Have you watched the award-winning TV drama “The Good Wife” that revolves around a scandalized politician and his humiliated wife who leaves her comfortable suburban lifestyle to resume her legal career in order to take care of her family? The couple eventually sells the property as part of the divorce but in a plot twist later end up vying for buying the home again against each other when it comes back on the market. There’s the struggle of trying to arrange financing with not enough income or money for the down payment and the intra-family power struggle with the moneyed mother-in-law who is also trying to buy the home. There are the emotions of watching their kids growing up in the home mixed with the pain of the scandal and divorce. Continue reading →
Bad advice is tough to recognize because it is designed to look like good advice.
1. The products produce inferior performance compared to other products that invest in the same asset classes.
2. Inferior performance is coupled with excessive risk compared to similar products.
3. The product charges higher fees than other products with similar objectives and risk exposure.
4. Financial advisors want you to make investment decisions based on relationships and sales claims.
5. There are no easy to read and understand disclosures for performance, risk, expense, and investment principles.
One key difference is bad financial advice is legal. Investment scams, such as Ponzi schemes, are illegal. There is no way regulatory agencies can mandate high quality financial advice that is always in the best interests of investors. In fact, regulations that impact the quality of financial advice are non-existent.
Bad advice means your assets under-perform compared to good advice that produces higher returns. If you are unfortunate enough to invest in scam, there is a high probability your assets will disappear.
Bad advice is impacted by the risk associated with investing in the securities markets. Most scams do not invest assets they steal assets. Therefore, your risk is not the securities markets, it is the products and the company that produced and sold the products to you.
I’m fascinated with the advertising messages of money managers who want people to believe they produce exceptional results for their clients.
Unfortunately, no money management firm can make that claim so they resort to marketing messages that convey exceptional results without saying they actually produce those results.
One of my favorites is Franklin Templeton’s message that it has been able to “achieve great heights”. If heights are results then they must be doing a great job for their clients. Why don’t they come out and say that then document the claim with GIPS compliant, audited track records?
I say “absolutely not” if the agent’s primary business is selling auto, home, or health insurance. It is a different story if the agent’s main business is selling variable annuities and other investment products inside insurance contracts. Even then you should be questioning the agent’s experience, registrations, and certifications.
You might be asking, “Why do auto insurance agents sell investment products?”
Because they work for greedy insurance companies who are run by executives who put their companies need for profit way ahead of their customers’ need for competent financial advice.
Visualize this! A group of executives are sitting around a conference table one day and one of them says “Our biggest asset is our three million customers. What else can we sell them that will generate new revenue streams for the company? This new business will have great profit margins because we already have the distribution system in place?”
The executives all nod their heads in agreement. New revenue streams mean increased profits and increased profits mean bigger bonuses. As usual, customers are just a means to an end.
Don’t kid yourself! This is how all of the big casualty insurance companies got into the financial services business. They decided to leverage their customer relationships by cross-selling additional products. Apparently mutual fund products and car insurance products have a lot in common.
You may like your car insurance agent, but that does not mean he is qualified to recommend investment products – in particular for assets you are accumulating for retirement.
This type of action continues to show all of us that the responsibility of qualifying a competent and trusted Advisor to work with still resides with the individual. The investor needs to educate themselves on how to decide on what type of advisor to work with. Investors need to ask questions, review certifications, review investment philosphies and more. Investors need to advocate for themselves today more then ever as demonstrated in this article. These type of criminals believe that if you work for a big brand name that is supposedly trusted, then no one will ever ask questions that may uncover thier fraudulant activities.
Copy and paste to a new browser;
You have read hundreds of stories describing Ponzi schemes and other illegal investment scams. But, investor losses from those scams are a drop in the bucket compared to legal investment scams.
Legal scams are perpetrated by unscrupulous, licensed advisors who deliberately sell bad investment products that benefit them or their companies. An example of a bad product is a mutual fund with a really bad track record. Why did the advisor sell this fund? Because it is owned by the company that holds his licenses. This is a common strategy of banks, insurance companies and others that produce inferior investment products, but require their representatives to sell them. Companies make more money at your expense.
The other scam occurs when advisors make more money. The crummier the product the higher the commission that is paid to sell the product. Unethical advisors sell the products that pay the highest commissions. For example, most annuities pay 5-7% commissions with a seven year penalty for early withdrawal. However, there are annuities that pay 15% commissions and have 15 year penalty periods. A very, very bad deal for consumers.
You are in real trouble if you are unlucky enough to like or trust an unethical advisor. That’s because your returns will be eroded by excess fees and your performance will be lackluster. You should always interview multiple advisors and compare their recommendations to each other. Then hope one of them is ethical and puts your financial interests first. You should also select an advisor who gives you freedom of choice and does not limit your choices to company products.
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.
Roth received a letter in the mail from SLD Industries, informing him that he was named the recipient of this “prestigious” award. Instead of throwing the fictitious offer away, he decided to have some fun. So he sent in the form to receive a beautiful yet phony plaque and named Max the beneficiary.
What started out to be an attempt to have a little fun has shown that an award given to a financial planner without any legitimate selection or rigorous examination process is misleading investors. It proves not all “honors” or credentials are what they claim to be. Many are nothing more than fluff.
If you see one of these phony certifications in your financial adviser’s office you may want to leave immediately and give Max a call. I heard in 2008 Max made $99.3 billion more than the brilliant financial minds at AIG, and he costs a lot less.