My GMAC Bond Client

Me too.  Have a client with a GMAC bond at less than 50% of face value.  I’m facing the same quandary.   The client is using the income from the bond to live on. 

My guess is that these bonds have an estate feature.  If the mom passed away, the son could redeem the bonds for the face amount.  Have you considered that option?  Have you checked to see that they have estate features?

most estate features will only allow so many $ to redeem. So don’t count on it.

Sorry, it is the client’s GMAC bonds, not her elderly mother’s.  I edited the post to clarify that.  However, if the elderly mother passed away, I guess she would not need that income -_-.  

Help her take the broker that sold the GMAC bonds to her husband, to arbitration. The guy should be shot!

Is she not taking SS by choice?  She's definitely old enough. 

Space, I just got her statement:

All the cusips start with 3704, and the bonds are held under her family trust, she’s the trustee (this makes me a little worried, as I’m not sure how the registration has changed since her’s husband’s death–changes in registration can void the survivor’s option).  I’m going to call my bond department to make sure this can work.  Great suggestion though, thanks so much.   

update I verified that all the cusips have death puts on them, so I’m going to prepare the slew of paperwork required to get this ball rolling.  Thanks again for the advice!

update 2 This made me laugh/cry: Early Retirement Forums

"Hello KB. They look like bonds to me also. And, risk-wise

I see [GMAC bonds] as practically zero. I would not be afraid to commit a huge chunk of my meager pile."

Space,

So it looks like the GMAC account was once titled under the trust with both names (herself + spouse, co-trustees).  But about 2 months after the spouse died, her old broker sent her paperwork to change the registration to just her name only ttee, under the trust.  The actual trust has yet to be updated (still has both names on it). 

My question: I know that TOD transfers and changing the registration can void the death put…but in this case, do you think that would do it? 

[btw…the lawyer set up an A/B trust, with the GMAC account going to the credit trust (the irrevocable part), and an irrevocable trust would usually void any survivor options I believe, but because she’s the trustee, I think she could get the GMAC account back in her trust should there be any problems.  The client has not yet completed dividing up the estate (which is less than 400k, so I really have no idea why an A/B trust was even considered), and I’m going to talk to the lawyer on Monday.  I’m having her meet with her old broker to try to fix this and get the Death put done.

Either way, it seems like her lawyer and previous broker really complicated what looks to be a simple life, and what should have been a simple divying up of the estate. 

If any owner of the account passes, the bonds can be put back to GMAC, providing that GMAC has not already redeemed the max for that QTR.  If max is already reached, GMAC will just make you wait in line until the next period starts.  200k is the max option per owner to put back to GMAC. No holding period for GMAC bonds before death occurs on these since they are all intermediate term bonds.  Actually, any bonds issued after 2005 have a stipulation that the owner has to live for 6 months before they can use the estate option.  That is a great current yield on the bonds if you buy them at the current price. But the client probably bought them at or near par making THEIR yield arond 7-7.5%.  I agree with the arbitration that Sports suggested, but only if the bonds were bought after GM & GMAC were cut to junk and the orders were marked solicited. 

If these bonds were moved from one account to another if one of the owners has passed, the survivor option can still be exercised.  The bonds will have to be moved back to the original account and the paperwork can be submitted.  I just did this recently on a jont account when the husband passed and the bond was overlooked as far as the survivor option.  I moved it back to the original account and got back face value on the 15th of the next month.

Thanks bud, that’s good to know. 

And as far as arbitration, it sounds like these bonds were bought way back in 2002, 2003 at the latest, when things were still in good standing, with the yields around 6.5-7.5.  But, it was the entirety of her husband’s money (he didn’t have any qualified money, for whatever reason).  Would you advise any of your clients to put the entirety of their money in a single bond? 

Only if I wanted to screw up my U-4 and my livelyhood.

well said meili

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You exactly my client! Initial order of 10,000 each, but where can you deliver?? Upon deposit, of generosity, how is delivered, and when/why? Let's make a deal!

The troll brought this thread back to life. So let's talk about it.

With the benefit of 20/20 hindsight, was selling GMAC at the bottom good advice or bad?

[quote=gvf]Space,

So it looks like the GMAC account was once titled under the trust with both names (herself + spouse, co-trustees).  But about 2 months after the spouse died, her old broker sent her paperwork to change the registration to just her name only ttee, under the trust.  The actual trust has yet to be updated (still has both names on it). 

My question: I know that TOD transfers and changing the registration can void the death put...but in this case, do you think that would do it? 

[btw...the lawyer set up an A/B trust, with the GMAC account going to the credit trust (the irrevocable part), and an irrevocable trust would usually void any survivor options I believe, but because she's the trustee, I think she could get the GMAC account back in her trust should there be any problems.  The client has not yet completed dividing up the estate (which is less than 400k, so I really have no idea why an A/B trust was even considered), and I'm going to talk to the lawyer on Monday.  I'm having her meet with her old broker to try to fix this and get the Death put done.

Either way, it seems like her lawyer and previous broker really complicated what looks to be a simple life, and what should have been a simple divying up of the estate. 
[/quote]

The old broker is obviously a poor excuse for an advisor!  He didn't bother to put in the death puts knowing she had so much exposure to the bonds.  If you are able to get the death puts paid off, I am sure she will be a very happy camper and you can help her reinvest the proceeds properly.  If it get denied for some reason, the other broker has some liability.

legend, you are responding to a 2 year old post. What happened and why is water over the dam. However, we can now discuss the value of advice to sell GMAC at the low and lock in substancially lower income. Massive loss plus low income caused by do gooder advisors either trying to do the right thing or trying to avoid a lawsuit and thus cause irrepairable damage to the client.

Opinions?

Bondguy,

When a company's continued existence depends on large (and largely unpopular) political initiatives doesn't it become a question of whether risk of total ruin is so great that a cut-loss/cut-income strategy becomes a lot more desirable?

[quote=BondGuy]

legend, you are responding to a 2 year old post. What happened and why is water over the dam. However, we can now discuss the value of advice to sell GMAC at the low and lock in substancially lower income. Massive loss plus low income caused by do gooder advisors either trying to do the right thing or trying to avoid a lawsuit and thus cause irrepairable damage to the client.

Opinions?

[/quote]

I didn't sell any clients GMAC bonds during the lows.  I have had some sell them now that the spreads are much tighter.

[quote=iliketennis]

Bondguy,

When a company's continued existence depends on large (and largely unpopular) political initiatives doesn't it become a question of whether risk of total ruin is so great that a cut-loss/cut-income strategy becomes a lot more desirable?

 [/quote]

Desirable to who? it's bad enough that the client has lost money. But now to have their income shaved by 70 to 80%? As it urns out, needlessly?

2 years ago GMAC was a tough call. However, government intervention has to be taken into account. As long as the government was in the picture any call to liquidate GMAC has to be questioned as a bad call.

As for the bailouts being unpopular, yeah, there is an element that still doesn't get how close we were to the edge, has, at best, a shallow understanding of what actually was happening, and has banged the fiscal responsiblity drum for polictical gain since. Any advisor who used, or bought into the political propaganda to make portfolio decisions for clients ought to be permanently barred.

[quote=BondGuy]

[quote=iliketennis]

Bondguy,

When a company's continued existence depends on large (and largely unpopular) political initiatives doesn't it become a question of whether risk of total ruin is so great that a cut-loss/cut-income strategy becomes a lot more desirable?

 [/quote]

Desirable to who? it's bad enough that the client has lost money. But now to have their income shaved by 70 to 80%? As it urns out, needlessly?

2 years ago GMAC was a tough call. However, government intervention has to be taken into account. As long as the government was in the picture any call to liquidate GMAC has to be questioned as a bad call.

As for the bailouts being unpopular, yeah, there is an element that still doesn't get how close we were to the edge, has, at best, a shallow understanding of what actually was happening, and has banged the fiscal responsiblity drum for polictical gain since. Any advisor who used, or bought into the political propaganda to make portfolio decisions for clients ought to be permanently barred.

[/quote]

My point about the bailout being unpopular had more to do with the uncertainty of the political success of the bailouts than political propaganda. 

And yes, you are right - government intervention has/had to be taken into account, but there still had to be a big degree of uncertainty regarding the survival of some of these institutions, correct?

In this conversation the only institution we are talking about is GMAC. Uncertainty, of course. However, by the time this was taking place, for most GMAC debt holders, because the government was involved it was better for them to hold on. That was a hard call, but really the only call. If GMAC went out it would have been a financial catastrophe for the holders. However, selling would also have been a catastrophe for holders. This was a lose/lose situation. A definate catastrophe versus a maybe catastrophe. That the securities were still making their payments and making them on time made a strong case to hold. The odds favored holding.

Additionally, the government made it clear, once it decided to bailout GM and Chrysler, that GMAC was a needed credit facility to make that happen. A GMAC failure would have led to the complete collapse of GM's dealer network as the entire network is floor planned thorugh GMAC. Technically GMAC owns 100% of the dealer's inventory. No network equals no GM. Even if the government didn't want to help GMAC, they were left little choice.

WALKED INTO THE OFFICE LAST WEEK?

OK - so you didn't HUNT This person for years, knowing they were well qualified - they dropped into your lap - needy and with only 76k in assets for you to manage? Even if there is another 400- 500k on the table in this case my gut says you should RUN away from this case.   

If you feel like adopting her, then do the following:

Meet with or have a phone conversation that outlines the risks, the reasonss why GMAC is not what it was and reference/ include supporting documentation either from your own research division or via outside articles you cite. Send the client a letter that explains the risks via USPS, with a compliance copy, a copy for your desk file and a copy that you would take with you in the event you jumped ship and needed to defend against an arbitration in the future.  You are the financial advisor. Take a hard nose look not at the instrument and not at the feeling but with some reality checks. What I see from what you are saying when I take out the instrument, and take out any emotional vibrations (Dear old Mom, dead husband.....hear the violin in the background fading as I remove them?)

With stark silence and a clear mind, it seems to me that:

She did herself no favors by being on this earth for 62 years and not understanding.

Her 92 year old mother should be delighted she has a 62 year old daughter who is paying 12k or might be paying 2k toward her upkeep. The 62 year old likely has no obligation to do that unless the principal came from the 92 year old mom and 62 is a trustee on a trust or POA on the account.

The 92 year old may not have managed her resources so well - again - not your problem, and not her kids problem.

 You don't need to go helping anyone go to arbitration, or siccing her on arbitrators as someone suggested because she'll keep leaning on you...and now you aren't a financial advisor, you are a moral support, an emotional crutch.....and all kinds of things that keep you from doing your job.

You weren't sitting at your desk looking for a needy/problem client when she came in were you?

September 8, 2008 - 12:47pm

So, why didn't you make note of that on 9/1 , 11:14 PM, big guy? 

[quote=Takingnames]

So, why didn't you make note of that on 9/1 , 11:14 PM, big guy? 

[/quote]

I was commenting on a specific post of Bondguy's that was not related to the specific issue of the OP.

And I've lost weight :( 

[quote=iliketennis]

[quote=Takingnames]

So, why didn't you make note of that on 9/1 , 11:14 PM, big guy? 

[/quote]

I was commenting on a specific post of Bondguy's that was not related to the specific issue of the OP.

And I've lost weight :( 

I'll buy you dinner! So what's your thought on the GMAC - would you sell it or hold it? (I would not have taken her on either way)

[/quote]