Are you familiar with my financial needs and objectives?
Financial institutions are equipped with fact finding tools to help you understand your financial health and investment needs. It is important for you to go through this financial health check with your financial institution before embarking on any investment product discussions. Be honest in your disclosure of your financial information. If there is insufficient or inaccurate information, you may be recommended products that are not suitable.
Do you know my risk profile?
Financial institutions are also equipped with suitability analysis tools to help identify your risk profile (or preference). This – together with the fact finding process – should be conducted by the financial institution before introducing products to you. You must insist on this process.
How risky is the structured product?
Remember, the higher the returns, the higher the risks. Do not take on more risk than you can tolerate. Find out what the worst case scenario is. For example, can you lose all or a significant part of your capital? Ask for details of the various risk factors that may affect your returns or put your principal at risk.
You should also ask:
What are the expected returns on the structured product?
You should be familiar with the conditions attached to the payment of returns especially for structured products. One way to assess how attractive the returns are is to compare the returns with interest rates currently offered by fixed deposits. Ask yourself if the higher returns justify the risk you are taking. If you receive attractive information on past returns, ask your adviser if these returns are realistic given current scenarios. Also ask about potential returns when the product underperforms expectations.
How does this product fit my investment needs?
Once the financial institution’s sales staff has taken time to understand your investment needs, risk profile, budget and explained to you the different products shortlisted, he should be able to explain to you how the products fit your investment needs and your risk profile. The conversation should not be just about how good the structured products are but also how well they fit your needs.
Also ask the sales staff whether there are alternative investment products with similar risk-return profile as that of the structured product introduced to you.
How does this product fit into my investment portfolio?
Always ensure that your investment portfolio is well diversified and not unnecessarily skewed by any investments.
What fees would the financial institution and its sales staff earn on the product?
This can help you assess whether the financial institution and its sales staff would be in a position of conflict where they may be motivated to promote one product over another.
How often will you update me on the product after the investments?
Ensure that you receive product updates and valuations from your financial institutions regularly, regardless of financial or economic conditions. This will allow you to make adjustments to your portfolio through the investment period. Get a commitment from the financial institution to provide such “after investment” service.
How can I exit this structured product and what should I expect when exiting?
Knowing how and when the structured product can be liquidated as well as the cost attached to the liquidation will help you plan your cash flow and balance sheet.
When you invest in structured products, your money will be tied up for a period of time and early withdrawal may result in loss of part of your return and/or principal. Make sure that you have sufficient savings set aside before investing in structured products.
Can I go back and consider the structured product you have introduced?
Make sure you read and understand the documents relating to the product before you make any investment decision. Note that you may be asked to indicate that you have read and understood the material in the transaction documents. Do not invest in a product if you do not understand it or are not comfortable with the risks and if you need to seek advice, you should do so before investing.
In any case, investment opportunities abound and you should not rush into any investment without due and proper consideration.
Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.
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