Protect your money

ALTHOUGH THERE are some institutional arrangements in place to protect the funds of people who entrust them to financial institutions, people must do all they can to reduce the risk of losing their money.

The Jamaica Deposit Insurance Corporation (JDIC) provides insurance against the loss of deposits in commercial banks, trust companies and merchant banks, and building societies. It does not, however, cover funds in money market brokers, investment firms, unit trusts, mutual funds, life insurance companies, and credit unions.

Among the instruments it covers are savings and chequeing accounts, time deposits, certificates of deposits, manager’s cheques, money orders and drafts, travellers’ cheques, shares in building societies other than capital shares, deferred shares and preferred shares.

The basic insurance coverage limit is $1.2 million (principal and interest combined) per depositor, per institution. It is prudent, therefore, to have deposits in more than one covered financial institution, meaning that additional protection is gained by holding money in separate institutions, and not different branches of the same institution.

All individual accounts owned by the same person in the same institution are added together and the total is covered up to the maximum $1.2 million.

Joint accounts, accounts owned by two or more people, are insured separately from individual accounts. Likewise, funds deposited by businesses – companies, partnerships and associations – are insured separately from the personal accounts of the shareholders, partners and members.

PROTECTION

The protection the JDIC offers to depositors applies in cases where the insured’s financial institution fails, or is unable to make payments on deposits.

The Compensation Fund of the Jamaica Stock Exchange (JSE) compensates clients of member-dealers who have lost money as a result of misappropriation of funds, fraudulent use of securities or document of title to securities or of other property, by a member-dealer, or a director or employee of the member-dealer.

The Compensation Fund, however, does not protect against losses from fluctuations in the prices of securities.

Generally, the Fund does not pay out more than $1 million in respect of a member-dealer, but if the JSE considers that the assets of the Fund so permit, it might decide to increase the total amount that might be applied from it, and notify the FSC.

The losses covered by the Fund cover investments in stocks and shares of companies listed on the JSE, and any claim in denominated money market instruments. The Compensation Fund, then, gives only limited protection to investors.

ADDITIONAL PROTECTION

The JSE offers additional protection to investors by using its powers to investigate and rule on any conduct of member-dealers which it deems to be detrimental to the business of stockbroking, and impose penalties on member-dealers found to be guilty of an offence.

The FSC regulates the securities, pensions and insurance industries. It protects the users of these services by licensing and registering the institutions and people who serve the public in these industries.

It also registers all securities and approves all insurance products and private pension plans, and investigates complaints made to it by members of the public. Beyond that, it imposes sanctions or penalties, including fines or other corrective action, when it identifies breaches or irregularities.

Additionally, the FSC has put in place measures to reduce the threat of fraud or money laundering in licensed institutions and, like the JSE, uses several programmes to educate the public about investments, thus reducing their risk of making poor decisions.

Institutional structures and arrangements, notwithstanding, people who save and invest their money and conduct financial transactions owe it to themselves to take all steps possible to protect their money. They should be careful about where they put their money, be careful about the types of instruments into which they put it, and be careful about who they give access to their accounts.

Additionally, they should know where to get help if they have a problem, they should seek to know even the basics about the financial products they are introduced to and do all they can to protect their identity. In some cases, it might be necessary to get assistance and guidance from family members and trusted friends who are more knowledgeable than them about financial matters, as well as those who are better able to use technology for research.

CHECK ACCOUNT BALANCES

People who have bank accounts should check their balances regularly, especially if they choose to have online access. This is an effective way to see if anything untoward is happening on an account.

It is now quite common for the issuers of credit cards to send notifications of transactions to card-holders automatically when the card is used. Pay attention to these messages, and check for the accuracy of receipts each time the card is used.

To further reduce the risk of fraud, keep passwords private and use strong passwords which include numbers, letters, upper case and lower case characters, and special characters like a question sign, percentage sign, or number sign, for example. Additionally, change passwords periodically, and keep all cards in a secure place.

Outside of very close family members like a spouse, keep account information away from others, and exercise great caution in including others on any account and on the title to any asset.

Account statements, whether for bank accounts or investment accounts, are important. Pay close attention to them, and to contract notes, because they are effective monitoring tools. To enhance their usefulness, it is good to give written instructions to providers of financial services.

Can we eliminate risk? I doubt it. But we can reduce it. The government, through legislation and the oversight and regulatory bodies it establishes, is doing its part, as do the financial institutions. We must play our part in protecting our money and financial assets.

n Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com