Every day I speak with investors that truly don’t understand some aspect of their portfolio. Whether it is a private placement, structured product, optimization note, non-traded REIT, variable annuity, or reverse convertible, most investors have difficulty understanding Wall Street’s latest creations. More often than not investors tell me that they trusted their broker and were confident that their advisors were acting in their best interests. Unfortunately for investors, the portion of the investments that are usually the hardest to understand often involve the underlying risks.
These complex investments have two important factors in common. They are high commission products and come with voluminous disclosure documents filled with boiler plate warnings and legalize. Studies show that the majority of investors do not read these documents because they are simply too difficult to understand. Brokers often summarize the highlights of the investment, focusing in on the so-called safety features because that is what is important to most investors. Rather than questioning how a complex investment with hundred page prospectuses or offering memorandum can be summarized onto one page, investors usually agree to the purchase.
The next time you are confronted with a confusing invesment idea from your broker, ask how much more he makes for selling this product as opposed to a bond, CD, or index fund offered by companies such as Vanguard. The answer will probably shock you.
Gilman Law LLP’s Naples Florida Office is a leading securities law firm assisting investors recover for unsuitable investments. For a free evaluation of your case, call us to set up an appointment in our office (1-239-221-8401).