“…weak and unsophisticated investors should not be permitted to make high-risk investments unless they are totally aware of the risks”.
According to an article in The Weekend Australian the above is the opinion of Tony Lewis of Lewis Securities in response to recent loses experienced by investors in income based products. Lewis goes on to suggest that “applications for new investments (or rollovers of maturities) by public lending institutions should be certified by an Australian Financial Services Licence holder or their representative.”
[Reference: “Certification needed to protect fools who rush into financial products”, by Tim Blue; The Weekend Australian; July 28-29, 2007. Read the full article here.]
Yes, it appears that many people have been lured into high risk investments by virtue of the associated marketing and advertising information. But if that is all they base their investment decisions on it is foolish, as the article’s headline suggests.
Is a broadly applied, paternalistic approach really the solution to foolish behaviour of some individuals?
Two consenting adults
In my view, someone completing an application form based on their own research (no adviser involvement) is entering into a situation that is akin to intercourse between two consenting adults. Yes, it is likely that at least one of the parties has presented themselves to be more attractive than reality. But if they proceed with fervour and no protection and then suffer negative consequences then a wonderful learning opportunity results. If the lesson is not learnt the universe is bound to create several more learning opportunities for the individuals involved.
“Fools and their money are soon parted”, so the saying goes.
We expect adults to take personal responsibility for their sexual actions yet when it comes to their money somehow adults are no longer adequately responsible. I would have thought it was the other way around – as far as I am aware no hormones are involved in investment.
How would you feel?
If you are reading this article it is likely that you are an active investor who likes to do your own research, probably without the aid of a financial adviser. Further, you may not yet meet the legal definition of a sophisticated investor. So, how would you feel if you were told that you could not complete an application form without official sign-off by an authorised adviser?
By leaving a comment below, please let me know how you would feel in the above situation. (You can be anonymous)
Also please let me know your view on how these situations should be managed? Am I too harsh in expecting personal responsibility; should we legislate to protect people against themselves?