gulfnews : With a fresh tide of products, a new wave of concern

gulfnews : With a fresh tide of products, a new wave of concern

Regulators around the world have been putting in place rules to protect consumers in the aftermath of the 2008 financial crisis, which brought to light risks hidden in a number of investments.

Despite this, fears remain that not enough is being done to protect retail investors navigating a new wave of complex products.
Hong Kong experienced its own consumer crisis in 2008 after more than 30,000 investors lost money in so-called minibonds, which promised investors a return on capital that was dependent on Lehman Brothers remaining solvent.

After the financial services firm collapsed, minibond investors demanding their money back staged daily protests outside the city's banks. Following some arm-twisting from the the Hong Kong Securities and Futures Commission, a deal was struck in March this year whereby banks will pay back as much as 96.5 per cent of consumers' original capital.
In the US, "target-date retirement" funds, which aim to reduce risk as retirement age approaches, became notorious after the financial crisis, when it became clear some included a higher exposure to volatile equities than investors had realised.
The US Senate's special committee on ageing has warned that such funds, used by millions of citizens in their workplace pension schemes, could contain risks that consumers do not understand.

Some employees had believed their funds could not decrease in value, for example — but in 2008 many of those belonging to people due to retire in 2010 fell more than 20 per cent. In July, the Consumer Financial Protection Bureau was established as part of the Dodd-Frank reform law, with the aim of providing education about finance and protection from financial companies.
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Russel Kinnel of Morningstar, a research firm, says he is wary about the recent rise of "absolute return" funds in the US, where the name may appear to promise consumers some sort of guarantee on their capital, which the funds do not in fact have.
Some global regulators are threatening to ban products that might mislead consumers about the level of risk involved. Belgium's new financial services and markets authority proposed this summer that financial companies voluntarily withdraw complex structured products aimed at retail investors.

The UK's Financial Conduct Authority, which will come into existence next year in place of the Financial Services Authority, is expected to go increasingly down this route.