Every so often, once the traditional investment choices are rejected by investors, the industry creates new products designed to motivate salesmen through higher than average commissions. Commissions are such a powerful motivator for investment salesmen; so powerful that they may lead an ethical advisor, who believes deep within their heart that they are doing the right thing for their clients, to see only the reward from selling the investment product without recognizing the risks associated with that recommendation. As you know, our firm does not and will not be compensated by commissions. This allows us to see more clearly the riskiness of any investment choices we make, without a dangling carrot influencing our view.
The traditional investment choices offered by investment salespersons such as stocks, bonds, real estate and money market instruments, are being rejected by many individuals today. This rejection has lead to the creation of a whole new group of investment products. These new products are filled with fancy bells and whistles designed to offer investors a bit of comfort from the worries they have of the traditional choices, while also giving investment salespersons the enticement they need to create a little wealth for themselves.
The ironic point is that the bells and whistles that encourage a salesperson to offer these products and that entice you to buy could easily be increasing your risk and costing you dearly at the same time. One group that I have seen appear regularly in the portfolios of our new clients is broadly classified as “structured notes with principal protection.” They come in all shapes and sizes, from FDIC Insured obligations whose return is based on the return of an underlying stock index, to a few more exotic products that could easily loose 90% of your investment.
I am happy to see that I am not the only one concerned with this trend. The Securities and Exchange Commission has also seen the problems that these products can create and has issued a Warning to individual investors. Very seldom does the SEC go out of their way to issue a warning to investors on an entire class of investment products. When they do, you should be on your guard and ready to take shelter.
Because so few individuals will ever take the time to seek out these warnings, we are relaying it here in its entirety. (see link)
Until next time,
Kendall J. Anderson, CFA
Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments is a registered investment adviser. Anderson Griggs Investments only conducts business in states and locations where it is properly registered or meets state requirements for advisors. This commentary is for information purposes only and is not an offer of investment advice. We will only render advice after we deliver our Form ADV Part II to a client in an authorized jurisdiction and receive a properly executed Investment Supervisory Services Agreement. Any reference to performance is historical in nature and no assumption about future performance should be made based on the past performance of any Anderson Griggs Investment Objective, individual account, or index. The authors of publication are expressing general opinions and commentary. They are not attempting to provide legal, accounting, or specific advice to any individual concerning their personal situation. Anderson Griggs Investment's office is located at 113 E. Main St., Suite 310, Rock Hill, SC 29730. The local phone number is 803-324-5044 and nationally can be reached via its toll-free number 800-254-0874.