The Comisión Nacional del Mercado de Valores (Spanish Securities and Exchange Commission) (hereinafter referred to as CNMV) has created a tool to make it easier for every client to find out about the investment risk The financial institutions' marketing of many products is too complex to be properly understood by the individual customer (as we have seen, for example, with preference shares). Let us look at the positive repercussions this can have.
Confusion about investment risk
This traffic light, as we say, will allow us to know the risks we face in an investment. Its justification? The difficult to understand some financial assets and the frequent malpractice carried out by certain asset managers or financial advisors. This malpractice means that the negative or risky side of investments is not explained, and only the most optimistic aspects of the investments are reported.
One of the clearest examples of this is the treatment of certain people with respect to the fixed income, considering it to be an assured, guaranteed investment. Nothing could be further from the truth.
The real risk of fixed income
Losses in fixed income are explained by the fact that if there is a rise in interest rates, As a result, new issues offer higher yields on our investment, so prices on previously issued bonds fall. The new rates are obviously more interesting as they offer higher coupons, and so the old securities have to drop in price in order to continue to be marketed.
This explanation can be seen in the fact that certain fixed income investments have had losses in excess of 4% in years such as 2010 or 2011, for example.
In short, any investment referenced to fixed income (not even mixed) over the long term should be considered to be medium and not low or no risk how some managers sell the customer.
Traffic light justification and ethical customer management
This traffic light created by the CNMV aims to prevent such malpractices, by seeking to simplifying knowledge for the investor of the asset you are depositing your savings in. It is structured in 6 risk levels, The risk of a risky situation increases as the risk increases.
From the PIB Group Iberia Savings and Investment Department, We would like to highlight how there are still interesting alternatives on the market with the lowest level of risk (Class 1), which offer guaranteed returns higher than in some cases than 1% TAE for the customer. In this way, we would protect ourselves against pension plans marketed in financial institutions with the highest level of risk (Class 6).
A good manager should know the risk profile of each client., and on this basis create an investment portfolio accordingly; in order to avoid some cases, in which we find people over 60 years old, with more than half of their assets in shares, assuming a risk of which they are not aware, without wanting to do so. Here we leave an entry in which we give some advice when it comes to choosing a pension plan.
If you would like us to help you, call us or ask for information on insured pension plans (with guaranteed return, PPP) or pension plans (with higher return potential but assuming some risk).
