1. 4 COVER STORY
C
ity University professor
Lindsay Miller was left with
a HK$1.75 million loss after
his adviser lied about
where she had invested his money.
Pauline Cousins, the former
managing director of Crown Asset
Management, claimed she had
invested the lump sum in an
investment-linked assurance
scheme, even producing statements
belonging to other clients to show
how the investment was doing.
But in reality, without
Miller knowing, she had used the
money to buy shares in a hi-tech
company that was subsequently
put into administration.
Cousins was convicted in 2009 in
the District Court of four counts of
furnishing false information and
sentenced to 21months in prison.
Such are the all-too-common
tales of financial advisers taking
advantage of Hongkongers’ trust,
and taking their money. The matter
leaves investors with a dilemma.
Many people want to invest, and
they want independent advice. They
may not want to rely on bank staff or
insurance agents for advice, as they
are selling products and
may be thinking
mainly of their
performance targets or
commission.
So they turn to financial
advisers, but then they have to worry
about fraud and embezzlement.
Advisers are often
empowered to invest for
clients and move
money on their
behalf. Any adviser
with a speck of
creativity and the will
to commit wrongdoing
can siphon cash from
investors’ accounts.
This is exactly what
happened to 30 clients of
Tang Siu-fong, who worked for Fair
Eagle Securities.
For two years (2009 to 2011), Tang
failed to carry out trades in
accordance with her clients’
instructions, and instead carried out
her own unauthorised transactions
on their accounts.
She forged clients’ signatures to
withdraw their shares, and
deposited blank cheques from their
accounts into her own.
To cover her tracks, she withheld
contract notes and statements from
her customers and instead sent
them false versions to make it
appear as if all was well.
By the time the authorities
caught up with her, Tang’s 30 clients
had collectively lost HK$6.4 million.
Don’t give them your money
There is an inherent vulnerability
built into an investor’s relationship
with a financial adviser. The adviser
may have a legitimate need to access
your funds, to invest on your behalf.
The unscrupulous ones can always
then find ways to pilfer funds, no
matter how tight the controls.
To prevent such abuse the
Securities and Futures Commission
requires advisers to put client
money into a segregated account.
This separate account is known
as a third-party client account. It
should be used only for clients’
money and audited to ensure that
the money is not misused. To
safeguard funds, investors should
write the words “client account” on
their cheques, alongside the name of
the firm in the payee information.
The problem is, advisers do not
always adhere to the
separate account rule.
“If someone is
determined to misuse
client money, they will
usually find a way. They
will eventually get
found out, but by then
it might be too late for
the client,” says Robert
Flux, a director at Simmonds
Financial, an advisory firm.
He says clients should not hand
over their money to their adviser in
the first place.
“Whenever we recommend any
third-party product or service
provider, we have clients remit
money directly to the group
concerned,” he says. “If advisers ask
for the money to be paid directly to
them, I would caution clients to ask
why they are doing that. It just
brings in an extra layer
of unnecessary risk.”
Jessica Cutrera,
managing director of
financial advisers EXS
Capital, agrees.
“Embezzlement is
pretty easy to avoid.
Most asset managers,
like ourselves, do not
take custody of client
funds, but rather use
licensed, insured third-party banks
and brokerages to hold client
money,” she says. “We can’t run off
with client money, as we only have
authority to trade and bill for our fee,
not to withdraw funds.”
Consumers leave themselves
vulnerable to abuse when they give
their adviser too free a rein on what
to do with their money.
For example, many firms
Individuals put a lot of faith
in financial advisers, making
them vulnerable to fraud.
But you can protect yourself,
writes Nicky Burridge
The devil you kno
Robert Flux
Jessica
Cutrera
If someone is
determined to misuse
client money, they
will usually find a way
ROBERT FLUX

2. recommend that clients let them
manage investments on a
“discretionary” basis. This means
the advisers have some freedom to
buy and sell assets on behalf of
clients, without consulting them on
every trade.
Discretionary accounts are
something of a buzzword in the
advisory industry, and indeed they
have much to recommend them –
they put investing decisions in the
hands of professional advisers, and
out of the hands of clients who
might be prone to overtrade, and
impulsively so.
But discretionary accounts also
give corrupt advisers a lot more
room to steal cash from clients. “You
are at their mercy to allocate the
money as they see fit,” says Flux.
“They do not need to get any
authority from you, the client, to
move the money. You are only going
to know where you are allocated
once you see your next statement.”
The SFC says investors’ lack of
awareness and reliance on their
account executives are key factors
leading to misappropriation.
The commission warns that
people should not give their advisers
discretionary authority to manage
their account without seriously
considering whether this is
necessary or suitable for them.
The SFC advises that investors
check statements carefully.
Brokerages must issue a trading
statement within two days of a stock
transaction. They need to send
clients a general statement
about their account each month.
Consumers should also flag
any handwritten amendments or
other discrepancies in statements
with the compliance department of
the firm they are using.
The SFC also advises people
to make sure contract notes
and statements are
delivered directly to them, the
investor, and not to their adviser.
Most importantly, consumers
should never issue cheques or
deposit money directly into their
adviser’s or broker’s account.
Flux also recommends that
people carry out some due diligence
when appointing an adviser.
“I suggest you ask good friends or
trusted professionals, such as your
lawyer or accountant, whom they
recommend. Ask how long they’ve
dealt with them and what their
personal experience of working with
them has been,” he says.
But even personally knowing
your adviser offers no guarantee.
Lantau Island resident Yvonne
Sargent used a family friend as her
adviser. On his guidance, the
pensioner invested a lump sum
from a divorce settlement in a
London pension fund.
The investment did well for the
first seven years, but then dropped
below its original value.
Her adviser then suggested that
she should move the money to a
Dubai-based firm, but Sargent was
sceptical, particularly after she
found out the adviser had moved
the funds without her permission.
She says: “For two days, I did not
know where my money was.”
Her son interceded on her
behalf and the money was
recovered, but Sargent lost all
faith in her adviser.
moneypost@scmp.com
COVER STORY 5
ow
While most independent
financial advisers are honest and
professional, some will do
whatever it takes to get clients to
hand over their money.
A former adviser from a large
multinational firm talked to
Money Post about some of the
tactics he was told to use.
The adviser wants to remain
anonymous, which prevents
Money Post from naming the
firm. However, the firm and its
tactics are well known in the
advisory community.
The adviser tells a story that
could come straight from the
pages of Glengarry Glen Ross, or
the play about desperate
salesmen reduced to high-
pressure sales and cons to hit
unachievable targets.
Staff at the advisory firm were
coached on ways to gain a
client’s confidence. For
example, they were told to only
wear white shirts to make them
look like bankers and, therefore,
more trustworthy.
Handshakes were important,
too, and staff who were nervous
were told to grip a table leg
before they shook hands
with a client, so their
hand would be cool,
not sweaty.
Once they got down to
business, the aim was to sell
customers an investment-linked
assurance scheme (ILAS), due to
the big selling commissions.
They were told to “sell the
dream” to clients, asking them if
they wanted to turn left to first
class, or turn right to economy,
when they got on a plane.
The commission paid on an
ILAS varies according to the sum
clients put in each month, so
advisers were taught to play on
people’s vanity to get them to
commit as much as possible.
“We were told to tell people
that the average amount paid
into one of these products was
HK$30,000 a month. When we
said this, men nearly always say:
‘Well I will contribute HK$40,000
a month,’” he says.
At the beginning of a session,
advisers were told to ask clients
who made the financial
decisions, they or their wives.
“Men always say they make the
decisions. Then later, when we
recommended a product, if they
say they needed to check with
their wives, we were told to say:
‘But you told me you made all
the decisions,’” he says.
The firm was just as
aggressive with its own staff. It
invited people to work abroad
for a large salary. When they
arrived they found they would
only earn commission on sales.
The firm also charged
employees rent for their office
space, and they were expected to
supply their own laptop and
supplies and even pay for their
own photocopy paper.
They had no salary and hefty
expenses. This meant they had
to follow the firm’s model of
selling high-commission
products, regardless of whether
they were right for their clients.
The firm would even allow
people to work before obtaining
authorisation from the regulator,
simply getting an authorised
member of staff to sign off on
any of the products, for a cut of
the commission.
Advisers were also pressured
to get referrals from new clients.
The adviser describes a bizarre,
and effective, pressure tactic
where they would write the
numbers one to three on a piece
of paper, and push this across
the table to the client. “We did
not look at the client until they
had given us the three names,”
says the adviser.
He says some people went a
step further, and would access
clients’ Facebook and LinkedIn
accounts to get names of friends
and colleagues.
They would then call them
and pretend their client had
referred them, he says.
After four weeks, the adviser
who spoke to Money Post quit in
disgust and joined a firm with
more integrity, he says.
“It’s disgraceful what goes
on,” he says. “I’m not sure how
these guys sleep at night.”
Tales from the dark side: unscrupulous
advisers and their crooked companies
................................................
Nicky Burridge
moneypost@scmp.com
The firm charged
employees rent for
office space, and
they had to supply
their own laptop
and supplies