Slick and smooth-talking Wealth Managers have made quite a mark over the past few years. However, every now and then, we hear about disgruntled clients of Wealth Management outfit going up in arms against their money managers; the most recent incident being the case at Karvy Private Wealth, where several senior officials were booked by the Bengaluru Police for cheating and defrauding investors. Here are four common “Wealth Manager” traps to watch out for.
The guaranteed returns trap
The undeniable allure of guaranteed returns is something that very few wealth management clients can resist, and unscrupulous money managers have been quick to cash in on this in the past. Investments like junk bonds, real estate PMS’s, structured products, and even ULIP’s have been mis-sold as guaranteed return products to unsuspecting individuals. In the most recent case described above, investors were promised guaranteed returns of up to 20% from what seems to be a real estate PMS. Remember the simple thumb rule: it’s impossible to guarantee returns that are above the risk-free rate or the yield on the government security of a corresponding maturity. If your wealth manager is promising you otherwise, give the product a wide berth. Did you know that even bank FD’s aren’t guaranteed, in the event of an insolvency?