Do you know what you are buying?
The recent collapse of Lehman Brothers and the subsequent troubles facing its brilliantly named Minibonds shock many investors who though that they had bought real bonds and not some complicated structured products. Some of these structured products have even been sold as fixed deposits. Financial institutions, greedy for the investors’ dollar, mis-sold them to thousands of unknowing investors. How many of the investors actually know what they have bought into? Many of them are retail investors incapable of understanding the intricate make-up of the funds. Ironically, there are easy to understand structured products are that are available to Sophisticated or Accredited Investors only.
Many consumers have a mis-conception that by having numerous outlets, beautifully dressed employees and advertisements claiming concern and support for you at all times, the financial institutions must be capable, professional and only offer good products. But alas,how powerful the media and publicity can be. Just look at the kind of mess we have now.
Mis-selling is still prevalent in the industry. Just recently, the 14 September 2008 issue of The Newpaper reported that a 62 year old grandmother lost 40% of her life savings when she was sold a unit trust fund when all she wanted was a fixed deposit account. The article can be found here. Some advisers have even sold Investment-Linked-Products (ILP) as endowment plans! These and other similar stories makes you wonder how can those responsible manage to get to sleep at night.
To close the sale, front line employees often just highlight the potential returns without mentioning any downside. When was the last time you heard them talking about the negative things? Overwhelmed with positive information and overlooking potential pitfalls, many investors end up buying the products. Sadly, what they are actually holding is a completely different animal to their expectation.
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Tags: Mis-selling
