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Problem of churning

Written By: Tiang Chuan on September 15, 2008 No Comment

In the financial advisory industry, churning is known as the excessive buying and selling of policies or collective investment (unit trust) with the purpose of generating commissions without regard to the investment or protection objectives. Churning has been a problem in the industry for quite some time.

In our morning training today, Our MD, Mr David Choo, immediate ex-President of the Association of Financial Planners Singapore, shared that he has seen an interviewee with dodgy investment records showing long lists of monthly switching transactions. This interviewee was earning $300,000 a year! Another has set up a suspicious office that was not in official records employing agents from different companies. Both were of course not accepted into PromiseLand.

This afternoon, when I was at a platform provider’s office for a fund training, there was this long queue of customers at the counter. They seems to know one another. With such gloom in the financial markets following Lehman’s filling for chapter 11, it is unlikely that there are such contrarian investors queuing up to invest! Furthermore, this platform provider has an established online transaction platform. Investors can carry out their transaction online and don’t have to go down to the office.

My guess is that they are there to liquidate their investments that was under the care of a adviser. I know of such collective liquidation when the clients got to know of the adviser’s dodgy dealings.

If you are an adviser waiting to get your IFA license from the authority and is wondering why is it getting so long, the problem could lie not with you, but with your company. Steps have been taken to clean up the industy. This bodes well for both clients and ethical advisers. Hopefully, this will weed out the unscrupulous ones and return the financial advisory industry its good name.

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