Want to buy a mutual fund in Singapore? Pass a test first

Buying a mutual fund in Singapore may not be a cakewalk anymore. Under new investor-protection rules that take effect January 1, investors in the tightly controlled city-state must possess certain educational qualifications related to finance or have relevant work or trading experience to buy funds directly.
Those who fail to meet the Monetary Authority of Singapore's (MAS) requirements will have to prove their competence through various means such as passing a series of online tutorials on the Singapore Exchange website, in what could be a first for investors anywhere in the world.
Thousands of Singaporeans lost money investing in supposedly low-risk Lehman Brothers-linked "Minibonds" in 2008. The new rules follow a review by the country's monetary authorities.
The regulations have been sharply criticised by some fund managers who fear a loss of business. "Asking investors to pass a test to invest could be a deterrent to investing," said Francois Mouzay, head of fund development and services in Asia-Pacific for BNP Paribas Investments Partners. Under the new regulations, investors can continue to buy funds even if they are deemed to lack the relevant knowledge or experience. But they have to first sit down with a financial adviser who is required to assess the person's financial knowledge and ability to handle risk.
Retail investors said the test and increased scrutiny could be discouraging for those seeking exposure to markets. "It cuts out newbies. You can't protect them that way," said Hazel Lim, a 29-year-old property agent, adding investors would then buy stocks directly which would be riskier.
Lim, who has been an investor in funds for five years, said she was unaware of the test. Singapore, which has rapidly developed its financial industry in recent years, is home to 783 mutual funds that oversee about $70 billion, according to data tracked by Lipper, a Thomson Reuters company.
Overall, Singapore-based fund managers had S$1.4 trillion ($1.1 trillion) in assets under management at the end of 2010, according to MAS.
The new requirement may not significantly increase investor protection, said Tan Kin Lian, a former insurance co-operative chief executive who helped investors win compensation from banks and brokers after the Minibonds fiasco. "The regulations will raise the cost of financial products and force people to go through financial advisers or stock brokers who may not understand the product," he said.
"The assessment (of investment products) should be made at a higher level by experts first," he added. "If a doctor recommends a type of medicine, he would be relying on the Health Science Authority or some other authority to first test the medicine."
The new requirement, which also affects sales of investment-linked insurance products, exchange-traded funds (ETFs) and stocks listed outside Singapore, has created ripples throughout the city-state's financial services industry.
Fundsupermart, Singapore's largest online portal for investors to buy and sell funds, has changed its system to prevent some clients from buying funds directly, for instance.