Tuesday, 2 April 2013

4 Reasons Why Unit Trust Investing is Negatively Perceived

Long before I started taking unit trust investing seriously, I've always been told that investing in unit trust is a dangerous option. No thanks to the horror stories from friends who lost 30-40% of their investment after being convinced by agents to invest into unit trust right before the economy crash in 2008. There are also those whom till today are still waiting to regain their initial investment due to the losses from investing into newly launched China Funds (some 2-3 years ago). 

Those who got burnt in 2008 and again in 2010 have largely always blamed their agents for not highlighting the risk of investing in unit trust. Promises of double digit profits are proudly advertised by agents while risk of possible losses were kept inside the closet. Nothing much has changed since 2008 as agents continue to show nice profit figure to Malaysians, while we continue to believe blindly and invest without knowing the risk involved.

In this post, it is my very intention to highlight 4 reasons why certain practices by Unit Trust (UT) agents have greatly tarnished the image of unit trust investing. Let's begin!

Reason 1 : Lack of Knowledge About Unit Trust
This is the most common problem among many unit trust (UT) agents. Despite passing the exam to become a qualified UT agent, the concept of unit trust investing was never properly conveyed. Majority of UT agents (at least those I have spoken too) only knows which funds that have the highest returns. The higher the returns the better it is for their clients. 

There is a blatant disregard by UT agents in explaining to their client on the nature of the fund, the risk level, the area of investment, the possible losses, volatility and more. Either UT agents choose not to do so or perhaps they really have got no clue on about the funds they are promoting

What happens when a unit trust fund suffer losses during a bear market? When clients suffer losses, they begin to develop a distrust towards UT agents and ultimately unit trust investment itself. However, it is not entirely the fault of the UT agent for the client too has chosen to invest without first finding out the risk involved. As the saying goes, "A fool and his money will soon part". 

Reason 2 : Unreasonable Advertising
This is another common trend being practiced by many UT agents. Let's take a look at the picture below:

The above is a sample advertising found that shows the profit an investor can potentially gain from investing money into Unit Trust. I have no qualms about the possibility of 13% "annualized" returns over a 15 year period. But to show 20% "annualized" returns over a 15 year period? That's "false" advertising.

Why do I say 20% returns is false advertising by UT agents? Let's take a look at the Winners from the Edge-Lipper 2013 Awards under the 10 Year Category:

Type of Fund
2013 Winner
10 Year Annualized Returns

Bond Malaysian Ringgit
Public Islamic Bond
Equity Malaysia
Kenanga Growth
Equity Malaysia (Islamic)
Eastspring Investment Dana al-Ilham
Equity Malaysia Diversified
Hwang Select Opportunity
Equity Malaysia Small & Mid Caps
Public Small Cap
Mixed Asset MYR Bal - Malaysia
Eastspring Investments Balanced
Mixed Asset MYR Bal - Malaysia (Islamic)
Dana Makmur Pheim

Need I say more?

Reason 3 : Selling Unit Trust for the Wrong Reasons
Being a UT agent these days is not an easy task especially if the previous generation of UT agents have all but destroyed the image of unit trust investing. Investors with bad experience spread the negative words about unit trust while those who have not invested are afraid believe in it. Apart from difficulty to convince investors, UT agents are also tied down with yearly quotas, continuous pressure from their unit managers as well as constant changes in forms in which the UT agent has to bear at own cost.

All these factors tend to pose a large amount of pressure on a UT agent, forcing him or her to change their original views and principle of selling unit trust. What was first a principle to help investors to grow their money was forcefully changed into a sales quota oriented principle. It is also because of the change in principle that causes Reason 1 and Reason 2 to grow rampantly.

Reason 4 : Lack of After Sale Service
When selling unit trust, the key action that many UT agent fail to do is the follow up service. As investors we pay a small commission to UT agents for the following reasons:

  1. A sign of gratitude for introducing an opportunity to grow our investment via unit trust.
  2. For recommending good solid funds that are worth investing in.
  3. For the follow service such as updates on fund performance, advisory on switching, additional financial advice, etc
Half the time, UT agents upon making a sale tend not to follow up on the progress and performance of funds bought by their clients. When asked about investing in unit trust, the response I tend to get from investors are:
  • Not sure lar...I think got make profit...
  • What you mean different funds? I thought unit trust is only one fund and it is from Public Mutual only? No ah?
  • The agent told me this fund got 20% return every year, so I say ok you take my EFP to invest....
  • Haiyah...I don't want to think about investment...as long as my agent tell me got profit can already.
These are the common response that I believe you will also hear from your friends and family. The phrase "I will give you fish but I will not teach you how to catch a fish" comes into mind. And to make things worst, "the fish I am going to give you, I ain't sure if it is fresh or not".

The reason I wrote this post is not to condemn UT agents. In fact I've also heard plenty of good experience from friends whom have receive excellent service from their UT agents. It is from these good feedback that I'm able to see the weakness and the bad practice by other UT agents.

Unit Trust Investing should never be seen as a product that will only create losses for you. It is an investment that has both opportunity and risk to the investor. Therefore do not let the poor practice of a few UT agents to blind you from the opportunity to enjoy better returns. Be selective on which UT agents that you seek advice from (finding a knowledgeable UT agent will really benefit you in the long run), ask questions to gauge the level of understanding of the UT agent and finally subscribe to my blog to learn more about unit trust investing. 

P.s : I was just kidding about the last 11 words of this post. 

Cheers and Happy Investing

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  1. To add on to your reason 4, it is not uncommon for Malaysian UT agents to say "your agent got give you good service?".

    It speaks a lot about the quality of our UT agents which is obviously getting from bad to worse with each passing month.

  2. Good observation Shane! As a utc myself, those are areas to be improved, not simply pushing sales. It is important that investors be accurately, properly and sufficiently informed.

  3. Enjoyed your blog. Am a new UT investor and warming up to it. For new investors, try going through Fundsupermart as starter and Morningstar for better tracking of the UT that you are interested. Don't rely on UT agents only, remember to get your hands dirty if you want your money to grow.