There are thousands of ads on YouTube, Facebook and newspapers by private funds inciting the middle class to invest their hard-earned money to ‘grow’ their wealth.
Previously, private mutual funds had convinced the Ministry of Finance to allow workers to move their retirement savings from KWSP to private mutual funds claiming KWSP returns are “too low to retire”. Interestingly, GLICs such KWSP and PNB still managed to gain mid-single digit returns while most private mutual funds struggled during this recession.
Poor Performance But Fixed Profit
However, all the private mutual funds are making money although people are losing money because the fund managers impose charges such as sales charges, management fees, commissions, transfer fees, switching fees etc. These charges are usually are not openly advertised neither disclosed sufficiently by mutual funds salespersons to overquote the potential future returns.
Private mutual fund managers are aggressively employing new salespersons in residential areas and religious organizations (mosques and temples) to tap into the middle-class savings. Nearly every middle-income household knows one mutual fund salesperson in their extended family, circle of friends, neighbourhood or religious shrines.
These salespersons are incentivised by sales commissions to prioritise the private mutual funds’ profits, and not the interests of the people who bought into those funds. Henceforth, the profits of the private mutual funds are nearly insulated from their own poor financial performance while the people who bought into the funds bear the full risk.
The middle class are further misled by certain private mutual funds who declare the dividends in terms of Ringgit per unit (RM per unit) instead of the Return of Investment (% per RM). Thus, non-financially savvy members of the middle class could not make proper comparisons between multiple private mutual funds.
Securities Commission Must Protect The People
The Securities Commission (SC) needs to execute a more proactive regulatory role to protect the middle-class people who are losing their hard-earned money silently.The SC should:
Ban all forms of charges and deductions onto capital amounts invested by the people.
Force commissions for salespeople to be paid from mutual funds’ profits.
Limit private mutual funds’ earnings solely to their financial performance.
Standardise mutual funds reporting and advertising metrics.
Parti Sosialis Malaysia (PSM)