Elderly investors protected from impulse buys

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Elderly investors protected from impulse buys

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Financial institutions will have to give elderly investors a one-day “cooling-off” period before allowing them to purchase derivatives as more retirees suffer losses due to their failure to grasp the risks involved, with many claiming they were duped by unscrupulous salespeople.

The Financial Supervisory Service (FSS) issued the mandate yesterday - applicable to those aged 65 and older - in a bid to root out reckless sales practices and better protect vulnerable investors, many of whom are gambling with their nest eggs, it said.

The elderly will not be able to make subscriptions until at least one day after their initial consultation, giving them sufficient time to discuss the matter with their friends or family before signing on the dotted line, it added.

The new measure will take effect from the first quarter of next year, the financial watchdog said.

The FSS also said it will require general managers of bank branches and other financial institutions to review whether the financial products being touted by their employees are suitable for people in this age group.

Critics have pointed out that it is inappropriate to sell derivative products like equity-linked securities (ELS) to elderly investors as their principal can be nibbled away if stock indexes fail to meet pre-set targets. They claim salespeople at financial institutions recommend such products to elderly investors simply to meet sales goals.

Among the 24.5 trillion won ($22.4 billion) invested in equity-linked securities from July 2011 to this June, 4.2 trillion won, or 17.1 percent, came from the pockets of people aged 65 and over, according to the FSS.

Just over one-third, or 34.4 percent of the 4.2 trillion won, was purchased by elderly investors with less than one year experience of investing in such financial instruments, according to the FSS.

Critics say financial firms should offer products based on the needs of their clients, rather than their sales performance. “Salespeople must fully explain the investment risks in a way that elderly investors can understand, so they can see how vulnerable their principal is to market conditions,” said Shin Sang-gyun, an official at the watchdog.

“Many elderly people base their decisions solely on the advice of salespeople. They have scant financial knowledge and they tend to trust experts’ comments. Many end up signing up for derivative products on impulse, after hearing that the returns are much higher than the interest rates being offered by banks on savings accounts. They mistakenly believe these investments are safe.”

For investors older than 80, the FSS said financial institutions will need to obtain the family’s consent before signing them up for derivatives like equity-linked funds.

By Kim Mi-ju [mijukim@joongang.co.kr]

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