SINGAPORE, Dec 19 (Reuters) - Buying a mutual fund in Singapore may not be a cakewalk anymore.
Under new investor-protection rules that take effect Jan 1, investors in the tightly controlled city-state must possess certain educational qualifications related to finance or have relevant work or trading experience to buy funds directly.
Those who fail to meet the Monetary Authority of Singapore’s (MAS) requirements must take a series of on-line tutorials on the Singapore Exchange website, and answer the questions correctly in order to qualify to buy the funds, in what could be a first for investors anywhere in the world.
Thousands of Singaporeans lost money investing in supposedly low-risk Lehman Brothers-linked “Minibonds” in 2008. The new rules follow a review by the country’s monetary authorities.
The regulations have been sharply criticised by some fund managers who fear a loss of business.
“ Asking investors to pass a test to invest could be a deterrent to investing,” said Francois Mouzay, head of fund development and services in Asia-Pacific for BNP Paribas Investments Partners.
“To put myself in the shoes of a retail client in Singapore — If I had to certify a lot of things in order to invest, I’d probably think it better to keep my savings in a term deposit,” he added.
Under the new regulations, investors can continue to buy funds even if they fail the SGX test. But they have to first sit down with a financial adviser who is required to assess the person’s financial knowledge and ability to handle risk.
Retail investors said the test could be discouraging for those seeking exposure to markets.
“It cuts out newbies. You can’t protect them that way,” said Hazel Lim, a 29-year-old property agent, adding investors would then buy stocks directly which would be riskier.
Lim, who has been an investor in funds for five years, said she was unaware of the test.
Singapore, which has rapidly developed its financial industry in recent years, is home to 783 mutual funds that oversee about $70 billion, according to data tracked by Lipper, a Thomson Reuters company.
Overall, Singapore-based fund managers had S$1.4 trillion ($1.1 trillion) in assets under management at the end of 2010, according to MAS.
The new requirement may not significantly increase investor protection, said Tan Kin Lian, a former insurance cooperative chief executive who helped investors win compensation from banks and brokers after the Minibonds fiasco.
“The regulations will raise the cost of financial products and force people to go through financial advisers or stock brokers who may not understand the product,” he said.
“The assessment (of investment products) should be made at a higher level by experts first,” he added. “If a doctor recommends a type of medicine, he would be relying on the Health Science Authority or some other authority to first test the medicine.”
The new requirement, which also affects sales of investment-linked insurance products, exchange-traded funds (ETFs) and stocks listed outside Singapore, has created ripples throughout the city-state’s financial services industry.
Fundsupermart, Singapore’s largest online portal for investors to buy and sell funds, has changed its system to prevent some clients from buying funds directly, for instance.
“Previously we were a DIY (do-it-yourself) platform. But because of this, we’ve set up our own client advisory team so we can speak to clients on a one-on-one basis and give them advise and then enter the trades for them,” general manager Wong Sui Jau said.
In response to questions from Reuters, the central bank said it was also raising the standards expected of financial advisers to ensure they had the skills to explain products to customers.
It added funds, ETFs and other financial instruments were categorised as specified investment products (SIPs) based on their complexity rather than level of risk.
MAS has “carefully considered the cost-benefit of the new requirements, and are of the view that the potential benefits in terms of enhanced protection to retail investors in the sale and advisory process for SIPs outweigh the costs, particularly in light of today’s volatile market,” a central bank spokesman said. ($1 = 1.2972 Singapore dollars) (Additional reporting by Nishant Kumar in Hong Kong and Cerelia Lim in Singapore; Editing by Jason Szep and Muralikumar Anantharaman)