Friday, June 3, 2011

Principal Protected Notes Don't Always Protect Principal

Principal-protected notes don't always protect principal, regulators warn

Another example of "if it sounds too good to be true it probably is". In this volatile market environment the path of least resistance for many financial products salespeople are things that offer some sort of principal protection. These products are usually so complex the salesperson often has little idea of how they work. I don't blame people for aggressively pushing things like equity indexed annuities and principal protected notes. The commissions are often extremely high and the people pushing them often don't know any better. Investors need to better understand what they are getting into with this stuff.

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