"Structured Investments" anyone??

[DawgMan]

So, I just finished sitting down with my accountant to do my tax return and was having idle chit chat with him regarding my possible plans to shut down the machine at the end of the year and actually go full tilt into ER (age 55). The conversation led to some questions regarding tax efficient strategies when you are roughly 50/50 taxable/tax differed and planning for "Fat Fire". He called in a guy from their money management team (aka salesman) to briefly discuss my tentative plans and portfolio make up (60/40). The conversation led to some fixed alternative investments the salesman said he has "allot of his clients" doing now with their bond allocation. The product he was proposing was a JP Morgan Structured Investment known as “7yrNC1yr S&P Economic Cycle Factor Rotator Index Callable CD”. He basically implied this was somewhat of the sure thing to get a 7% return with CD safety. My Spidey senses were tingling for a few reasons... 1) the salesman said it was a sure thing, 2) the spec sheet he gave me on the product was way over my head, and 3) frankly, if it's that hard to explain/understand, then perhaps its not for me.

In case I am dummy, do any of you smarties have any knowledge of this product? Risk/reward?

Hell, I don't even under stand the name of the dang thing!

 

[Rianne]

Well here it is in totally understandable language a 5th grader could understand! Put your glasses on and get back to us.
*Note the side effects, uhum, risks on the far right of the 2nd page.

https://www.ftportfolios.com/Common...tentGUID=6692551f-152f-4ee9-b5f9-6d72a066956f

 

[REWahoo]

The product he was proposing was a JP Morgan Structured Investment known as “7yrNC1yr S&P Economic Cycle Factor Rotator Index Callable CD”. He basically implied this was somewhat of the sure thing to get a 7% return with CD safety. My Spidey senses were tingling for a few reasons... 1) the salesman said it was a sure thing...

Listen to your spidey sense. Translation of the product name: "Sure Thing to Pay Me a Fat Sales Commission and Leave You Confused as to Why It Didn't Make You Money".

 

[OldShooter]

... hard to explain/understand, then perhaps its not for me. ... Hell, I don't even under stand the name of the dang thing!

Exactly. You will never get into trouble by refusing to buy products you don't understand and the likelihood of missing something good is approximately zero. Just the name of the thing would be enough for me to tell the salesman to please lose my contact information. He is not your friend.

 

[Christine]

Take your money and run!

Listen to your spidey sense. Translation of the product name: "Sure Thing to Pay Me a Fat Sales Commission and Leave You Confused as to Why It Didn't Make You Money".

Sounds very similar to the product my auntie invested in before it almost torpedoed her retirement around 10 years ago.

 

[samclem]

If your accountant turned this "rep" loose on you with this product, your accountant is not in your corner. He knows darn well what these vultures are pitching. Maybe your accountant has no choice (required by the terms of his employment with the firm) or maybe he gets a fee for the referral, but it still is unsavory (IMO).

 

[timemoveson]

So, I just finished sitting down with my accountant to do my tax return and was having idle chit chat with him regarding my possible plans to shut down the machine at the end of the year and actually go full tilt into ER (age 55). The conversation led to some questions regarding tax efficient strategies when you are roughly 50/50 taxable/tax differed and planning for "Fat Fire". He called in a guy from their money management team (aka salesman) to briefly discuss my tentative plans and portfolio make up (60/40). The conversation led to some fixed alternative investments the salesman said he has "allot of his clients" doing now with their bond allocation. The product he was proposing was a JP Morgan Structured Investment known as “7yrNC1yr S&P Economic Cycle Factor Rotator Index Callable CD”. He basically implied this was somewhat of the sure thing to get a 7% return with CD safety. My Spidey senses were tingling for a few reasons... 1) the salesman said it was a sure thing, 2) the spec sheet he gave me on the product was way over my head, and 3) frankly, if it's that hard to explain/understand, then perhaps its not for me.

In case I am dummy, do any of you smarties have any knowledge of this product? Risk/reward?

Hell, I don't even under stand the name of the dang thing!

With respect, if your "accountant" called in a "salesman" at a moment's notice who did this to you, I strongly suggest you re-evaluate the nature of your relationship with these people - and look for alternatives who may actually have your best interests legally top of the list.

Most unusual, unwelcome and unacceptable by my standards. This is completely apart from any negative reactions I have to the product offered.

 

[Spock]

All investments have an "animal spirits" factor in that what you thought would be good news apparently made the investment fall and vice versa. But. If you can't figure out what would even be good news for your investment that would normally drive it up (or bad news that would drive it down), stay away from it.

 

[OldShooter]

With respect, if your "accountant" called in a "salesman" at a moment's notice who did this to you, I strongly suggest you re-evaluate the nature of your relationship with these people - and look for alternatives who may actually have your best interests legally top of the list.

Most unusual, unwelcome and unacceptable by my standards. This is completely apart from any negative reactions I have to the product offered.

+1

 

[samclem]

Their own overview for the "investment" says:

The Notes are designed for investors who seek an early exit prior to maturity at a premium, if, on any Review Date, the closing level of the Index is at or above the applicable Call Value.

Does that sound like something tailor made for you? Something you've been dying to buy? 'Cause I can tell you--this company is very eager to sell it to you.
Complicated, murky, almost certainly of no use to you, almost certainly something they'll make a lot of money selling to people.

He basically implied this was somewhat of the sure thing to get a 7% return with CD safety.

See if he'll put that in writing. If so, you might make some money with the right lawyer.

 

[Scrapr]

Their own overview for the "investment" says:

Does that sound like something tailor ,ade for you? Something you've been dying to buy? 'Cause I can tell you--this company is very eager to sell it to you.
Complicated, murky, almost certainly of no use to you, almost certainly something they'll make a lot of money selling to people.



See if he'll put that in writing. If so, you might make some money with the right lawyer.

aka...We'll just flip this investment to this other Structured Investment after year 2. aka...churning the account

aka...Where are the customers yachts?

 

[BeachOrCity]

I have done a number of these. They can work out well, but the salesperson and your accountant are recommending this specific one for the exact wrong reason. Bonds are what you spend when stocks are down, yet this investment doesn’t pay a return and will be worth a lot less to liquidate precisely when stocks are down. So “NO”.

 

[aja8888]

Here are the last three (3) risk points out of 15 or so:

• Lack of liquidity: JPMS intends to offer to purchase the notes in the secondary market but is not required to do so. The price, if any, at which JPMS will be willing to purchase notes from you in the secondary market, if at all, may result in a significant loss of your principal.

• Potential conflicts: We and our affiliates play a variety of roles in connection with the issuance of notes, including acting as calculation agent and hedging our obligations under the notes, and making the assumptions used to determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set. It is possible that such hedging or other trading activities of J.P. Morgan or its affiliates could result in substantial returns for J.P. Morgan and its affiliates while the value of the notes decline.

• The tax consequences of the notes may be uncertain. You should consult your tax advisor regarding the tax consequences of an investment in the notes.

The risks identified above are not exhaustive. Please see “Risk Factors” in the applicable Pricing Supplement and the Offering Circular for additional
information.

Yeah, these are like 7% CD's..........

 

[Oz investor]

last i heard LIBOR is being replaced ... so does that make performance comparisons ( and models) irrelevant ?

although i am not a big Buffet fan .... invest in what you understand makes a lot of sense to me

i invested in bonds and notes in 2011 to 2015 but this looks way too complex for me ( and the projected yield is less as well )

this doesn't inspire me to make a deeper dive ( do more research )

good luck if you decide to buy in

 

[Rianne]

Well here it is in totally understandable language a 5th grader could understand! Put your glasses on and get back to us.
*Note the side effects, uhum, risks on the far right of the 2nd page.

https://www.ftportfolios.com/Common...tentGUID=6692551f-152f-4ee9-b5f9-6d72a066956f

BTW, my eyes glazed over after the first sentence. Then the risks became a blur. My above statement before the note, complete sarcasm. Reminds of when my DB, new to the financial industry many years ago when we were just starting out, sold me a whole life policy. Bought it hook, line and sinker. Goes to show, your accountant, best friend, DB sadly, will try to sell you the moon. We learned from our mistakes.

 

[pb4uski]

All investments have an "animal spirits"...

and this one appears to be a snake.

Seriously, it is just an outrageously complex equity indexed annuity. It looks like at worst if you wait until maturity in 6 years that you'll get back your principal with no return.

It would be interesting to know if one had bought this product on January 1, 2009, 2010, 2011, 2012, 2013 what the return for each investment would have been for each 6 year period and when it would have been called.

I don't see what special attributes that this structured product brings to tax efficiency compared to a plain vanilla CD.... did they elaborate on that at all?

 

[OldShooter]

and this one appears to be a poisonous snake. ... I don't see what special attributes that this structured product brings to tax efficiency compared to a plain vanilla CD.... did they elaborate on that at all?

FTFY

Seriously, this is why I simply ignore things that are not simple to understand. In the rare cases where I have investigated or (like here) read about investigations, they never get better. So I don't waste the time.

The more complex the product the more likely that it is designed to make money for the seller, not for the buyer. I would have rejected this snake as soon as I was shown its name.

The other thing, to @Rianne's point about her DB: I think that it is fairly common that the salesperson has only a superficial understanding of the products, received from his/her sales manager and bosses. There are truly evil people out there selling this stuff, but IMO there are many innocent and clueless dupes just doing what they've been told. So don't be too hard on DB.

 

[Rianne]

FTFY

The other thing, to @Rianne's point about her DB: I think that it is fairly common that the salesperson has only a superficial understanding of the products, received from his/her sales manager and bosses. There are truly evil people out there selling this stuff, but IMO there are many innocent and clueless dupes just doing what they've been told. So don't be too hard on DB.

Thank you, and yes that occurred to me. It became a touchy subject. I let it go and realized in the financial/insurance business they train you to go after friends and family for your first sales. Then hope for referrals to get more business. I don't think he understood the product completely. I cancelled it after a year, of course, after the commission was paid. But it went to my DB, so that was OK.

 

[Dtail]

Structured Products are a favorite for Wall St./Hedge funds to construct very complex products which are typically not liquid and hard to value.

 

[jazz4cash]

It seems like "Factor Investing" has become a thing these days. When did that happen?

 

[OldShooter]

It seems like "Factor Investing" has become a thing these days. When did that happen?

The Fama/French "3 Factor Model" for investment return modified the "Capital Asset Pricing Model" to add "Value" and "Small" factors to the CAPM, which basically said that investment return reflected only beta/aka volatility. There is also a Fama/French 5-factor model but I don't remember the other factors. You can google all this.

As I understand "factor" investing, it attempts to improve on passive investing by emphasizing the factors that the models say seemed to produce higher returns. I think it's basically some of the thoroughly discredited stock picking crowd coming up with a new gig that allows them to charge higher fees than they could get by just running passive funds.

Fama believes that the factors will somehow endure. But certainly having more money chasing small caps and/or value should cause the prices to rise and the factor's advantage to decline. But he got the Nobel. So in my mind the jury is out and we'll have to wait 5-10 years to see if factor emphasis beats pure passive. Both Fama and French consult for DFA and the DFA offerings are designed to facilitate portfolio "tilts" towards various factors. Actually, as an experiment, our portfolio is basically passive worldwide (VTWSX) but I am running about an 8% small and value tilt experiment using some DFA funds.

 

[gcgang]

I'll take a stab at it, without seeing the prospectus.

This is a debt obligation of JPM.

If they're still around, you'll get a maximum of 8.75% simple interest, or get your money back at the end of six years.

I wouldn't buy this especially in a taxable account, as JPM probably has to report some imputed interest to you.

I don't see how they could come up with "7% guaranteed".

While I have seen a couple Structured Investments that make sense, most seem, as Warren said about Hedge Funds, like a compensation scheme masquerading as an asset class.