Exempt safe, indexed ETFs from new rules

Published in Straits Times Forum, 26 January 2012 

NEW regulations require consumers to get appropriate investment advice before investing in financial products that carry higher risks, such as structured products and investment funds.

However, they have the unintended consequence of preventing the online purchase of certain indexed exchange traded funds (ETFs) that are suitable for long-term investment. It is ironic that investors are allowed to make online purchase of individual stocks but are disallowed from investing in ETFs that allow them to diversify their risk over a number of blue chip companies that comprise the stock market index.

I recognise that some ETFs are invested in financial derivatives or are leveraged and are not suitable for investors who are not aware or not properly advised about the risks. But these risks do not apply to non-leveraged ETFs invested directly in the component shares of the stock market index. A few ETFs quoted in the Singapore Exchange meet this criterion and are safer than investing in individual stocks.

I suggest that the Monetary Authority of Singapore exempt the non-leveraged, indexed ETFs from the need to receive appropriate advice.

Tan Kin Lian
President
Financial Services Consumer Association