Human Financial Advisor Horror Stories

I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I learned that he had purchased a fixed annuity at his local bank a couple of years prior.

Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple of years prior.

My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge and that they could take their money; principal and interest, and walk away at any time.

Why did they believe that you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty. Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.

Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table.

Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away! Lesson Learned:Just because the advisor tells you something doesn’t necessarily mean it’s true. If something sounds too good to be true, ask for it in writing.

I recently started seeing a financial advisor at First Command I met through a mutual family friend. The advisor is obviously very knowledgeable about retirement and investing, but I can't help but think the funds they are suggesting I invest in are more for their profit than my well-being.

They suggested a couple of accounts through Fidelity Advisor that have large percentages to invest in (some of the percentage goes to the advisor). The funds have a good history, but I can't tell if it's a smart move for me or if they are just trying to profit. Additionally, the advisor suggested a whole-life insurance plan.

They explained how they profit from it (basically, the cash value goes to them the first 2 years), but it still seems like a good plan to me.

A lonnnng time ago, my financial adviser (my first brokerage account) churned my account. That means that he traded frequently, just for the purpose of generating commissions. In those days, there was no such thing as the low deep discount commissions that we pay today (and no internet). When I eventually figured out what he was doing, I began the process of learning about the financial markets and I have done it myself for 40 years.

My husband’s family has used a boutique firm of financial advisors for years, and honestly, they are probably the best of the best. Independent, fee-for-service—they are very good at what they do. However, I still have some massive issues with them.

Essentially, they have overcomplicated everyone’s finances to a point where the family is now reliant on them for everything. They could probably never extract themselves from their services even if they wanted to. I think this is their ultimate business model. My in-laws have a highly complex portfolio of 30-40 investments (shares, managed funds, etc.), and yet their fund grows less than my simple VAS/VGS portfolio. They pay these guys something insane like $30K per year in fees.

The same firm took on my sister as a client, despite her having extremely simple and minimal finances, charging her $5K per year for insurance and tax advice and complicating her super and other things to the point that now she can’t manage it by herself. I think they honestly should have told her she didn’t need a financial advisor.

Prior to learning about finances and “going it alone,” they had my husband involved in several managed funds that were charging him 1.5% per year and making around 5-6% before fees. Way worse than a simple ETF. I worked out that his money grew about half the amount it would have if we had just been using ETFs from the beginning. And yet, when we mentioned our change of plan, they still recommended we didn’t go with ETFs and stayed with the managed fund. It didn’t make sense.

Again, my theory is simply that they don’t charge commissions on these things, but by having them manage our money and invest into funds for us, they can charge us fees for service and keep things sufficiently complex so we need to keep using them year after year. I think it’s all a bit of a rort, really.