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 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.
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 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
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