I saw this article on The Edge Singapore website (click here for full article ).
It was a shocking piece of news.
No, it's not because of the lady standing to lose $250,000, which by any account is a lot a lot of money.
Now, she was upgraded to the status of "accredited investor" by the bank based on her assets.
According to the report, Singapore law allows banks to automatically classify individual investors as “accredited” if they have at least $2 million of assets or earned at least $300,000 in the previous 12 months.
According to Wikipedia, to be considered an accredited investor in the United States, one must have a net worth of at least one million US dollars, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year.
As an accredited investor, he or she enjoys access to certain financial products that are not available to retail investors. This also means that he or she is given a greater range of investment choices but also lose some of the protections as an ordinary investor -- such as restrictions on selling him or her certain riskier products.
Do you see the disconnect here?
Financial institutions have all the most advanced financial tools and professionally trained expertise on financial products. Yet, what makes them think that a person who owns $2 million of assets can afford to take higher risk?
Moreover, the assets they are talking about include property and car. When is car ever considered an asset? Unless you are talking about a vintage car, limited edition car or antique car, do you think the value of your car goes up or down as the years go by? Is property a liquid asset that can be converted into cash quickly when one needs to?
Even if a person earns $300,000 in the previous 12 months, does it guarantee he or she will makes the same amount this year in this volatile economic condition? What if he or she makes $300,000 but spends more than that?
Instead of looking at the assets of an individual or the income level, shouldn't they be looking at the risk appetite? Can he or she afford to lose all the money in the worst case scenario and yet not fall into financial difficulties? What about the level of financial knowledge an investor has and full knowledge of what exactly is he or she buying?
But hey, that would potentially reduce and limits the number of clients that banks can sell their financial products to.
HSBC said it stopped linking wealth-management relationship managers’ incentives to sales volumes since 2014.
In reality, what do you think they will do to those sales staff who did not hit the target?
Of course, when they upgrade you to the status of accredited investor, you can be sure they'll make you feel special and smart.