Making The Wrong Investments

I can’t stand to see people getting taken advantage of.  I think that I one of the reasons that I decided to stay in insurance and finance even after the market crash of 2008 when it became really hard to make money but you got to see first hand the financial concerns people are exposed to if they are “Ill advised” and there is a downturn in the market.

I few months ago I had an appointment to go through someones health insurance to see if I could save them money.  The first appointment went great and I was very excited to see what I could do for her and her husband.  She mentioned that her mother was a registered representative and that she sold stocks. One of my goals is to make dealing with insurance and finance as transparent as possible.  So I asked her if she would like to bring her mother along on our next appointment and she agreed.

I arrived at Starbucks and her mother was there first and immediately started giving me the third degree; like who I have worked for, who I was contracted with and so forth which is fine.  I am used to that.  But then she asked me if I sold annuities and I said yes.  She said what kind.  I probably should have gotten into how I love the new hybrid annuities that allow you to participate with gains in the market without the risk of loss to accumulate money that would provide the client with an increasing income for life, but instead I just said “I sell all of them except variable annuities.  Her mother explained that she loved selling variable annuities especially to old people.  She said that the selling point was that with the variable annuity if you didn’t use it all, it passed directly to you heirs and the death benefit was tax free and the money bypassed probate (all annuities work like that).  But here is the thing.  Variable annuities are a high risk investment and have expensive management fees so registered representatives like to sell them because they are paid to manage them.

Here is the problem…a variable annuity is not something meant for an older person who is either in retirement or about to retire because you are exposed to market risk and the fees are very high.  Than means if there is a downturn in the market the variable annuity loses principal and if the annuity is being used to provide an income in retirement, your income can be decreased by as much as 40 to 60%.  So I asked her if her clients ever worried about losing money.   She said she when there is a downturn in the market and they lose their money she just tells them “You got hit by a bus” and that it was typical and there was nothing you could really do about it.  If she would have initially asked her client what her risk tolerance was, she may have told the adviser that she didn’t want her principal exposed to market risk. But  I got the feeling that this woman was very good at avoiding and rolling over her clients questions so she could sell her clients whatever she wanted to sell them.  Had the woman known better (client) she would have known that there are other types of annuities that have most of the same benefits that make an annuity attractive but there are safer ones with less fees more suited to someone who is retired or about to retire.  But that is an insurance product and she couldn’t get paid on it so she influenced the women to make a financial decision that was not entirely in her best interest.

All I could think of was that if that woman only knew what her options were and purchased a hybrid annuity, when the market tanked not only would she not lose money, but she would be able to take advantage of dollar cost averaging once the market started going up again and actually have her income INCREASE instead of getting hit by a bus and losing half her income.

That is why it is more important than ever to work with someone you can trust who is going to ask you the right questions as opposed to selling you the flavor of the month stock that they make the most money on.

This may sound kinda corny but that is why I am so passionate about providing people the the information and resources that will allow them to make financial decisions that are in their own best interest.

If you or any one of your family members has questions about their current financial strategy, please feel free to give me a call to go over your planning and make sure it is best suited to navigate the financial landscape of the 21st century and is in YOUR best interest.

With the plans and strategies available today, there is never any reason to expose yourself to getting “hit by a bus” provided you don’t play in traffic.


Leave a Reply

Your email address will not be published. Required fields are marked *