Certificates, instruments to be handled with care

'Buy a certificate, take the periodic coupons, and be happy'. This is the typical phrase uttered by those who have invested in certificates and are satisfied. And indeed, put like that, it sounds like a simple choice, within everyone's reach. The reality, however, is quite different. And one understands this as soon as one tries to get to grips with the operating mechanisms of these instruments, but above all to understand them: here begin the technicalities and terms (mostly in English), not exactly within the reach of everyone: credit linked notes, airbags, leverage, autocallable cash collect, triggers and so on. And the differences are not only semantic but substantial.

The world of certificates is a wide and varied one, and understanding the characteristics of the different types on sale on the market requires anything but superficial knowledge. The risk is that of buying a risky product without knowing it, thinking you have made a quiet investment sheltered from the volatility of the stock markets.

Trusting friends and acquaintances when purchasing financial instruments is not the best criterion for portfolio choices: advice given in good faith does not make one immune to disappointment. It is a different matter if the advice comes from the intermediary who, instead, has a duty to identify precise needs. Over the past year, certificates have been placed with great dynamism by bank branches. The hope is that the sale of these products to the retail public has been accompanied by detailed information because there are various characteristics to be evaluated. For example, from a tax point of view, certificates, unlike funds and ETFs, allow capital losses to be offset, while as regards structure, a capital-protected certificate is very different from a conditionally protected one.

Then there is the issue of the barriers linked to the price of the underlying and that inherent in the dividends of the securities making up the basket. In short, the variables are many, perhaps too many. And the great success recently enjoyed by these instruments may also give rise to the doubt that they may have been sold mainly for the margins they allow from their placement. After all, Italy's poor financial culture does not justify the appeal that they have been exercising lately: in many cases it is easier to be seduced by a vaunted efficiency than to pay attention to the risk of possible blunders. Again, the devil is in the clauses, so either you read the information well or the risk of getting it wrong becomes high.

In addition to the complexity of the product, then, other aspects need to be assessed, such as fees, issuer risk (if the bank is not solvent, the certificates are not covered by the Interbank Deposit Protection Fund), and liquidity, which varies according to market trends. If the investor is not very experienced, therefore, the wisest thing is to dedicate only a small part of the portfolio to these instruments. He or she is more likely to be comfortable doing so.