Is there an element of mis-selling in the marketing of hybrids - securities that offer all the downside risks of equity for little reward? Should regulators be concerned that this is the case?Given that the vast majority of the funds being invested in high-yield notes are coming out of self-managed superannuation funds, which are intended to provide for beneficiaries' retirement, the answer is 'yes'.The regulators, issuers and other market participants are well aware of the risks posed by the notes and yet some mums and dads can't get enough. Earlier this month, National Australia Bank launched its second convertible preference share issue for the year, and, just as with the first issue in March, demand was sufficient to allow NAB to double the size of the issue, to A$1.5 billion.Much emphasis is placed on instruments offering a dividend of 325 basis points over the bank bill rate. In the case of the NAB CPS II, this sounds like a high yield, but, at current bank bill rates, this equates to an annual return of about four per cent (plus franking credits). Do mums and dads realise that they are being targeted for these offers, because institutional investors would demand a margin over the bank bill rate that would be closer to twice the size of the one on offer? Institutional investors have a much clearer understanding of the equity-like risks that the instruments entail.Clearly, retail investors do not have access to the same level of information available to institutional investors, and, for the most part, do not have the same level of understanding. In NAB's case, many mums and dads simply perceive the convertible preference shares to be a better yielding alternative to a term deposit.Retail investors rely, to varying degrees, on the recommendations of their financial planners and advisors, who, in the case of the former at least, rely on the research houses to provide research and recommendations on these instruments. And, while institutional investors have access to credit ratings to help inform their investment decisions, very few issuers of listed bonds have chosen to have their bonds rated.In fact, credit ratings have been actively avoided by issuers of listed notes. The wholesale market demands credit ratings, but, in the listed market, issuers see ratings as an unnecessary expense, and who wants to highlight the risks involved anyway?This attitude is underlined by the spate of unrated, unlisted bonds that have been issued to supposedly "sophisticated investors" this year. This is something else that the forthcoming financial system inquiry will no doubt be concerned with in relation to the development of the corporate bond market.Sophisticated investors receive none of the prospectus provision protections provided to retail investors. Under regulation 6D.2.03 of the Corporations Act, a sophisticated investor is defined as a person with net assets of A$2.5 million or more or whose gross annual income in the last two years has been at least A$250,000, as certified by their accountant.These days, neither test is particularly hard to meet.Do the sophisticated