Financial Gurus - Anyone heard of Sherbourne Financial?

[donnaval]

I've really enjoyed reading the various retirement threads here on TUG. Along those lines, a friend and I were discussing our retirement plans and she told me that she and her husband are are thinking of investing some of what they have left in this company: http://sherbournefinancial.com

She asked for my opinion, which makes no sense, since she should have known from our conversation that I have absolutely no knowledge of things financial .

I read the info on the website, and since it sounds interesting, that immediately makes me skeptical of it. (She is interested in the "Principal Protected" plan). They recently fired a financial planner after some extraordinarily bad losses over the past few years, and she doesn't know who else she could talk to about determining the legitimacy of this Sherbourne place. (So she picked me??? I'm sure the financial planner would know more!) Anyway, I told her that there are some sharp minds on TUG and maybe someone here has heard of the outfit--good or bad! Any info appreciated.

 

[Icarus]

I looked at it, and without knowing anything about it, it's not something I would invest in.

Higher interest rates means more risk. I have no idea what "principal protected" means in reality. It could mean anything. If there is truly no risk, then they wouldn't have to pay such high interest rates, plus they can only be purchased from that company, so there's probably no secondary market for these things in case you want to sell before maturity.

I have no idea what your friends situation is, but they should consider investing in a basket of diversified mutual and bond funds, where the risk is spread among all the investments in each of the funds, and the funds themselves should be no load, low fee funds from well-respected, large mutual and bond fund companies. The exact mix would be based on several things, including time till retirement, time till the funds are needed, amount of desired risk, etc.

-David

 

[Brett]

I've really enjoyed reading the various retirement threads here on TUG. Along those lines, a friend and I were discussing our retirement plans and she told me that she and her husband are are thinking of investing some of what they have left in this company: http://sherbournefinancial.com
She asked for my opinion, which makes no sense, since she should have known from our conversation that I have absolutely no knowledge of things financial .
I read the info on the website, and since it sounds interesting, that immediately makes me skeptical of it. (She is interested in the "Principal Protected" plan). They recently fired a financial planner after some extraordinarily bad losses over the past few years, and she doesn't know who else she could talk to about determining the legitimacy of this Sherbourne place. (So she picked me??? I'm sure the financial planner would know more!) Anyway, I told her that there are some sharp minds on TUG and maybe someone here has heard of the outfit--good or bad! Any info appreciated.

I too would be very skeptical, There isn't even a listing of the principals you could look up to see if they are licensed or even part of the financial planners certification ( www.cfp.net )

 

[Kal]

...I have no idea what "principal protected" means in reality...

I have a few "principal protected notes" and they are very nice. These notes are all instruments of RBC Dain Rauscher (Royal Bank of Canada). Each note is often tied to some well established index such as the S&P. I just sold some a few weeks ago which were tied to the S&P. Here are the details:

* Each note was about $25K and matured in 18 months from purchase.

* If the S&P increased or decreased a total of 17% (or anything in between), the pay out was +17%, e.g. if at maturity the S&P was down a minus 17%, I receive +17% (or the equivalent absolute value).

* If the S&P increased or decreased at or beyond +18% or -18%, the full investment is returned and I received 0% return.

* The notes can be sold on the secondary market, but the selling price is negotiable.

In my case the S&P had dropped -16% at maturity so my return was +16%. That's very good in this market as it represents a gain of 32% if you assume I had held an S&P stock that otherwise had fallen 16%. However, even if the S&P had dropped more than 18%, my principal was protected and I got the investment back. At purchase, I believed there was no hope the S&P would increase 18% in 18 months.

How are these notes formulated? A combination of puts and calls plus other instuments.

I just bought another with endpoints of +22% and -22% however I would only buy such an instrument with a very sound Top 10 financial institution.

 

[Elan]

Here's one simple explanation of how a PPN could be set up. Sounds like Kal's was set up with some sort of straddle/strangle. Kind of interesting.......

http://www.wheredoesallmymoneygo.com/build-your-own-principal-protected-notes/

 

[Icarus]

It is interesting, but too complicated for the novice to understand.

Even with Kal's simple explanation, I'm still confused why he didn't get +17%.

Also, I guess the interesting part of Kal's notes were that if the gain/loss of the underlying index/security was out of range (either up or down) he would have received no gain at all.

This is not something you invest your life savings in. If you have extra funds, you might play a bit, but you still need to understand the risk, and certainly not from a no-name company. Kal's notes only had an 18 month maturity period. Others have longer maturities, and are far riskier. Even though the priciple is guaranteed, inflation still can eat away at the buying power of your money over time.

-David

 

[Kal]

It is interesting, but too complicated for the novice to understand.

Even with Kal's simple explanation, I'm still confused why he didn't get +17%.

Also, I guess the interesting part of Kal's notes were that if the gain/loss of the underlying index/security was out of range (either up or down) he would have received no gain at all...

The end points to receive a positive return were +17% to -17%. When I sold the notes at maturity the S&P was at -16%, therefore I received +16%. If the S&P was at -17% or lower, I would have received my investment back with 0% return.

These notes add a nice piece to my investment portfolio simply to provide protection on a DOWN market. As a minimum I don't lose the principal if the market tanks, but have an opportunity to gain 17% even with a significantly down market. No doubt, we don't like a zero return but it's light years ahead of a loss. In my mind a CD could provide a tiny return (maybe 1% after taxes) but there is absolutely no upside potential.

 

[Lawlar]

Be Careful

I have a lot of experience with companies that offered investment opportunities that guaranteed high income and/or profits. Be very careful. A number of these companies – that can look very legitimate – are totally fraudulent.

For example, I was involved in cases (representing bankruptcy trustees or creditors) where gold coins or commodities were offered to the public. These companies had television commercials that promoted the businesses. One of the commodity companies had their analysts present investment shows on TV that used commodity charts to give investment advice. The gold coin companies had pictures depicting their three national offices with armed guards standing outside the huge steel vaults that were protecting the customers’ gold coins. Funny thing happened (not really funny): the commodities company didn’t invest the customers’ funds in the commodities – but simply sent the customers phony statements confirming the trades that never happened. The gold coins never existed. Instead, the owner of the company used the customers’ monies to rent a Malibu home and a Rolls Royce.

I can’t tell you how many clients I have had over the years who invested in high interest paying instruments offered by con-artists who simply spent their money.

I don’t know anything about the particular companies mentioned in this thread. They may all be legitimate. However, I can tell you that I have seen so many people lose their life savings to fraudsters that I caution all off you to invest only with large sound institutions that offer conservative investments that you fully understand. That advice (for what it is worth) applies especially in these troubling times when even some of our strongest financial institutions are struggling with the credit crises.

 

[donnaval]

Thanks everyone for all your input. It gives *me* a lot of food for thought. It's embarrassing to realize how little I know about investing in anything other than real estate. My friend who started all this knows so much more than I do, and yet she doesn't understand most of what was said on this thread either! I think we both need to immediately enhance our education.

Off to find "investing for dummies" or something like that!

 

[Icarus]

The end points to receive a positive return were +17% to -17%. When I sold the notes at maturity the S&P was at -16%, therefore I received +16%. If the S&P was at -17% or lower, I would have received my investment back with 0% return.

I understand. The parenthetical comment in your original explanation was confusing. It made it seem like you would get +17% as long as the S&P results were within -17% and +17% during that period.

If the S&P returned a positive number less than 17% you would have also received that?

And, if the S&P miraculously returned > 17% you also would have just gotten your principle back, right?

Are there any other fees for it, or do they derive their fees by limiting the return?

Is it US$ denominated or Can$ denominated? If it isn't US$ denominated there's also currency risk.

Thanks for the explanation. It's a complicated instrument.

-David

 

[Icarus]

Off to find "investing for dummies" or something like that!

That's a very good idea. And whatever you do, keep it simple and understandable.

Personally, my opinion is that if you don't understand an investment, it's not wise to buy it. There's all sorts of very simple and decent investments out there that are easy to understand and track, especially if you are a long term investor.

-David

 

[Kal]

I understand. ...If the S&P returned a positive number less than 17% you would have also received that?

And, if the S&P miraculously returned > 17% you also would have just gotten your principle back, right?

Are there any other fees for it, or do they derive their fees by limiting the return?

Is it US$ denominated or Can$ denominated? If it isn't US$ denominated there's also currency risk.

Thanks for the explanation. It's a complicated instrument.

-David

The the S&P was at +9% I would receive +9% return. If the S&P were at -9% I would receive +9%.

If the S&P was at +20% I would receive 0% return.

There are no fees for the instrument.

All prices are in US$

It comes with a prospectus that is about 5/8" thick, double sided printing.

 

[Brett]

I have a lot of experience with companies that offered investment opportunities that guaranteed high income and/or profits. Be very careful. A number of these companies – that can look very legitimate – are totally fraudulent.
I can’t tell you how many clients I have had over the years who invested in high interest paying instruments offered by con-artists who simply spent their money.
I don’t know anything about the particular companies mentioned in this thread. They may all be legitimate. However, I can tell you that I have seen so many people lose their life savings to fraudsters that I caution all off you to invest only with large sound institutions that offer conservative investments that you fully understand. That advice (for what it is worth) applies especially in these troubling times when even some of our strongest financial institutions are struggling with the credit crises.

I second that advice. Just this past month in this area (Hampton Roads - Virginia Beach - Norfolk) hundreds of people lost over 100 million to one bad investment firm that looked exactly what was described in the OP's potential company.

http://hamptonroads.com/node/476080

 

[rschallig]

Also not registered with the SEC

I too would be very skeptical, There isn't even a listing of the principals you could look up to see if they are licensed or even part of the financial planners certification ( www.cfp.net )

You can also search for an investment adviser firm on the SEC website and view that firm’s Form ADV. Investment advisers file Form ADV to register with the SEC and/or the states. Form ADV contains information about an investment adviser and its business operations. Form ADV also contains disclosure about certain disciplinary events involving the adviser and its key personnel.

http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx

It appears that neither Sherbourne Financial or Sherbourne Capital is registered with the SEC. It appears to be a relatively small LLC that offers retirement planning, investment and savings programs, and reverse mortgage programs. The business started in October 2004 and has been a Better Business Bureau accredited business since April 2008. Their website does not disclose any information regarding fees or expenses related to what appears to be complicated products.
Bob