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Guide For Investors On Unit Trust Sales Practices – Excerpt From The Reporter By Securities Commission Malaysia

Guide for investors on unit trust sales practices – Excerpt from The Reporter by Securities Commission Malaysia

While stories of cheating abound in social media, protecting yourself from scams and fraudsters is easier than you think. For a start, if you want to invest in unit trusts, make sure you deal with an authorised person. Check with the Federation of Investment Managers (FIMM) to confirm his status as a unit trust consultant. Regulatory authorities such as Securities Commission Malaysia (SC) and Bank Negara Malaysia also provide investor alerts on dubious or illegal schemes on their websites.

The unit trust industry in Malaysia is a regulated industry, with both SC providing layers of protection for investors through laws, licencing and enforcement, and FIMM ensuring that unit trust distributors and consultants adhere to rules and code of ethics. Both carry out investor education efforts online and off-line.

However, investors also have to fulfil their own responsibilities. We have seen investment disputes happen because of misunderstanding during the sales process. Sometimes, investors are given incomplete information about the product. Sometimes, investors put in their money without knowing the extent of fees and sales charges. There may also be fraud but these may be avoided if investors know what to look out for. An investor should also truthfully disclose his own financial situation when seeking advice on investments. Otherwise, the advice he receives will be based on an inaccurate risk profile, and he could find that he had invested in an unsuitable product.

Investor should also ensure they know where to seek help should they have a complaint on how their investment has been handled. The SC has provided an independent expert avenue to help settle investment disputes between investors and market intermediaries, through SIDREC, to give investors and additional avenue to seek help should they need it. Visit www.sidrec.com.my to find out more.

SC has produced an article entitled Sales Practices: Building trust and confidence in the unit trust industry in The Reporter. Below is an excerpt for investors who are considering investment in unit trusts and what you can do should mis-selling happen. You can read the full issue of The Reporter here.

Message to Investors

You have rights and can influence sales ethics. Understand the product and be satisfied that it suits your investment needs before parting with your hard earned money, just like how you would before purchasing a house or car. You have to take effort to safeguard your own interests, even if the Agent is a friend or relative.

  1. Ask for the Agent’s authorisation card. You can check if the Agent is registered with FIMM at https://www.fimm.com.my/investor/is-my-consultant-authorised/.
  2. Make/Issue payments directly to the Distributor. Do not pay cash to the Agent or bank monies directly into the Agent’s personal or other individual or another company’s account. 

Note: Always ask for official receipt for all payments made that the Distributor is obliged to issue. If any detail or information in the receipt is inaccurate, please check with the Distributor directly.

  1. Know that various distribution channels of unit trust funds are available. Beside Agents, you may purchase unit trust funds through:
  • Banks
  • Fund management companies
  • Financial planners
  • Online platforms
  1. Fees will eat into your returns. Enquire and shop around for funds with the best fees. Do note that sale charges or upfront fees may be negotiable. Check the prospectus on fees and charges.
  2. Ensure the Agent conduct a suitability assessment prior to recommending a product. Check that the product recommended is what you want and is suitable for your needs. Make comparison between products, fees and charges.
  3. Be very truthful with your risk profile during your suitability assessment.
  4. Report unethical sales practices to FIMM and the Distributor whom the Agent represents.

Red flags to look out for:

  • Agent reluctant to provide authorisation card.
  • Agent is not registered with FIMM.
  • Agent requests for payments in cash or direct credit to the Agent’s or another person’s bank account.
  • Agent failed or is reluctant to conduct a suitability assessment prior to product recommendation.
  • Agent requests for pre-signing or pre-thumbprint of blank forms.
  • Agent promises returns of investment or gives ‘estimated, targeted or projected’ returns of funds.
  • Agent claims he could issue “temporary receipt”.

If any of these red flags appear, contact SC, FIMM or the Distributor whom your Agent is attached to immediately.

Questions to ask before investing

Whether you are a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.

  •   How much returns do I need?

  •   When do I need the returns?

This will help you decide if you need a short, medium or long-term unit trust fund.

  •   How much monies can I set aside for the investment?

You must make sure you have funds for daily needs and savings for emergencies. 

  •   How much loss am I prepared to incur?

You must be comfortable with the level of risks that comes with the investment product.

  •   Do I understand the nature and characteristics of the unit trust fund?

You can get all the information from the Agent and the fund’s prospectus or PHS.

  •   Do I know all the fees and charges for the unit trust fund?

Different funds may have different charges imposed and may be negotiable.

Important to Note:

  • Greater returns come with greater risk.
  • If you do not understand the information given by your Agent, do seek help from another Agent. If you are still confused, you should think twice about investing in the particular unit trust fund.

What to do if you suspect a mis-selling has occurred?

What do you do if you suspect a mis-selling has occured? | SIDREC

Important to Note:

  • Mis-selling can occur if you have not been given complete and sufficient information prior to making an investment or you have been sold a fund that does not suit your needs.
  • Mis-selling is not just about whether you have lost money. You may still lodge a complaint if you think that the fund sold is not suitable for you (e.g. where your risk tolerance is low and you have been sold a high-risk fund or you were not told about the risk).
  • On the other hand, complaints cannot be lodged just because a fund has performed badly. By its very nature, investments have an element of risk where its value can fall as well as rise (e.g. if the fund has halved in value, this in itself is not a ground for a complaint).