How To Spot An Unsuitable Financial Product
There is always a point where we need to acquire some financial products, be it for ourselves or for our family members. Often shrouded behind jargon and complex terms and conditions, it is no wonder the Financial Industry Disputes Resolution Centre Ltd (Fidrec) saw an 18.7% increase in the number of complaints filed against banks and financial institutions in 2015.
Most of the complaints were focused on pricing issues, disputes on liability and claim amount, as well as on investment returns. Although part of the problem may be due to misrepresentation and inappropriate advice, consumers themselves may also want to take up some of the responsibility for buying the wrong financial products. If you’ve often faced anxieties and felt uncertain about buying these products, here are 5 signs that you could have bought something unsuitable:
Your friend recommended the product
We all known one or few relatives, friends or friend of friends who is a financial advisor. Because of our fear of buying something we don’t know about, we often turn to a familiar face for advice since we may trust them more than a stranger. However, this may not be the best strategy when it comes to buying a long-term financial product.
Firstly, these products, such as insurance or investment products are not one-size-fits-all. It depends on your risk tolerance, the amount of capital you can put up, as well as your life stage. Thus, what works for your friend may not be right for you.
You didn’t include fees as part of the overall cost
When it comes to calculating investment returns, a big part of the cost comes from extra fees and charges. This can be the cost of trading, administrative fees or even performance fees. They may look like a very minuscule part of the overall cost, but they can easily eat into any profits you’ve earned. There’s also a tendency for financial institutions to include the fees as part of your payment for the product so that they become hidden. Ensure that you ask for the break-down of all fees so that you know exactly what you are paying for.
You forgot the fine prints
Dealing with complex financial products can put us off, especially when it comes to reading policy documents and whatever fine prints that accompany the product. However, missing out on the fine print can cost you a fortune. Ever heard of cases where consumers spend thousands of dollars servicing their insurance policies for years and not being able to claim a single cent when accidents happen? That’s what we are talking about. If you want to ensure you do not fall into these situations, always read the fine print, or at least, ensure that you understand the main circumstances where you will be paid, with regards to both claims and returns.
Since most financial product sales personnel have a vested interest in selling you a product, it is also important that you get yourself educated about the product you are buying, the variations available in the market and the key pit holes.
You didn’t do any research at all
Since financial products are fairly complicated, it makes sense to do some research before fully trusting your advisor and buying whatever they recommend. There is a huge amount of information online and you can easily read up on the financial products you are interested in. Most importantly, remember to make comparisons between the products provided by different banks and financial institution. This doesn’t only give you an insight to the products available, you can also compare across the price point, as well as the customer service provided.