Cases of Questionable Sales

Investment advisers
Financial intermediaries


Unsuitable recommendations can bring you substantial financial losses. Below are a few cases in which the basis of the advice appears questionable given the clients' specific circumstances.

Example 1: A novice was sold a complicated investment product

An unconventional unauthorized fund was sold to an investor with very limited investment experience. The amount of investment accounted for nearly one-half of the investor's total net worth and there was no apparent reason why this unconventional fund was considered appropriate for this investor.

While the client had signed a pro-forma statement declaring that it was he who had requested to invest in the product and that he fully understood the offering document, there might be ground for scepticism. First, the offering document was a highly complex technical document. Second, by concluding the transaction, the sales staff earned a commission rebate that was double the amount that he would otherwise have earned from recommending other products to the client.

Example 2: A novice was advised to gear up his investment

An investor in the lower income bracket and only a few years away from retirement age was advised to invest more than 50% of his total net worth in a particular fund and pay the balance of his investment by bank borrowings (at almost three times gearing). The bank obtained security on the investment to secure repayment of the bank's debt. The obvious concern was that the investor might not have sufficient resources to meet the necessary financial obligations. Given that this particular fund happened to offer high commission rebate to the sales staff, there was again this issue of perceived conflict of interest.

In the past, some investors who had highly geared investment portfolios were required by their banks to repay their loans, in whole or in part, when their investments declined in value. When they could not meet the banks' demand for payment, these investors were obliged to liquidate their investments and suffered substantial losses in the circumstances.

Example 3: An elderly investor was sold a product with long lock-in period

A 90-year-old investor was sold an investment product with a long lock-in period e.g. five years.

Whilst there was no problem with the product itself, it was questionable why the long lock-in period was considered suitable for an investor who was 90 years old.

Be a smart and responsible investor

To protect your rights, it is important to ask the investment adviser why the recommended products are suitable for you given your circumstances, what are the risks and how are these consistent with your risk tolerance.  As a rule of thumb, always do your own research to understand the features and risks of the products. Do not solely rely on third parties’ recommendations to make your investment decisions.