Newspaper article The Journal (Newcastle, England)

High Returns Come with Higher Risks; If an Investment Sounds Too Good to Be True, Then It Probably Is. Financial Adviser IAN LOWES Warns Potential Investors to Beware of Big Promises

Newspaper article The Journal (Newcastle, England)

High Returns Come with Higher Risks; If an Investment Sounds Too Good to Be True, Then It Probably Is. Financial Adviser IAN LOWES Warns Potential Investors to Beware of Big Promises

Article excerpt

IWAS somewhat bemused by a recent article in a financial magazine which highlighted the issue of Santander Bank having to write to clients to tell them that a guaranteed product they offered some years ago would not be covered by the Financial Services Compensation Scheme in the event of Santander becoming insolvent.

What I found hypocritical was that the very same page in the magazine featured an advertisement offering a non-regulated investment - rare stamps - which purported to offer "100% capital security" and "unlimited returns - historically 10% per annum".

Whilst Santander may have technically got it wrong, they are significantly more likely to deliver on their 'guaranteed' offering than the rare stamp company promoting the "100% capital security". I think you can expect more security from a bank the size of Santander than a dealer in stamps.

That said, when you recognise that the promoter of the rare stamp investment is, as the biggest market maker, the entity that plays a fundamental part in dictating the value of the stamps, you can see how they might be in a position to make such promises - but don't think about that for too long!

A piece of marketing literature for that very same stamp dealer crossed my desk this week. Reading like something from a Reader's Digest prize draw promotion, phrases such as 'Britain's Best Investment Guarantee of 2011', 'unique investment - issued by the British Government' (i.e. the stamps not the investment), 'In the investment world it doesn't get any better than this', and 'You have to act quickly', all sent shivers down my spine as a financial adviser. Stamps may be a good investment - who is to say either way? - but I would be shot if I marketed to my clients using phrases like the above. That is the difference between the regulated and the non-regulated market.

It made me feel it worthwhile to flag the importance when receiving this kind of literature to undertake thorough research and to seek professional advice on the suitability of investments for your financial needs and goals. With the Bank of England base rate at an all-time low and interest rates on savings accounts offering around the 3% mark, it is not hard to understand why schemes that promise rates of return in double figures are going to seem highly attractive. …

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