Beware of False Claims Made By Financial Professionals and Money Managers
There are many false claims circulating in the retirement planning arena. Here are just a few of the more common and flagrant ones.
#1. Beware of the advertising claim, “Don’t buy annuities since your heirs may have to pay 50% or more in taxes.” This claim only applies to those with such enormous estates that their heirs are subject to estate taxes. Because the vast percentage of us do not have estates worth millions of dollars, our heirs will never be subject to estate taxes. This claim is, for the most part, unfounded. It is meant as a scare tactic by someone who is simply trying to sell you something.
#2. A similar claim is, “Don’t buy fixed annuities since you will not earn enough interest to keep up with inflation.” This is simply not true. What’s more? Market corrections and economic downturns do more to hurt a person’s ability to keep up with inflation than anything I know of. (Different from what you may be told by your advisor, that includes rising taxes, inflation, and any truly safe retirement strategies.)
#3. Another claim made to seniors is, “I should be able to provide you a certain percent return on your money—say 6% or better.” Some sellers may think they can provide you these kinds of returns and have historical data to support such claims. However, these claims are unfounded, and since the year 2000 seem much less likely. Today, the economy and stock market appear to be a different animal than before the year 2000, with two huge market corrections only five years apart and another potential one looming. Financial professionals may point to the gains of recent years to support their claims of future growth, but they seem to have amnesia when it comes to all of the money their clients lost in 2000, 2001, 2002, and 2008.
Here’s a quick exercise. Take a look at the total market returns from the year 2000 to today, and then divide that number by the 15 years since the beginning of 2000. Last, subtract the annual fees you are paying. What you will find is that the claims made by your advisor about anticipated returns are exaggerated two to three times what the market has done over the past decade and a half. So if historical data is a measure of future potential, the average financial advisor’s performance since 2000 does not support his claims for future gains. And just be aware that even though it may make sense to “cash in your winnings and protect your recent gains against future losses,” in most cases, your advisor will not encourage you to do so.
#4. Beware of the claim, “You cannot move your IRA or other qualified money from a brokerage account without incurring a tax hit.” Whether implied or directly made, this claim used by money managers is intended to keep you from moving your IRA or other qualified funds from your investment account. Actually, IRA and other qualified funds are incredibly mobile if moved properly (through a trustee to trustee transfer or direct rollover to another IRA account), and you will not have a taxable event by simply moving the money. Why would an advisor suggest this? Because if you transfer or rollover your qualified money away from your financial advisor, he stands to lose a portion of his ongoing income—which brings us to the next false claim.
#5. As you become more risk-averse, your money manager may claim to “always give the best advice, regardless of market conditions.” The problem is that your financial professional, no matter how good, honest, or trustworthy he may be, finds it hard to let you move money away from him, even if it is from a risky environment to safety. He finds himself in a quandary: does he allow you to move your money to a more appropriate place, where it is protected from volatility and losses, or does he attempt to convince you to keep your funds with him so that he can protect his income? Most will choose the latter. Watching his income diminish as his senior clients move their money to safety does not suit him financially nor put them in a good light with their broker dealer.
#6. The last false claim is an interesting one. “I will help you accumulate enough money to sustain you during retirement and for the rest of your life.” It’s not having enough money that is the issue for most of us; it’s having the increasing income we will need for the rest of our lives due to inflation. Drawing down on an investment account during retirement is a risky proposition, as many of us will simply run out of money before we run out of life. Why? Because generally speaking, the assumptive gains used to calculate future available withdrawals for income by financial professionals are just that: assumptive and not guaranteed.
Also, if you are being sold a guarantee within a variable annuity, buyer beware! Variable annuities do not work as they are pitched, and the guarantees to both death benefits and “guaranteed annual growth” to income accounts are suspect at best if not completely misrepresented. Not to mention, the typical 3% to 4% in annual fees are rarely mentioned to potential buyers.
If you are tired of the risk, hype, nondisclosure, and false claims, and if you want the real scoop on truly appropriate retirement strategies and products, do as hundreds of seniors have done and call Boyd Casselman at 801-683-4333.
By Boyd Casselman