YOU ARE GETTING BAD ADVICE

If there’s a common thread among nearly every person I talk to, it’s an unfortunate one:  People are getting bad financial advice.  No, TERRIBLE advice.  That is, if they’re getting advice at all.  Let’s be clear:  selling an annuity or insurance product only counts as “advice” in the context of my profession.  We do not call the guy selling you a car a “vehicle advisor”; the person giving the time-share presentation is not a “vacation property advisor”.  They are SELLING.  Which is fine – there’s nothing wrong with selling.

Unless you disguise a sales pitch as advice and the public doesn’t have the knowledge or understanding to tell the difference. 

I recently met with a 40-year-old couple who were on the verge of being sold (by a very aggressive salesman) an expensive long-term care policy.   Did they need the coverage?  When I asked this question, and the couple couldn’t easily answer, they started to see the problem.  There was no connection between their needs and the insurance they were about to buy.  Icing on the cake:  the salesman was pushing a variable annuity to accompany the insurance policy, in order to fund the premiums.  What were the fees?  What were the investment choices?  Nothing disclosed, save promises of rainbows, unicorns, and tax-free withdrawals.

Another couple, older, was sold variable annuities with total fees of 3.6% PER YEAR.  It took us hours to figure out the total costs, combing through the plan prospectus and adding everything up, after neither the annuity company nor the broker would tell them anything.

A couple with pre-teen children had their kids’ college savings in custodial accounts in the kids’ names.   Those assets count heavily against financial aid and become the unrestricted assets of the child at age 21.  Does this mean it’s the wrong choice?  Not necessarily, but the couple was unaware of the implications.

I could go on and on.  The couple with multiple rental properties, the properties in their names, and no commercial homeowner’s insurance – a liability disaster in the making.

The couple with their life savings in four stocks.

The woman with her life savings in ONE stock.

If I had to draw a single lesson from my experiences of the past year, it’s this:

You don’t know what you don’t know.

None of these people are stupid.  But none of them have expertise in the multiple areas of financial planning.  Why would they?  They are attorneys, teachers, and journalists.  I can’t draft my own contracts, create a lesson plan, or write long-form journalism.

The consequences of poor planning can be disastrous, in part because it’s only discovered once it’s too late.  The concentrated stock position isn’t a problem until the stock price plummets; the high fees aren’t noticeable until you reach retirement and you don’t have enough money; inadequate liability insurance isn’t a problem until you are faced with a financially ruinous lawsuit.

So in the case of financial planning, “if it ain’t broke, don’t fix it” doesn’t apply.   In all likelihood, there is plenty that is “broke,” or could at least use fine-tuning.  Most of us just don’t have the tools or knowledge to know what to look for.

 

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