Explaining Complex Products Is Crucial, As Santander's $2 Million Fine Proves Hot

Today's instruments of trouble are reverse convertible securities -- and structured products in general.

Puerto Rico-based Santander Securities just got slapped with a $2 million fine for not only selling these complicated investments into client accounts, but doing so in quantities that created concentrated positions.

Many clients can understand the basics of how the global stock markets operate and how bonds work. They know what cash and real estate are.

But just about everything else is probably too complicated to assume they understand. 

And once upon a time it might have been enough for the regulators to provide a 10-second overview of the benefits of an alternative instrument -- "cuts your risk and improves your overall returns" -- that clearly isn't enough for the regulators today.

A lot of client education is needed here.

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