By Larry Haverkamp (Doc Money)
IT is almost funny. We have invested billions of dollars in structured products, but no one seems to understand how they work.
Here's how: Equity-linked notes (ELN) promise high returns and are one of the most popular structured products. The most advertised has been Pinnacle Notes. It is similar to other ELNs.
Your earnings are linked to eight well-known local stocks like DBS, UOB, OCBC and Singapore Press Holdings.
If the price of all eight counters declines by no more than five per cent, you earn an annual return of 8.8 per cent. It's good.
If all eight stocks decline no more than ten per cent, you get 4.8 per cent. It's still good.
For the worst case, if even one stock declines more than 10 per cent, your return drops to zero.
Structured products limit both losses and gains. For Pinnacle Notes, these range from 0 to 8.8 per cent per year for four years. It looks fair.
Dig a little deeper, however, and you'll find problems:
http://newpaper.asia1.com.sg/columnists/story/0,4136,137416,00.html?
http://www.tankinlian.com/drmoney/
Do you think people understand insurance products or what they have bought? You will be shocked that many do not know except that they know the products have protection and saving features. How do features work for them, very few know.Yet billion of dollars are invested in these "esoteric" products.This begs the question, "do people buy because they understand". No!!NO!! That is why insurance agents can sell useless and rubbish products to customers. That is why NTUC agents can sell revosave . From this observation it is not the product features or understanding the products that are behind the motive to buy but rather the brand name and the trust people have for the company. Just like in an election people don't vote for the candidate, generally, but the party logo.
ReplyDeleteFrom this and at the end of the day
the right or wrong or appropriate product bought depends on the integrity, conscience and competence of the sellers.The onus is on the sellers.
There is a marketing cliche 'people do not beat a path to your door step because you have a superior product". Based on this premise lousy and stupid product can also be sold if it is 'marketed'. As you can see the intense marketing effort and promotion blitz that have gone into the promotion of REVOSAVE despite being a lousy and useless product. The power of marketing; it is double edged sword. A dangerous product can be turned and convoluted into a benign product.Only when buyers wake up and come to their senses the insurance agents will continue to have their field day.