Baby Boomers, Financial Planning

This Type Of Thing Happens All The Time

“Now, this type of thing, happens all the time…”

-Snoop Doggy Dogg

In “Gin and Juice”, Snoop Dogg breaks down everyday life in the LBC (Long Beach City) and while the life of a financial advisor is not near as wild as that of a young Snoop Dogg, there’s plenty of drama in the FPC (Financial Planning Community)…

The Drama

I recently spoke with a prospective client who had just retired and was looking for a financial advisor to help her with evaluating pension options, consolidating and managing her assets, and creating a retirement income strategy. Prior to connecting with me, she had met with two financial advisors. The first, Advisor 1, was referred to her by people she trusted–a friend and her attorney. The second, Advisor 2, was introduced to her by a bank employee while opening a new account at her local branch.

Here’s what went down:

Advisor 1

  • Referred to her by two people she trusted; each made the referral independent from the other.
  • Held multiple meetings and delivered a financial plan supporting his recommendations.
  • Recommendation consisted of:
    • Taking a partial lump sum distribution of her pension and keeping the remainder in the pension system to collect as a traditional pension.
    • Retirement assets consolidated in an IRA consisting of mutual funds and ETFs managed under the AUM model.
    • A plan to delay Social Security as long as possible to receive a higher lifetime benefit.
    • Semi-annual reviews for ongoing monitoring and updating of her plan.

Advisor 2

  • Introduced by bank employee when opening a new account; did not go into the bank with the goal of talking to a financial advisor.
  • Recommendation consisted of:
    • Taking full lump sum distribution of pension and consolidating with other assets.
    • Putting 100% of investable assets in a variable annuity.
    • VA “sold” using a guarantee of lifetime income.
    • In addition to income guarantee, it was also guaranteed to do better than the S&P 500.

Note: Having a conversation with someone not in the financial services industry about recommendations can be like a game of telephone. The details described were her best attempt to convey what she was presented; even if some of the details are a little off, I think the difference between the two advisors is obvious.

As I listened to her tell me about her different conversations, red flags about Advisor 2 were flying high–I assumed she saw them too; I anticipated her to admit that she wasn’t sure about the recommendation from the second advisor. Surely it was obvious that Advisor 2 was no advisor, but a salesperson instead. Much to my surprise, when I asked her who she felt most comfortable with she said she was leaning toward Advisor 2. The guarantee of a retirement income, the ability to know she would do better than the market, the simplicity of having everything in one account, and the uncertainty of her former employer to make pension payments (this uncertainty was planted by the advisor–from what I can tell, there is no reason to believe this would occur) were the reasons she shared for thinking about working with Advisor 2.


At that moment, I was no longer concerned about telling her how I could help and possibly be the right advisor for her. Instead, my focus shifted toward protecting this newly retired individual from making a tremendous financial mistake at the onset of her retirement–one that could have grave consequences.

I ran through a checklist of important factors I thought she needed to know and understand; I wanted to get a better idea of what she was told:

  • What was the surrender period? (She knew it was 5 years)
  • What was the free withdrawal amount? (She knew it was 10% a year)
  • What happens if you take more than the guaranteed annual income? (She did not know)
  • How did they calculate the guaranteed annual income? (She did not know)
  • How did she feel having all of her money tied up in the investment? (She hadn’t thought about it)
  • Did she realize the variable annuity was still going to be invested and that the guarantee probably did not apply to her account balance if she ever moved the account? (I lost her with this)
  • How much would she be paying in fees to the insurance company? (She did not know)
  • How was the advisor compensated and did she understand how much he stood to make with this investment sale? (She did not know either)

In addition to these questions, I also asked her how she felt about not receiving a plan or any recommendations regarding her Social Security strategy. My goal was not to make her feel bad for feeling more comfortable with Advisor 2; after all, that is why his recommendation was presented the way it was–to take advantage of her natural aversion to risk. We’ve talked about the psychology of money numerous times on this blog, and the majority of investments SOLD are sold preying on our human instinct of loss aversion.

I wanted her to realize that it did not seem Advisor 2 had her interests at the center of his recommendation.

Our conversation continued with an explanation that my recommendations would probably fall more in line with the first advisor; I wanted to shift her thinking more along the line of Advisor 1 because it appeared to me he was acting in the capacity of a fiduciary. After all, he had put together a plan, analyzed her pension and came up with a split to give her some guaranteed income, but also retain flexibility in her plan by consolidating her assets in a diversified portfolio. In his recommendation he left money on the table for himself by not recommending a total rollover of her pension to the IRA he would be managing for a fee.

I ended the call stressing that I thought she would better off looking for an advisor like Advisor 1; there may have been more to the story why she didn’t originally feel comfortable with him, and I told her I did not think she should work with someone if it did not feel right.

On the other hand, I had concerns about Advisor 2. From the information she shared with me, it sounded like he was more of a salesperson. I did not have confidence in his recommendation–it was not something I would want to see my mother do. In addition to the recommendation being questionable, I also had concerns over the longevity of the relationship she would have with him. It’s been my experience, banks tend to have a lot of turnover, especially at the branch level and who knew if the advisor would be there to help her in the future.

Our call ended on a high note as I felt as if I opened her eyes about the recommendations she received, the different types of advisors she had met with, and what type of advisor she deserved to help her through retirement. I have not heard back from her, which is ok. I think I would have enjoyed working with her, but the focus of the call shifted away from what I could do for her to helping educate her on what to look for and expect from a financial advisor.

I hope I was able to steer her in the right direction.

Why Share This?

I share this story because situations like this do happen every day. Every day innocent investors walk into banks, sit down with “advisors” or attend seminars (speaking of seminars, I have a good post coming on those) and get taken advantage of by mis-incentivized salespeople and corporations driven by profits over principles. My hope is by sharing stories like this investors begin to see behaviors, terminology, and sales antics that should trigger an alarm to go off signaling that what is being presented is probably not best for them.

If you find yourself in a situation where the recommendation is all-or-nothing, no analysis has been done to determine a recommendation, or a lot of guarantees are being promised, do yourself a favor and get a second opinion. It might just save you a lot of money, grief, and your future.

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.

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