During the celebration, last week, Congress Financial Advisor (EFPA), key financial institutions Spain showed the rotation of the marketing policies of their institutions only advice to investors. If put into practice a change of philosophy will become big news, although it actually looks like the change occurs. Mass marketing of certain financial products in recent months, including the notification rules, does not encourage optimism.
For now, most financial institutions, including those regarded as “private banking”, has been based on performance in manufacturing and marketing products to their customers. The focus has been on the product to market, rather than customer needs.
The financial crisis the last two years have shown the existence of investment risk, until now truly appreciated. Among others:
Issuer Risk. Entities repeatedly sell products that a guarantor is a third entity whose shares are theoretically even more dense than the merchant bank. With Lehman’s bankruptcy became clear that there is no good ranking issuer is an absolute guarantee. Issuer Risk is always there, but small.
Illiquidity risk of the underlying financial products. investment fund has a value of all assets at market prices every day to calculate the net asset value of operations performed on entry and exit by investors. During the last two years of financial crisis there is something that has never happened before. Most of the bond markets stopped functioning properly, making it impossible to cancel the position at “a normal market.” Consequently, when a command received reimbursement of mutual funds are forced to sell assets at a low enough price, causing declines in corporate valuation, in turn resulting in additional rebates. Fortunately, the standardization of the bond market has been breaking this vicious cycle. The only market that has really liquid at all times has been the stock market.
Fraud risk. Madoff this scandal may have been the most has undermined investor confidence. With the type of controls and oversight that currently exist in Spain, will be very difficult for this type of fraud can occur in the supervisory institutions in our country. Advanced packaging products of the ignorance of the underlying investment portfolio can generate uncertainties on the client end.
Although the possibility of realization of each of these risks are minimal, they all had been realized almost simultaneously during the financial crisis recently.
After what happened in the last two years is necessary for the overall financial sector to take a new approach. This is to focus on clients rather than mere marketing. So, in recommending a specific product for the customer if the bank should also be good for the institution if it is good for the customer.
A two-thirds of the estimated household financial savings (funds and time) invested in a 2010 products will lease between 1% and 2%. Time to launch products that offer higher returns. However, counseling should begin by considering the fundamental premise of investors: The higher the expected results, the risk is higher. “If the risk-free return for one year (Treasury) equal to 1%, a product that offers% 4 or 5% at risk, but did not materialize.
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