By Lorna Tan, Senior Correspondent
CENTRAL Provident Fund members have been warned they face fines of up to $10,000 if they take part in a scam that has just come to light.
The CPF Board issued the stern warning after a report in The Straits Times yesterday exposing a practice adopted by unscrupulous financial advisers who plunder members’ CPF investment funds.
Some CPF members who are desperate for fast cash have agreed to take part in the scam, which involves the rapid buying and selling - or ‘churning’ - of investment products using CPF money.
The members dip into their retirement savings to buy and sell investment products under the CPF Investment Scheme - and in doing so they become eligible for cash rebates used as a carrot by errant financial advisers.
The advisers get to pocket healthy commissions.
CPF rules prohibit members from pocketing such cash rebates. All gains or rebates from CPF investments must be put back into members’ CPF accounts, to ensure they have enough for their golden years.
A CPF Board spokesman said: ‘CPF members found guilty of working with errant financial advisers to pocket cash rebates which amount to premature withdrawals of CPF monies may be fined up to $2,500. For second or subsequent convictions, the fine may be up to $10,000.’
The scam typically involves frequent buying and selling of unit trusts and investment-linked insurance policies for no good reason. In the process, the customer gets hit with charges while the financial adviser pockets extra commissions. Over an extended period of churning activity, the customer suffers as the savings in his CPF account - used for the transactions - inevitably dwindle, particularly in a falling or flat market.
Advisers typically entice CPF members to ‘churn’ by investing their retirement funds in return for monthly cash rebates. In most cases, CPF members are given blank forms to sign, authorising the advisers to transact these products on their behalf.
The cash rebates come from the sales charges tied to each transaction. The sales charge works out to 2 per cent to 3 per cent of the sum invested, of which the customer receives a cut. The balance is pocketed by the adviser, a person who may have introduced the member to the adviser, and the investment firm.
Singapore Insurance Institute council member, Mr Stanley Jeremiah, urged CPF members to be more careful about safeguarding their retirement funds.
‘People should be aware that by participating in churning they are cheating themselves because they are dissipating their retirement funds and committing a criminal offence,’ he said.
Mr Jeremiah said that even if a CPF member wants to take a chance, he would be making a big mistake because if he is caught, the penalties would be bigger than most of the cash rebates. With continued churning, the fines can be very substantial.
This article was first published in The Straits Times.
Source: AsiaOne Business
