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It’s hunting season out there, and
unfortunately, you’re the target! The financial services industry is
on the hunt for your account and they know when you are most likely
to take their bait. Knowing when you are most vulnerable is the
first step in keeping you and your nest egg from being snared.
First, you are vulnerable to financial advisors when you retire and
get the biggest check of your life. Suddenly you’re faced with the
most important financial decision of your life. The security of your
golden years will be determined by your choice of advisor and
investment.
Advisors know how emotionally difficult this time in your life can
be. They also know it’s a chance to get their hands on $250,000,
$500,000, $1 million or more. Commission-based advisors, depending
on the investments they recommend, can ‘earn’ between $25,000 and
$50,000 by simply convincing you to invest $500,000. Now you know
why they are so serious about their hunting!
Advisors are taught the two ways to motivate investors to take
action are fear and greed. For those nearing or in retirement, fear
is used. They try to convince you that unless you buy their hot new
product, you could lose tens or hundreds of thousands of dollars and
you won’t have enough income to make it through your golden years.
Retirees feel surrounded by countless advisors, each wanting to bag
your hard-earned savings. Many retirees think the advisors they talk
to have the retiree’s best interest at heart. They don’t realize the
tremendous, hidden conflicts of interest in the advisors’
recommendations. In all of the confusion, it’s easy for an investor
to be overwhelmed and make a choice they will live to regret. I
don’t want this to happen to you!
The number one mistake retirees make is buying a high-commission
annuity product. You don’t see the commission, what you do face are
years and years of surrender penalties that can result in you
getting back less than you invested. The advisor makes money
regardless of whether you do and you are left holding the bag. And
forget about service after the sale—the advisor will have moved on
to bag the next trophy.
Secondly, you’re most vulnerable when those long surrender charges
or back-end loads expire. That’s when your money is once again up
for grabs. Here come the hunters again. They won’t help you mange
your money but they are meticulous about keeping track of when it is
up for grabs.
Advisors will bait you by explaining how their investment is better
than your existing one--but it is all just an attempt to get the
sale. If your existing penalty-free investment isn’t meeting your
needs, why step back into the frying pan by allowing yourself to be
talked into moving money to a different high-commission annuity
product? Don’t take their bait.
Third, you are vulnerable any time your money can be easily
transferred to a new investment. The commission advisors make by
taking clients from other advisors is second only to the money they
make bagging a retirement distribution. They are trained to make
your existing investments look bad so they can motivate you to make
a change.
This is why advisors sell products like annuities where they, in
effect, get paid 7-10 years worth of commission up-front. They have
the option of only receiving 1% per year (then the client doesn’t
have any surrender penalties), but what happens if another advisor
steals you away? Instead, they take the 6%-10% up-front commission
option. That way, they aren’t financially at risk if you choose
another advisor.
Any time an advisor is recommending an investment with a surrender
penalty, they are looking after their interests, not yours.
Commission-based advisors get paid to bag new money or reinvest old
money. Their working hours are spent uncovering the three times you
are financially most vulnerable.
Don’t be taken in by slick seminars and fear tactics. If you’re in
or near retirement, have money coming due, surrender penalties
ending, or you have investments that can be moved without fees, be
aware. The hunters are lurking. Don’t become their prey.
I love to answer reader’s questions. If you’d like free, unbiased
advice submit your questions to www.guardingyourwealth.com/askjeff.htm. Read
answers to questions other readers have asked on the Q&A page at
www.guardingyourwealth.com.
Mr. Voudrie is a Certified Financial Planner, nationally syndicated
newspaper columnist and President of Legacy Planning Group, Inc., a
Private Wealth Management Firm in Johnson City, TN. He can be
reached toll-free at 1-877-827-1463 or at jeff@guardingyourwealth.com.
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