Structured Certificates of Deposit (CDs)

As your investment advisor, we are held to a fiduciary standard.  Skipping the legalese and court cases which specifically define fiduciary, this means we act in your best interest in providing our investment advice.  This sounds obvious but many firms/brokers/insurance agents aren’t held to this tough standard.  They can, and will, sell you anything deemed suitable for you.  So, a lot of what we do with you is to get to know you, your financial situation, goals, and tolerance for risk when coming up with a financial plan and implementing that plan for you.  These are the proactive steps we take, the duty of care, in managing your investments.  And, this is an ongoing relationship as your financial situations changes throughout the years.  There is another aspect to how we manage money for you that you don’t see—and for good reason.  These are the investments you won’t see in your portfolio.  These investments might be entire asset classes, certain stocks, bonds, or funds, or insurance products.  Why? Banks, brokers, and insurance companies have invented all manner of suitable products which are either very expensive to you or seem too good to be true (e.g., upside to the stock market with no downside), or have hidden fees.  We hear these sales pitches often on your behalf.  So, we wanted to take this short blog post to highlight one of those products that was recently the subject of a page one article in the Wall Street Journal, the structured Certificate of Deposit (CD):

http://www.wsj.com/articles/wall-street-re-engineers-the-cdand-returns-suffer-1473180591

We will provide just a short summary here, but the article is worth the time to read.  With the bull market in stocks and lack of meaningful interest yields on low risk investments, Wall Street banks (i.e, Goldman, JP Morgan, Merrill Lynch, Barclays, etc.) have created structured Certificates of Deposit (CDs) to entice savers.  These are CDs linked to stocks or some other commodity, combining some limited upside and some limited downside, with guaranteed hefty fees for the salesperson and product creators. The CDs have very little liquidity if you need to sell before maturity, too.  The Journal’s analysis of 118 market-linked CDs issued at least three years ago by Barclays showed only a small number exceeding the returns an investor would have earned on a conventional FDIC-insured (risk free) CD.  If the product being sold to you has a long fancy name like “GS Momentum Builder Multi-Asset 5 ER Index-Linked Certificate of Deposit Due 2021,” a real structured CD, and disclosure documents which run hundreds of pages (most do), alarm bells should be ringing in your head.  You won’t see NWIC buying these in your portfolio.