Tuesday, July 21, 2009

FINRA Investor Alert: Life Settlements

July 20, 2009 – Seniors Beware: What You Should Know About Life Settlements

The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on life settlement. Life settlement is the transaction that involves selling one’s life insurance policy to a third party that did not issue the policy for a lump sum payment whose value is higher than the policy’s cash surrender value but less than the net death benefit.

Because life settlement is targeted at senior people, the industry can be subject to sales practice abuses. Potential investors should take caution when consideration selling one’s life insurance policy. Things to consider might include: know the price of other life insurance policies that you want to replace with, know if the price is fair (since there is not secondary market, the only way to price a policy would be to do your research of the policies that are out there in the market), and understand how life settlement might impact your participation in state or federal public assistance.

SLCG supports the dissemination of information that can inform and educate everyday investors. For a view of the work we do, please visit our dedicated website and read our research on such relevant topics as equity-indexed annuities.

Wednesday, July 15, 2009

SLCG Research: Charles Schwab YieldPlus

SLCG released today ‘Charles Schwab YieldPlus Risk

This paper reports on the Charles Schwab YieldPlus, a bond fund. YieldPlus returned -31.7% between June 2007 and June 2008. Though it told investors that it was an ultra short bond fund, it was in fact an ultra long bond fund. It held securities backed by illiquid long-term private label mortgages, violating concentration and liquidity limits stated in its prospectus. Up until 2007, these securities helped YieldPlus generate above-average returns. When the credit crunch hit the markets in 2007, credit and liquidity spreads widened and long term holdings of YieldPlus dropped dramatically and the fund suffered its largest losses in early 2008.

The paper finds that Schwab may have understated these losses by inflating its net asset value, or NAV while YieldPlus understated its credit and liquidity risks in its SEC filings and marketing materials.

SLCG is committed to the education of the everyday investor. For this and other related papers, please visit our dedicated website.