I must confess I get very frustrated with articles, promotions and advertising. Yes I am too anal and “black and white” in my thinking. That said I would like to share some of my experiences with these items over the years in my financial career. (My first career was in engineering, which may explain how I think).
When IRA’s first came to the market place, a national publication (I will not use names) had an article asking three financial advisors what they were recommending clients to invest in their IRAs. The response at that time was limited partnerships. Yet, in the back of the publication, the same advisors were asked what they themselves were investing in their IRA which was CD’s and bonds. Seems we have a disconnect. Not what we were thinking.
Next a national brokerage firm advertised to invest in their selected list of mutual funds at no cost to the investor. Really? So, I called the brokerage firm and asked them to come see me. They did and I asked how they are doing this? That’s very nice you are doing this, but how do you stay in business? The answer: when clients invest in this selected list of funds, these mutual funds then paid the brokerage firm. Ah-ha, so the clients did not pay anything to the brokerage firm, but, when they invested in the funds, the funds paid the brokerage firm. Pretty slick, but not what we were thinking.
I had an elderly retired client call telling me about a promotion he received where he could get 16% interest, guaranteed and tax free. “Whoa, let me call for you, what is the number?” I did and the answer was to pay off your credit card that was charging 16% interest. Not what we were thinking.
I was listening on the radio and heard this ad for an investment paying 10% interest investing in asset backed securities. This was a very high rate of return. So, I called and asked “what was the asset backing this investment” and the answer was used cars. Not what we were thinking.
Insurance companies found the wonderfulness of computers and started generating illustrations for clients to see on how an insurance product would look into the future. In the 1980’s interest rates were very high and illustrations for universal life policies going out 20 to 40 years showed very large numbers. The thing was, these policies did not guarantee the illustrated interest rates and the illustration was not a contract. Yet I would suggest and know that many people thought that was what they were going to eventually receive. When interest rates fell, many of those contracts were lapsed and money was lost. Not what we were thinking.
I said I know, because my next subject deals with law firms, who when they discovered this problem with the universal life polices, (and later on with limited partnerships) chose to start class action lawsuits against some of the largest insurance companies. My point here is, insured persons received letters stating the law firm always got money back for their clients, so please join the class action suit. What we are thinking is, I’ll get “all” my money back. It didn’t happen. I know of people who get $29, not the $10,000 they expected, yet the law firm got $6,000,000. Not what we were thinking.
I have more, but to conclude, a number of years ago financial regulators required my clients to sign documents which when signing they really couldn’t agree to the contents. I protested with my compliance department and I was told to take my case to the regulators. Here is what I emailed “you are requiring my clients to sign documents that they really shouldn’t be signing. This is not protecting my clients, which I suspect is your intent, but you are only providing documents for the lawyers in the courtroom. It may be better to close your agency, save the taxpayers some money and just put out a notice to all that…buyer beware.” I got no reply and luckily was never audited for my comments.
So folks, when we read articles and hear advertising and promotions, please, buyer beware, it may not be what we think. If it sounds too good to be true, it likely is.
The information provided here is for general information and educational purposes only and should not be considered an individualized recommendation or personalized investment advice.