What a Steal!

I get alot of industry e-mails and propositions, most of which end up being immediately deleted. But there was one that showed up in my in-box today that I took a closer look at. Not because I was impressed by the investment opportunity that was being promoted. Rather because I was taken aback at how genuinely bad it appeared to be. This e-mail was sent to investment advisors who are in a position to recommend or sell the investment to their clients.

Let's start with the name. The investment is called the Spectrum Long/Short Style CAD Index Income Notes, Series 2 from BNP Paribas (Canada). I've believed for some time now that the more one wants to hide the sorry truth about an investment's prospects, the longer and more convoluted a name you will give it. But that wasn't the most interesting thing about the announcement. Nor was it the fact that I have never heard of BNP Paribas (Canada). Have you? No, the most interesting item in the announcement of this new investment was, in the words of a colleague, the red flag number that jumped right out at me.

That number was "4%". This is the amount of commission an investment advisor could earn for selling this product to a client. That is a very attractive number to a commissioned-based investment advisor.

And what, you may ask, is in it for you as a client in return for your investment?

From the investment's website at www.portfoliosolutions.bpnparibas.com (my comments are italicized):

• Your money is locked up for the 5 year term of the notes
• This type of instrument may not provide you with any income stream or return prior to the maturity date
• There is no guarantee you will get back more money than you invested in the notes
• You will not have any direct or indirect ownership interest or rights in the underlying securities
• There is no guarantee that there will be a liquid market to facilitate disposition of the notes for you if you decide to dispose of your notes prior to maturity - you may not be able to sell them at all prior to maturity
• The notes are not qualified by prospectus or registered under any securities laws. No Canadian or other regulatory authority has recommended or approved the notes, nor has any such regulatory authority reviewed or passed upon the accuracy or adequacy of any relevant information statement - there is no prospectus for you to review in advance
• Because the Calculation Agent is the affiliate of BNPP, potential conflicts of interest may exist between the Calculation Agent and you
• They continue to point out other areas of potential conflict of interests - To the extent that we or our affiliates serve as issuer, agent or underwriter for such securities, our or their interests with respect to such products may be adverse to yours. You are effectively being warned that they will put their financial interests ahead of yours.

With the prospect of a 4% commission dangled in front of them, I can only hope that investment advisors will disclose most, if not all, of the details I have outlined above along with their sales pitch to aid you in making an intelligent investment decision.