Monthly Archive for September, 2009 on Investor Watchdog

Warning Signs!!

By: Daniel Chen | September 29, 2009

Warning Signs

Here is an issue that should raise a red flag should your financial advisor ever approach you with it. It is a fact that during very difficult and uncertain financial times, individuals are more susceptible to scams and fast money making schemes. Of course there are always a few ideas, no matter what type of times we are in, that have some credibility but never the less require extensive due diligence.
Ok, here is the latest red flag on my radar. I recently took on a new client from another advisor. Aside from the normal reasons for considering this change, the client sense of urgency increased when his previous advisor started to approach he and his wife about a "multi level" marketing business opportunity. Yes, you heard me right, the advisor presented to this client a multi level marketing campaign that promised easy and long lasting stream of revenue with minimum work on their part. I could not believe what I was hearing. I was absolutely astounded by this. What was this advisor thinking about? One would think that in these very uncertain times, when you get the opportunity to sit with your clients that you would focus on reassuring them of strategies that you have put in place for them to keep them on course for their future goals. I won’t talk about the name of this multi level campaign because it really doesn’t matter. What really matters is that this type of action on an advisors part should tell you a couple of things. One, if he is spending time on this, then what kind of time is he spending on helping his clients stay and keep on track in the new and ever changing environment that we are in? Two, if he is approaching his clients with this, is he having difficulty keeping his client base and urgently looking for another business to go into? Oh, by the way, I do not think that any compliance department in the country would allow an advisor to use his influence over his clients to engage them in another business that the advisor has an "upline" financial benefit in.

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Broker Targets Elderly and Retired in a $250mm Ponzi Scheme

By: Daniel Chen | September 29, 2009

This story just hit the news wires. The link http://www.fa-mag.com/fa-news/4513-broker-charged-in-massive-ponzi-scheme.html will take you to the complete article by, FA Magazine, a industry publication.
Read the article and see the lessons learned.

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Warning to Senior Consumers: Living Trust Scams

By: Daniel Chen | August 28, 2009

If you’re age 50 or older, you should take special care when buying living trusts. Your age group is often a special target of salespersons whose goal is to sell you something without carefully analyzing your needs.
It’s easy enough to become a victim. Living trust sales are a growing area of consumer fraud. Con artists make millions of dollars every year selling unnecessary trusts. Each year, thousands of consumers lose from $500 to $5,000 through the purchase of living trusts. Often, families face potentially greater costs after the consumer’s death, resulting from problems associated with the trusts.
To protect yourself, follow these guidelines:
1. Take time when making your decision. Do not fall victim to high-pressure “act immediately” sales tactics.
2. Seek the advice of someone trustworthy and knowledgeable. Contact your accountant, estate planning attorney, banker or financial advisor.
3. If you conclude that a trust may be right for you, deal directly with a licensed attorney who has substantial expertise in estate planning. If the attorney is board certified in estate planning and probate law, then he or she is presumed to have this expertise; though, he or she does not need to have this designation to be qualified to do your estate planning work.

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Insurance to Investment Scam

By: Daniel Chen | July 9, 2009

I recently attended a continuing education seminar for insurance and securities licensed representatives and happen to be sitting at a table with a group of insurance salesman turned investment advisor. During the CE session as well as lunch, a group of them from the same office happen to talk about their latest and very successful commission producing sales ploy. I asked a couple of questions and these individuals were more then happy to share with me how it goes, they were actually proud of it.

Basically this is how they go about it. The agent will approach their current clients to talk about the downturn in their assets and how it has affected their retirement funds. After they have stimulated the fear in these clients, the agent then proposes an investment option to help them regained their lost assets. The agent proposes that the client liquidate thier current cash value policies [the same ones that the agent sold them years ago when the client was younger, but now is not getting paid on any longer, because they were paid first year commissions upfront] and purchase a variable annuity with guarantee income benefits [so the agent can get paid again with upfront commissions] in order to supplement their income at the time of retirement.

The basic idea of using variable annuities with guarantee income riders as part of an income strategy is not the issue, it’s the fact that they now expose their clients to the risk of no death benefit for heirs as was the original intention that is absolutely irresponsible. Some agents however will address this by selling another life insurance policy but now at a higher rate while the agent makes new commissions again!

If your representative starts to suggest moving existing assets around be sure that they are actually adding value to the issue and not just generating more commissions at your cost.

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What You Should Know About Bad Advice and Sales Practice at the Cost of the Client’s Interest

By: Daniel Chen | June 3, 2009

Very Popular Sales Practice Results in Bad Advice at the Cost of the Clients interest!

When you meet with an Advisor, Broker, Financial Consultant, Investment Representative or however someone describes themselves, buyer beware!!

How some brokers hide bad advice!

The true intentions of a lot of these individuals is SALES, pure and simple!! In this brief article I am going to share with you two key indicators of when one of these individuals are actually trying to sell you a PRODUCT as opposed to ADVISING you on which solution makes the best sense for your situation. The fact of the matter is simply this. It is much more time consuming, complicated and requires a level of due diligence to fully understand and apply various financial solutions for different needs versus the single exercise of understanding one product and selling it’s benefits and track record as a all in one solution for anyone.

First Red Flag indicator of Bad Advice “GREED”;

A discussion framed around the points of how well a product has done over time, it’s safety, low risk but always produces a high return. This approach attempts to trigger your greed for profits with virtually no risk. If it’s too good to be true it probably is!

Second Red Flag Indicator of Bad Advice “ FEAR”;

A discussion framed around the fear that you will not achieve your goals unless you invest with me and the products I have available. I have access to these products and if you do not act soon you will fall further behind in your quest to achieve your important goals of a comfortable retirement, college funding or other financial needs.

Do yourself a favor and be on the lookout for these signs bad advice. You may want to consider a fee only planner to ascertain your situation before you consider reallocating your assets.

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Are Annuities the right solution?

By: Daniel Chen | May 14, 2009

This is one issue that is being raised more and more as investor’s lack of confidence in the markets become more apparent. Or is it because advisors are losing confidence in their traditional investment solutions? Most advisors have only experienced a bull market, as a result, there is this belief that markets will only go up, or, if they do go down, it will only be for a brief period [shape recoveries]. Look, the last 9 months have put us all on edge as well as second guess the investment strategies that we as advisors have offered our clients. However, as demanding as it has been there is no reason for us to hit the panic button and look for the simplest solution as an easy way out.

Now don’t get me wrong. I most definitely believe that there is a place for variable Annuities and all the great benefit riders that they offer, however the question is at what type of cost, limitations, and parameters versus the benefits that are being offered.

There are some very good benefits out there, and in this ever changing and unpredictable world we live in it is nice to have something that you can count on as a guarantee. I think the questions are, who is guaranteeing this, at what cost today versus the maximum cost they can charge in the future as well as the strength of the organization backing up that guarantee.

Right now I am experiencing too many advisors convincing their clients and prospects that this is the only solution. Instead, these advisors should be doing what they are paid to do. Offer clients a review of their financial plan to make adjustments today to reach their goals for tomorrow. Offer them a diversified solution of tactical versus strategic allocations along with the concept of absolute returns versus relative return discussions.

Lead our clients through these difficult times by clarifying the day to day events. [Lawmakers, regulatory body, fed policy activities] and how they are expected to work, instead of feeding into their fear. Given the internal cost of these contracts and the potential secular bear market we could be in, one could be on a treadmill of returns that will never get them any further then when they first started.

We as advisors are leaders. We need to walk investors through the process of what is going on today, provide ongoing solutions and give them options through education in order to instill the discipline that they alone do not have when it comes to this topic in their lives.

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