GF¢ 029: 7 Financial Advisors I Would Like to Punch in the Face

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People who know me know I’m not a very violent guy.

I’ve never been in a fist fight in my entire life, I very seldom ever yell (except when the St. Louis Cardinals would blow a four run lead in the bottom of the ninth), and I cover my face with a pillow when there’s a confrontation on the TV (go ahead and laugh…my wife does).

In short, my personality type is one that is constantly smiling, and can be easily labeled as “Joe Cool”.

But, like any human being, there are some occurrences that get me really fired up.

One of the biggest things that gets me fired up? 

Financial advisors that lie, steal, and cheat.

7 Advisors I'd like to punch in the face

These are the people in my industry that give financial planning a bad name (Madoff anyone?),  and unfortunately they’re everywhere.

I’ve been in the business for over 12 years, and I’ve had countless run-ins with these types of advisors and despite my laid back personality, I would like nothing more than to punch them in the face, seriously.

I’ll share some financial advisor horror stories that other clients have shared with me, the lessons learned, and let’s just see if you would want to pull a Rocky Balboa on their face, too.

Disclaimer:  No Financial Advisors were actually harmed during the writing of this post.

1 The “12%” Advisor

A few years ago, I was competing for a client’s business. I was one of two other advisors who were being interviewed, and I gave my traditional spiel. It turns out that one of the guys I was up against had guaranteed to the potential client that he could make 12% in the stock market.

Now, keep in mind that this was not before 2008, and even if it was, it wouldn’t matter. The advisor was using basic mutual funds and still had the audacity to claim to my client that he could would net him a guaranteed 12% return.

I was in shock.

Luckily, the potential client saw right through the smoke and mirrors and didn’t choose him, and chose me instead.

Lesson learned: If you ever come across any type of advisor that guarantees you any rate of return, and isn’t quoting you a fixed annuity, a CD, or some type of insured bond – don’t fall for it. It’s too good to be true. Get out of their office fast.

2 The “Surrender Charge Conversation is Optional” Advisor

I once had a person come to me who was very disgruntled with their current financial advisor. They had lost more money than they’d wanted to and really didn’t understand what they had. When I had a chance to take a look at their mutual fund portfolio, I noticed that all they had were B-Share mutual funds.

For those of you that don’t know, B-Shares, for the most part, are now non-existent. Although I can’t be certain why, my hunch is that they aren’t around anymore because too many advisors abused.  If they could still sell them, the advisor could make a handsome commission, and the client would never know.

Now, it’s not the commission on the B-Share that makes them so bad, it’s the fact that most of them had a six to seven year surrender period. That means if you buy the fund, you’re going to have to hold it for at least six or seven years before you can liquidate it without a penalty.

The client in my office had no idea what a B-Share was, and most importantly had no idea that she had a surrender charge attached to it.  So here she is – stuck in investments that had lost more money for her than she had wanted, and she can’t do anything about it because if she did sell it, she’d have to pay a surrender charge on top of her losses.  Talk about a slap in the face.

Lesson learned: Read all the fine print and make sure you understand if your investment product has any type of surrender charge attached to it.

3 The “Telling the Truth is Optional” Advisor

Another time I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I had learned that he had purchased a fixed annuity at his local bank a couple years prior. Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple years prior.

My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge, and that they could take their money; principal and interest, and walk away at any time.

Why did they believe that, you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty.

Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.

Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table. Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away!

Lesson learned: Just because the advisor tells you something doesn’t necessarily mean it’s true. If something sounds too good to be true, ask for it in writing.

4 The “I Like to Churn”Advisor

And no, we’re not talking about churning butter. I was talking with another potential client who was considering switching advisors and although they lived in a small town in the Midwest, they had somehow started doing business with an advisor out of New York.

They had been with this person for several years, and had a hunch that things weren’t all what they seemed. They thought perhaps the advisor was selling funds and buying other funds just for the sake of earning a commission, and since I was the guy they were considering hiring, they were interested for me to take a look.

After reviewing their account statements and the trade confirmations, it was quickly and easily obvious that was what was being done. Sure enough, the advisor was selling A-Shares; another type of mutual fund, and turning right around and buying other B-Shares, sometimes it was the exact same fund. It made no sense other than the fact that the advisor made a commission on each of those trades.

Lesson learned: If you are using an advisor on a commission-based relationship, be on the lookout for an influx of unusual trade confirmations. If you see a lot of activity, it might be worth inquiring about.

5 The “I Can Use Anything, I Just Happen to Use My Own Company’s Mutual Fund”Advisor

I had just met with some folks that had recently moved in-state from the East coast. They were referred to me because they were unhappy with the advisor that they’d been with. The advisor had worked for one of those big insurance companies that also have their own proprietary mutual funds.

The advisor had always made the claim to them that he could use any type of investments that he wanted. What I found funny about that statement was when you actually looked at their account holdings, over 80% of all their investments were with that company’s mutual funds; their own proprietary product.

What was even more a bunch of crap, was the actual funds themselves were horrible. Their track records were bad, their fees were high, and their performance resembled that of a 16-year-old trying to make it in the NFL; it just wasn’t cutting it.

Lesson learned: If you’re using an advisor that works for a big company, be on the lookout if they always recommend their own company’s funds.

6 The “I Know You’re 80 and Should be in a CD, But Let’s Put You in a Risky Investment” Advisor

This is the type of advisor that deserves more than just a punch; maybe an eye gouge, a knee to the groin, or maybe even a “people’s elbow” from The Rock.

I had a client whose mother was doing business with another advisor a couple towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me.

When her mom brought in her account statements, I couldn’t believe what I saw. I had asked the daughter and the mother what the intent of their investments was and both agreed that safety of principal was a major concern. The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future.

When I hear an 80-year-old widow tell me that she’s worried about her principal, and she needs access to the money in a short amount of time, immediately I’m thinking CDs, money market, or savings account.

Well, not this advisor. No, this advisor put most of her money into different preferred stocks, and long term bonds.

One of the preferred stocks had a maturity date of 2040. Now, for those of you that don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond, so they can fluctuate like a stock, and pay interest like a bond.

Well, the time when the mother needed the money, interest rates were fluctuating and in just a few months time span she saw a 30% drop in principal on those preferred stocks.  When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time but that was of little comfort after taking such a huge hit on her money.

Lesson learned: If you think you need to access the money in your investments short term, don’t let an advisor con you into buying anything other than a CD.

7 The “My Products Don’t Have Fees” Advisor

This is the kind of guy that I don’t actually want to punch in the face, I’d rather just have a good chuckle with him. One time, I was competing with another advisor who was offering a fixed annuity as their only investment solution. They were a pure insurance agent, and apparently that was all he could offer.

When the client chose me as their advisor over the insurance agent, they were not happy, to say the least, and they were so disappointed in my client’s decision that they were compelled to tell them (in a condescending tone)  that their products had no fees, whereas mine did, and that they (my clients) were making a horrible decision.

No fees, huh? Well, yes, if you buy a fixed annuity that guaranteed you 3%, you do get 3%. For someone to use the argument that their products have no fees is ridiculous. There’s a fee for everything; there is no such thing as a free lunch.

Lesson learned: If your advisor tells you that their products have no fees, I would suggest you first prevent yourself from bursting in laughter.  Then kindly remove yourself and sprint out of their office.

Have you ever had a bad experience with a financial advisor that you wanted to punch in the face? Break out your boxing gloves and share in the comments below.

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Comments | 43 Responses

  1. says

    Great post on a terrible topic!

    My favorite advisers are the ones who don’t understand military pensions. They don’t understand how they’re calculated, that they have a COLA, how the Survivor Benefit Program is tied in, or what to do with the Thrift Savings Plan– but they still think that their military retiree needs a bond-heavy portfolio with a commercial annuity and another company’s life insurance.

    Unfortunately this adviser’s guarantees of “high income” and “no death taxes” tend to attract servicemembers who have ignored the basics of investing. Even worse, those retirees always tell me how happy they are and how well they’re being taken care of… for at least the first few years, anyway.

    • says

      @Nords I’m thinking you need to do a guest post and share some of your expertise on this… Sounds like you have plenty of run-ins with advisors that need a wicked left hook.

      • says

        @jeffrose I’m on it. I’ll send you an e-mail.

        P.S. I’ve sparred plenty of women in taekwondo. They kick really, really hard– and they punch pretty hard too…

  2. says

    My first financial adviser was one of those guys that get commission when he sold me mutual funds. All his funds were loaded fund and did not performed very well. After that I became a DIY investor. I probably should talk to a financial adviser again.

  3. bravenewlife says

    good article… but I was hoping for names. Suze Orman, Jim Cramer… I had the pitchfork and torch ready when I saw the title!

  4. Bucksome says

    I thought the same as bravenewlife, but wasn’t disappointed. This is a very good article that everyone should read before hiring a financial advisor.

  5. momoneymohouses says

    Great article, thanks for all the tips! Especially for someone like me just starting to look for a financial advisor, I’ll definitely keep all of these things in mind.

  6. says

    The sad thing is, there are plenty of advisors out there like the ones you mentioned above. I work for a wealth management firm and hear horror stories similar to yours. We once had a client who was thinking of leaving us and told us what their new advisor planned to do. They were going to sell out of all of her positions immediately and invest in her firms proprietary funds. We explained that not only a) those funds have extremely higher fees, but b) by selling out of everything immediately, our client is going to realize close to $75,000 in cap gains!!

    Once she realized this, she ended up staying with us.

  7. says

    I used to work in the business and have heard my share of the stories. These bad seeds only lowers the level of trust. A great must read for anyone looking for a financial advisor. Had to share it with my readers.

  8. mealplanrescue says

    Right after my mom died she had an adviser who pulled four out of the seven. Eventually she took over her own investments, and I’m pretty sure that’s the only reason she has anything left.

  9. JeffWeb says

    I’ve recently spoken with two advisors who violate rule #5. One was from a major brokerage, the other a major bank. Each (apparently these type of “advisors” follow the same playbook) suggested between 3 and 7 funds all run by their company without a single outside fund on their list. The first time I was insulted; the second time I ended the meeting immediately, as at that point I knew my best interests weren’t even remotely a factor.

  10. Taline says

    Jeff,

    This post cracked me up and took me back to my financial advisor days!

    I was told too many times that I was being “too honest” with my clients and I needed to stop or else they wouldn’t necessarily invest with me. Well, like the example you gave of the 80 year old being placed in high risk investments, there were some things my morals would not allow me to take part of.

    I did however watch other advisors that simply didn’t care about their clients or being transparent and although they made more money than me, I really hope that one day karma gets them!

    If I needed an advisor, I would hire you! I really wish more people were like us and not like most are!

  11. Lori says

    Just found out I was paying .75% advisory fee on my account and come to find out he had not done a trade on it in 2 years. I feel so taken advantage of and angry at myself for not paying closer attention. Now that I busted him and asked for my advisory fees back they of course will not comply. I’m going to file a complaint with FINRA, but who knows if anything will come of it.

  12. says

    What a great article! I am an elder law attorney and I have seen many of the same things that Jeff talks about here. Many of my clients chase income from their investments and fall into the traps that Jeff discusses here. It is difficult for seniors to figure out who to trust on this stuff. I learned a thing or two myself here because I work with financial advisors.

  13. John Advisor says

    This is a terrible article. Disclosing fees, etc to client is obviously important, but I feel like you are frustrated over competition.
    I would love to see you at 80 years old have your money in a .50% cd.
    Unless you absolutely needed that cd money to live on, why would anyone invest in a cd today. Just because you’re 80 doesn’t mean you have to stop being a smart investor.

    • Jeff Rose says

      @ John Advisor

      Did you even read the article?

      For any client (20 years to 100 years-old) that is concerned about safety of principal, why would they invest into anything other than a CD/savings account/money market, etc? (Fixed annuities could be another option). The client that I referenced didn’t need to make a high interest rate and was MORE concerned about losing what she had.

      I’m 34 years old and have over 12 months of our household expenses sitting in cash making absolutely nothing but it’s there for a reason – emergencies.

      I’m not frustrated over good financial advisors that take care of their clients. These are examples of financial advisors that solely had their best interest in mind.

      The 80 year-old client was advised to put her money in a “safe investment” that was down 30% when she needed to cash it in. Unless I’m missing something how is that “being a smart investor”.

    • Margaret Pelletier says

      John Advisor, You sound like the advisor I just dealt with. My husband is 84 and has had eight TIAs. I have Melanoma. We want our money NOT tied up in long term investments. My husband is one who planned ahead for retirement all the while he worked. My husband had shares that he was free to do what he wanted with. The advisor sold his shares and invested him into a seven year term annuity…Yup, B series. Even worst, because of his age, she had to put me as the sole owner.

  14. says

    Jeff,

    I loved this article. I worked for a big company for 17 years before I opened up oXYGen Financial. Most consumers don’t realize that large companies manufacture products that their representatives sell, but those products are named differently than the main branded name of the brokerage house, bank, or insurance company. What if you never knew that at Costco Kirkland was the ‘house’ brand or at Whole Foods that 365 was the house brand? Wouldn’t you be upset if you bought something that was sold by the house without knowing whether a) it was truly the best product or b) what kind of money the company was making on you? This goes on every day in our industry.

    I also encourage consumer to ask their financial advisor if they take ‘wholesaling money’. Many advisors in this business will offer a product to their clients solely based upon the fact that the product company is giving them ‘marketing money to do a seminar, client appreciation event, etc. So beware if you attend an event and their are product representatives their ‘supporting’ your advisors.

    Just some thoughts . . .

    Ted

  15. Mike says

    I think this speaks to a larger financial industry issue: the barrier to entry is too low. A lot of firms do not require specific educational credentials (those that do mostly state “min of BA/BA/BBA.”

    Unfortunately, someone can pass the series7 / 66 and call themselves a Financial Advisor.

    The reputation risk to the industry is overwhelming.

  16. says

    **Insert loud sighing noises** The industry just doesn’t do itself any favors. I’ve seen all of these “suspects” you illustrate Jeff and it drives me absolutely crazy. It’s also frustrating to read some of the absolute $#&@! posted on the internet touted as educated advice. Something many consumers don’t realize is an advisors regulatory history is public information and can be found at finra.org and/or sec.gov depending on the type of registrations they hold. It doesn’t generally take long for the complaints to catch up advisors offering self serving practices and you can find the details on those sites.

  17. says

    I think it all comes down to learning as much as you can regarding personal finance first. If you have no idea what you are doing then you are an easy target for people to take advantage of you. Like PT Barnum said “A sucker is born every minute.”

  18. Cathryn says

    Hello:
    I did have such an Advisor.

    My Advisor of 20 years retired and I went with the
    person who replaced him..
    As I came into Retirement shortly after, I was
    told I would have to pay additional money for
    a Tax Plan. Even though they could not answer
    basic tax questions of interest to my situation.
    When I asked how much they were making from
    the accounts already, the answer was ‘not much’.
    Normally, when you are going to extra bill a client,
    you disclose the income from the portfolio, show
    the work that has to be done, and therefore justify
    the additional charges.
    I had to push to have them send me a statement of
    how the Portfolio was performing. I only received
    a number. (later on the Trustee produced those
    statements for me – when I complained)
    I had Sun Life Shares that gave a 6% dividend income, that the CFP told me to sell, and when
    I asked why (give me data and the benefits of this),
    I never received anything. When I said if I sell
    my Sun Life Shares (from demutualization)
    I want to put it in something else producing 6%
    income. The CFP said “No one is doing well,
    I don’t know anyone who is getting 6%”
    These shares were valued at less than 1% of my
    total portfolio and she told me that this was
    a high risk of not enough diversification,
    and used a very forceful, bullying type of way
    against me for me to sell these shares.
    When I complained to the owner of the Firm,
    he said ‘This is just Margaret’s way of getting
    rid of a clients bits and pieces’
    I told him I would do the Tax Plan for our retirement
    myself, (which I can do) and then he said they
    would not charge me for the Tax Plan.
    This firm now mentions that they are ‘fee based’,
    they say they will not limit the time you take,
    to keep things on track either – that’s not their job.
    Then they say off-handedly, if you like, we can
    take care of your investments for you.
    Passing over the fact that these are Mutual Funds
    with Commissions and Trailer Fees.
    Anyway, I refused to go in for a meeting, because
    I was so mad I was livid. And the office bugs
    me countless times. “I have to go in”. And the
    Advisor says ‘In 20 years I have been in business,
    when I tell a client to come in, they come in’
    No-one has ever not come in..
    Well, I didn’t go in. I advised the Trustee to
    stop the Advisor from touching the accounts.
    The Retail Compliance Dept got in touch with me.
    It was all very upsetting to me. I was a bit
    traumatized by some other things – and I had no
    idea that such a situation could exist.
    I’ve been one year now with a new firm. It’s much
    better. It’s a difficult thing to change Advisors
    right at the point of moving into Retirement,
    but better now, than 10 years down the road,for sure.
    At the end of the day my instinct/intuition said to me “Do not sell your Sun Life Shares’ get rid of
    the Advisor.”
    Thank You for the opportunity. Going through
    that experience was like going through Hell.
    And it is much worse than I wrote.
    Cathryn.
    .

  19. says

    Never used a financial advisor yet and I’m not sure if I ever will (although I’m only 28 so that could change in the future). I realize investing takes some reading and learning but this is your money. It’s something you depend on everyday for survival and I would think that would be enough motivation for you to want to handle it yourself. With things like index funds, it’s not like you have to dedicate hours to researching individual companies.

  20. sacdfb says

    I’ve only met one FA in my lifetime that knew more about investments than I did (I’m non-registered and I’ve never met the author). Since FA’s are paid for AUM (Assets under management), they only care about placing your assets under their “care”. They only consider possible upside value capture in instrument selection and rarely consider downside risk protection. For example, there are hedged, high-yield bond funds that are available – the hedge only costs 150bps, that are a reasonable alternative to a low-yielding CD.The hedge is only necessary in a rising interest rate environment -but are they being considered? (maybe not for an octogenarian) I’ve worked in the industry and I am amazed how little ability (or effort) the FA’s reveal in equity or fund selection for their clients. Most, if not all funds recommended were ones from the Fund firms that sponsored FA activities. The equity choices are always ones that just finished their big run-up. Yes, disclosures galore, but most clients ignore.
    AAII or IBD offers much more for the DIY investor for much less than the 1.5% most FA’s really cost.

  21. says

    Thanks for putting this together Jeff

    It’s frustrating to think that someone can good to a so called professional because they need help and end up with someone who’s agenda is to help themselves

    I’ll share this article with my audience.

    Take care Jeff

  22. Jim says

    I am a fee only advisor. 32 years Use mainly index funds and ETFs. Have seen all of the above so many times. Some how there are so many advisors that simply fool themselves into believing they are doing the right thing. It almost always involves high commissions, high internal expenses and undisclosed surrender charges.

  23. says

    I agree. You should not listen to any of their advice.

    Before I read it, I was expecting that your going to drop names, but still, a great article man!

  24. says

    I think I would want to punch some of these guys in the face too! It sounds like, although you may have had some bad experiences, you actually learned a lot from these characters. That’s certainly worth something, even if it did cost you some.

    • Will says

      I am have been an advisor for only a short period of time. One thing that seems to be a problem to me is advisors being feast or famine. Lucky for me I am paid a nice base salary plus a reduced commission. I am driven and have been successful. The need for money however does not cloud my judgment when it is time to walk away or when the client’s situation warrants no sale.

  25. says

    The 12% advisors drive me crazy as well. Dave Ramsey claims we should expect 12% returns, and then typically promotes his Endorsed Local Providers as a way to achieve it. His big claim is that the S&P 500 has returned 12% since 1926. Never mind that he uses annual average returns rather than annualized returns.

  26. Ryan says

    Good post. Don’t forget about the “Once we move your accounts and invest the money you will never hear from us” advisor.

  27. says

    Great article. I’ve never had a financial advisor – maybe that’s why I wasn’t so good with finances – but I will need one some day. I’ll try to keep these in mind when choosing one.

  28. Emma M says

    The only experience I had with a financial advisor was when I purchased my first home and he told me what I HAD to have, which happened to be an Endowment policy, five minutes before the UK realized they were ridiculous. He also secured us a mortgage at 2% higher than any mortgage we found over the following months. So for the first 5 years, we paid over the odds on the interest only, with an endowment policy that was never going to cover us.
    I spent the 10 years after the initial 5, overpaying and clawing back those “unpaid” five years, which I almost have now.
    I do my own research now and the faces on some advisors, they look petrified when the bumf they spew gets an educated answer back.

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