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Paying for the packaging

Written By: Tiang Chuan on September 24, 2008 No Comment

When deciding what brand of buying cookies to buy, do you find yourself going for the one with nicer and more expensive-looking packaging if you have no preferred brand? This is normal. The nice picture, the nice texture of the packaging and the exotic name gives us a impression of a delicious cookie. Well, behind that packaging could be cookies made with milk tainted with melamine. The financial industry faces the same problem of ‘toxic’ stuff in nice packaging.

The recent problems facing Lehman Brothers Minibonds, DBS High Notes and Merrill Lynch Jubilee Notes are examples of financial products having nice packaging. Under these ‘safe’ notes are complex structured products that might result in investors losing the capital. However, they were packaged as safe bond like instruments giving good ‘coupons’. Why call them Minibonds when they are not bonds? Junk bonds, which are below investment grade bonds, are now called high-yield bonds!

Some insurance products are packaged way to nice too. Policies that sell using the notion of having exciting returns from investments, retirement plans sold as fixed deposits with guaranteed returns after a number of years, saving plans that gives you a guaranteed cashback every year.

Good products are often simple, easy to understand and un-exciting. When your adviser recommend products that does not look and sound exciting, he or she may be introducing you the good ones. Nice packaging does not mean quality. Quality products does not mean they must have nice packaging.

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