A friend was lamenting the other day, about why all politicians lie. I had to clarify that they do not lie, they obfuscate! She responded, what the heck is that supposed to mean? I said, “ah ha, it works!
OBFUSCATION: to make something obscure, to confuse
Terms were designed to make investors feel small. Who knew whether a 60% margin meant you had to put in 60% or your loan was 60%?, who knows a “put” from a "call", what's an option or a warrant? Yup, this is tough stuff, I better pay a small fortune to hire a translator who we will call a “broker”.
The next stage was more devious, as you would expect from an industry with no oversight to speak of. Instead of picking off investors one at a time, they needed an obtuse process that could channel investor lemmings to the advisory cliffs! But they couldn’t just say, hey suckers come see what we are selling now. The old “pump and dump” was well known and not nearly as lucrative as it had been. Thus we entered the new age of the “mutual fund”! This gathered lemmings by the thousands and told them all about sharing risk. What wasn’t explained, was a thousand people taking too much risk is a thousand people losing too much money!
- hidden fees to obfuscate the costs,
- misleading fund descriptions ,( think “balanced fund, Canadian Focused funds, Opportunity funds”),
- false reporting ( a mutual fund is not an asset class folks)
Having learned that you can make more money by suckering the masses on a large scale, the industry started to look at how they could pry cautious GIC investors from their money. Low and behold, along comes the Principal Protected Note (PPN)! If ever a name was going to obfuscate, this was it. Investors thought they were the “protected “ party.
If markets took a big dip, they were protected and when it skyrocketed they got to “share” in the gains. Note the obfuscation around the word “share”. The advisor got paid BIG commissions up front, the manager got fat annual management fees and a totally unwarranted share of profits through capping market gains. And if the markets had a bad spell in the middle of the 5-7 year terms, hell management cashes out and moves on to the next sucker game. The investor, well your locked in with all "market participation" cancelled for years to come!
Don’t worry, we will be back in a few years to hand you your inflation ravaged principal! What, you didn’t read the 89 page small font section on “protection events”, oh, you thought you were the protected party? Sorry, I thought you knew what obfuscation was? Look, don’t worry. When you get that piddly principal back we have a great new product for you….guaranteed to make up for any losses! What, details…..don’t you worry about the details, you have an advisor! He can clearly spread the obfuscatory fertilizer well enough to separate you from your money…..and we have some great news for you!
You will (snicker, snicker) be fully informed (giggle, giggle) according to the “principle based” (how can I keep a straight face) "Point of Sale" documents coming into effect!
Oh, you’re skeptical? Who designed the POS document? Why it was designed by a committee of the same folks who oversaw the PPN’s. Wait, come back,.... I’m warning you... those GIC’s are bad. They're too simple, they have no hidden fees….you’ll be sorry!
I trust the above was not too clear....after all, I am a professional!