This is a story about Mary and John Smith, who became a client this year after undergoing the horror of searching for a financial advisor. They wanted to retire soon but they had to make a lot of difficult decisions.
Mary and John both had pensions from work and wanted to optimize social security to get the most out of them. They were confusing and involved decisions about survivorship whether to take a lump sum or annuitize.
They also wanted to convert their savings into income so they could live a comfortable retirement.
Mary had received numerous invitations to come to dinner and learn how to get rid of risk. The invitations talked about “risk-free” and “green money.” Mary was intrigued so took John to two seminars.
At the dinner seminars Mary had to endure annuity sales pitches. The “financial advisors” at the seminars had all kinds of fancy titles. Not in a hurry, she did some research.
Before Mary contacted me, she had already interviewed four other firms. Every one of these firms recommended investing in some kind of annuity. One firm recommended a combination of equity indexed annuities and immediate annuities. Another firm suggested she roll her pension over into a variable annuity.
Worst of all, another firm (calling themselves ‘fee based”) recommended indexed annuities. Mary thought it sounded like a great idea because she could “never lose any money.”
Luckily for Mary, she contacted me so I could tell her why these insurance products were all recommended to her.
The education process began. Equity index annuities were created in the mid-1990s to give the return of a Certificate of Deposit. Because they are so profitable for insurance companies, they pay enormous commissions, often over 10%. So, if Mary put $100,000 into an index annuity, the insurance salesman would get $10,000. And after ten days (when the free look period expired) and she couldn’t get out of the annuity, he would have no ongoing duty to help her with the annuity.
I also explained her how variable annuities work. The commissions aren't as bad, usually 7%, but the fees will eat you alive. I showed her how the fees easily add up to over 3% p.a. 1.25% for the “Mortality and Expense, another 1.5% or so for fund fees (of which almost 0.6% is extra pay to play money) and then the riders for other benefits she didn’t really need. We figured out what she needed after we had a good understanding of her attitude toward risk.
I also showed her that she could theoretically get the “upside of the stock market” but that the caps and other restrictions were so hard to meet, it wasn’t very likely. Remember this annuity was designed to give a CD like return. Profitable for the insurance company, not so much for the person buying it.
Finally, I gave her an education on the difference between financial advisors. Nearly all financial advisors call themselves “fee-based.” But all it means is that they can (can, can) be compensated with fees. But they can also be compensated in many other ways including insurance commissions and sales incentives to line the pockets of their bosses at the publicly traded banks and insurance companies (in particular). Since I have a Certified Financial Planner™ (CFP®) designation, we get held to a very strict standard. The CFP board’s definition of Fee-only:
“A certificant may describe his or her practice as “fee-only” if, and only if, all of the certificant’s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees.”
After this education Mary and John agreed they didn’t need to false protection these insurance products offered. I could even show her how doing so would likely cause them to have less money for retirement.
We need your Help.
Investors, like Mary and John are literally starving for financial advice. Yes, literally. The wrong advice could cause them to run out of money.
Mary was smart. Before hiring an advisor she did an internet search and found us. Someone had told her to look for a “fiduciary financial advisor” because they knew the importance of hiring an advisor who would put her interests first.
Unfortunately, most investors aren’t that smart. Everyone loves a free meal. What can it hurt?
At Global View we give potential clients a free look into Global View. This gives them the opportunity to learn who we are and how we work with our clients. Setting the Path is our initial two meeting planning process for a small flat fee of $485. If a client decides to become an investment client with a certain level of investment assets 100% of this fee is rebated.
Don’t Be Fearful! Gain an Understanding of Your Options.
Take First step – Find a Fee-Only Advisor required by law to put your interests first!
If you have any questions you can contact us at (864) 272-0820 or joe@globalviewinv.com