Taking a different approach to this post, I wanted to incorporate a story from a client. Unlike the babysitter discovering the killer is actually upstairs, this is not an urban legend. The story you are about to hear is true; the names have been changed to protect the innocent. (Cue Law & Order sound effect).
This situation is a prime example of sales practices that exist today and why you need to have awareness of not only whom you’re speaking with, but of what is being suggested to you. If advice is all you seek, everyone has an opinion and is more than willing to give it to you. It’s up to you to be able to filter which advice is bad and which is good, or at least know when to get a second opinion from a qualified source. Let’s call it Financial Literacy.
My clients were diligently saving and accumulating retirement resources to meet their goals. They were expecting to work until full social security benefits were available to them, approximately seven more years. Understanding they were entering a critical time in their retirement savings, they sought additional advice and expertise from what they were already receiving.
So where did they go? There are firms that solicit clients online. They offer free “Stock Market Outlook Reports” at no cost and no obligation (of course). There’s really nothing fishy here so far, there were no commitments made, just aggressive marketing. It’s what one of these firms told my client when they finally got him on the phone that made my head spin.
Once on the phone, they lobbied my client to move all of his assets to the firm; IRA’s, annuities, savings accounts, mattress cash. Everything. They would then invest 100% of his assets into the stock market all but guaranteeing him returns of at least 10% a year. The transactions would have caused early withdrawal penalties to be levied against him and created potential tax liabilities. For this, they offered to reimburse him.
Investing 100% of ones investments into the stock market may not be prudent risk management so close to retirement, suggesting they could guarantee returns of 10% in the market violates industry regulations, and offering to reimburse his penalties and tax liabilities is an extremely questionable practice. Hopefully all of you, like my client, would see something wrong with the bill of goods being sold here. (If you don’t, I know this great bridge in Brooklyn for sale.)
In most cases, people are honest and trying to help, but you always need to be aware that the truth can be stretched. There are no magic bullets, and while the firm above may have been able to outperform any other alternative as they boasted, they also may not have, and they definitively were exposing the client to unnecessary risk along the way. When it comes time to plan for retirement, managing risk is what’s important, not sending your hard earned savings to whomever promises you the biggest return. Keep this in mind and you’ll be on a better path.
Noah is a Certified Financial Planner™ and writes on Patch for the promotion of financial literacy and awareness -- a topic in which he believes an informational void exists. He makes himself available by appointment, telephone, or email to all readers and can be reached at 203-204-6226 or noah@myblueprint.co
Noah Schwartz is a Registered Representative and Investment Advisor Representative of and offers securities and advisory services through WRP Investments, Inc., member FINRA & SIPC. Blueprint Financial Strategies is not affiliated with WRP Investments, Inc. Securities and advisory services are supervised by WRP Investments, Inc. at 4407 Belmont Avenue, Youngstown, OH 44505 (330) 759-2023.
