Protect senior investors

Senior citizens must be protected from high-risk financial investments that are difficult to comprehend. Many have been persuaded to place their precious pensions and retirement savings into risky financial instruments promising high returns as rates remain low due to the prolonged economic slowdown.

According to the Financial Supervisory Service, financial institutions sold 4.2 trillion won ($3.9 billion) worth of equity-linked securities - derivatives that invest in both equities and bonds and do not guarantee 100 percent of the original principal invested in returns - to clients over 65 years of age from September to the end of June.

Of them, 34.4 percent are first-time derivative investors or have less than a year’s experience in the market. More than one-third of the clients among the seniors did not fully comprehend or were not aware of the risks in the derivatives they had invested in.

Once they are made aware of their losses, consumers belatedly protest or file for dispute settlements. But by this stage, they rarely are compensated or must go through an expensive legal journey for justice. It isn’t easy for senior citizens to respond to the damages.

The best solution is to advise senior clients against investing in high-risk and complicated financial instruments. Financial authorities should strengthen their surveillance against financial institutions to prevent them from selling high-risk products simply to raise their values. Employees at the window should also be trained to talk senior citizens out of the derivatives market.

But safe alternatives to provide financial security for seniors are hard to come by. Financial authorities and institutions should bring their heads together to come up with products ensuring security and comfortable returns tailored for elderly investors.

Financial institutions now have to give elderly investors a one-day “cooling-off” period before allowing them to purchase derivatives. The Financial Supervisory Service issued the mandate yesterday. This is a good start to solving the problem, but there is much left to be done on the issue.