Freeman Fox/Cash locked JPM Structured Products

Hi All,

Just before the GFC I wanted to start investing and I had come across Freeman Fox. I contacted them and I had a broker (financial planner/salesman?) assigned to me who recommended a JP Morgan Structured Product. These are capital protected, hence you get lent the capital it gets invested and you pay the interest.

The SP investments are arranged into an 'asset basket' (the growth you hope will give a return at the end) and a coupon basket (designed to give an annual return to help pay the yearly interest).

I ended up investing in 2 (ASX & Emerging Markets). Due to the way they 'capital protect' the GFC has caused them to be 'cash locked', essentially meaning they will not return a cent.

Now I can handle the 'growth' part not returning anything, but had not really planned on the interest part _never_ to return anything. I (wrongly) assumed that you may have a bad year (or two), but if the market had a good year you would get some sort of return. Not the case.

I am now locked into seeing 20% of my take home pay go down the drain every month. I am locked in for 4yrs and 7yrs. I haven't had a single cent returned ever as part of the 'interest coupon' and am sure the 'asset coupon' will not return any growth. I have been paying these things for 2 years and getting to the end of my rope. (To get out of them would cost upfront the same amount that the interest is over the next 2/5 years).

A friend of mine said I have a case to go to FOS (ombudsman) and/or ASIC as a) I obviously didnt have them explained properly and b) the amount recommened to be invested is way too much and c) the wrong risk category for me. He recommened I inform the broker that I intend to make a formal complaint so that we can come to some resolution which may help me.

Now in one way I feel that I signed up for it, I should be a man and take it on the chin. (I have had to sell my investment property to keep up with living expenses and have been selling other assets e.g. pool table etc). But on the other hand they are 'meant' to be professionals and I feel that I was 'sold' and the broker doesn't give a crap and is now happilly still making his commisions.

What do you think? Should I go to the effort of claiming that I was not dealt with professionally? Remember that if it was 'in the money' I wouldnt be complaining and the same 'strategy/product' bought a year later would be fine?

My main gripe is the interest coupon being cash locked. Like I said I can handle the growth investment being cash locked but didnt realise that the interest coupon also could be affected by one bad year and never make a return (I hadnt really budgeted for 0% return for the life of the investment).

Anyone else in these cash locked structured products?

All comments appreciated...

You should have floated the idea here first.

We would have picked it to pieces and highlighted the actual risks.

Yeh the pain of seeing my money get pi$%ed away every month and not being able to buy a house for my new wife and selling assets is only balanced by the knowledge of a hard lesson learnt relatively early in the piece...

As I said before I dont know how much of a leg I have to stand on if I go before the ombudsman and/or ASIC. I suppose I give it a shot and find out....

Rastan said:

Yeh the pain of seeing my money get pi$%ed away every month and not being able to buy a house for my new wife and selling assets is only balanced by the knowledge of a hard lesson learnt relatively early in the piece...

As I said before I dont know how much of a leg I have to stand on if I go before the ombudsman and/or ASIC. I suppose I give it a shot and find out....

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Have you read the fine print on the coupon basket?

Does sound like you over extended yourself with the committment but a decent financial planner should have specifically picked up on that and advised you of the risks with the nil return to cover interest.

Do you have the details of the broker/salesman? If he was 'advising' you, and he's not an 'advisor' you might have something to run with.

(thanks for letting me vent and I appreciate everyones input...)

Yeh the fine print definately says that you could receive nothing on both the interest and the growth coupon. And I have signed it. I suppose in my mind I figured you could receive nothing on the capital (risk understood), but I wrongly assumed that the interest coupon would have been connected to an index rather than 'protected' by the same mechanism that has cash locked it.

Hence my quandry, I did sign that it would return nothing and I was told that it could return nothing. But I figured (for the interest part) that that warning was kind of 'standard' i.e. I thought surely no manager can continually make nothing every year to pay back the interest coupon.... The interest coupon was capped at 8%, and for goodness sakes you could stick it in a bond and get 4% (I was thinking along those lines for the interest coupon). Surely it wouldnt return 0% every year. Alas surely it could (and is).

BUT as stated, I did sign and was told it could return nothing. But now that I know more I can reasonably expect the broker to have factored that into the amount. i.e. If I put together an invesment strategy that was either invest in BP or CrazyRobsGreatIdea.com I would 'budget' for a worse return from CrazyRob. I dont think that happened here...

So I dont want to be a prick and cause a ****storm for the broker with threats of formal ASIC complaints (which I know cost them $7K to defend regardless of the outcome). Especially if I am a big boy and should sleep in the bed I made. Thats the line I am thinking. But for the next 3-6 years I cant buy a house whilst the broker is still getting profits (commisions)

My friend thinks I shouldn't 'take my medicine' and that the broker has failed in his professonal standing. I have gone (and paid) for the professional service and seems that the outcome I got was self serving for the broker and not in my best interests.

Dont get me wrong, I dont want to be locked in these things for the next 4 years. But I am not going to blame someone else (and cause them trouble) if at the end of the day it isnt their fault...

thats my quandry...

I have had alot of experience with structured investments and thankfully avoided the thresheld managemed investments. There are alternative investments out there you can roll into, they may cost you to roll however they are cheaper than redeeming your current investment. They are not a silver bullet but will allow you to particiapte in the market with the possibility of you getting out at a higher level or reduced cost to waht you are facing now.

I applaud you for taking responsibility for your investment decisions. To many people and many of them are in this forum would blame everyone but themselves. Lets face it, would you be complaining if the market was up?

With regards to FOS (this isnt a ASIC issue) With all due respect to your friend he probably doesnt know your personal circumstances. Did you read the PDS? Did you receive general or specific investment advice based on your persoanl circumstances? If you received specific investment advice did you receive a SOA.

Rastan, I admire your sense of conscience and objectivity.

How would it be to have a candid talk with the broker/salesperson who recommended the product, explaining how the repercussions of this investment are affecting your life, and mentioning politely that you are at the stage where you feel you may have no alternative than to seek the assistance of the Financial Ombudsman?

They may prefer to let you out of the contract rather than getting tied up in an extended wrangle.

I agree with Julia, first communicate your difficulties with your Adviser. They may have a solution or they may be able to organise a payment plan for the redemption.

However, Threatening FOS is not the answer. FOS requires you to seek internal resolution before you approach them anyway. If you have received general advice i.e. not specific to your circumstances and you received the PDS you really don't have a case for FOS.

Unfortunately with these types of investments there is no way out of the contract.

Unfortunately I can report this is the mob I refered to in an early post on Storm thread as having a similar business model.

Super glossy pamphlett, big promises, Big commissions, max out equity to the hilt...sell the dream!

I laughed as I tossed it in the bin.

It is likely your FP acted in their best interests imo

would be interested to hear their commish structure?

was a few years ago, so my memory could be hazy on this, but i believe they were selling the lifestyle of being a sort of franchised-pyramid scheme financial advisor as well?

So it would be of interest to know how experienced and what qualifications any FP may have

very sorry to hear about your situation, the GFC cruelled many financial dreams.

At the time of entering this investment, you should have been required to sign some documents, such as PDS & alluding to your risk profile.

If you did sign them all properly, you might be stuck

If not perhaps you have some options

disclaimer: I could be wrong about any of the above recollections or assumptions

awg said:

It is likely your FP acted in their best interests imo

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It is likely your FP acted in their best interests imo...

Just wanted to repeat that.

Sorry for the delay... I went on a forecasting junket for work... [linear regression is quite cool ]

back on topic... Yes I did sign a SOA and have the PDS and it seems pretty water tight. I dont feel that the interest coupouns ability to be cash locked was explained properly. But looking back I think I was probably most let down by a) the amount recommended to invest and b) the risk profile calculation/outcome where I have ended up being tied into TWO of these same things.

Any FP worth their salt would know the benefit of diversifying, and whilst the underlying is diversified (one is ASX and one Emerging Mkts) the vehicle isnt. And thats what has done me in, the vehicle used to invest the funds. The same technical 'risk' affects both SPs and has therfore killed any diversification that the actual (read underlying) may have had.

As for contacting the broker, I know that is my first point of call but part of me asking your (thank you again for everyone for responding) opinion was so I was certain of my opinion/position beforehand. I dont want to contact the broker and have him come over and either sweet talk or bully me out of what I think is my fair position.

OMG!! It's like reliving our own nightmare!! We are in exactly the same situation...same company & I assume, same broker/salesman!! We have just been advised by another FP to go the Ombudsman also.
I completely empathise with you though & are in the same predicament.....do we proceed or not?

Our stories are almost identical. We invested in 3 structured products initially. One of them was supposed to offset the interest we would be paying on the investment loan....then the GFC. It all went to crap & we are now stuck with a noose around our necks until they finish in another 4 years!!

I would love to know if you have proceeded or not...at the last point of contact we had with our FP, he told us that he couldn't possibly look after all the individual accounts ALL of the time.....we are not the only one's he has to 'look after'. Well that was like a slap in the face!!! We paid alot of money to be looked after & were assured that we would be looked after for the duration of our investments!! So where does that leave us now!! Paying off an investment loan that is giving us no possiblity of a return for the next 4 years!!

We trusted our FP & we were virgins to the investing world.....I believe we were "sold" products that were not suitable for our profile but were assured that they would return a healthy profit!!! At the time the economy was booming & we had no way of knowing that the GFC would have such a far reaching effect across all the investments....we were also convinced to roll over our super funds where one of them promptly lost $30000......I'm sure the commissions must be keeping his conscience warm at night!! We have since sacked him as our FP & are inspired by your story to proceed further with the complaints department.

I wonder how many others are out there that have been "sold" the Freeman Fox dream!!! Anyone???

I am in the same situation. I was looking for an investment that I could afford and that would offer me a test run at disciplined repayments running up to purchasing my first property. I was assured it would not affect my wish to buy my first home within the next couple of years 'as by then the interest repayments will be covered by the income portion of the investment'. It has been a hard lesson. I was additionally advised to fix the interest rate as they expected rates to rise significantly. Now I am paying ridiculous rates on an investment that will not return anything.

It would be a lot easier if I didn't know that people were still making money from my situation.

My husband and I are in the same situation also. We invested in the same two JP Morgan SPs (Emerging Markets and ASX20+) on the advice of our ''friends'' at Freeman Fox. It is now increasingly difficult to contact anyone at Freeman Fox. They only communicate with us via email trying to sell us other products. Fortunately we were very cautious with the amount we invested (even at their insistence it wouldn't be enough to make us really wealthy OR, as it turns out, really poor...) All in all, Freeman Fox have provided us with an appalling experience and I would suggest to everyone give them a wide berth.

We were locked in as well with a Macquarie Equinox Fund. We have gone to the FOS and are currently in negotiation about the fund.
However, we have lost substantially with other bad advice from Peter Spann and Freeman Fox. Risky products, with high fees and little explanation. I am sure you have all seen the 7.30 report on Peter Spann.
Giving out the PDS is no excuse. As an adviser they are supposed to explain the risks to unsophisticated investors. They did not.
Does anyone know if any class action is taking place against Freeman Fox?

My case has been with FOS for over 3 years now and it was only recently that I was informed that they are actually funded by the financial service providers themselves. Now I understand that they are [meant to be] independant but I also understand about knowing who butters your toast.

I have been worried that the FOS process has "dragged on" so long that I may lose my right to sue as I have been told by a lawyer I spoke briefly with that there is a time limit. The FOS process should be coming to some sort of conclusion soon and if FOS side with the FSP & feel that FF provided me with fair financial planning advice then I will most certainly be happy to start a class action - I think we only need 6 people...

TDGDESIGN said:

I am sure you have all seen the 7.30 report on Peter Spann.

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I hadn't - it is here: http://www.abc.net.au/7.30/content/2013/s3728325.htm

Rastan said:

I hadn't - it is here: http://www.abc.net.au/7.30/content/2013/s3728325.htm

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I recall attending one of his intro sessions years ago and, after reviewing the material, came to the conclusion that he was primarily interested in his own enrichment and not that of his clients. Sad to see so many people burned by yet another churn and burn, smooth talking con artist. ASIC is just a pathetic joke.

FxTrader said:

I recall attending one of his intro sessions years ago and, after reviewing the material, came to the conclusion that he was primarily interested in his own enrichment and not that of his clients. Sad to see so many people burned by yet another churn and burn, smooth talking con artist. ASIC is just a pathetic joke.

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We have just started action against Freeman Fox (Excela) through the FOS. I hope it doesn't take 3 years. Of course Peter Spann is no longer there. We were members of his Wealth Club at the time we took out the investment but received no advice except the general advice (hard sell) at his seminar and the PDS. I am not holding out much hope that I will get anything.

Rastan said:

My case has been with FOS for over 3 years now and it was only recently that I was informed that they are actually funded by the financial service providers themselves. Now I understand that they are [meant to be] independant but I also understand about knowing who butters your toast.

I have been worried that the FOS process has "dragged on" so long that I may lose my right to sue as I have been told by a lawyer I spoke briefly with that there is a time limit. The FOS process should be coming to some sort of conclusion soon and if FOS side with the FSP & feel that FF provided me with fair financial planning advice then I will most certainly be happy to start a class action - I think we only need 6 people...

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I'm in a similar situation, has anyone else received a 'buy back' statement? I would be interested in discussing pursuing a class action