Complaints surge from seniors over investment losses

A consumer affairs center is bracing for a record number of complaints over falling values of investment trust products triggered by plunging stock prices originated by the U.S. subprime crisis.

The National Consumer Affairs Center of Japan, an independent administrative agency, said that the number of such grievances filed at local centers nationwide would likely reach 1,000 in fiscal 2007--the highest since fiscal 2000, when it started compiling such statistics.

It also said 60 percent of people who complained during the current fiscal year are in their 60s or older.

Many people saw the value of their products fall below par value, and claim that investment companies did not fully explain the risks involved.

These products invest money collected from individual investors mainly in stocks and bonds, domestic and foreign.

The number of complaints about investment trust products stood at 491 in fiscal 2000.

The number more than doubled to 993 in fiscal 2006 because of a sharp drop in global stock markets in late February 2007, driving up the number of complaints toward the end of March the same year.

The current fiscal year is seeing complaints surge after a global downturn in stocks, caused by a growing number of defaults on U.S. subprime mortgage loans that surfaced in summer 2007, sharply pushing down the value of investment trust products.

The steep fall left holders of investment trust products that mainly invest in Japanese stocks incurring unrealized losses, the center said.

According to figures in mid-February, the latest count available for the current fiscal year, the number of complaints about investment trust products came to 806--128 more than the same period the previous fiscal year.

Because stock prices have continued to fall this month, grievances are likely to grow toward the fiscal year-end, according to the center.

Many of the complaints concern cases in which senior citizens bought investment trust products without being sufficiently informed about potential risks of products, including a loss of principal, according to the center.

The Financial Instruments and Exchange Law, which took effect in September 2007, requires financial institutions to provide appropriate explanations on products and to use large type in printed ad matter concerning loss risks so as to alert investors.

But such explanations and ads are not free from misleading passages.

Some investment trust products are dubbed "principal secure" or "risk limited."

"Principal secure" products are managed with a goal of protecting principal at the time of maturity. Still, they run a risk of falling below value.

While principals of "risk limited" products are guaranteed if a fall in the Nikkei stock index is within a certain range, they also may fall below par value if the drop is larger.

If stock prices continue to stay at the same level as now, roughly 10 percent of about 200 "risk limited" products are likely to see a loss of principal, according to the center.(IHT/Asahi: March 24,2008)