I was surprised when the client called me shortly after I sent the email. The client instructed that he did not wish to have his assets immediately liquidated. This was opposite the instructions I had received via fax. It also quickly became clear that the client was interested in my opinion of the annuity he was considering and was anxious to examine any analysis on the product I could provide. At this point, it became evident that the financial advisor who was selling the annuity to the client had written the letter I had received, and that the communication didn’t represent the wishes of the client. My belief is that the advisor had painted an unrealistically positive analysis of the product he was recommending and was attempting to ensure the client didn’t have the opportunity to get an unbiased opinion of the annuity. STRIKE ONE for the advisor.
After my conversation with the client, I typed the name of the financial advisor promoting the annuity into Google. The first item that came up was a complaint filed against the advisor by the Utah Insurance Department. The plaintiff was found to have a recording of the advisor making statements such as “there is no risk” associated with an investment, which the State found to be illegal and deceptive. The advisor was also found guilty of having clients sign various incomplete documents associated with annuity applications, with blank spaces yet to be completed. As a result, the advisor was fined, placed on probation for 12 months, and required to take additional courses on ethics. STRIKE TWO for the advisor. (I know baseball requires three strikes, but this strike alone should be enough for investors to look elsewhere for financial advice.)
Ultimately, the client determined it would be in his best interest to have a three-way conversation between himself, the advisor promoting the annuity, and me. I agreed that such a meeting would be beneficial and invited the discussion to take place in my office. However, I stated that I would need a copy of the annuity contract he was considering beforehand in order to complete my due diligence. I needed the contract in advance because annuities are so complicated (purposefully so) that it takes even a well-trained, fee-only Certified Financial Planner several hours to read and understand the pertinent information and determine if it may be a good fit for a client. The client agreed and immediately asked the advisor to fax or email me the relevant information.
One week later, and the morning of the appointment, I informed the client that I had never received the information (despite multiple requests), and that it wouldn’t be beneficial to conduct the meeting until I had a chance to review the material. The client agreed and the meeting was cancelled. However, the annuity salesman showed up at my office at the time of the scheduled appointment informing me that the client was still planning on attending. I asked why I had not been provided with a copy of the relevant material in advance; the advisor replied he was out of the office during the last week. Essentially, the advisor was contending that he never had the opportunity to fax or email me a simple Microsoft Word document. Yet, the advisor had conducted multiple conversations with the client during the week. In today’s era of computers, fax machines, and smart phones, I find it hard to believe that the advisor (or any of his work associates) never had the opportunity to send me a simple email during a week when he was in clear communication with the client. My strong belief is that the advisor simply didn’t want to allow anyone the opportunity to determine that he had not adequately represented both the pros and cons of the product. STRIKE THREE for the advisor; he’s out! However, the saga continues.
As the advisor had arrived at my office before the client, I suggested I take the contract and read as much as possible before the client arrived so that we could have a productive conversation. However, the advisor would not allow me time to read the contract or even permit me to hold the document despite my multiple requests to do so. STRIKE FOUR.
In an attempt to educate myself as best I could before the arrival of the client, I agreed to let the advisor “walk me through” the material he had brought. As a result, the advisor placed the document on my table, pointed out the guaranteed rate of return and quickly flipped the page. He then pointed out the bonus return that was applied to new contracts and again quickly flipped the page. Finally, he pointed out the annuity contract’s income schedule and quickly turned the page. Clearly, the benefits of the annuity were being pointed out while the details – or fine print – were being avoided. STRIKE FIVE.
It was now clear that an educated discussion was not possible as I had not had a chance to review the material, so I asked the salesman to leave my office. However, he refused to leave the annuity contract for my review.The client ultimately required the advisor to return to my office and leave a copy of the material he had brought to the meeting. After several hours of reviewing the contract, I discovered the annuity included several major drawbacks that had not been clearly communicated to the client; as a result, I found it was not a particularly attractive investment.
How can one be confident they can trust their financial advisor and avoid individuals like this? Unfortunately, the term “financial advisor” has become vastly overused and is frequently quite misleading. When is the last time someone introduced themselves to you as an insurance salesman, annuity salesman, or stock broker? Those terms don’t exist anymore because all those professions now refer to themselves as “financial advisors.” These individuals can be wolves in sheep’s clothing. If you meet with an annuity salesman who calls himself a “financial advisor,” he is going to recommend an annuity 100% of the time, regardless of what is in your best interest.
The key is to find a fee-only Certified Financial Planner® who acts as a fiduciary. Fee-only means the advisor is only paid by the client, and never collects commissions from selling products. This will ensure the advisor is recommending a product that is a great fit for you rather than simply selling a product in order to collect a large commission. A Certified Financial Planner® (CFP) is an individual who has completed the gold standard of education in the financial planning industry and is well educated in every aspect of financial planning, ranging from investments, to retirement planning, to taxes, to insurance, to estate planning. Finally, a fiduciary is someone who is legally obligated to act in the client’s best interests, similar to a doctor, attorney, or accountant. Surprisingly, most “financial advisors” are not fiduciaries. In fact, over one million people in the US refer to themselves as “financial advisors,” but less than 1% are fee-only CFPs acting as a fiduciary.¹
¹As measured by the percentage of financial planners who are NAPFA members.
About Net Worth Advisory Group
Net Worth Advisory Group is a fee-only financial planning firm in Salt Lake City, Utah. Their advisors accept a fiduciary responsibility to always act in their client's best interest. Learn more at http://www.networthadvice.com.