By: Tan Kin Lian

Hi Mr. Tan,

Structured products are essentially investment instruments engineered by so called “financial engineers” using complex mathematical models (models which works 9 out of 10 years, and the other 1 year, it blows up spectacularly).

These products almost always results in the investor underwriting/selling an financial options or insurance in exchange for an small fixed premium, (e.g. dual currency account, mini-bonds insuring credit events). This is the main reason I have been avoiding RMs (i.e relationship managers) marketing their structured products, i.e. I don’t want to underwrite a huge risk for a small premium.

Let me elaborate on why individual investors should never sell/”underwrite” financial options/insurance:

– the losses can be catastrophic to the investor in return for a small fixed return eg something happens, your losses are very high and nothing happens, your return is just 3% more.. individuals simply do not have the capacity to take on such risks (evidently even AIG don’t)

– the general public simply do not have the neccesary training/finance knowledge to understand these products and the risks involved.. those that do, probably won’t invest in them..

– financial markets have a very high correlation during extreme events, diminishing the effects of diversification

– banks also have an incentive to push these products, because there is a lot of demand for financial options/insurance from hedge funds, banks, investment-banks. Effectively, these financial insurances are underwritten by the unsuspecting public and subsequently passed to the bank’s clients. The bank made a spread or fee from both sides and the RM made a nice commission.

MAS failed in regulating these practices, and the banks and RMs put the life savings of investors at risk because of their own fat pockets.

I urge the financial journalists to find out:
– what proportion of bankers, RMs actually invested in these structured products (putting their own money where their mouth is)?
– where has the losses gone too?

Come on, guys at ST put your journalist professionalism and critical thinking to use!!


Source: Tan Kin Lian’s Blog