I recently received an offer to participate in a once-off opportunity to invest in a global structured product. The impressive sales video promised a clever combination of guarantees and growth, linked to gold and global equity market indices. On the surface, it seemed to eliminate the need to choose between a safe asset like gold and a growth asset like global equities.
However, on closer inspection, the underlying investment was not in either of these assets, but in an index tracking volatility. Further analysis showed that the guarantee wasn’t worth much either.
There are many issues with such financial products, including their timing, but the most frustrating is their complexity. This one was so complex that even I could not decipher what the product would achieve. I wonder how the salespeople are meant to explain it to clients, and how many clients would truly grasp what they are investing in.
The more time I spend in this industry, the more I realise how vulnerable clients are to the complexity of financial products. Financial language is almost a foreign language, and even sophisticated private investors often find it confusing. Few people truly understand what they own. Even ordinary products such as exchange-traded funds or unit trusts can obscure the underlying investments.
While financial education helps bridge the gap, it often falls short. Most people need a translator; someone they can trust to interpret the language of finance.
At Foundation, we avoid products so complex that they risk eroding that trust. When something is lost in translation, relationships can be damaged. We prefer investments that are clearly linked to identifiable underlying assets, where both the adviser and the client can see the connection between the investment and potential outcomes. In most cases, that means simplifying our clients’ affairs.
Somehow, our industry has convinced people that complexity leads to better outcomes. The opposite is true. Simplicity brings clarity. But simplicity should not be confused with simplistic thinking, which refers to the kind of impressive-sounding one-liners that obscure outdated ideas or incomplete understanding. Elegant simplicity is the ability to distil complexity into clear, meaningful insight. It is a higher-order skill that is not easily mastered.
In an increasingly complex world, the ability to sift through complexity to bring clarity will become one of the most valuable skills of all, along with the wisdom to know when complexity adds value, and when simplicity serves us better.
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Kind regards,
Sunél