I have become privy to some really stupid sh*t financial advisors have said to clients or prospective clients over the years.
I am a financial advisor myself. No one believes in the value of good, unbiased financial planning and advice more than I do. However, like any industry, there are some bad apples. Some financial advisors say and do some really stupid sh*t. Let’s take a look…
“You need A LOT more life insurance”
Look, an estimated 20 million American households are underinsured or have no life insurance at all. That’s not good. However, far too often those that sell life insurance find out how much insurance you can afford and will quote you for that amount. Many potential clients that come into my office have had this type of experience in the past. It is reminiscent of Ned Ryerson…
You should have a needs analysis done to determine what the proper amount of life insurance is for your family. Using a rule of thumb isn’t doing you any good. You may need more, you may need less. Everyone has a different idea for what they would like their life insurance to protect. What’s yours?
“100 – Your Age = Your Ideal Equity Exposure”
Puke. This is an old rule of thumb that some gray hairs in the industry still use. The idea is just like it sounds. If you are 30, then you should be invested in 70% stocks (or equities) and 30% bonds (or fixed income).
What this doesn’t take into consideration is the client’s willingness to accept volatility in their portfolio. There are young investors that aren’t willing to accept high volatility. While the numbers would show that they have time on their side, their emotions need to be taken into consideration as well.
Also, if you got a late start in investing, it may not be in your best interest to invest as conservatively as this rule would suggest. There are just too many variables in investing and financial planning to use a rule of thumb. Take the time to figure out how much risk you are willing to endure and then have an advisor construct a portfolio that you can be comfortable with.
“Use your Roth IRA as your emergency fund”
I can’t stand this idea. A quick Google search for it will show countless investing publications that think this is the best idea under the sun. The thought is that because you can take out your contribution amount any time without penalty, that it’s a no-brainer to forego a separate emergency fund and build up your Roth IRA. That way, you have a retirement account AND emergency fund rolled into one.
Not so fast. For one, if you do come into an emergency, wouldn’t you rather have something you can get access to in minutes rather than hours, or more likely, days? I bet if you came into a crisis you’d be pretty ticked off if you couldn’t get access to some cash for 2-3 days.
Secondly, it defeats the whole purpose of a Roth IRA, which is to invest for retirement. After all, IRA stands for Individual Retirement Account. Unless there is no other option, I’m not in favor of tapping into your retirement accounts before retiring, especially planning to do it ahead of time. It’s important to allow compound interest to do it’s thing and not stunt the growth of your retirement accounts.
“Buy this VUL and you can use it to fund future college expenses.”
*Facepalm emoji* Many of you are wondering what a VUL is. VUL stands for “Variable Universal Life Insurance.” These policies include a cash-value investment component (sub-accounts) that allows for exposure to stocks or bonds. Herein lies one of the issues. Many agents over the years have quoted much higher rates of returns for these policies than they should. It isn’t uncommon for the plan to not perform the way the original quote suggested. This leaves the client holding onto an expensive policy with little flexibility and a grudge.
You may have had the pleasure of sitting across the table from an insurance salesperson at some point telling you the wonders of this policy. Sometimes it’s, “Use this VUL to fund your retirement with tax-free money.” Sounds great, right? Sure. However, many people that I’ve met that had this strategy in place are vastly underfunding the policy, which makes this strategy impossible. Many times, they aren’t able to take out as little as $5,000 without causing the policy to lapse.
I believe that using a VUL can be beneficial. However, I think it makes sense for a very select few. Extremely high wage earners are an example. Even then, they need to have an advisor that really knows the nuance of using these policies and how to adjust them when they want to start receiving income in the form of a tax-free loan. The majority of the people I meet with that have these policies were sold a dream that never came to fruition.
“I can’t work with you right now. Come back and see me when you have more to invest.”
My industry has done a disservice to young people for YEARS. We should be applauding young people for being proactive financially and seeking an advisor’s help. Advisors should be ecstatic to help young people pursue their financial goals. Instead, many tell young investors to come back when they have more money. In essence you’re telling that potential client that they aren’t worth your time.
Young people, seek advice from a financial advisor that wants to help you strive for financial independence. Kudos to you for seeking out advice and taking your finances seriously. Don’t wait. Many of your elders will tell you that they wish they would have started investing earlier and wish they would have had a plan. Want to see why you should get serious about financial planning? Check out these jaw-dropping stats about retirement.
Shameless plug, I’m happy to work with young individuals or families who are looking to live their best financial life.
“I can outperform the market.”
No, he/she can’t. Not consistently. If an advisor tells you this, laugh and then leave. In order for your advisor to outperform the market even a small percentage of the time, they’d need to get uber aggressive with your assets. When you always swing for the fence you also strike out a heck of a lot more than you should.
There are 3 types of advisors out there:
- The advisor that can’t consistently outperform the market, knows he can’t, but tells you he can anyway. (The worst)
- The advisor that can’t consistently outperform the market but actually thinks he can, and tells you so. To quote Buzz Lightyear, “You are a sad, strange little man and you have my pity.”
- The advisor that can’t consistently beat the market, acknowledges as much, but helps you control your risk and behavior to invest intelligently. Go find one of these.
“There is no fee to work with me.”
The old adage, “There’s no such thing as a free lunch” applies here. This person obviously doesn’t believe in transparency or having integrity. There is always some type of fee when it comes to working with an advisor or investing. Work with an advisor that is transparent about those fees and justifies them by bringing you value.
Another note, you are paying fees in your work retirement plan. Your 401(k) or 403(b) is not free to invest in. It’s amazing how many people think that this is the case. I don’t blame them, either. Workplace retirement plans have long made it difficult to find this information although this is getting better.
Conclusion: Stupid Sh*t Financial Advisors Say
Heard any of this before? I bet you have. Don’t believe everything you hear. I know the immense value that comprehensive financial planning with a trusted advisor can add to your life. Do your research, ask questions. Realize that sometimes the questions that your advisor asks you are just as important as the questions you ask him/her. Lastly, find someone that puts your best interests above all else. Do these things and you’ll be on your way to removing the guesswork from your financial life.