In a stern warning to investors seeking high earnings amid unattractive low interest rates, the financial watchdog has expressed its “disbelief” at how a number of firms have offered portfolios comprising securities with huge underlying risks.

“It is with disbelief that [we see] some portfolios offered to retail investors were composed of securities which – even by simply referring to their coupon interest rate – a rough idea of the severity of their underlying risk could have been easily deduced,” the Malta Financial Services Authority said.

The MFSA sounded this warning in its 2015 annual report which shows that consumer complaints on a wide-ranging array of services amounted to 124, on par with those received in the previous year.

The report remarks that in cases related to investment services, the authority’s recommendations in favour of the complainants were generally rejected. In such cases, aggrieved investors have to sue the investment companies in court.

An analysis of these complaints reveals a general trend, which in the authority’s own words is “food for thought”.

The problem exacerbates itself when investors rely heavily, if not exclusively, on the verbal assurances of some financial advisers

It notes that the ailing worldwide economic situation, which has deflated interest rates for such a prolonged period, led many investors to chase yield without weighing inherent risks and rewards.

Investors who placed their savings into such investments might have been unaware of the risks, but some of the complainants were likely savvy enough to reach such a conclusion without much prodding, the report says.

“The problem exacerbates itself when investors rely heavily, if not exclusively, on the verbal assurances of some financial advisers,” the authority warned.

On the other hand, it acknowledged that investors were often not in a position to question or second guess the advice given to them.

For yet another year, the financial watchdog cautioned that loose talk of investments being relatively risk-free or protected “undermines the credibility of the bona fide financial advisers”.

It noted that such important aspects should be given their due prominence rather than being left to the very last paragraph of the information leaflet.

“One cannot fail but note that some firms simply fail to give a copy of the paperwork they require investors to sign at the time of investing.”

It refers to several cases in which the clients complained of not having been given copies of their own profile and file notes until filing a formal complaint was submitted to the MFSA.

In other cases, when the documentation was handed to them, the client did not even bother to read it. If such documentation was in their possession immediately at the time of investing, they were likely to have been made aware of the category of risk of the portfolio and perhaps even how they had been classified by the financial adviser in terms of risk attitude, the report said.

As of this month, consumer complaints are no longer being handled by the MFSA but by a specialised independent institution called the Office of the Arbiter for Financial Services.

The entity, established by law, is headed by lawyer and former Labour candidate Reno Borg. Its competence will be to award up to €250,000 in compensation, for cases dating back to 2004.

Tips for investors

Photo: Shutterstock

Beware of attractive high yields on investments, as in all probability, the reward reflects the inherent high risks involved.

Do not place all of your eggs in one basket, but diversify the investment portfolio to reduce risk.

Do not rely exclusively on verbal assurances given by the financial advisor selling the investment, but seek an independent opinion.

Beware of loose talk surrounding “risk-free” or “protected” investments.

Insist on a copy of all documentation when purchasing a product, including the client profile and file notes, and ensure that you read them thoroughly.

A move away from cash

Customer preference towards non-cash payments continued to grow, as by the end of last year there were 869,334 payment cards in circulation and 13,950 point of sale terminals.

An increase was also registered in ATMs providing a range of self-service banking, which increased to 211.

On the other hand, five bank offices and branches were closed and now total 130.

Deposits held by the core domestic banks (APS, Banif, BOV, HSBC, Lombard, Mediterranean and Mediterranean Corporate Bank Limited) grew by almost 17 per cent, up to €17 billion.

At the end of 2015, active companies totalled 49,634, an eight per cent increase on the previous year.

Newly registered companies totalled 5,427, which was a seven per cent increase on 2014.