How to avoid investment scams, with David Gerald, Founder, President and CEO, Securities Investors Association (Singapore) SIAS

Episode summary

David Gerald shares how to protect yourself from being a victim of an investment scam.

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Episode transcript

Philipp: Welcome to another episode of In Your Best Interest, your personal finance podcast. I'm your host Philipp Muedder, and today I'm looking forward to a discussion around spotting investment scams. We all have heard of horror stories before, where people are being taken advantage of by con artists. And this does not only happen on the streets but also in the personal finance and investment space, unfortunately. So today, I have on the show David Gerald. He's been at the helm as founder, president, and CEO of Securities Investors Association Singapore, or short SIAS. SIAS, the voice of retail investors in Singapore, actively promotes investor education at all levels in the community, investor rights, and corporate governance standards. Mr. Gerald is heralded as a champion of corporate governance and investor rights in Southeast Asia.

And for this reason, Forbes Global featured him on their global cover page. He is regularly sought after for his thought leadership by international and local broadcasts as well as print agencies. Mr. Gerald received the special achievement award by Singapore Exchange, SGX, in 2009 for championing individual investors' interest, advocating good corporate governance and investor education. [02:00] Mr. Gerald, it's very much a pleasure to have you on the show today.

David: My pleasure too.

Philipp: It's an impressive background, and again as I mentioned before we started recording,  we were part of SIAS Investor Week a couple of years back, so I kind of know what you're doing there and how you're out in the community raising awareness and helping everyday investors do better.

So I do have to ask - before I get into the topic - one question is I did a little bit of research, and I read about you and on your LinkedIn as well. It says you used to be a criminal lawyer.

David: That's right.

Philipp: How did you come about then founding SIAS in 1999? How did you make that switch?

David: Okay. I very much like to be within the four walls of a courtroom. I've been a judge, I've been a prosecutor, I've been a defence counsel. But in 1998 September, Dr Mahathir of Malaysia, came about to freeze. They decided to freeze 172,000 Singaporeans’ assets in 112 companies, investments in 112 companies in Malaysia.

They were facing the Asian Financial Crisis; they were in dire need of money. They couldn't raise a loan from Singapore, so they decided to freeze our investments. And then private companies were asked to settle this, and they were asking for 52 cents per dollar to get back our shares. So for nine months, there was a stalemate, and the government of Singapore was told that Mahathir wants to talk to the small investors directly. Because he says we are the cause of this stock market woes, collapse of their stock market, so no one put up [04:00] their hand.

And I have been used to forming associations and clubs in Singapore, and I've been active leading community groups. I decided then to put up my hand and I said, okay, although I know little or nothing about the stock market, you know I will get all of you together, form an association called the Securities Investors Association of Singapore, SIAS. Which acronym was also humorously known as “Silly Investors Always Suffer”.

Philipp: I haven't heard this yet.

David: And indeed, it was silly because we were investing in Malaysia without knowing anything about the company, the political situation, the governance, and the strategies there. And so I decided, look, these guys got to be changing their mindset, and therefore SIAS should stand for “Smart Investors Always Succeed”. 

So how do you make them smart investors? Through education and information. So at first, I had to resolve the club issue. So that took me 9 months to resolve it by going to various media, international media, Dow Jones, Asian Wall Street Journal. Then BBC, Bloomberg, CNBC, CNN. I used to appear in all these to tell the world what Malaysia has done to us small people. And that we are the victims, and we have put money in Malaysia instead of protecting us.

So finally, a thought came to me, and that is Malaysia is a signatory to WTO, where they have agreed to treat local and foreign investors equally, and they will not discriminate. So our government, the Singapore government, agreed and decided to go to WTO, so they announced. And then we had a huge [06:00] - we used to have a lot of dialogue sessions with this CLOB (Central Limit Order Book), we call them the CLOB investors because they were investing through a counter called CLOB.

And suddenly, within a week, they offered to settle, and we settled not at 52 cents as they asked, but at 1 cent to 1.5 cents. And having said all that, then I asked myself, “Do I return to law practice or do I stay at SIAS?” No money, but we had to build it up. So I decided to stay on as CEO and build up SIAS by taking investor education as my first job. And we advanced that objective island-wide, doing financial planning and investment education.

We use fund managers, brokers, academics to join us, and we took the mission to all parts of Singapore - north, south, east, west. Then we started looking at governance of companies and transparency of companies. Slowly SIAS started to get support, not only from investors but also companies wanting to work with us.

But on the basis that we would be independent, and we would check them if they themselves go wrong. But they wanted to join us to sponsor our investor education program. So with myself and my secretary today, we are 20 to 21 employees, and we have been around for 21 years. We have covered something like 225,000 citizens, we have done over 4,000 programs, and we are marching on.

Philipp: Yeah, absolutely marching on. This is a great story. I think a great background before we get now into the topic. And I think if people want to learn more about it, we'll put your website address into the show notes as well. So people can do a follow-up, and if they want to go to any of your events, they can sign [08:00] up on your website. 

So, let's take it to the topic then, spotting investment scams, right? And I think, obviously, you started your work in the Asian Financial Crisis on the bond side. But I think you guys are also very much experts at what people are exposed to.

Even in today's world, right? The internet is readily available for people to research. There's a lot of information out there, but also a lot of misinformation. So how about we start at some of the red flags that you see that are out there that people fall for, right?

David: Right. Let me at the outset say that the victims are largely people who are emotional, who are greedy, and who take up help offered without thinking, without asking questions. Why? Because in a low-interest environment, people are trying to get more money returns. Better returns on their investments.

So when an investment scam is derived and put to a victim who is greedy or emotional and does not want to think about whether it is true or not, he becomes an easy victim. So usually, the features of an investment scam would be guaranteed returns; they would offer very high returns and low or no risk, which is impossible. As you know, every investment has got risk and various levels of risk according to the investment product, right?

But these guys are told you know you'll get 12%. We had, in fact, two gentlemen went to jail in Profitable Plots some not long ago. They are serving 8 years and 7 years imprisonment. Why? They derived a product and a chemical product, and then they say, okay, we'll give you 12% every 6 months. [10:00] Now, where on earth can you earn that kind of returns? And yet hundreds of people bought that, you know?

Philipp: Yes. I think people always, like just from my experience as well, it's like people always look for quick money, right? And if, like someone says, oh look, I made a couple of trades, I made this much money, it's a bulletproof investment. This is always where people fall for it, like even investing; it's hard-earned, right? It's not easy.

David: It's not easy. And therefore guaranteed high return investment is a red flag, firstly. Secondly, pressure tactics. Person selling such an investment would say I have only one or two lots left, you better make your decision quickly because a lot of phone calls are coming in.

And this guy is at a lunch with his friends, and he's told look, you were 8% or 10%, this you cannot get anywhere really. Yes, book me in; that's a pressure tactic. And then basically, these are usually unregulated investment opportunities.

So they are complicated, and they are unique opportunities. So the investor needs to understand the investment, and they must ask questions, and very often, the red flags are not questioned. The red flags are there, and the opportunity is not questioned.

Philipp: Yes, absolutely. And I think you hit the nail on the head with all of those, right? And if you read the newspaper or you go online and search for this, this is usually what happens, right? And yes, I think also a good wisdom from Warren Buffet is only to invest in what you know or what you understand, right?

Because really, do your research before you get into any of these things. So we saw some red flags, and we talked about one tactic, the pressure [12:00] tactic that they use. What are some other tactics that are commonly used in investment scams?

David: Well, it's a hard sell tactic and giving lofty promises. They actually promise the moon, and this guy, who is very soft in his head and very greedy, only looks at what is being offered. And he quickly pushes the product, and he says, take it or leave it, there are many others wanting this. And the poor chap falls for the hard sell.

And they don't give you an opportunity to call back or follow up with the seller. The seller usually is based overseas in China or Europe or somewhere, or even Latin America. I mean, I could call from Latin America. So these guys will call, and you can't call them back. And they pressure you into making a rash decision and often give you complicated explanations, or they use highly complex terminology.

They use bombastic language, Philipp. They're simple-minded fellas; wow, this one sounds very big, you know. And he tells his friends, “Today, I invested in, I sent money to this investment. And really, I don't understand, but it sounded really good.” And then they show you emails or newsletters with unclear sources; no way to find out or call back or check it. So these are some of the tactics they use to convince you because you are actually very innocent and very greedy. So they take advantage of you.

Philipp: Yes, they absolutely do. And so yes, like you said, the highly complex things are always a “hard no” for people to look out for. And then, of course, deal with where, if you're [14:00] living in Singapore, you should probably look at someone that's regulated by the MAS; that's the first sign of safety.

And anything that is coming from abroad, it's 99% suspicious, right? Or like it turns out to be a scam. So then now that we kind of know the red flags to look out for, we kind of have thought about the different tactics that they use so we can take a look at. So how do we avoid scams, and is it even possible to avoid them completely?

David: Yes, absolutely possible. First rule of the thumb is ignore unsolicited calls by phone, email, Whatsapp. Ignore the unsolicited calls. Never entertain someone wanting to sell you something on the phone or by emails because there are so many institutions in Singapore, financial institutions which offer financial products. You can be safe in the sense that you can always get back to them, you can question them. In fact, if things go wrong, you can hold them responsible, but overseas calls and unsolicited calls should be avoided. Never give your personal details. Never.

Your credentials are very important, and your information, your personal information, must be like your gospel truth; it should never be revealed to others. And ask as many questions as you can, right? First of all, how are the profits generated? You're offering me 12%. What sort of business is this you're invested in that I am going to get this much? How long must I stay invested?

Philipp: Very typical for, especially if they want to put you into some long-term locked up thing, right?

David: Yes, and what happens if I want to withdraw my money? I'll give you an example, I went to a local bank [16:00], and the relationship manager (RM) there was telling me and my wife, my wife and I went there with a little bit of money for a fixed deposit. They said, “Guaranteed 3%, ma'am, don't worry.” Then it went on; my wife was nearly filling up the forms. 

I said, "Hang on a minute, what if I want to withdraw the money? How much will you deduct?”

“Oh, very little.”

“Very little? Please tell me more. 10%?”

Finally, after questioning, we have to also verify credentials, we have to check the management team information, and who the managers are - show me. The company information, address of the company, business registration number, and track record of the company. You will have to go to ACRA or MAS website to check this.

Philipp: Yes, we can put those links in the show notes as well; that's great.

David: Yes. And adopt the mindset, there's no such thing as easy money.

Philipp: Yes, you're telling the preacher. That's what I always tell friends, family, clients. If it's too good to be true, it's probably too good to be true.

David: Yes. If it's too good to be true, it's probably not true. And then check online reviews, you know I mean be a little bit more I mean clever you know. Just check the online review; what are people saying? Don't follow the crowd.

The crowd mentality is often the problem. In my 21 years at SIAS, the herd mentality and losing money. Because my friend invested, and I think it's okay. Ask for documentation if possible, right?

Philipp: Yes. Do you think investment scams over the last, let's say like 3 to 5 years have increased or have decreased because of the internet being more transparent? What is kind of like you guys' view on this?

David: Investment scams [18:00] actually have increased, especially from China. The people offering investment scams,I think it is up, last year, it was $52 million we lost. And it's up; I think it's quite a bit actually, quite a bit.

Philipp: Yes, okay. It was just interesting to hear; yes, I was just wondering. Because the internet you know also makes a level playing field where people can do more research. But then, like you said, the “follow the crowd” mindset. Hey, my friend did it, and he makes a lot of money on it. I want to do it, right? It's easy.

David: Yes. In 2019, there were 508 investment scams. That is 161 more; that's the latest figures from the police, right? And about the loss in 2019, it amounted to $36.9 million whereas it was minus, that is minus. And then the largest sum cheated was $5.3 million.

Philipp: That's a lot. And that's just the ones that got reported, right?

David: Yes. I mean, people are, even today as we are speaking, somebody is being scammed.

Philipp: Yes, 100%. What can you do then to protect yourself?

David: So we basically have to tell ourselves: we should not act on an unsolicited offer to buy any investment product. Even if your relative comes to you to sell the investment, all right? Don't buy it, because they've been scammed. They don't know it, they think they're going to get the money soon. But they come and tell you, “Hey, I'm going to get 10%.” But the money's gone.

Keep your financial information to yourself; never share [20:00] account numbers, bank account numbers, usernames, logins, passwords, or personal identification numbers. Never. So always keep your assets and money with a reputable firm.

Philipp: And how would you say if someone can see, if it's a reputable one? One is obviously the MAS, that they are licensed to MAS. Is there anything else that you would say?

David: The other thing is check out the firm. I mean, if they say well ABC firm, look it up immediately and see whether or not it's on, and what they are offering. I mean, you tell me, if somebody rings you and says I'm from DBS, you will listen and then say, “Hang on a minute, let me check your name out of the DBS, or let me call DBS,” right?

Never invest in a product you don't understand at all. If you don't understand, walk away, put down the phone, right? Don't continue to talk. Verify what you're told with the trusted advisor or friend. Go to an investment advisor or come to SIAS. We are a charity, and we are free; we don't charge a fee.

If it is a product, other than investment you can go to Consumers Association of Singapore (CASE). But if it's the investment product, if you want help, we are here to help. I mean, the mantra is this: ask, check, confirm.

Philipp: I mean, I think that's a great mantra, right? And I always tell people as well; it's like you should be your own personal CFO. It's your hard-earned money, and you should always buy an investment; you never should be sold an investment product, right? You need to do the research. You go and buy it yourself. You get the research done, right?

David: Yes. You know it really is a heartache, and I've seen the tears during CLOB time, and even now with Hyflux. I have seen the tears and heartaches of people who have invested without knowing the company, without knowing the investment product, all because they want to earn more. [22:00] The greed factor, it's really very dominant in the investment decision. And the emotional factor; if I don't do it, I will lose it.

Philipp: Yes, absolutely. And so we've done what people can do to protect themselves, right? So we talked about some of the resources already, but maybe like other than the company's credentials, what can you do?

David: Sure. So, go to the financial institution's directory, a list of entities regulated by MAS. So go to the website of MAS, you can look at financial institutions directory. There is this company, financial institutions listed there. You can also look at the register of representatives, which is a list of individuals who conduct activities regulated by MAS, also on their MAS website, register of representatives.

So if you say I'm a representative of this bank or this financial institution or this insurance company, you can get him on the MAS. Investor alert list, this is a very important one. A non-exhaustive list of entities unregulated by MAS who may have been wrongly perceived as being licensed or authorised by MAS. So these are some of the avenues open to you to check.

Philipp: Yes, absolutely. They're all great ones for people to do before they start investing, so absolutely do those before you start investing. And then so let's say, though, unfortunately, I did get scammed. A lot of people are probably; someone will be too ashamed to say anything, right? Especially in front of their family and friends.

And like you said, you've seen tears before in your office. I can only imagine if someone saved up for their grandkids’ school or something and got scammed [24:00] and now has nothing to show for; it's heart-aching, and heartbreaking, right? So what can you do once you have been targeted? Is there any chance to recoup it? Or at least make these people take ownership of what they did?

David: Okay. If it is a realisation that occurred immediately at the time of the investment, and if you can call your financial institution, your bank to stop the transaction, it'll be good. But if it's an overseas transaction, you've already money gone, goodbye, you can't do anything. But what you can do is immediately call the police; they have an anti-scam centre, Phillipp. 

And yes, they're 1800-762-6688, you can call the anti-scam side. They have recovered a fair bit of money from some of the scams, with respect to some of the scams. Of course, once money goes out, you can't get it back often. So please, my advice to your listeners is: become smart, and don't be silly.

Philipp: That's great advice, that's great advice. And before I let you go, David, I wanted to ask you a couple of questions. And one is what was the best investment you've ever done, if you can share? It doesn't have to be a financial investment either.

So we always get a lot of interesting answers from people, from paying their parents’ mortgage or whatever, to investing in gold when always buying gold jewellery with every paycheck, but what was yours?

David: Yes. In 1968 I made an investment, and it has given me 45 years of returns. [26:00] The dividends, very good dividends. I married a girl whom I met in 1968, and she gave me three boys, and they're all doing very well. And I said to myself, instead of wasting my money, I put it on my wife. But that's on the humour side. But really, my investment on properties. I'm a man who believes in brick and mortar.

I had never had investment knowledge those days. I have now over 21 years, picked up a fair bit, but I'm not an investment guru or an advisor, right? I don’t always have investment advice with me. So the simple thing I've learnt is if you don't have the time, and if you do not have the skills, let somebody else who has the skills and time to do it for you.

And we have, therefore never, I've rarely invested. I don't have the stomach for it, Philipp, honestly. So, I tell my members if you don't have the stomach for it, you don't have the time, if you don't have the knowledge, don't invest. So, I tell them, and also Philipp, I gave up practice in 1999, I gave up practice. I could have today been, I mean, retired very rich, but I decided to do SIAS in which was a voluntary thing, and later after a while, I got as a CEO, I got some sufficient remuneration.

But I didn't think that it was necessary, because I was already 55 and my wife was a teacher. And all I needed was a bowl of rice, right? Kanji. And then my three boys all graduated now, and I've got six grandchildren. [28:00] So this is not the time for me to invest.

But my best investment has been my family, and basically, I think the house that we bought for a matrimonial home that we bought for $98,000 in 1978 December. In 1974 February I got married. That was my matrimonial home, in Sembawang Hills Estate. I sold it for $450,000 in 1988 and went to Melbourne. And then there I bought a house for $200,000 and today I think today is about $1.4 million or 1.5 million.

Philipp: Oh wow, see, good investments.

David: So where would you get that in stock or any other financial product? But then I invested in another property my son was occupying and he went to upgrade. So I bought that in Melbourne as well for $800,000. My wife and I, all our savings and our investment in properties have given good returns.

Philipp: Oh, this is awesome. No, really cool story; thank you so much for sharing that. And then the last bit is for our listeners. Is there any book that you would recommend for people to read? Something, may be personal finance-related or something that you got out of it that they can take away from today and have a little bit of a read?

David: Okay. There are plenty of books. I think I'm a great believer in value investing, and therefore Warren Buffet and Benjamin Graham, from whom Warren Buffet actually learnt, would be the starting point for any investor who wants to invest.

The word invest means you are considering long-term investing, not trading. I don't know anything about trading. So I would say [30:00] Benjamin Graham and then Warren Buffet.

Philipp: Yes, absolutely. Both have very good books; I've read both of them and love them as well. And I think like you said, if you're investing, don't try to trade. If it's not your full-time job, do it more, it's for the long term, right? If you're searching for retirement, you don't need to buy and sell every day.

David: Something that I remember there's a lady in 1939 who was a janitor, whose boss was an investment guru. And she told her, look, I'm going to put in $1,000. And then, after 30 years, she withdrew $1 million, about 30 years. But people now say, oh, it's a volatile market; things have changed.

You can't be long term; you've got to be short term. I said you are talking rubbish because you've got to look at fundamentals, and you've got to look at, okay long term may not be 30 years. But there's one book that we wrote; we published at SIAS: Three Dimensions of Successful Investing.

You can go into our website, SIAS website, which actually explains investment principles, and the investment products are explained. Pros and cons, advantages, disadvantages, and when to invest and how to invest, and all the products are explained. Also, on our website Philipp, there are hundreds of videos, over a hundred videos that we did with MAS, MoneySense. And ABS, Association of Banks Singapore, and MoneySense, and gurus actually come on our platform and explain every investment product.

Philipp: Yes. I tell everyone this is a great way to get to know more about this, right? [32:00]

David: Yes.

Philipp: We'll definitely put the links on those for the videos and everything because I think people will have a lot more questions and interests. So I think this is a great first start for them to learn more about this topic, but yes.

David: And Philipp, for your listeners, we are a charity; we don't charge most of the time. Unless we had to pay the lecturer and we do charge a small amount, very small amount. But we're going to have free sessions, so every Friday. I think once a week, every Monday. It's about a review of the market; you know they can ask questions, 12pm to 1pm on our website.

We have a former head of, it's a live for Facebook. Then we also do Ask SIAS that will be happening, say monthly. They can come to see us and ask about their own investments. Why is my investment going wrong? What happened? Can you give us some advice? And we have the former head of CIMB Research who is with us now, Benjamin Goh. And we've got another research associate Fang Boon from Mercer, and we have Richard Dyson, who is our general manager, who was in SGX and who has been doing investments for a long time; he is my GM. So they will take questions, and they will discuss what possibly could have gone wrong.

Philipp: Oh, those are great resources.

David: Yes. And then, we also are going to do portfolio, tracking of portfolio, SIAS portfolio. So basically, we're not saying you must do what we are doing, just watch whether we are right or wrong, learn from us.

Philipp: Exactly. No, I think it's just a great resource for people. Like you said, it's a non-profit, right? Go check this out, listeners. I highly encourage everyone to do that. Do some research, and I'm sure just like myself, [34:00] we all learned something today from David.

So, thank you again for your time. We really appreciate it. There's a world of knowledge there on the line today, so appreciate that. And hope you have a great day, and I look forward to hopefully seeing you in person soon again.

David: Yes, very nice to meet you. If I may say, your listeners can log on to sias.org.sg.

Philipp: Yes, and we put all these links in the show notes for them, too as well. So that's great; thank you so much, David.

Episode notes

More than $35 million was lost through investment scams in 2019. What can you do to ensure that you don’t lose your hard-earned money to one? David Gerald founded the Securities Investors Association (Singapore) or SIAS to assist and educate would-be investors from being a victim of an investment scam. In this episode, David shares some common tactics used and how investing scams prey on your greed and emotions before making a quick getaway.

To help you avoid investment scams, David suggests the below resources:

For past guests, visit stashaway.com/podcast

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Episode contributors

  • Philipp Muedder (Head of Financial Planning at StashAway)
  • David Gerald (President & CEO at SIAS)