The FSA has warned consumers considering investing in high-income investment products that they...
The FSA has warned consumers considering investing in high-income investment products that they should be fully aware of the increased risk profile of such products. The regulator made a particular point of informing investors they may lose some or all of their initial capital investment.
The FSA first issued a similar alert in December 1999, urging consumers to think seriously about the level of risk they were willing to accept before investing in high income bonds.
The FSA justified this most recent warning voicing concerns that lower investment returns on more traditional products might lead investors with a more conservative attitude to risk into higher risk opportunities.
Christine Farnish, Director, Consumer Division at the FSA explained: "High income products offer impressive headline rates of return, but consumers must understand that higher returns inevitably mean higher risk. Recently, investment returns have been falling and we are, of course, in a low inflation and low interest rate environment - the Bank of England base rate is just 5%. It's important that consumers understand that low inflation inevitably means lower nominal returns. The only way to get higher returns is to take greater risks."
Farnish recommended that: "Consumers must read all the relevant documents carefully and make sure they fully understand how their product works and the terms and conditions attached. If they are in any doubt they should ask for clarification from their financial adviser or the firm in question."
Further advice on high income products is available from the FSA website www.fsa.gov.uk/consumer
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