“Is Your Current Forex Trading Fund a Safe Investment?”, Published in The Star, On 11 March 2023.
You may think that as a middle-class, educated and well-read investor, you will never fall victim to risky investments or possibly investment scams. But recently, I have seen many well-educated folks who have started investing in a particular investment, let’s call it “F”, which in my opinion, is a highly questionable scheme.
As an unregulated Foreign Exchange investment scheme, investment F boldly pitches itself (or at least its resellers/brokers do) as promising an estimated 7.5% return every five weeks and encourages investors to refer their friends and family to get even better returns for themselves, much like an MLM.
I have known investment F for quite some time as my clients are often approached to participate in what comes off as ‘the investment’ that can offer better returns that can beat FD. However, I was not prepared to be courted myself during not one but two overseas trips made recently. In both tours, distributors of investment F were actively promoting the investment fund.
It occurred then, that many Malaysian investors, especially those new to investing, may not fully understand the nature and risk of investment F. As a professional who has seen countless investment proposals while helping my clients review potential investment opportunities, I felt compelled to share my findings in this article so that Malaysian investors can make better and more informed investment decisions.
From the standpoint of an independent financial advisor that has helped thousands of clients grow their net worth for retirement and achieve financial freedom, my recommendations would be for none of my clients to get their money involved in investment F. Based on my findings, investment F has many red flags, and they do not fulfill the requirements that render it safe and trustable. Here are some aspects as to why.
Reason #1 – Regulated?
One of the primary credibility points that investment F uses to market itself, is that it is a regulated investment. Therefore, to a layperson and non-experienced investor, the investment may come across as safe.
What Malaysian investors fail to realize is that investment F is not regulated in Malaysia, but by a small foreign country. Had you done your research, you will also find that the particular investment is on the Securities Commission’s (SC) investor alert list for carrying out capital market activities of dealing in derivatives without a license.
What does this mean to you as an investor? If you were to face a drastic loss to your money or have your investment capital wiped out, the SC can’t protect, nor take any action to help recover your losses. Adding to that, the Monetary Authority of Singapore has also issued a warning against investment F.
Under such circumstances, the risk to your investment capital is very high. Therefore it is not wise to invest in investment F to grow your retirement funds.
Reason #2 – Professional Fund Manager?
In Malaysia, a Unit Trust (UT) fund manager would have to go through a series of examinations before being licensed by the SC to become a fund manager. It is also important to note that fund managers in Malaysia are normally the employees of the UT Company, and their licenses are attached to the company. Therefore investors can be assured that should there be any malpractice, breach of trust, or fraudulent practices, investors and the Securities Commission can go to the company and demand recourse.
In contrast, the disclaimer and risk exposure clause presented on investment F’s website (in fine print) states, “the event that customer grants trading authority or control over to a third party (“Fund Manager”), whether on a discretionary or non-discretionary basis, the company shall in no way be responsible for reviewing customer’s choice of such Fund Manager or for making any recommendations with respect thereto”. Therefore, the Company shall not be responsible for any loss to a customer caused by the actions of the Fund Manager.
As stated in the above disclaimer, the Company takes no accountability for any losses incurred. Therefore if you are to suffer a loss of your capital due to any malpractice, breach of trust, or fraudulent practices, you will not be able to hold investment F company responsible. And since neither the investment nor its company is regulated by the SC, they will not be able to help you as well.
Reason #3 – Promised Returns?
Investment F’s distributors directly or indirectly promise a 7.5% return every cycle, which is essentially 5 weeks. This means roughly a 75% return per annum. Any seasoned investor would view this as suspicious, as promising such high returns are “too good to be true.”
Upon further scrutiny of F’s website, you will find that the facts are all there to be read and understood in their disclaimers and clauses – the fund managers do not guarantee such returns at all. But frankly speaking, how many of us would usually take the time to go through all the fine print?
Therefore, the promised figures are just verbal pitches. They are not bound by any written agreement or contract and are repeated time and time again by F’s distributors to get more investors to invest in the fund.
Reason 4 – Distributors or “Financial Planners”?
Anyone and everyone can qualify to be distributors who recruit other investors to promote F investment. According to its website, while it’s preferable for the distributor to be equipped with trading and investment knowledge, it’s not entirely necessary.
Beware of “distributors” who call themselves “financial planners” and offer to give retirement or financial advice. My question to these distributors would be, where are the qualifications and licensing that give them the right to call themselves financial planners? The truth is that they do not have RFP, CFP or financial planning professional qualifications in Malaysia, which are the basic requirements of being a licensed financial planner in Malaysia.
Some distributors of investment F operate an MLM approach. By way of trust, investors/distributors recruit and bring their friends and family into the investment with the promise of getting additional compensation.
Because of this mode of operation, many new investors tend to fall into the “assumption” that these individuals are qualified in some way, and therefore can be trusted.
This is a dangerous assumption, especially concerning investing money from your retirement nest egg. Therefore, one must always seek written proof that the company is liable for what their sales representatives or distributors say in their pitch.
To summarise, the facts outlined above are more than enough to draw the conclusion that investment F is not to be trusted with your money.
You may have heard that some people have made lots of money by investing in F. However, with a little research online, you will also find that there are equally as many complaints from investors facing challenges to withdraw their money.
So, how do investors ensure that they don’t fall into a potential hoax that could jeopardies their hard-earned money? In my latest book, Financial Freedom Investing, I have set out to share the “SRB standard” for investors to evaluate investments and prevent them from falling for scams or high-risk investments.
Rid of any emotional attachments, let’s see how F investment fare against the SRB standard:
1. Investments that are S-afe. Safe investments must fulfill the following criteria:
- Be a regulated product – F forex trading fund is not a regulated product in Malaysia.
- Have a 3rd party trustee/ custodian – Investment F mentions that their customers’ funds are fully segregated from their assets and distributed across world’s renowned Tier 1 Independent Banks but does not explicitly name these banks.
- Have clear underlying assets – In this case, investment F’s assets is clear, they partake in foreign current trading
- No leverage/ margin – At present, there’s no information on this to evaluate further.
- Moderate risk/ return –Distributors are actively sharing how investment F enjoys super high returns of more than 70% per year. Nevertheless, investment F’s website promises no such thing. Instead, it explicitly states that commodity futures, forex, futures, and options trading have large potential rewards but also large potential risks. It also puts it that investors must be aware of the risks and be willing to accept them to invest in the forex, futures, and options markets. As a rule of thumb, one should never trade with money that one cannot afford to lose.
- Regulated provider –the company that offers F investment is not regulated by Malaysia regulators.
2. Always R-ises in the long term – Forex trading involves buying and selling certain foreign currencies to earn the profit from short-term changes in the exchange rate. It doesn’t involve holding an asset that will always rise in the long term.
3. Be the B-est of breed – As there is limited information available on investment F, there isn’t sufficient information to determine if the investment is best of breed.
In conclusion, there will always be plenty of investment opportunities in the market, each promising their own attractive returns. However, you should never put full trust in the distributors and social media reviews that you come across. Always try to do your own research into the real facts and figures.
For investors who might not have the time, knowledge or resources to conduct the research themselves, engage and consult a licensed financial planner instead – preferably one that is not attached to any bank, insurance or investment company.
In the end, there is always a risk factor when you invest. However, your wealth and financial freedom is too precious to gamble away on an investment that is unregulated and runs the risk of losing your entire capital.
Finally, when choosing an investment to grow your portfolio, always follow the S-R-B standard above to select the best investment for your money. Remember, when investment schemes appear too good to be true, it is because they are.
Yap Ming Hui is a licensed financial planner. The views expressed here are the author’s. Any reliance you place on the information shared is therefore strictly at your own risk.
The article is featured in The Star Online, at the following link: Is your forex trading fund a safe investment? | The Star