Wise moves by the Central Bank

Financial regulators are getting more serious about questionable products and services

Long-term financial investments should always involve a great deal of caution. This is the starting point for anyone looking to grow their personal portfolios. And yet, there are some financial planners dealing in investment products that fail to deliver. The Central Bank is sufficiently concerned by this fact that it is determined to crackdown on this issue.

In a circular this month, the Central Bank urged banks and finance companies to resolve all outstanding mis-selling complaints “amicably” and within 90 days. These complaints stem from customers who were sold financial products that they didn’t properly understand.

The circular issued by the Central Bank is an important step towards ensuring that our financial services sector operates according to the highest international standards. The Central Bank plans to push better standards regarding customer profiling and product suitability. Given the diverse backgrounds of residents here, financial literacy programmes are also critical to end predatory practices. If you are approached, for example, with a 10-year investment product but only plan to remain in the country for five years, the promised returns will not amount to much because of the potential penalties for removing money before the product reaches maturity.

Moreover, portfolio management fees are normally front-loaded on customers to discourage them from taking money out. This kind of financial practice has been heavily regulated in many markets elsewhere in the world. The best defence against these products and services is an informed consumer base, but there is also a challenge here for the financial services sector to be more transparent about the way their fees are calculated and who stands to benefit.

We’d encourage all financial advisers to be clear about how much their advice costs and we’d recommend that the consumer should walk away from a deal if they deem those figures too high or, indeed, if the adviser is evasive about what money they could make if you sign on the dotted line.