7 percent compounded returns - 8 percent bonus - never lose account value

Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters. Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

How is that headline for a promise? With the markets bouncing all over the place during the last year, finding an investment option paying seven percent and willing to pay the investor an eight percent bonus for investing is like finding the cool pond in the middle of the Sahara!

But just like the pond in the middle of the Sahara, it is most likely a mirage! There are hundreds of marketing organizations searching for new agents to represent products like the one I referred to in the title of this article. My email account is full each month of these marketing organizations promising me HIGH commissions and great marketing pieces allowing me to increase my income substantially! On a lark, I requested my assistant research one of these new promising products.

With the investment markets performing like they have in the last 18 months or longer, many people are looking for a safe place to invest. Many insurance and investment companies are aware of this, as are thousands of men and women calling themselves financial planners, advisors, consultants or any number of titles. Many of those seeking a safe option are also those with significant assets as well as grey hair. For the fast talking financial “planner”, the retiree may be talked into something they truly do not understand. Since many of the regulatory agencies want to protect these seniors from abuse, the paperwork now required to be signed has also grown in recent years.

However, I know from personal experience not every investor will take the time to read through all of what they are being asked to sign. Sadly, the bad investment does not always reveal itself until years after the original investment is made. When the senior needs to access additional funds for long-term care or major repairs, they learn significant surrender penalties will have to be paid. Often, little can be done at this point in time, since many years may have passed.

I have been in the financial services business for over 26 years and am familiar with complex products, but some of these take the cake. The first thing promoted to me by the organization was not the benefits to the investor but the 8% commission I would be paid. Thus, if I could get a client to invest $200,000 from their retirement account that has taken a beating, I could earn a quick $16,000! This product is considered an insurance product and thus security licenses are not required. Even though the product would require someone to allocate the investment between several index options like S&P 500 or Russell Index, the sales person is not required to be experienced in managing investments.

When we inquired about surrender fees to the client should they need access to their funds, the surrender period lasted 12 years, and the initial rate was 10%. Of the bonus paid, only three percent could be accessed, with the balance not earned until years eight through ten. The promised seven percent compounding rate of return was not discussed on the product specification sheet we were provided, thus I am still unclear that I was given correct or complete information. But, if the rate is correct, it was only offered when the investor elected to take the income rider option and agreed to take funds out of the product over their remaining lifetime. Thus the gains from managing and selecting the best index went away and were replaced with the seven percent rate on their initial investment. This may or many not benefit the investor. The seven percent only stays in place provided the income is taken and the product is never cancelled or excess withdrawals are never taken.

The old adage of “if it looks too good to be true, it probably is” appears to be true in this case. A high return with no risks just is not possible. Fees and other assessments could erode much of the gains to protect the issuer leaving the investor holding the bag.

For help with managing investment assets, contact me at Quality Financial Concepts or one of the other Certified Financial Pallners in our area. To continue a personal quest for education, you can also view our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other tools all available for free.

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