Letters to Editor
Published Date: 31 July 2014

Response to "Why exchange-traded funds are not popular here" - The Straits Times, 9 July 2014

30 July 2014

The Editor
ST Forum

Dear Editor

We refer to the letter (ST 9 July 2014) by Mr Wilfred Ling (“Why exchange-traded funds are not popular here”).

Mr Ling commented that many financial advisory firms are unclear about whether they are permitted to offer advice on ETFs.  As Mr Ling correctly pointed out, ETFs are collective investment schemes (CIS). Financial advisory firms should be aware whether they are permitted to offer advice on ETFs because they need to be authorised by MAS under the Financial Advisers Act to do so.  The list of retail CIS authorised by MAS, including ETFs, is available on the MAS website.

Mr Ling also suggested that the need for investors to take a financial literacy test could be a reason for ETFs being an unpopular investment choice. Not all investors in ETFs need to take the financial literacy test that is relevant to Specified Investment Products (SIPs). Investors who are assessed by financial institutions (FIs) to possess the required investment knowledge and experience to understand more complex products would be able to transact in listed ETFs that are classified as SIPs without the need to take a test. Investors also have the option of taking an SGX online learning module, and passing a test at the end of the module to demonstrate their understanding of the features and risks of listed SIPs.  About 70% of those who have taken the test have passed.

Investors who are deemed not to possess the required investment knowledge and experience after these steps, may still transact in ETFs classified as SIPs if the FI puts in place safeguards such as explaining to these investors the general features and risks of ETFs, and providing them with a written statement of the explanation given.  These measures are important to safeguard investor interests.  

Mr Ling also commented that Navigator, iFast Central and Phillip Securities’ FAME which are used by financial advisers, do not offer ETFs. While ETFs are not available on these platforms, investors can open a securities account with a broker to trade in such listed products.

Finally, Mr Ling suggested that investment-linked policies (ILPs) from insurance companies are restricted in the choice of their funds. There is no such restriction imposed on the funds that ILPs can offer.

Bey Mui Leng
Director (Communications)
Monetary Authority of Singapore