In many cases, the investor trusted his broker to place him in something that offered a great return, but low risk.
When things go bad, the investor complains he didn’t understand the risks or was never told the risks were as great as they were.
Who’s at Fault
It is sometimes hard to decide who is at fault, the broker who wants a fat commission and/or fee from a sale or the investor who is so eager to make a quick buck, he overlooks the risks.Many investors stick to common stocks, bonds and mutual funds. However, if you work with a broker, there’s a good chance you will be introduced to some more exotic products.
Most of these products are legitimate investment opportunities that you should investigate and decide if they fit your particular financial goals.
Stock Disaster
However, some of the products – while conceived with good intentions – become disasters if the market conditions they were built on erode or reverse.The credit crisis of 2007-08 is a good example. A number of financial products were built around the strong housing market.
As long as housing prices continued to rise and homeowners continued to make timely payments, the exotic packages of mortgage securities paid handsome returns.
However, when the housing market stalled and some homeowners defaulted on their notes, the market for these exotic credit securities collapsed.
Many of the securities built on packaging home loans collapsed and became worthless. Often the financial companies that put these products together and sold them collected fat fees and commissions on the front end.
What can investors learn from this situation?
There are no extraordinary gains without risk. The securities industry did itself and its customers a great disservice by not disclosing in a meaningful way the dangers of owning these products.
Against your best interest
If you believe a broker put you in a highly risky product against your best interest, contact the manager of the office.You should also be prepared to file a complaint with Financial Industry Regulatory Authority (FINRA). FINRA has replaced NASD as the agency with primary responsibility for overseeing what they need to do.
There are many investment opportunities. Investors don’t have to settle for one that makes them nervous or is confusing.
