Investor Alert: Be Leery of “Bond-Like” Investment Products.
The Same Investment Product Can't Both be Safe and Make Up Past Investment Losses
Investors have been
chasing yield for years now, trying to make up losses sustained during the 2007-2008
financial crisis. They’re also attempting to preserve their current
assets by investing in “safe” products. Unfortunately, these
two goals can’t be met with the same product, and investors looking
for such investments often get taken advantage of by con artists and unscrupulous
brokers and advisers. Bonds are a good example of this.
Investors looking for guaranteed, stable returns typically invest in bonds,
because they are marketed as safe products that carry little to no risk
Unfortunately for investors, this is a myth.
Bonds do carry risks, and products marketed as “bond-like” carry even more.
Reverse convertibles, for example, are often marketed to unsophisticated investors as “bond-like”
products that offer a higher-yield alternative to traditional equity and
fixed income investments. The
investment products’ many drawbacksaren’t discussed, however, and investors who thought they were preserving
their assets by investing in them can end up losing all of their principal
Brokerage firms and other financial professionals also use investors’
bonds to sell structured products– extremely complex investments that carry a wide range of risks.
Securities America, for example, sold $700 million of
private placement notes in Medical Capital Holdings, Inc. by telling advisers the products
were “the missing piece that should be included in
your fixed-income arsenal.”
Advisers took them up on this, and investors ended up losing everything.
The Hartford Financial Services Group Inc. also allegedly used misleading
statements about bonds to sell one of its
mutual funds, the Hartford Floating Rate Fund (HFLAX).
“In particular, the brochure [for the fund] contained misleading
statements that the mutual fund was appropriate for bond investors concerned
about the price stability of their investments, provided the potential
for greater price stability compared with other fixed income investments,
and was appropriate for
investors seeking some degree of capital preservation,” stated FINRA. “Given the conditions in the bank loan market
during the relevant period, these statements were not accurate.”
Bottom line? Investors looking for safe investments should be leery of
any marketing claims that reference bonds. Most aren’t what they seem.
About our law firm:
Meyer Wilson represents individuals across the country who have been harmed
by investment fraud. All of our cases are handled on a contingency fee
basis and we never request a retainer of any kind. Contact us for more
information or complete the online form on the top of this page and we
will respond promptly.