My Visit with a Financial Advisor

Every couple of years, I am approached by someone who has recently become employed in the financial services industry.  This is usually a friend or former coworker, who is working through their warm market, looking for candidates to sell financial products.  This year, the approach seems to have evolved, because I was contacted via Facebook.  I immediately suspected this wasn’t just a friendly greeting.  But I hadn’t talked to this person for almost two years and I really wanted to call and say hello.

The Pitch

Rivkah - Model & Financial Advisor

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The pitch was relatively straightforward and predictable.  He wanted to review my finances with me to make sure I have all of my bases covered.  The company he works for offers products that may be useful to me and my family.  This isn’t something he could do over the phone, so we would have to meet either at my house or at his office.  To spare my wife the monotony of the sales presentation, I elected for the office visit.

But first, I went into great detail about the investments and insurance I currently have in place.  And, I took a fair amount of time to explain to my friend how they were less expensive and better yielding than the products he could offer me from his company.  After managing my portfolio for 25 years, I have no interest in buying whole life insurance or mutual funds with loads, redemption fees or 12b-1 expenses.

None of this discouraged him from his mission of setting an appointment.  I figured he was having a hard time finding clients.  Obviously, he was under a lot of pressure to bring people into the office.  Not to mention, he probably wasn’t making very much money.  So, I promised to stop by and he sounded relieved.  But, I warned him up-front that I wasn’t likely to buy anything.

The Visit

I drove 60 miles round-trip, paid $6.25 to park and spent an hour and a half at the presentation.  I was glad it was informal and low pressure.  Since my friend was new, his supervisor took over after the introduction.  His first words were, “Don’t worry; I’m not going to try and sell you anything.”  We both knew this was untrue, but I appreciated the low key approach.

I spent well over an hour answering questions.  I laid out all of my investments and the goals they supported.  Then, I went over all of my insurance policies and the risks they protected me from.  Finally, I explained my retirement strategy, including the targets I had set for myself.  I was hoping they would spot some holes in my financial plan and suggest some products that could fill in the gaps.  That would have made the trip worthwhile.

Unfortunately, they didn’t have any advice or products that were useful.  Their recommendation was to supplement my existing investments with a whole life policy.  This is after I told them I had $600K of life insurance.  It was obvious to me they were only interested in selling whole life insurance, no matter what my financial situation was.  So, I promised to look over the brochure with an open mind, but I told them it didn’t make sense for me.

The Lesson

The retail financial services industry is a rough and tumble world, both for customers and for advisors.  The deck is stacked in favor of poorly yielding products, because they carry the highest sales commissions.  So, customers will hear a lot about whole life insurance and variable annuities, even if these products aren’t the best fit for their needs.  And, advisors will have to follow the company program in order to survive in the industry.

In my opinion, the worst mistake you can possibly make as a novice investor is to wander into a financial advisor’s office, without knowing anything about investments.  I know, because I made this mistake 25 years ago and I wound up with a mutual fund with an 8.5% front-end load.  If you trust your financial future to an insurance company, you will probably wind up with an expensive life insurance policy, instead of an equity investment.

Obviously, financial advice isn’t free.  Financial advisors, office buildings and glossy brochures all cost a lot of money.  And, the investor gets to pay for all of this.  If you have a substantial amount of money to invest or your financial situation is complex, consider hiring a fee-based planner.  Otherwise, consider finding your own no-load index fund, sign up online and keep all of your money working for you.  The rest, you can easily learn as you go.

The Bottom Line

The bottom line is that you are the only one you can count on to serve your best interests.  And, the best way to do this is to learn about investments and control your own finances.  Putting someone else in charge when you don’t know what’s happening is like driving down the freeway blindfolded.

“Hazard not your wealth on a poor man’s advice.”

Don Juan Manuel– Duke of Peñafiel

Recommended Reading

This post was featured on the Carnival of Personal Finance over at Funny About Money. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

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18 comments to My Visit with a Financial Advisor

  • Thanks for sharing this story. I think a lot of us end up in financial products that aren’t suitable for us or are too expensive because we’re afraid to say no. You’ve shown us that you can say no, still be polite, and protect your savings.

    • Thanks for stopping by Balance Junkie.

      When I was writting this article, I was thinking that I need to start saying no to these presentations. But, I like to keep an open mind and evaluate all of my options. I have definitely learned how to keep from being pushed into buying things.

  • Ugh, whole life insurance is a crock.

    I once saw an article that said whole life insurance is a great investment – for the insurance agent! LOL

    It is an especially poor choice for young folks because they can typically purchase more insurance for less money by buying term insurance.


    Len Penzo dot Com
    Len Penzo recently posted..15 Organic Fruits -amp Veggies That Aren’t Worth Paying More ForMy Profile

    • Whole Life Insurance is designed to capture the maximum amount of revenue for insurance companies, while obscuring the high fees and costs from the consumer. The first year of payments are basically confiscated. Then, a small percentage starts to trickle into the cash value portion.

      The biggest crock is the death benefit is usually so small that it doesn’t provide adequate protection for loss of income. They were trying to sell me a policy with a $10K death benefit, saying more money would go into the cash value. I was thinking more money would go into their pockets.

  • Good story, although you can never (almost) make generalizations such as whole life insurance is bad. Actually, it’s outperformed S&P 500 index funds over the past 10 years. But the point is that individuals should know the basics themselves and use a financial advisor when they either 1) need the coaching to keep them on track, or 2) need an expert for more complicated topics like estate planning.

    • Sorry Financial Advisor, but your comment got caught in my Spam filter and I had to fish it out.

      I see a lot of comments and stories about how the S&P 500 Index had horrible returns over the past decade. This is factually true and accurate. However, the beginning of the decade was the market high of the dot-com bubble and the end of the decade was near the low of the sub-prime crisis. So, I don’t think this specific period is representatve of the S&P 500’s historical performance.

      I would be very interested in the published performance of whole life policies, after the fees and comissions. If you have this kind of information, please provide it my readers. The brochure I recevied didn’t provide any information regarding the performance or fees.

  • As of July 1 in Australia financial advisors are prohibited from recieving commisions both soft (presents,gifts) and hard (money). To prevent stuff like this from happening. They’ve also imposed a “best interest of the client” policy, so you can be tried if you do something that was good for you but bad for the client.
    Benjamin Bankruptcy recently posted..Budgeting apparently I need to do it-My Profile

    • Benjamin,

      I think this is an awesome law. Unfortunately, financial advisors have to deal with this conflict of interest in the U.S. If consumers had to directly pay for a fee-based advisor, I believe they would get a lot better advice and they would see it as valuable. But, banks and insurance companies are very powerful here and they still pull the strings.

  • I learned a lesson in recent years when I had a financial advisor help us with my 401k rollover when I left my corporate job. I just handed it over and took his recommendations. I like to use the excuse that I didn’t have time to deal with it, but when I made time I realized that I would have saved myself a whole lot of money had I researched what he was recommending. I could kick myself now that I feel locked in to b shares with high fees.
    Kristia@FamilyBalanceSheet recently posted..Summer Grilling Recipe ExchangeMy Profile

    • Ugh, B Class shares, aka Advisor Class. Well, Financial Advisors have to get paid and that’s how they do it. The good news is that you can roll-over out of these shares, after the redemption fee expires. If the fund is really bad, you may be better off eating the fee.

  • I am glad to see you writing about this. Too many of my friends and family refuse to believe that their financial advisor may have conflicts of interest. One member of my family was paying premium fees for what I considered generic advice, and was paying a lot of commissions as well due to frequent trading.

    Mutual funds can be dangerous as well. I saw a Bloomberg TV video which showed that mutual funds “pay to play,” meaning that they give kickbacks to companies who enroll employees in their retirement plans. These funds are often below-average performers that investors would never choose for themselves. They found that many 401(k) plans have punitive, hidden fees that can eat up half the balance over 30 years.

    • Jennifer,

      There is definitely a conflict of interest. People are trusting an advisor who has an incentive to recommend high-commission products. I think most financial advisors want to do what is right for their clients, but they have to sell fee-laden products to make a living. As for frequent trading (aka churning), it’s unacceptable.

      Many mutual funds have a 12b-1 fee for marketing purposes. This can be used for advertising and/or incentives (aka kickbacks). I consider a 12b-1 fee a red flag and I avoid funds that have them. Funds that perform well have money pouring in and often close to new investors. They don’t need to advertise or pay incentives, like the poorly performing funds. On average, the best performing funds are the ones with the lowest fees.

      • Hi Bret, I would like to see a lot better disclosure of fees. I think the Australian law Benjamin mentions would be awesome, but I’m not holding my breath. The status quo makes a lot of money for the financial industry.

        I agree with you that you need to dig deep for nasty fees and do your own research. That’s a good point that the best funds eventually close to new investors because they are so successful!
        Jennifer Barry recently posted..Lasso Your BudgetMy Profile

  • I like going to these presentations b/c I get a free meal. Same thing with those time share pitches! They throw in a lot of goodies, including free night stays sometimes!
    Financial Samurai recently posted..Senior Workers Outnumber Teenage Workers For The First TimeMy Profile

    • Sam,

      Not only didn’t I get a free meal, I spent my whole lunch hour at the presentation and didn’t get to eat at all.

      Next time, I think I’ll skip the whole thing and eat lunch with the money I would have spent for parking. Six bucks buys a pretty nice sandwich.

  • Good story. I haven’t talked to an advisor in a few years, but I pretty much got the same pitch. I did get lunch, but that was not expected when I agreed to meet. Besides, there’s no so such thing as a truly free lunch in these situations.

    Frankly, I felt a bit bad for the guy who tried to sell me insurance. Didn’t seem like a lot of fun for him.

    I totally agree with the spirit of your last paragraph. We are each individually responsible for ourselves, and our future – including learning about investments and personally being accountable for our own finances. Nobody will truly care more about your finances than you.
    Squirrelers recently posted..Home Equity Vanishes- Dead Fish AppearMy Profile

    • Wise Squirrel,

      While I was doing some research on this life insurance product (since the brochure had nothing useful), I ran across a forum thread about the company. There were a lot of former advisors who were saying the company went through salespeople like crazy. After an advisor went through all of their friends and family, they starved out on pure comission. Very few of the advisiors lasted more than a couple of months.

      I also felt bad for my friend, but I didn’t want to step on his dream. He’s been in a tough sales job before, so maybe he will make it.

  • […] that benefit their bottom line more than your portfolio. (Bret has a great post on his experience here.) Ask questions and decline anything that doesn’t make sense for your individual […]