Monday, August 3, 2009

Freedom Fund down 71% Puts Mattress Up 345%

Since writing this about three and a half years ago, I called London Life to make sure my investment was now in a dividend weighted fund. My personal portfolio is dividend weighted and it does well. My ScotiaBank stock alone, bought early in 2009, is up something like 110 percent while pumping out a dividend every three months. The dividends help pay the bills in retirement.

My London Life investment is still lagging. It is still the worst investment in my portfolio. Heck, the bath I took with PennWest Petroleum (PWT) doesn't come close to matching my present Freedom Fund loss -- and PWT, to its credit, is helping to support my wife and me in our senior years. Who knows, PWT may even recover some of its former value. [True when written. No longer true today. (Feb. 12/2016.)]

I am posting an actual photo, with minimal enhancement, of my June 30, 2009 London Life retirement savings plan statement. It details the loss suffered by my Freedom 55 investment.

I won’t say much. My wife has me on a short leash. She worries about being sued. She wishes I wouldn't post the statement. I am 62, retired, and I do have financial freedom but no thanks to the financial wizards at London Life.

The media has made quite the story of Mr. Madoff and his scam. But I have managed to lose about 71% of this investment without dealing with Madoff or his ilk. I did it right here in London, Ontario — no trip to the Big Apple necessary. Luckily, I didn’t have much invested with London Life but still I’d love to know how much money went to management fees to pay for this sterling work.

I have a rule: putting money under a mattress should never out perform an investment. I would have about 345% more money today if I had just shoved my money under my mattress rather than putting it in a Freedom Fund.

As Rod Serling warned, “You are about to enter another dimension . . . Next stop, the Twilight Zone!”

This is the actual “Total change in value of your investments” graph from my statement. There have been no withdrawals. This fund lost it, all on its own, without any help. Nice work.

Some background: I gave this money to the Freedom 55 rep with instructions to put it where he thought it would perform best. Hey, he was the expert. I believe he shoved it in their best performing fund from the past year. If he did, it was a bad move. I will blog about why later, for now just believe me when I say studies have shown that if you want to have a poorly performing portfolio always ensure your money is in last year's big winner.

Since this money was invested in March of 2000, I'll bet this retirement money went into a dot-com bubble fund. I'm sorry that I don't still have my records but I don't. Next rule, bubbles are not for retirement funds. London Life should know this.

I called and had what was left of my investment moved into another fund but it did not do all that well either. My own money, the money I have taken control of, is well into the black. My personal portfolio is weathering the recession with admirable aplomb.

Oh well, come age 69 — oh, make that 71, the rules were recently changed — London Life is obligated to return at least 75% of my original investment.

Wait! I have had a eureka moment. It's not me that gains freedom at 55 thanks to this fund, it's my adviser at London Life! I have to go back and read the fine print. I may be on to something.

For another view on Freedom 55 check out this blog by Darren Barefoot.
For an update on this blog, to see where the Freedom 55 investment was as of Dec. 31, 2012, follow this link.


  1. I recently came across your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  2. Yes, this guy thinks that he deposits $4196.71 over apparently 9 yrs and expects to retire a millionaire. Wow what a genius.

    Also, no mention to the fund in question... no mention whether his advisor contacted him over the years... apparently he never contacted his advisor either. I would say this is an extremely rare case.... I certainly do not have 1 client that has been with me over even 5 years that has lost a penny. I am not saying they have made millions (no different than the stock market) but the vast majority of my clients have outperformed the comparable indexes with significantly less volatility.

    Your advisor should take responsibility if he has not contacted you, has you in a fund that has performed so poorly over that period of time... unless he has tried to make changes over the years and you would either not agree, or not return his phone calls. What is the advisor to do if you won't return his calls?

    1. Dear Too Bad:

      Thank you for your comment but I did not deposit $4196.71 thinking that I would retire a millionaire. I simply wanted to retire with more than I invested.

      I switched money from an endowment policy with London Life over to an RRSP. It was a test of the Freedom Fund folk to see if they could make my money grow better than I do. They failed the test.

      I did stay in touch. As I wrote in my post, "I called and had what was left of my investment moved into another fund but it did not do all that well either." I am retired now but I will be leaving my small London Life investment untouched until I reach age 71 or die. At 71 I get 75 percent of my original investment back and if I die before I hit 71 my heirs have the entire investment returned.

      Your argument about calls and returning calls is a bit of a strawman as I've talked with my adviser(s), returned calls and switched my investment as advised. The bottom line is London Life failed my test. Since retiring, my RSP has annually paid me 50 percent more than my company retirement plan and still has managed to grow by more than 40 percent in little more than three years.

      I have weathered the income trust debacle and the stock market crash of 2008-2009 very nicely. My Freedom Fund account, on the other hand, is still mired well below $1600 when last I looked.

      P.S. In recent years some of my stock purchases are up over 100 percent - IPL.UN and CPG come readily to mind. My bank stocks have also done very nicely. Heck, I'm even making money on my recent purchase of a natural gas play. Sorry but I remain very disappointed by the poor showing of my London Life investment.

      If one must get into a fund, the TD Monthly Income is good one to consider. In the period since my retirement, my TDMI investment is up around 40 percent while my London Life one continues to languish.

      Thank you again for commenting.

  3. Yes, we also recommend the TD Monthly Income... to date we have been extremely happy with it. I think that comparing your London life fund to TDMI is not a fair comparison for the following reasons.

    1) TD monthly income Fund is a Mutual Fund whereby the LL fund is a seg fund so of course the Mers are higher and of course that affects returns. I assume the advisor from LL explain the benefits (as you have stated them repeatedly) as to why you would purchase seg funds over mutual funds

    2) You are also comparing apples to oranges... the fund you bought from LL is obviously a 100% equity play whereby the TDMI is not. Of course it would have had more volatility, but that is no excuse for its underperformance, but not a fair comparison.

    Again, I should state that TDMI is in our recommended list, but is currently being compared to PH&N MI. I am a big fan of Satish Rai, Geoff Wilson and Doug Warwick so if we move from TDMI it will be for a compelling reason.

    Is there a reason you will not share the name of the fund you hold or the fund you use to hold?

    I also think this is not LL fault, but rather an advisor that has given bad advice. I could list many funds that over that same time have under-performed.... some of them amongst the biggest funds in the industry... most not under the LL umbrella.

    1. I'd like to think that I am comparing not apples and oranges but apples and lemons.

      There's a lot wrong with the Freedom 55 approach. I am even offended by the ad campaign that was used to market the product. Hey, even the name, Freedom 55, is misleading.

      I posted the investment results graph sent to me by London Life and I posted little else because I am not a lawyer and don't want to need one. I have learned that I am not alone in having had an amazingly bad experience with Freedom 55. I cannot be 100 percent certain that the stories I've heard are courtroom safe and so I don't relay the info. I did post a link in my piece to a blog that is not as fearful of lawsuits. That blogger has posted quite a long list of negative comments from disgruntled investors.

      In all my years of investing, I bought my first stock when I was about 12 and still have the receipts to prove it, Freedom 55 is the worst investment I have ever made for a slew of reasons --- not just the return.

      Now retired, my wife and I have taken my old Morgan roadster and driven across the States to California and back a couple of times in the past few years. Life is good, but no thanks to Freedom 55.

      On account of my Freedom 55 burn, I did not jump at the Frank Russell offers I received when I retired. I guess I can thank Freedom 55 for that.

      For the most part, I invest on mine own. With the help of an Excel spreadsheet, an investment allocation plan and a few books (such as Protect Your Nest Egg by Eric Kirzner and Richard Croft); I am doing quite nicely.

      Read your last paragraph. I have no doubt that you could "list many funds that over that same time have under-performed . . . some of them amongst the biggest funds in the industry." I zero in on the word under-performed and ask: "Did the paycheques of the investment experts running these funds also under-perform big-time?"


  4. Rockinon again not saying the name of the fund... if what you are saying is factual... how could you be sued? You could just link to the fund card of the fund in question.

    Those under-performing funds are not LL funds... most would be bank funds, or funds from other mutual funds. So the fact that these managers got paid has nothing to do with LL.

    If I am right with the fund, Janus no longer runs money for LL or any of its affiliates, so yes, I would say they took a huge pay cut.

    The name is a marketing play.. and frankly silly to complain of the name. Scotiabank runs a campaign saying you are richer than you think.... How do they prove that... That's is also a ridiculous statement as is McDonald's I'm Loving it... not a big fan of McDonald's... so I am not loving it!

    The tag lines are just tag lines and used to drive marketing. In fact the Freedom 55 is one of the most successful marketing plays in Canadian history.

    I am glad you are doing well self managing your funds... but I also think that you owe the previous blog an apology making it out that LL is somehow the only company that has had under-performing funds. I suspect the fund is question was a Janus fund which LL contracted some time ago to run a couple of their funds, and severed that relationship many years ago (as it was a bad mistake).

    You also mentioned that you used the proceeds of a matured policy to buy this segregated fund from London Life. I know the matured policy was an extremely good performer over its lifetime versus any comparable investments. funny you were not on the site talking about that positive experience with whole life insurance.

    I know you know your comparison to London life fund and the TDMI is not a fair one...

    The blog in question is primarily past/present unsuccessful advisors that have come to the blog to throw mud at the company they use to work for... don't you think that's odd?

    As well, I think you can also agree.... that perhaps on your cross US tour (congrats, sounds nice) there were some places you stopped for whatever reason where service (restaurant as example) was less than ideal. This is no different than your experience with this specific LL agent. If you went into a subway in Nevada and it was dirty and the kid working the cash was rude... would you blame Subway?

    1. Having worked at a newspaper, I know that truth is not always a defence against libel in Ontario. There is a reason newspapers always have a lawyer as close as the phone. I don't have a lawyer and so I try not to take chances.

      I did not say the money invested came from a matured policy. It was money that had accumulated in an endowment policy taken out when I was a child. (My one policy is about $29 annually and the other about $62 annually.) If the money had been left untouched, I would have been much better off.

      I absolutely hate whole life insurance. Please, don't get me started on that. This is from the Consumers Report Website: "Consumer Reports has long recommended term life as the simplest, least-expensive option."

      I'm going to write a whole post on this and get it up soon.

      Thanks for writing. If you comment on my blog post, I will let your opinion stand unchallenged.


    2. An endowment is a policy that matures (that is what endowment means)... we are taking the same thing and came from a whole life insurance. I can tell you (because I am an expert) endowment policies were extremely favourable for clients... and would have outperformed easily your TDMI and with way less volatility. You can even ask the fund managers of the TDMI for their opinions on this. I know Satish, Geoff and Doug well enough to know they would give you their honest, expert opinion on this.

      In fact the reason endowment (other then those that endowment at 100 - which all permanent life insurance policies do in Canada) no longer exist in Canada is because the CRA reduced the amount of money they allowed to accumulate in a whole life insurance product tax free as their view was that this allowed for too much tax advantageous/deferral. That statement alone should (which is 100% accurate) have you apologizing for not having accurate information and should be posted to your new site. As well before you actually say anything on your site I think you should do your homework... what ROR have the largest par fund earned since inception, for 10 yrs, 5 years and how much comparable volatility they have. Once you do your homework... send me the link because your site will help me sell way more permanent insurance. I guarantee once you really understand par insurance you'll be sold... so do your homework. I would suggest starting with the largest par fund in Canada the $20Billion London Life one.

      Question you should look for answer are

      How is the fund invested?
      Why is it invested that way?
      How has it performed vs comparable benchmark
      How much volatility?
      How much MERs?
      How do they smooth returns?
      Has that been beneficial or not?
      Wat other large par fund are there?
      What's the differences?
      What is the impact on par funds if interest rates stay as low as they are?
      What happens if rates rise (inflation)

      That should be a pretty good start!

      Yes, term insurance is definitely cheaper... over the short term. I know the real answer is it depends on your need... is your need temporary or permanent? For temporary needs, I 100% agree term insurance is by far the cheapest and right solution. For long term solutions, term insurance will not likely still be in-force and therefore not even a solution.

      I have no problem with a challenge... I really don't consider it a challenge... more of education for you and your readers.

  5. What other bad investments have you had that at a certain age guaranteed you 75% of your money back?

    I think that ends up being a good choice to have bought this fund as a seg fund instead of a mutual fund that would have gave you zero guarantee.

    I certainly would not have recommended Janus... saw the fund manager speak in Halifax (I think) and they had 90% of their holdings in three sectors. When we got home, we pulled our clients out of their funds for that exact reason.

    At the age you bought this fund, you also should not have been 100% equity... not sure how you and your advisor arrived at that decision.

    You also stated performance was only one of the problems with LL... love to hear the others... assuming they are not 100% the fault of the advisor you dealt with.

    1. First, let me say that I am a little uncomfortable replying to your comments. I don't want to be rude and would feel more comfortable simply letting your views stand unchallenged. That said, you do ask questions and so I am trying to answer. Please do not take offence.

      As I pointed out in my post, when it comes to a guarantee on the return of an investment, a mattress will give back all the money "invested." Guaranteed!

      Of course, money under a mattress is not truly invested. Money, when it is invested, is always exposed to some risk. I knew that when I gave the money to LL. I was surprised that Freedom 55 was able to lose as much as it did. It has been among the worst investments, if not the worst investment, of my entire life.

      I understand your argument but please try and understand that I, and others like me, are asked to comprehend how a product called Freedom 55 delivers not one cent in retirement and may, at age 71, return $3147.53 on an investment of $4196.71, and this is after more than 18 years under the expert guidance of the London Life financial wizards. (Heck, I have a failing heart. I might very well not be here. Oh well, if I die early, my plan, my wife gets the entire investment returned.)

      I was not fooled by the name. I gave them a chance to prove they could live up to their name and they failed. Period.

      But many others are fooled and it is sad. I have a niece who inherited some money. She went to the bank and slapped the money into a growth fund. Hey, she was investing for growth. Perfect. She has lost a bundle. It was the absolutely worst place the bank could have put the money of a risk averse young woman. She didn't understand the name is code for high risk. Naive? Yes, but understandable.

      You have accomplished one thing: you have made me realize that my adviser did a very poor job.

      I learned about risk before I was a teen. I was buying Bell stock with the money I earned cutting grass. My uncle told me to pull the money and put it into something called, as I recall, Pacific Pete. It was a western oil play of the early '60s. My stockbroker was aghast. I think he was breaking the law by selling stock to a child without parental involvement and was concerned about the risk I was taking on. PP went up, my uncle told me to sell, I took my money and profits and bought more, lots more, Bell stock. I knew I had done well, but I had learned that to make the big bucks I had risked losing my savings.

      Years later, mid '80s I believe, I lucked out on another oil play that raised eyebrows - Britoil in the North Sea.


    2. Those are great stories and reminds me a little about Doug Warwick... one of the fund managers on your TDMI. He started investing money for his Aunt with explicit instructions not to lose money. He runs his funds with that as his core belief even today.

      My investment philosophy is essentially the same (and that is why his funds are on our recommended list) and with market volatility not likely going anywhere anytime soon... should continue to deliver good results (relative -no pun intended)

      I think one thing to keep in mind is that the fund you originally bought (which I suspect is no longer available through London Life) likely should not have been the only fund in your portfolio. The advisor also should have done a risk questionnaire (as should have the bank with your niece) to access your tolerance... if your advisor did not do this... you do have a legal case... now based on the size of the account... likely not worth the effort, but you have a case.

      I think the problem truly lies with the advisor... as the company's job is to produce product and the job of the advisor is to understand their clients and recommend the appropriate product. It seems this was not done here. Perhaps LL should have better checks and balances... but those checks and balance would be difficult and extremely expensive to have in place.

      I think as advisors we should have to share our investment philosophy with our clients (how we arrive at investment decisions as ultimately that affects our clients. I can tell you I have had offers to take on multi-million dollar accounts but the clients investment philosophy was way too aggressive for me (leveraging millions into Gold) so I passed. I have no regrets and I explain to my clients we are looking more to hit singles (batting for average) than we are trying to hit investment home runs. If you think in terms of baseball, I would rather have 7-8/10 positive years (perhaps smaller ROR -only singles) than to have a 200 batting average (2/10 positive years) even if the average works out slightly better.

      Someone much smarter to me told me... you will never hear from a client when markets are up (even if their portfolios are doing double digit returns), but watch out if you lose them money.... and that has been my mantra to this day... and I believe this is pretty close to 100% accurate.

  6. Rockinon... what happen to the other comment about whole life... hope you post that too... I think you and your followers will benefit. I know you ahve a newspaper background and hope newspapers would do factual reporting and have tow sides to every story.

    Thanks and I hope your ticker gets better...

    1. No idea what happened to the reply. Odd. I must have hit a delete key by accident.

      I'm kinda glad it disappeared. I've been looking into whole life and realizing that there may be benefits offered by whole life that had escaped my notice until now.

      I've always been a term insurance booster. Buy term and don't scrimp. Insurance is important.


  7. Rockinon... glad to see a Rocker (use to be a big hair bands fan)... lived by words of AC/DC, Judas Priest, Metallica, Def Leppard (to name only a few) can talk to another Rocker and helps them open their minds to other ideas.

    I am a huge proponent of term insurance... the most important part of any insurance purchase is to cover the need... whether term insurance or permanent. I can also say that one needs to determine whether the need is permanent or temporary.

    Never buy permanent insurance for temporary needs. For the vast majority of Canadians most (if not all) their needs will be temporary, and therefore likely should have temporary coverage (for the vast majority of their need).

    Those that have a need for permanent insurance... really this is only two choices in canada....

    1) Universal Life
    2) Permanent cash value life insurance.

    They are very different and I would suggest doing your homework... but (in my mind) the major difference is in how much ongoing work & risk you are prepared to accept within your insurance portfolio.

    I like (or use to before two rates hikes around all companies in Canada from 2010-2012 due to low interest rates) minimum funded Universal Life with level cost of insurance. This is (was) essentially the cheapest way to buy permanent insurance.

    I liked permanent cash value life insurance for anyone funding more that the minimum. They offer guarantees, no possibility of negative returns, etc..

    Now I can tell you minimum funded universal life and cash value life insurance are now fairly closely priced... as permanent cash value life insurance rates (at least with london life) have not changed in over 20 years. They adjust dividends (by reviewing investment performance of their participating fund) to compensate for reduction in investment performance. The nice thing with permanent cash value insurance today,, is that you get the cash value for almost the same price as universal life (which would have $0 cash value (or very close to it)).

  8. Too bad again:

    Might I suggest a new article... Why are the PCs (in this year budget) trying to attack the amount of money that can be built up in a permanent insurance contract when interest rates are so low?

    As you now know.... permanent insurance is about 80% invested in fixed income (and has to be due to regulations in Canada). The government wants to reduce the amount of money that is allowed to accumulate in a contract from 4% to 3.5% stating that it makes sense since rates are so low...but if rates are so low, why bother?

    The reason is because (specifically) permanent cash value life insurance appears even more attractive today than other fixed income investments... because you can earn 4% tax sheltered (and London life's earned over 6% last year) whereby GICS are paying 2% and are taxable. That's a significant advantage for cash value life insurance. The government needs to make these less attractive because they will lose even more tax revenue.

  9. I didn't know much about any of the above but will take some time, when I get the chance, to look into what you say.