How do you know what your investment in a PPN is costing?

Investors might not be aware of the full cost they are paying, or that there is a cost at all, for the guarantee provided with PPNs. This is not entirely their fault. The information disclosure requirements for PPNs do not make it mandatory for issuers to disclose all of the costs. In some cases, that cost is the additional fees to cover the insurance policy to back the guarantee. In other cases there are multiple layers of fees including management fees, performance fees, up-front sales fees, and trailer fees. These fees can significantly reduce the returns that would otherwise be derived from the underlying investments.  We can make a few basic assumptions, however. We know that the issuer is a for-profit organization. The sales representative does not work for free and neither do the investment managers, brokers, exchanges and guarantors. It becomes easy to envision how PPNs could be an expensive investment option. But you will probably not be able to identify your total costs.

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