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Accredited Investor or Not, You will just be Equally Screwed if Wealth is Not Important to You

Its not whether you are ‘rich’ or you are poor. Money means something to each of us and most often then not, it is just as precious.

Bloomberg ran a story today discussing the plight of the investors due to the fallout of the recent woes of the oil and gas industry (Swiber, Rickmers Maritime, Marco Polo Marine). You can read the article here.

The main focus of the article is that some investors are not considered as ‘accredited investors’ but are sold products which are more suitable for ‘accredited investors’

Singapore law allows banks to automatically classify individual investors as “accredited” if they have at least S$2 million of assets or earned at least S$300,000 in the previous 12 months. By entering the category, the wealthy are given a greater range of investment choices but lose some of the key protections offered to ordinary investors — such as restrictions on selling them certain riskier products. Swiber bonds were only available to accredited investors or those investing a minimum of S$250,000, according to Robson Lee, a Singapore-based partner at the U.S. law firm Gibson, Dunn & Crutcher LLP.

Due to this:

  1. A lady investor put SG$150,000, meant for her son’s future education into these risky bonds, because her car and property value classified her as an accredited investor
  2. A 50 year old engineer found out 2 years after his purchase of a SG$250,000 bond that he is an accredited investor

The article calls for better classification of which type of investors should be classified as accredited investor.

I find this whole episode to be weird.

Rich or Poor: We don’t want to lose money!

The first point is not constrain to the group of people mentioned in this article. The idea of whether a potential investor can invest in something ‘more risky’ versus ‘less risky’ is determined through a questionnaire.

The methodology is wrong, just like majority of the industry’s yard stick of what is risk.

They determine that highly volatile stuff is high risk.

Most of the seasoned investors would have describe risk as a permanent impairment of their capital.

If you put it this way, whether you are rich or poor, no one likes to lose money. No one wants to have their capital impaired.

There is no medium or high risk investor.  No one wants to lose money period.

It is whether a person can accept that their financial assets go through a period of high or low volatility.

In this case, the questionnaire, which measures volatility, proves to be useless and totally wrong because eventually, the investor lost a large chunk of their money, despite whether they are classified as tolerant of high volatility or not.

Money is just not important to some of us

While I can empathize what the sum of money meant to the folks that suffered in this episode, I just find it puzzling that the investors are able to be persuaded to part with this sum of money to be put away, if this is a large chunk of their net worth.

If this is meant for something so important, I would have seek a second opinion from someone with higher competency, just to ensure that I get a sound perspective on what I was about to do.

The way I would part with that amount, putting it in ONE financial asset, is when I did enough background prospecting to determine that I have covered enough bases. And even so, I still will be very reluctant to put almost a 75% of my net worth in ONE high conviction asset. That is how risk adverse I am.

But these folks was able to part with the money, probably due to the halo effect I mentioned in the Swiber case study. It would mean this is not the majority part of their liquid portfolio, or people are just so freaking trusting of salesmen.

If money is meant something to you, then all the more you would want to spend a large part of your time budgeted to focus on it. This is an observation in general.

People want money, but they failed to realize that they need to put in work or surround themselves with competent advisers.

If that is the case, money is not that important to you.

More compliance costs that doesn’t solve the issue?

The worse outcome for this is the wrong type of governance by the governing body.

The problem identified here is that some folks should not be considered as accredited investors and thus we should reclassify them.

This would involve more screening and to ensure these are tighten up, more compliance paper work needs to be carried out in the future. This will cost more manpower, and more costs, which will be passed to consumers.

That is why our products are just so expensive.

And because the products are expensive, the consumers do not enjoy the benefits of the products. Costs have an high impact on your wealth.

Furthermore, when you classify these ‘wrongfully classified accredited investors’ downwards, they are just going to get screwed the same way.

That is why we have so much stories of parents being up-sell on a pseudo savings plan that could be an investment linked policy, or a structured product that may have some tail risk.

A Not-So-Accredited Investor Story

I will leave you with a story which I will let you see whether it is fact or fiction.

There is a girl that went to a computer fair not too long ago, and there was some financial services firm prospecting sales target. She was hooked, got to the booth, and was explained that they have this savings plan that provides a 3% return per annum.

So she had the idea of paying $400/mth by GIRO to this savings plan from her OCBC 360 account, which currently earns her 2%/yr, so as to attempt to gain both the 2% and 3%.

She sought the advice of a friend who somewhat knows more about ‘these money stuff’

The friend tries to find out what she is trying to do.

And then asks 2 questions:

  1. What is the type of thing she is buying?
  2. How does this fit into her overall strategy?

To question 1, she says the name of the plan from the insurance company starting with ‘A’. To question 2, she gives the idea that it is to earn a better interest compared to 2%.

The savings plan, turned out to be a unit trust type of plan, most likely an investment linked plan, as dissected by a common friend of both, and this means the 3% is not a guaranteed amount, and there are every possibility that, absence of competency, the investor will lose value on the ‘savings plan’

To fund the plan, it will be a consistent commitment to put in $400/mth. How does this fit into her already tight cash flow situation?


Whether you are accredited or not, your commitment to build competency in understanding wealth is important to you being screwed big time or not.

If you don’t want to spend effort on this, you are going to be a free frag for sales based people to boost their commission, and end up with more tears of sorrow then tears of joy.

Can we say the $150,000 lost by an accredited investor is more important than the girl who commits $400/mth into a ‘savings plan’?

I think this is subjective. To me, both wouldn’t want to lose the money.

But both could do much better in gaining in the competency department.



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Wednesday 21st of September 2016

Richer and poorer. Got difference even though no one like to lose money.

Richer can afford to lose some money and feel heart pain; but they still have enough money and their life will go on without too much impact.

Poorer cannot afford to lose money and they may go into depression and life may not be the same anymore.


Thursday 22nd of September 2016

not really uncle CW, rich if commit a sizable portion will still face psychological impact.

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