Gray Capital Market Why people fall for dubious financial products
- In the gray capital market, providers often promise the impossible: high-interest rates and high security. Among them are always scammers, as current cases show.
- The Consumer Center Hesse has now investigated why people fall for dubious providers when investing.
- Obviously, personal relationships and blind trust are important.
Markus Zydra writes as a finance correspondent in Frankfurt and reports mainly on the European Central Bank. He previously worked as an economics editor at the Financial Times Deutschland and FAZ. In the 1990s he was a Scandinavian correspondent for the Süddeutsche Zeitung in Stockholm.
In Germany, there is still the gray capital market. Thousands of investors invest billions there, even though they would have to expect the worst. This begins with the term “gray”, which actually inspires little confidence. The sector is not well regulated, the products promise a lot, but are usually very risky. There are also fraudsters on the market. There was the already condemned case of the real estate company S & K.
Currently, there is also a case against managers of the container company P & R. Why is that? Why do investors take these risks instead of putting their money into a regulated mutual fund? The market watch experts of the consumer advice center Hessen examined the motives of the consumers for investments in the gray capital market in detail and interrogated concerning it extensively.
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“There are indications that the relationship between investor and the intermediary seems to be particularly important for investments in the gray capital market,” says Wolf Brandes, the team leader in the market monitor gray capital market in the consumer center Hesse. In the interviews, for example, consumers responded to questions about the facilitator: “This was someone my parents knew and had had good experiences with, so I went in with a good feeling,” or “I’m familiar with the guy cheated to get to the heart of it. “
The results further show that serious changes in the circumstances of life preceded the risky investment decision. This included, for example, the first permanent employment, an inheritance, a divorce or the death of the spouse or even serious illnesses. In such phases, there is obviously a willingness or need to conclude new contracts in order to take account of the new framework conditions, according to the Hesse Consumer Center.
The products of the gray capital market can be well identified because they usually promise the impossible: high-interest rates and high security. Bafin warns on its website of the risks of the gray capital market, because there is “no product control, no control of the integrity and creditworthiness of providers, initiators and managers, no verification of the economic viability of the business model, no ongoing monitoring of the company, no Balance control, and no deposit guarantee “.
Many rely only on general rules of thumb
The gray capital market was regulated by law in 2015. For example, in most cases, providers of equity participation, profit-sharing rights, registered bonds, and subordinated loans https://bridgepayday.com/no-credit-check-loans/ must submit prospectuses to Bafin. At the same time, they are prohibited from pushing into the market with aggressive advertising promises. But this regulation falls short in the opinion of the consumer advocates. Investors lack protection. Windy financial intermediaries could still cheat them off these products.
The consumer center’s investigation also showed that consumers too often relied on general “rules of thumb” when making investment decisions. In the cases examined, however, consumers did not correctly apply some of these rules – such as the common perception that real estate is a comparatively safe investment. A consumer is quoted as saying, “You know what you have, and in times of crisis, you can not get that much rent, but well, that’s just something that has a hand and foot.” In the specific case, it was not an investment in a property in the classic sense, but a closed-end real estate fund, which carries a high risk for the investor up to a total loss. This was not clear to the consumer when he graduated.
“We want to provide starting points for further research and subsequent targeted clarification as well as improved regulation in the gray capital market,” says consumer advocate Brandes. “Because it’s about a lot of money that consumers could be missing later in the pension.”