Questionable broker tactics
I am a widow and live on income from my investments and social security. Recently I called my broker to order a US Treasury note, but he suggested a CD (certificate of deposit) yielding 13.7 percent instead. When I received a prospectus, I found I had invested in a corporate income fund unit trust sponsored by two big name brokerage houses. After reading the prospectus, I feel uneasy about the risks outlined. Is this a high-risk investment? What can I do about it?" H.R.
The unit trust shares sold to you are not, in my opinion, a high risk investment, and the difference between the 13.7 percent yield and the yield on US Treasury notes (not specified) could be as much as 2 to 2 1/2 percentage points.However, your broker appears to have been less than candid with you.
You could have returned the purchase indicating the investment was misrepresented to you. Or, at this later date, you could sell your shares, as the broker usually maintains a secondary market in unit trust shares. Since the interest rates for corporate bonds has increased since your purchase, you could find the unit trust share prices have declined. Your best course of action at this time, assuming you can be comfortable with the risk (and I believe you should), is to hang on to the unit trust shares at least until long-term interest rates decline and you could get your principal back.