Monday, November 28, 2011

Multiple Seminar Attendees Get Bad Advice

It is amazing that even when you lay yourself out there for all the world to see, people still gravitate towards the advisors (don't make me laugh) who claim to protect seniors. I recently held a seminar where I showed people my background right in the seminar. I showed them how to look up my background in several different places on the web. Further, I explained to them that I am compensated by fees. Apparently some people do not care if you are honest and upfront to them. They would rather someone lie to them and take them for as much commission as possible.

Recently, I received a call from someone who attended my seminar and they wanted to know how to get a hold of one of my competitors. This senior person was confused about who she was calling and could not remember whether my competitor worked for me or the people that ran the other seminar that she went to recently. If she is already confused, sadly this means that my competitor will likely have a field day and take her for everything they can.

This competitor is not licensed as a financial advisor but rather only as an insurance agent. They blatantly promote on their web site that they sell annuities. They also claim to offer financial planning. Here is a news flash. You cannot say you do financial planning unless you are a Registered Investment Adviser. This firm is breaking this rule big time. ( I always wonder, why is it so easy for me to find these snake in the grasses, but the regulators never can seem to find them?)

They also have video testimonials on their web site (which the last time I checked were illegal.) It is very obvious in these video testimonials that the seniors in the videos were "coached" to say certain wonderful things about the annuity sales person. The whole purpose of these video testimonials is to establish trust and credibility for the seniors that view them and sell more annuities, of course.

This firm of annuity sales people claim to have an office, but I know their office to be one of those that you just rent when you have a meeting. The sad thing is that they will not tell the seniors that they are advising that the office is not really their office. Nor will they tell them that the mailing address to this rent by the appointment office is there to imply that this really is their office.

I have an ethical question for you: Do you think it is alright to operate your business in this manner and not tell prospective clients that this is really not your office?

My answer is not no, but h**l no!

A senior who needs help planning for long term care will have a problem when they have a portfolio of annuities. Most of these annuities will have a 10 year surrender charge. This is because they pay the agent the most commission when they have a 10 year surrender charge. A lot of these annuities can be converted into a guaranteed income stream, but if they are trying to qualify for public benefits, then they will have a big problem. A lot of the annuities sold out there have a minimum of 10 years that you can annuitize. However, if an Elder Care Attorney advises that the annuity can only have a 5 year term, then this will disqualify the senior from public benefits. This means that they will have to spend their all of annuity money for their long term care needs BEFORE they can qualify for public benefits. Do you really think the annuity sales person is going to admit this potential problem when they are looking at commissions of $7,000 to $10,000 or more? Keep your assets. Take my advice. They will not tell you about this at all, because if they do, then they would lose the potential commissions.

I will keep telling people my background, disclosing all conflicts of interest, explain my fees and delivering great advice while I am up against competitors like the one described above. You see what guys like me are up against? I do not mind competition, but come on man! At least be legal and ethical competition.

Stay safe out there. Watch out for your mom and dad.

Monday, November 14, 2011

Should You Invest in a Hedge Fund?

If you are an individual investor, then in my opinion, the short answer is no. The question is why should you invest in a hedge fund? It boggles my mind why people continue to want to invest in things that they cannot see, touch, feel, hear or taste. Well maybe I am going a little overboard, but most people want to invest in a hedge fund because of one of two reasons.

  1. Performance
  2. Hedging a portfolio against a shock to the market.
Number one is clearly bad. You should never and I mean never invest with anyone based on their performance. Suppose a hedge fund manager had great performance for the last year. This does not mean that they will have great performance for this year. Performance is the world's worst reason to invest with anyone.

Number two can be accomplished in other ways. You do not have to give your money to a superstar hedge fund manager (who is basically a gambler with your money) because there are now other options. Hedge fund managers take positions that they believe will be profitable in the future. Sometimes they are right and sometimes they are wrong. It is like investing in general. You can have good years and bad years.

I can show you 5 different examples to hedge an index like the S&P 500®. By the way, do not do this at home. This is not investment advice, rather educational in nature.

  1. If you believe the S&P 500® is going to go up, then you might buy 100% S&P 500® index.
  2. If you think the S&P 500® is going up, but you do not feel real strongly about it, then you could do a 130/30 long short on it. That is 130% long and 30% short the S&P 500® index.
  3. Or, if you are not sure of which way the S&P 500® is going and you just want to preserve capital, then you could go 50/50 long and short. You will not make anything nor lose much besides trading costs. Your portfolio value should stay close to where it is currently valued.
  4. If you are a bear on the S&P 500®, but not a total bear, then you could go 130/30 short long. Or 130% short and 30% long S&P 500®.
  5. If you are a real bear on the direction of the S&P 500® and firmly believe the market is going straight down, then you can go 100% short the S&P 500® index.
What is the right answer? There is no right answer.

Obviously, there is perfect timing for each of these strategies, but also significant risk to each of them if you are wrong. Hedge fund managers do more than make these type of decisions. I wanted to explain to you the various options available to them in simplistic fashion. When they invest your money, they are making a bet similar to one of these five strategies. When they are right, they are heroes. When they are wrong, they are goats.

There is more risk to investing in hedge funds than meets the eye. The SEC recently charged two Minnesota based hedge fund managers and their firm for facilitating a multi-billion dollar Ponzi scheme. (Not again.) See this link below.

Here is something that I want to get across to readers. Stay with visible, publicly traded investments. Do not fall for the sales pitch for non-publicly traded, exotic or offshore investments. Know where your assets are custodied. Compare your statement to that of your custodian. Be clear on who is managing your money. Know what a feeder fund is and how it functions. Most importantly, know what you do not know.

Stay safe out there.