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, too).
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.
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 almost 10 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.