Question about Sketchy-Sounding Investment

So, with trepidation inspired by the ongoing thread about scams, I was talking to my dad about an investment opportunity that his financial advisor has suggested. I believe this is an ACTUAL financial advisor working for a legitimate company, but I’m concerned there may be a misunderstanding of how this works, so am hoping someone has some info.

Here’s what my dad told me:

He puts in a lump sum of money ONCE - he cannot add more to it. For the sake of this discussion, let’s say that’s $50,000.

That money is NOT invested - he cannot LOSE the $50,000.

He can withdraw any or all of it at any point from the account - he can do it monthly, or just call and say, “I need $30,000” or whatever. There is a certain age at which he says he HAS to have withdrawn money, but even then, as long as he has withdrawn money before that age, he is not obligated to continue withdrawing money. He merely has to have made a withdrawal by that age.

When he dies, as long as there is any money remaining of the $50,000, his estate / heirs (namely, me!) get the full $50,000.

Again, this money is NOT invested, so the only way there wouldn’t be any money remaining is if my dad withdrew all $50,000.

This seems sketchy to me - why couldn’t my dad give them $50,000, immediately withdraw $49,999, and then when he dies, his heirs get $50,000?

I understand that the money isn’t growing, so depending on how long my dad lives, this may not be the best option, but it still seems strange.

Has anyone encountered anything like this? Are there any details I may be missing?

There’s no way this works as described, since you found the obvious flaw in it to get a free $50k. The only way to know what it actually does is to read the paperwork.

I was thinking it’s some sort of deferred annuity but there would have to be some requirement that the money be allowed to grow for some period. Did your father get any paperwork on the investment?

Yes, you need to read the paperwork. Except for the requirement to make a withdrawal by a certain age (which sounds like this is some kind of qualified account) and the promise that heirs would get the full amount regardless of the amount previously withdrawn, it doesn’t seem different that a simple savings account.

I suspect that the financial advisor is actually an insurance salesman.

Depending on the age, total asset amount, and goals of you father, there are likely much better options available. If this isn’t a scam, it’s still probably a sub-par investment designed to put money in the financial advisors pocket. As I understand it, insurance salesmen usually do not have the license necessary to place customer funds in investments other than insurance products. Proceed carefully.

Yeah, it sounds a whole lot like the insurance ads I hear on TV in the afternoon (between all the Medicare Advantage and prescription drug ads).

First be aware that there are different types of financial advisors. Anyone can call themself a “financial advisor”, there are essentially no regulations on that. Many who call themselves that are really salesmen or brokers of any number of products. The level of “scam” is highly debatable. Many people have done quite well for themselves putting their money with a financial advisor who is also a salesman. But it is worth knowing the types and proceeding with that information.

Bingo to Dag_Otto - after a little more research on my own, I believe this is a product offered through Jackson National Life, although I couldn’t find anything about it on their website (although reading through various annuity documents is definitely not my bailiwick.)

Unfortunately, I already pointed out to my father the obvious flaws with this “investment” as described by him, but he had all the answers, as those subjected to the patter of good salesmen often do.

I don’t think my dad even has the paperwork for it - he hasn’t invested in it, but is interested. Unfortunately, my dad is way worse than me at reading these types of documents - he’s not super money-savvy, but also somehow already “knows” all the ins and outs of this.

I agree - it’s not necessarily a scam, and hopefully because it’s through what appears to be a major, legitimate company, hopefully it’s no more of a scam than the typical insurance products.

I mean, if this is a Jackson National Life product and it was described to your dad as you described it to us it absolutely is a scam; at least on the part of the salesperson. I can’t see how an annuity could possibly work like that.

When it comes to investing I’m generally suspicious of anything that has layers of complexity or locks you into a contract that is punitive to break. There are too many places for them to hide fees and commissions, etc. and it would be naive of me to think that I’d be well matched to reliably detect all of these; especially against a well financed adversary who’s job it is to think about this every working hour. Also, locking people into extended contracts does have the benefit of avoiding having to continue to compete on the open market. That could be a sign of wanting the mutual benefit of some guaranteed stability (e.g. a tenant/landlord contract for a year or two) but it could also be a sign that they know you’re not gonna be pleased once you’re stuck with them. For things like investments where there are many lower obligation options I tend to suspect the latter far more often.

I’ve got to say, with the little you’ve said about your dad and this “advisor” I’m seeing a bunch of red flags. Your usage of the word “salesman” suggests your instincts are similar, and I’d definitely recommend trusting those. It doesn’t need to be as bad as outright fraud or an illegal scam to just be a bad idea from someone taking advantage.

To add to this it may not always be someone explicitly taking advantage. This is on my mind right now since I’m watching the Hulu series Dopesick about the opioid crisis. I think it portrays the Oxycotin salespeople quite interestingly. A wide range from pure amoral opportunists to people who buy into the dubious sales material and genuinely believe (at first) that they’re helping people.

Part of the description sounds like an indexed annuity, where the money is not “invested” in the traditional sense, and therefore cannot lose money through market dips. In an indexed annuity, the money would indeed be growing–and probably at a fairly good rate. The part about having to make a withdrawal by a certain age could, I suppose, be a decision on the part of the company selling whatever this is. But other parts don’t sound like any financial product I’ve ever heard of.

Well, unfortunately it doesn’t sound like there were enough details provided by my dad to pin down what kind of offering this is. That was my hope - that SDMB could figure out what my dad was describing, even with his somewhat confused or inadequate description. So I may bring it up to my dad again and see if he’s willing to provide any more details, but as I said, he’s pretty much made up his mind that he understands this “opportunity,” so I’m not sure that there’s much more discussion to be had about it. But that’s neither here nor there in terms of this message board.

Thanks for the input and confirming (unfortunately) my instinct of things being a little suspect. Of course, any more information would be great, and if I do get any more information from my dad about this offering, I’ll report back here.

Could it be that your dad is describing it pretty much perfectly, only while missing that it’s the residual amount that passes to his beneficiaries?

Well, I mean, that might be possible, but in that case it makes even less sense since he was clear that the “investment” doesn’t gain money. So, if the residual amount doesn’t “reset” to $50K, then there’s no gain for the “investor” - it’s just putting $50K in a pile and taking it when you want it.

So if that is his confusion, there’s something else amiss in the description as well because then it goes from being an extremely good investment to an extremely bad one. (I’m going to stop putting “investment” in quotes. Okay, just that one last time.)

And if the idea is tax deferment?

As I mentioned previously, quite a bit depends on the age, total asset amount, and goals of you father. If tax deferment was the goal, I would think that it would be part of a total estate plan. From the brief description given, I doubt that the father has a coherent estate plan. But that’s just my guess.

yearofglad, if and when you see the paperwork, my bet is that it will be about 20 pages, with a bunch of confusing paragraphs and terms like ‘rider’, ‘waiver’, and ‘exclusion’ that your dad wouldn’t understand if not for the ‘helpful’ salesman who puts these words in the best light. Good investments are not that complicated.

I’m not sure how giving Jackson $50K and then taking it back a little at a time defers any taxes; the hypothetical $50K is money my dad already has, has paid taxes on, etc. But I’m not a tax expert, so I’m not sure.

Also worth noting is that this review from Investopedia says, “Despite its name, the company no longer offers life insurance products. Instead, it specializes in fixed and variable annuities to help Americans in their retirement.” So this product my dad is describing is some kind of annuity.

To clarify, I’m half-figuring that the product in question would be fairly useful to some people for tax-deferment purposes, and that it’s being pitched to your dad regardless of whether it’d be particularly useful to, y’know, him.

Oh, and also, my dad did not mention tax deferment as one of the possible reasons for doing this; his sole reason (at least as presented to me) was that it was essentially no-risk (which it is, in his understanding of the investment, and which it is most certainly not, in reality).

Ah, Pepper, just saw your reply - yes, that is perhaps a reasonable idea for its existence, but yeah, not on my dad’s radar.

If it doesn’t gain money, it’s losing real value every year due to inflation. If this is through an insurance company, they must be doing something with the momey. They may not be investing it in stocks, but they must be either earning interest, or using it to secure assets, or something. They aren’t putting the money under a pillow.

My guess is that somewhere in the paperwork are management fees and some kind of limit on how fast you can take out the money without penalty, such that by the time they have to actually pay it out they’ll be far enough ahead on fees and interest that they can’t lose.

Let’s say there’s a 5% annual ‘management fee’ on $50,000, which doesn’t change if you take some out so long as the account is open. So you’ll be paying them $2500 per year. Also, assume they are earning 5% on the money somehow. In ten years they will have extracted $31,000 in interest and $25,000 in management fees. You then ask for your $50,000 back, and they’re happy to give it to you.

In the meantime, when you get your $50,000 back, if inflation ran 3% the purchasing power of that $50,000 in ten years would be $37,000.

Withoutbyye ability to scam them by raking out the money twice, thus would be a really bad deal. My guess is that the specific rules are set so you can never quite take enough out fast enough to,get to breakeven considering the fees and lack of investment interest.

This was my thought - he has misunderstood the numbers, or it has been misrepresented -
I suspect an upper limit on withdrawals, the only proviso being there is no requirement to do regular withdrawals.
I suspect that the “amount available at his death” is not the same as what he puts in. When it’s time to pay, the company is gone or the real terms say “no money left”. Sell this sort of thing to a not-too-old person, and so what if someone comes looking for money that isn’t there, in 30 years or more?
What’s to stop them from paying themselves management fees then declaring bankruptcy anyway?