For a number of years here in Germany, I had an investment with a bank in a mixed fund that also offered a form of loss protection, which they referred to rather misleadingly as a strategy.
I was informed that this would protect me from any major declines in the market, and there was no mention of any disadvantages.
If the value of the investment declined by more than 10 percent, the “strategy” would come into effect.
I could thus relax and gain from rising markets, without any disasters, such as had indeed occurred during the dot.com crisis of 2000. This sounded appealing, and the investment seemed to perform well enough for several years.
However in early 2020, due to the Covid-19 pandemic, the DAX declined by more than 10 per cent.
I did not think much about it one way or the other, and felt safe with what was certainly a well-diversified asset allocation, the lack of which was my problem in 2000.
Furthermore, I had this extra level of protection, which had also been absent in any form during the earlier crisis.
Later in 2020, something in the very impenetrable documents I received from the bank caught my attention.
I contacted my "adviser" and asked her what was happening with my investment.
The response was evasive and it took several phone calls and emails to even suspect that my money had been taken out of the market and simply left in cash.
In the meantime, the DAX was making a remarkable recovery, while most of my money was stagnating. I had never been informed that my funds had been taken out of the market and would stay there, unless I specifically requested that they be put back in.
I wrote to my adviser more than once asking her to get my money back in the market, after the company actually running the investments, and not the bank, had informed me when I phoned them that this meant removing the so-called strategy, which in fact turned out to be nothing more than a traditional stop-loss.
The adviser ignored this request and instead tried to get me to sell the investment and buy some other singularly unappealing high-cost, low-return insurance-related product. I declined, but she continued to push while the stock market went up and up.
Eventually, this process continued until I had incurred a substantial opportunity cost in the form of profits foregone.
I made a formal complaint, as this scenario had now involved poor advice, a breach of the obligation to communicate and inform, misleading documentation, and an attempt on the part of the adviser to do what was basically a one-off churn in order to generate fees.
In fact, the fund had not performed well generally after all, and probably due to a mixture of high costs and the constraints imposed by the loss protection.
