Mutual funds Model & Exempt Market Security

There is a raging debate on how financial advisors are compensated for financial products, particularly how they receive commissions imageshidden in mutual fund fees. While mutual funds are these days could be  describe as “Weapons of Mass Financial Destruction” let’s take a look at mutual fund’s evil cousin, the “exempt market security” and how they are awarding this investment opportunity to only accredited investors.

In a recent article in business standard several questions were raised on the relevance of the Mutual funds as the Funds have created too much complexity for their own good. So investors cannot perceive the benefit of investing in mutual funds. Even the very few that are performing well do not talk about it imaginatively. Net result: most savers don’t know or don’t believe in the benefits of using mutual funds. 

In fact they were compared with the car company that ships out completely knocked down self-assembly parts, some of which are unreliable. The customers are supposed to figure out – without a manual – how to assemble the parts to ensure a workable product.

Going back to the accredited investor just because you make a lot of money, or have a lot of money, doesn’t mean it should be acceptable to have someone take it from you. This seems to be a recurring theme in the “exempt” market.

So what is an “exempt” market security? By definition, an exempt market security is one that is issued (exempt) without a prospectus.

So what’s a prospectus?

A prospectus is a disclosure document that details all of the relevant financial information about an investment being sold to the public.

Some rules I can recall shared that could be applied or recommended for the above:

  1. Ask the person who’s selling the investment how much of their own money they put into the investment.
  2. Ask them how you can cash out when you’re ready.
  3.  Ask them to show you any and all fees.
  4.  If you’re investing in a private company, ask them for copies of their last two years financial statements review them if you can.
  5.  Be very wary when signing forms that say things like “I understand that this is a risky investment and I could lose all my investment” (this is usually code for you will lose all your money).
  6.  Be aware that signing pages of disclosures and waivers is to protect the person selling the investment and the company they work for, it’s not to protect you.
  7.  Never sign uncompleted forms, and never, I mean never, borrow money against your house to make such an investment.


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