Freedom Investment Club

The Freedom Investment Club (http://www.educatedinvestors.com) was started by a group of investment savvy individuals in Canada. They now have the FIC Canada, FIC US, FIC China, FIC RRSP, and FIC Income Fund. The RRSP and Income Fund are both quite new, so they were not presented at the Millionaire School in 2005. It is difficult for me to say if any of these investment club programs are truly good investment opportunities, as I would never invest in them myself. There are a few things that I really do not like about these programs:

1. There is a $1000 buy in fee. This is quite steep. They say this fee is much lower than the cost of mutual fund managers, but there are many no load/fee free funds out there, not to mention the abundance of emerging funds that can be easily traded on the stock market for a $10 trading fee.
2. The big lock down. This is the real kicker. Your money is tied up for three years. If you withdraw it early, then you receive none of the appreciation. I am not even sure if you can withdraw it early at all.
3. There are more reputable funds out there. These guys have been around less than 5 years. Not exactly a Warren Buffet approved establishment. If you are not an experienced investor, go for a fund manager with a solid track record to manage your funds. If nothing else, speak with a financial advisor whom you trust.
4. Control without control. The club is about pooling your money with other investors in order to purchase larger investment stakes. Like most shareholders, it does come with some voting rights. Remember, these are relatively uneducated investors being persuaded by the rather educated fund managers. If you really want a say in your investments, then pick them and invest in them yourself. You do not need to join a club.
5. Lack of trust - It is hard for me to trust that my money is being handled wisely, when the direct managers of the fund are spending so much time doing their own marketing and sales. No to mention, I found that their marketing tactics during the Millionaire School were deceptive, and therefore, I had a lack of trust for the management.
6. No dividends – Not only are the funds held for three years, but it stated in the original offering that I read that there would be no dividends given. This may be different for the Income Fund.
7. Sophisticated investors only in the US. The program is very new in the United States, and thus it has not fully passed the SEC regulations. At this point, only sophisticated investors (those with $1 million dollar net worth, or $200,000 in annual gross income for each of the last 2 years, or $300,000 in gross annual income combined with spouse) are allowed to buy in. It seems these “sophisticated investors” have also chosen a portfolio which is 90% real estate. Yikes! A little too risky for my taste.
8. The Risk of outstanding stock options. Although your money would be locked in, all of the management of the FIC hold sizeable amounts of stock options which are exercisable at very low prices at any time from now until October, 2007. This means that while your money is locked away, unable to be touched, in theory they could dump the value of the stock by exercising all of their options. Not that they would, but it has been done before.
9. Harv’s strong interest in the FIC. Harv is the biggest option holder of them all in the FIC. He portrays his interest to be minor, but this seems to be dramatically understated. He obtained stock options from the beginning, and also obtained options in lieu of marketing the FIC. His options are also exercisable any time between now and October, 2007.

Of course, if you are truly interested in the FIC, you should do your own research, and draw your own conclusions. The offering memorandum can be found at one of the following links (just in case one becomes inactive):

• Link1 (HTML)
• Link2 (HTML)
• Link3 (PDF)