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Four “Wealth Manager” Traps To Watch Out For

Here are four common “Wealth Manager” traps to watch out for.

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Slick and smooth-talking Wealth Managers have made quite a mark over the past few years. However, every now and then, we hear about disgruntled clients of Wealth Management outfit going up in arms against their money managers; the most recent incident being the case at Karvy Private Wealth, where several senior officials were booked by the Bengaluru Police for cheating and defrauding investors. Here are four common “Wealth Manager” traps to watch out for.

The guaranteed returns trap

The undeniable allure of guaranteed returns is something that very few wealth management clients can resist, and unscrupulous money managers have been quick to cash in on this in the past. Investments like junk bonds, real estate PMS’s, structured products, and even ULIP’s have been mis-sold as guaranteed return products to unsuspecting individuals. In the most recent case described above, investors were promised guaranteed returns of up to 20% from what seems to be a real estate PMS. Remember the simple thumb rule: it’s impossible to guarantee returns that are above the risk-free rate or the yield on the government security of a corresponding maturity. If your wealth manager is promising you otherwise, give the product a wide berth. Did you know that even bank FD’s aren’t guaranteed, in the event of an insolvency?

The large ticket insurance trap

There are few things that excite wealth managers as much as the prospect of landing a large ticket life insurance deal! After all, these value eroding products are highly remunerative for their organizations, and to them by proxy. These products could, prima facie, look really appealing – and could take the form of ULIP’s, endowment plans or even pension plans. Things like guaranteed additions and loyalty bonuses just add to the lure. By the time that the hapless investor comes to his senses, he’s typically locked into a vicious cycle of throwing good money after bad. The lesson: if your wealth manager is pitching you any insurance product outside of traditional term insurance, it’s time to be on high alert!

The “this is 100% safe and secure” trap

The internet is replete with horror stories of “100% secured” investments that were sold by wealth managers to their clients, which were actually far from secure. From high yield bonds to structured products, to ULIP’s, many a guileless investor has been saddled with such investment products in the past. It’s a smart idea to deeply question any investment product as “100% capital protected” by your wealth manager. Trawl through the fine print and understand whether this is indeed correct – and if it is, who is guaranteeing the capital and what is their creditworthiness? More often than not, you’ll uncover facts that differ from the pitch presented to you.

The “exotic product” trap

If you’ve noticed a peculiar proclivity on your wealth manager’s part to come back to you with the latest “flavour of the month”, you’re not alone! It may surprise you to know that most wealth management outfits are heavily product target driven, which means that any product that the senior management “approves for sale” must necessarily drill down to the foot soldiers who then carry targets related to them. Of course, the average HNI’s enamourment with all things not plain vanilla naturally helps their cause! Whether or not these exotic products (such as derivative PMS’s, structures currency pair linked products, real estate funds, private equity funds, cinema funds and the like) actually end up delivering real value, is a coin toss at best! Stick with the simple with the bulk of your money and you won’t regret it in the long run.


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