quote my reply in your blog but please do not quote my name as I do not want to be seen as gloating over my competitors. I want to remain sensitive in this current environment. There is no need for me to make enemies. Everyone is only trying to make a living.

Regards.

REPLY
I believe that the professional indemnity insurance covers negligence. If the representative was negligent (and not fraudalent), it should be covered by the insurance. The firm should also be protected by insurance.

However, if they were fraudalent (i.e. they knew the risk but deliberately misrepresented them), then the cannot expect to be compensated by the professional indemnity insurance.