FA Offering Financial Instrument--Turn $90K into $360

[Elbata]

A friend's financial adviser is offering a financial instrument--turning $90K into $360K in 14 years. Also with the deal, if any money is lost, 15% of losses will be refunded.

I asked my friend what company is offering this deal but haven't heard back on that.

My recommendation would be to ask how much does the FA get for selling this instrument. I believe $90K turning into $360K is 10%/year compounded annually.

Here's one more question concerning my friend:

He's a professional gambler who's amassed a nest egg of $400K. He's in his late 40s, to my knowledge never had a regular job. While he's a professional gambler, he doesn't know anything about saving money and investing.

Besides the typical LBYM, save and invest in index funds, my recommendation would be to get a regular job for 10 years to become eligible for social security and medicare.

Any advice is much appreciated. Please be gentle in your remarks, I'll be texting the link to him. Hopefully, if this post gets a few responses, he can come in and fill in some of your questions.

 

[ERD50]

This makes no sense.

If it turns $90K into $360K, what is this talk about "if any money is lost"?

Get the details - in writing. I suspect it will sound like a bad deal after a perusal, or it will be so complicated as to not be able to understand. Same result - run.

PS - finding out what the FA makes is low down on the list - just understand what this is.

-ERD50

 

[mystang52]

Standard, and frankly logical, mantra is never to invest in something you don't fully understand (including the risks of the investment). It sounds like your friend does not understand this "investment." That should be reason enough to stay away.

 

[RunningBum]

Yeah, and if it turns $90K into $95K in 14 years, you haven't lost any money so you don't get anything back, but you still pay the FA fees. Maybe it says something different, but you need to make sure that's really clear and understood. Plus, what's to keep the FA from folding his business in 13 years? Sounds like a lot of flash with nothing real behind it.

 

[OldShooter]

I wouldn't walk across a room to look at a deal like that. Anything that sounds that good is guaranteed to be stinky. And I would never, ever, deal with the FA again.

There is no magic and there is no secret sauce for investing, the promises of various hucksters notwithstanding.

 

[gauss]

This deal could be structured as simply as the following:

Take the original investment and then

• subtract 15% for the FA fee
• Take another 15% and put it into an FDIC bank account

The rest could be invested in a leveraged ETF (ie 3x).

If the fund makes the 10% per year on the gross amount over 10 years, then everyone is happy (could happen).

If the market value of the investment goes to $0, then the 15% of the gross amount that was placed into the bank account could be returned, thus reimbursing "15% of the losses."

In other scenarios the FA/organizer gets to keep the difference between the bank account and any losses reimbursed -- in addition to the up front fee.

Sounds like the value in this proposition is in the marketing and of course the organizers fees.

Am I missing anything here?

Sounds like a deal a gambler would love.

-gauss

"Don't invest (bet) more than you can afford to lose"

 

[donheff]

Yeah, and if it turns $90K into $95K in 14 years, you haven't lost any money so you don't get anything back, but you still pay the FA fees. Maybe it says something different, but you need to make sure that's really clear and understood. Plus, what's to keep the FA from folding his business in 13 years? Sounds like a lot of flash with nothing real behind it.

Yup. Sounds like they are predicting 400% growth and "guaranteeing" to cover 15% of losses of principle.

 

[Texas Proud]

This could be as simple as the following:

Take the original investment and then

• subtract 15% for the FA fee
• Take another 15% and put it into an FDIC bank account

The rest could be invested in a leveraged ETF (ie 3x).

If the fund makes the 10% per year on the gross amount over 10 years, then everyone is happy (could happen).

If the market value of the investment goes to $0, then the 15% of the gross amount that was placed into the bank account could be returned, thus reimbursing "15% of the losses."

Sounds like the value in this proposition is in the marketing and of course the organizers fees.

Am I missing anything here?

-gauss

OR, there could be fine print that the 15% savings is based on someone putting it on a tax return and paying less in taxes...

 

[GrayHare]

And if the growth happens to be more, say, $95k growing to $400k I'm guessing the FA gets to keep all the extra beyond the promised $360k. Such a deal (for the FA)!

 

[RenoJay]

There are investments with expected 10% annual returns but they always have significant risk. Your friend is advised not to even consider this sales pitch.

 

[bobandsherry]

Everyone who gifts me $90K, I'll be glad to tell you I can possibly deliver $360K in 14 years. And if I don't and end up losing that $90K "gift" I'll refund you $13.5K. Sounds like a no lose situation for someone.

 

[flintnational]

The promised return over 14 years is about 10% annually. IIRC, Bernie Madoff only delivered about 8% per year. So, on a positive note, this FA is 25% better than Madoff.


FN

 

[Another Reader]

I suspect the target is hearing what he wants to hear. It's probably some type of complicated annuity with floors and ceilings with breathtakingly high fees. He just hears the percentages and tunes out the stuff he does not understand.

 

[MRG]

I suspect the target is hearing what he wants to hear. It's probably some type of complicated annuity with floors and ceilings with breathtakingly high fees. He just hears the percentages and tunes out the stuff he does not understand.

+1
Depending on the targets financial knowledge an annuity may not be too complicated. Unfortunately many people don't read very many pages.

The lower life companies who write these policies don't target financially aware people.

 

[OldShooter]

If the OP's friend has not run screaming yet, one thing he should do is to check the FA's record at https://brokercheck.finra.org/ If the FA is not licensed to sell securities (Series 7, Series 65 or 66) but only to sell insurance, that is pretty much a slam dunk that the offer is bogus. An FA with only a Series 7 is also a danger, as he/she is not legally a fiduciary. This is true even if he/she holds a CFP designation.

Disputes and disciplinary actions are also reported. I checked a guy a couple of weeks ago and found 22 customer disputes (!), many of which were settled in the customer's favor for six figures. He's the worst slimeball I have yet seen. I checked another guy a few years ago and found that he had lost his licenses for repeatedly forging customer signatures on documents.

 

[gayl]

I think the title is more accurate: "FA Offering Financial Instrument--Turn $90K into $360"

 

[EastWest Gal]

I think the title is more accurate: "FA Offering Financial Instrument--Turn $90K into $360"

+1.

That's what noticed too.

 

[Sunset]

This deal could be structured as simply as the following:

Take the original investment and then

• subtract 15% for the FA fee
• Take another 15% and put it into an FDIC bank account

The rest could be invested in a leveraged ETF (ie 3x).

If the fund makes the 10% per year on the gross amount over 10 years, then everyone is happy (could happen).

If the market value of the investment goes to $0, then the 15% of the gross amount that was placed into the bank account could be returned, thus reimbursing "15% of the losses."

In other scenarios the FA/organizer gets to keep the difference between the bank account and any losses reimbursed -- in addition to the up front fee.

Sounds like the value in this proposition is in the marketing and of course the organizers fees.

Am I missing anything here?

Sounds like a deal a gambler would love.

-gauss

...

Very Brilliant ....

 

[DrRoy]

If it seems too good to be true, it probably is.

 

[frayne]

I remember seeing a segment on 60 Minutes about a very successful gambler but he did lose a boat load of money in the market. He said to him at least, gambling was safer than investing in the market.

 

[ncbill]

Here's one more question concerning my friend:

He's a professional gambler who's amassed a nest egg of $400K. He's in his late 40s, to my knowledge never had a regular job...my recommendation would be to get a regular job for 10 years to become eligible for social security and medicare.

Well, as a professional he should have been paying self-employment taxes all along anyway.

But, yes, he needs to do something that allows him to pay the above to be eligible for SS/Medicare.

Had an older relative who would have been eligible for SS disability & Medicare given their long-term, ultimately terminal illness had they not had too few work credits.

 

[mystang52]

I suspect that no matter what OP tells his friend, the friend will make the "investment."

 

[dallas27]

Run

 

[haha]

I remember seeing a segment on 60 Minutes about a very successful gambler but he did lose a boat load of money in the market. He said to him at least, gambling was safer than investing in the market.

If the description of this "successful gambler"is anywhere close to accurate, then he would not want an investment. Thee guys have all the risk they can harness in their betting. The rest ordinarily goes into CDs and bank accounts.

Successful gamblers (and there are some) are the most money realistic people you will ever encounter.

This is another one of those posts: "My friend, a multimillionaire, would like an FA recommendation. And by the way, though he is very handsome and charming, he would like some help getting a date."

Uh-huh, for sure, and twice on Sunday.

Ha