What Happened To Trust?
Decades ago, the line of a pop song read: I.T.A.L.Y. means I trust and love you.
You don’t hear many women or men singing this “sentimental nonsense” anymore, lamentably. For trust, like love, is a many splendoured thing.
Sadly, we see more distrust than trust in recent years and the recent news of the Ponzi Scheme used by Bernard Madoff to swindle thousands of clients of billions of dollars does not help.
Back home, we hear of Raffles Education painfully writing off $34.6 million of its investment in Oriental Century which had inflated sales and cash balances and diverted money elsewhere.
Arising from this and other fraud cases, investors have begun to doubt whether claimed cash balances are really there, not only in S-chips but other companies, too.
The talk in most circles focuses on whether such cases of fraud could have been prevented and zeros in on what directors, especially independent directors, should have done to live up to their fiduciary duties.
Several big cases of fraud in the USA also brought into question the thoroughness of external auditors and their independence. One case some years ago brought into question the independence of an insurance brokerage of world renown. While it is necessary to put in place “checks and balances”, and hold directors and auditors accountable, we must recognise that fraud happens because of man’s greed, dishonesty, and thievery – three of the “thou shalt nots” of the Ten Commandments.
The axiom that business is built on trust should not be forgotten. When there is no trust, there is no trade. We have heard of “In God we trust, others pay cash”. How sad it will be if we retrogress to this state. The use of credit has enabled business to thrive as it is convenient, but it is ultimately based on trust. The credit crunch which has caused much business to seize up in the recent months is due mainly to fear that money lent out will not be paid and is hard to recover.
Banks which had been bastions of financial stability and were trusted institutions have come under question for not heeding their own advice to be prudent. Many have gone into the fee business and product selling, and got themselves into sticky situations of being accused of mis-selling and misrepresentation and having to make good. The Lehman Brothers’ failure brought product pushing to the surface after many years when the banks had it good and cornered 30 per cent of the insurance and investment market. Many customers had trusted them more than agents or advisers, but now have realised that they ought to be more careful. When anyone or any institution is driven by profits, there is a basic conflict of interest with customer’s interest, and customers must beware.
The customers must also recognise the fact that legally, bank employees represent the interest of the banks and not their interests, just like insurance agents represent the interest of their insurance companies and not the interest of the customers. The only ones who legally represent the customers’ interest are the independent advisers or brokers. Even then, care must be taken to select the ones who can be trusted, for they are only human.
How many “independent” advisers or brokers are truly independent? How many are truly objective and fair in their advice and product recommendation? Or are they influenced by some extra commissions given either overtly or covertly by one or two insurance companies? How many are influenced by the higher fees which they can get by persuading customers to “buy and sell” their unit trusts more frequently?
The notorious churning of customers’ investments by certain companies and advisers using CPF funds with rebates to customers has led to thousands of customers losing substantial amounts of their hard-earned CPF money. These customers may be gullible but were certainly taken advantage off by unscrupulous agents and advisers. The point is that customers must be careful to pick their advisers and appoint only those who can be trusted.
Now, who can be trusted? That is the question.