Buyer Beware
I relish in opportunities to be a "big kid." Halloween time is the perfect example of just that. When else can you put on your favorite costume, use a whole can of hair spray to spike your colored hair like a rock star or don a Chewbacca mask? My kids love seeing their dad act unlike his usual self.... It's the perfect time to pretend to be someone (or something) else. You don't always know who is under that costume. You know I had to include a picture of Chewbacca....
Beware... of the Financial Salesman
Costumes are also worn in the professional world of finance. Have you ever been sold something to later wonder what did you just buy? One of my favorite warnings for people is about "the financial salesman" (or saleswoman). Beware, they can be scary. Often they look, act and even say the same things as an advisor but there are some major differences. Unlike a trusted financial advisor who should always seek your interests first, a salesman is usually controlled by a large corporation or investment firm that may encourage them to sell certain products by linking the sales of these products with compensation. Thus many consider what benefits them first, before the client. Many so-called "advisors" have worked this way their entire career, finding it difficult to change. Today, at some firms similar training still continues of their employees, even if it is more discreet. If a product is bought with them, a large commission is deposited to them and then there may be little ongoing incentive to advise that client.
Unfortunately Common
It is common to meet new people seeking an honest 2nd opinion after they have already bought a product. Many of them were sold a product by a salesman which they really didn't understand and many find that the product was not really appropriate for them. When this occurs, typically I find the products sold to them are annuities and/or various life insurance policies. Don't get me wrong, not all of these products are bad and they definitely have their appropriate uses. Annuities can be a good option for certain people, but it deeply depends on the guarantees offered as well as other benefits, risks, and the overall suitability of the product for the client. Historically, there have been some good products in the past but I haven't really found many compelling benefit concepts since 2008. However, if I found a good guarantee offer I would consider it for a portion of a client's financial plan. Some newer products have very complex intra-workings for the average person to understand. "If you can't sell them, confuse them" -into buying comes to mind. Many annuities have very high annual expenses, limited investment options to choose from and they can carry significant surrender charges if you want to surrender early. Here exposes a huge difference between the advisor and the salesman. These types of products can often pay big commissions and this may lead a salesman to sell a product to many individuals for whom it may not be appropriate. While a trustworthy advisor considers the big picture and provides all reasonable options with the pros and cons of each, followed by a recommendation for what is best for the client's goals.
A compelling and fair way for clients to work with a financial advisor is with a trusted advisor who is both independent and offers a fee based arrangement.* This is so whatever investment or product is used, the advisor is not compensated by a commission on the sale of a product, but rather with a fee that is charged based upon a percentage of assets managed and also importantly is not required to sell proprietary products since they are independent.
Be In the Know
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Always make sure you ask and understand how an individual is being compensated (this holds true in any industry for that matter).
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If a product does seem appealing, always make sure you understand what you are being asked to buy and why you need it in your overall financial plan.
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Make sure you know who may or may not influence an advisor's recommendations.
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Ask for help in the form of a 2nd opinion before you buy and even after. Currently some insurance companies are offering contract updates to allow them to avoid paying certain benefits.
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Consider working with an independent, fee based advisor.
Luke Fields, CFP®
*Advisory fees are in addition to the internal expenses charged by mutual funds and other investment securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm's Form ADV Part 2A as well as the client agreement. Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. Guarantees are based upon the claims-paying ability of the issuing insurance company.
About Stewardship Cents
Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it. Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have. Stewardship is a belief of responsible overseeing and protecting of important resources.
Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981. A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses. He resides in Columbus, OH with his high school sweetheart, Beth and their three children. Luke is an active member of his church, serving in leadership and finances.
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You can always reach him with comments or questions at: luke.fields@raymondjames.com.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC
