It’s only a matter of time when somebody exposes Principal-Protected Notes for the shady investment vehicle that it is. I’m glad that Duncan Hood was able to write a nice piece examining why Principal-Protected Notes (PPNs) are not a good idea.

In the end, I wouldn’t avoid PPNs just because they’re largely unregulated or because their “Information Statements” are so poorly written that even Glorianne Stromberg, a securities lawyer and former commissioner at the Ontario Securities Commission, admits she can’t understand them. I would avoid them because you can find better places for your money.

I first encountered PPNs approximately 2 years ago when CIBC partnered up with Mackenzie to introudce the FulPay series of PPNs. I’m not a historian of PPNs and don’t know exactly when these notes started, but their popularity are certainly a recent phenomenon. The financial industry’s marketing machine has again scored victory over the scarred pschye of the Canadian investor; successfuly reaching out towards their yearn for a “guarantee”. I say it’s a guarantee for you to overlook other investments vehicles that make more sense!

Remember this! When the industry introduces a new investment product, they are first thinking “how do we make money from this?” before they actually consider “how does this benefit the investor?“. And you can trust that they’ll always find a rationale, an angle to support this “benefit”.

By subjecting 70% of your PPN investment into a zero-coupon bond, you’re letting the bank borrow your money for their own investments on the cheap! We should always remember who has mastered the money game!

MoneySense.ca: “Protection racket: principal-protected notes” by Duncan Hood