The Return of The Accumulators
Just like what Arnold Schwwarzenegger promised in the science fiction thriller The Terminator, Accumulators are back!
The Straits Times carried a report “‘Killer’ stock derivatives make comeback” on 01 Sept 09 edition of The Straits Times. The original article was report by Wall Street Journal which can be found here. It showed a slightly different version compared to the one I posted – How does a Share Accumulator Structured Product Work. Although the structure is slightly different, the results are similar: upside is limited while there the risk of downside are much higher. It is not a fair product.
As noted in the articles, such products are sold through private banks to High Net-Worth Individuals (HNWI). It makes us wonder – Haven’t HNWIs learned their lessons last year?
Many HNWIs are businessmen or professionals bogged down by work and do not have much time to do research on their investments. They too rely on their advisers (called Private Bankers or Relationship Managers in private banks). If the advisers are under pressure to meet sales targets and the interest are not aligned with the clients, product sales and churnings could easily happen. And from what I have heard from clients, such happenings are a common sight. For example, one client shared with me that his banker has recommended selling a variable annunity plan after the market rallied since March. The policy was linked to an underlying portfolio and the payout would depend on the performance of the investment. While not going too much into the policy and performance (which we think is a lemon), this plan was meant to be a long term investment. And the banker recommended selling the policy? After a few months? And where do you think the money will go?
Unlike in the show The Terminator, things that do come back may not be good for mankind. Period.
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Tags: Accumulator, Structured Prd
