Con #2: The Miranda Rights of Financial Services – Compliance, Part 2

November 26, 2012

“Past performance is no guarantee of future results.”  Well, no kidding.  If you don’t know that, should you be investing in equities?

Those are only eight of the 507 words of compliance language I was required to include in a recent press release.  It’s not the compliance officer’s fault.  Leaving those words out would be an invitation to a lawsuit.

In reality, though, those words are like Miranda rights.  Just as every criminal knows that what he says can and will be used against him, every investor should know that investing carries risk.  Which leads me to believe those words exist only to provide new business to attorneys.

So what about the other 499 words of compliance language?  The sentence above is wedged in the middle of a paragraph that also says, “The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above.”  Plus, “The investment return and principal value of an investment will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original cost.”  And in a separate paragraph, “Mutual Funds involve risk including the possible loss of principal.  There is a risk that issuers and counterparties will not make payments on securities and other investments held by the Fund, resulting in losses to the Fund.”

If anyone even bothers to read it, this language is more likely to confuse than to educate the investor.  So why is it required?

Maybe if regulators weren’t so busy enforcing these compliance issues, they might have more time to investigate the real criminals of the financial world.


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