On 18 June 2014, I was invited by a friend to A2A Capital Management Raffles Place office. My friend wanted to sell me its property products. I did not invest but told my friend that I did not think the investments were legitimate. Fast forward to 6 April 2017, the Straits Times reported that there were recent police reports filed against the company.
The Straits Times reported that five investors with an aggregate of more than S$1 million invested in the company’s products from between 2011 and 2014. It is believe many more investors were affected. A2A Capital Management only had a paid-up capital of mere $100.
My friend who wanted to sell me A2A Capital Management products never made any promises that the return nor the capital was guaranteed. In fact, the investments documentations obtained by the Straits Times reporter showed that the investments offer no capital guarantee.
Nevertheless, a product that offers no capital guaranteed shouldn’t just become $0 so easily. For example, if you invest in STI ETF, the capital is also not guaranteed. But the chances of that becoming $0 can only happen if all the stock components of the STI becomes $0. Since all components in the STI are very large companies, it will take a catastrophic event in Singapore for that to happen. Actually, Singapore would have collapsed if STI ETF does become $0 because all the local banks are part of the STI index. Imagine UOB, DBS and OCBC becoming $0.
Not only A2A Capital Management’s products were not capital guarantee, its sales representatives were not adequately trained to conduct suitability assessment. Madam Mohamad, 78, who invested $500,000 in several projects said she received $1,500 only. Apparently, the investments were meant for her grandchildren’s education. Clearly it was not suitable to invest in such high-risk investments when the goal was for grandchildren’s education. Depending on her networth, the $500,000 amount could potentially be very large.
Here are some tips on how to avoid investing in investments that are clearly not suitable:
- Check out the background of the sales representatives. For property investments, you can check whether the sales person is registered with the Council of Estate Agencies. For financial product investments, check that the sales person is registered with the Monetary Authority of Singapore. Under Singapore’s law, those who market properties and investment products must be registered with the respective authorities. If the sales person is not registered with either authorities, you can be sure that the sales person has broken the law. Do you want to do business with a criminal?
- If the projected return is too high, walk away. Most investors do not have a good sense of what is meant by ‘high return’. For instance, I have a prospect who thinks 15%pa is reasonable. Actually, anything that is more than 6%pa in return has the same or more risk compared to an all stocks portfolio.
- If the investments provide any form of guaranteed (capital guarantee or return guarantee), check out the credit rating of the company that is providing the guarantee. Usually you cannot find any credit rating.
- If the losses of the investments are ‘insured’ with an insurance company, make sure the insurance company is a well known insurer. Normally scammers setup a shell ‘insurance’ company in BVI or equivalent countries and claim that this insurer will insure against any investments losses suffered by the investor. Actually, the insurance company is just a PO Box address. (It must be noted that there are legitimate insurance companies that do insure investments losses. These are known as credit default swaps.)
- Always asked the company how it make money. If the product promises to give 20% per annum in return, asked how the company does it. Usually it does it using a Ponzi scheme by giving new investors’ monies to older investors.
- Check whether is the company on MAS Alert List. Unfortunately the list is almost always outdated. A2A Capital Management was on the list only on 23 March 2017. When I was prospected in 2014, the company was not on the list.
- Asked what is the sales representative’s commission. This will tell you whether the sales representative is more interested in making a sale or having your interest at heart. I was approached to sell land banking products many years ago by a different company. The gross commission was a whopping 10% and the net commission was 7%.
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