Category Archives: Bad Financial Advice

Your biggest financial risk is not the stock market. It is bad advice when you invest in the stock market. Bad advice causes you earn less in rising markets and lose more in falling markets.

Top 5 Financial Mistakes of Divorce in Boston, Massachusetts

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1. REAL ESTATE – KEEPING THE HOUSE

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 →

What are 5 Red Flags for Bad Investment Products?

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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.

How is Bad Advice Different Than a Scam?

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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.

Money Managers’ Creative Advertising Messages

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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?

Should Insurance Agents Sell Investment Products?

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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.

Buyer beware!

What are Legal Investment Scams?

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Everyone has read about illegal Ponzi schemes and Wall Street’s fraudulent investment scams that have resulted in major fines to companies.

What you don’t read about are legal investment scams that impact millions of investors. Following are examples of frequent abuses.

Definition: Legal scams benefit the advisor or the advisor’s company more than they benefit you.

Advisors sell inferior investment products because they pay bigger commissions.

Advisors sell company products so they can continue receiving subsidized health insurance.

Advisors tell you they are investment experts when they are new to the industry.

Advisors recommend equity investments that exceed your tolerance for risk because they produce bigger fees and pay higher commissions.

Advisors require you to sign one-sided service agreements.

Advisors recommend a variable, tax-deferred annuity investment for your tax-deferred IRA assets because the commissions are higher.

Advisor do not provide a performance report so you do not know how your assets are performing on an absolute and relative bases.

How can you protect your assets and future financial security from these legal scams? Use the free tools and services on the Investor Watchdog website.

Advisor Admits Fraud-Employed at a Trusted Wall Street Firm!!

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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;
Enjoy!!!

http://www.app.com/article/20100218/NEWS/100218072/1401/Former-financial-adviser-admits-scamming-investors-out-of-more-than-685-000

Legal Investment Scams

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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.

Insurance to Investment Scam

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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.

Max Tailwager: America’s Top Financial Planner

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Allan Roth, author of How a Second Grader Beats Wall Street, is the proud owner of Max Tailwager, a dachshund puppy and a 2009 recipient of the America’s Top Financial Planners award bestowed by the Consumers’ Research Council of America.

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.