Educating retail investors on "caveat emptor" or "buyer beware"

"Caveat Emptor" refers to the axiom or principle in commerce that the buyer alone is responsible for assessing the quality of a purchase before buying. Basically, buyer should be aware of what he or she buys.

I read Jag Kuo's article on Straits Times Forum dated 25 September 2008 that buyers of structured notes are unlikely to be misled into buying these high risk products and should therefore be ultimately responsible for their poor investment decisions. This concept certainly looks fair on the surface but it is flawed when retail investors have very limited investment options and inadequate knowledge of financial products. This is also a key reason why not all financial products are suitable for retail investors. Are we sure that credit linked structured notes can be marketed to retail investors? Especially, when some of these investors who may not even have the appetite to buy into equity investments?

In a subsequent response in Straits Times Forum on 27 September 2008 by Stanley Jeremiah, a trained lawyer specialized in financial services and products, the author stated: "The regulator must protect the consumer's interest. "Buyer beware" is not a concept that any First World economy applies to retailing of financial products.". This lawyer deserves my utmost respect for speaking this.

As we run into problems with these notes, many individuals from the financial industry suddenly became very wise and telling people that "don't invest when you don't understand what you're buying". I find this hypocritical and was also amazed by how the media played along to start highlighting many risks in structured notes. Most of us will be very confused if we flash back news of Minibonds in April 2006. The story was all different then... What happened? Was there misinformation? Readers should judge.