Ep. 100 – Avoid 4 Retirement Investment and Planning Rip-Offs

What are some of the rip-offs you should keep an eye for when choosing an advisor to manage your retirement plan? 

When looking for a suitable financial advisor for you, you should ask as many questions as you can to understand certain concerning situations. 

In this episode of the Secure Your Retirement podcast, we talk about 4 retirement investment and planning rip-offs you should always avoid. Listen in to learn how to approach these 4 rip-offs by ensuring you fully understand each before you hire an advisor. 

In this episode, find out: 

• Be wary of an advisor saying there are no fees – there are always fees involved in any transaction.
• Bait-and-switch – understand that a good rate is sometimes meant to last for a certain period.
• Be careful about outrageous claims on average rates on returns or an advisor’s performance.
• Why you shouldn’t hold on to outdated beliefs that are no longer viable today. 

Tweetable Quotes:

• “Don’t hold on to old belief systems, compare and see what has changed to maybe make a certain product viable.”– Radon Stancil 
• “Try to understand how realistic some of these rates of return are that are being thrown at you.”– Murs Tariq 

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

To receive our free book, Get Off the Retirement Rollercoaster, leave a 5-star rating review on Apple Podcasts and send a screenshot to morgan@pomwealth.net.

Here’s the Full Transcript:

Radon Stancil:

Welcome everyone to Retirement in Action. We are so excited today because, believe it or not, this is episode 100. To say that is pretty amazing. Did you ever think, Murs, that we were going to get to episode 100 when we started this thing?

Murs Tariq:

No. It’s crazy to think about. I wish I had a little button here like Jim Cramer on Mad Money has, where he hits all these buttons to get everyone excited. But, yeah, 100 hundred episodes. It’s crazy to think that we started this a little bit over a year ago and we’re recording number 100.

            I think we’ve learned quite a bit over the past 100 episodes as to how we do them, the thought process around how we construct an episode. We’re getting a lot of feedback, and that’s been tremendously helpful, from clients and non-clients that say, “Hey, I’ve got a question about this.” It’s always that thing, if one person has a question about it usually another 10 to 20 have that same questions, so that’s been tremendously helpful, getting us to be able to come up with new topics and keeping it as fresh as possible, so we are excited and we feel pretty accomplished.

Radon Stancil:

Yeah. I think that if you go back and you listen to episode, one, two, three, and four in particular, I think they were good episodes, but at the same time the way we carried it out was quite different that what we do today. We’ve learned a lot about what to bring to you and what to give our listeners that we think are of benefit.

            So I’m just going to say this. We’re episode 100. Murs and I have no concept of wanting to end the podcast. Sometimes people ask, “How long are you going to do this podcast? What’s your end game?” We say we don’t have one. The topics are just… I mean we have more topics than we could ever think about talking about.

            Then if you go back to episode 10, five, whatever, sometimes those topics now have already become out-of-date. We got to update them because the world changes and situations change, so we need to stay up on it.

            So episode 100, what’s our topic today? Well, we thought you know what? Murs and I, our goal is to always talk about lining people up with a financial advisor or a retirement planner that matches your personality, and making sure that you find the right financial advisor. We believe that that is extremely important and we know without a doubt we are not the right financial advisor for everyone.

            There are people that are in their 30s and they’re trying to figure out how to just get started. They’re thinking about what kind of debt load they can carry. They’re talking about how do they even start investments. While we can talk about that, that’s not really our specialty.

            Our specialty is working with individuals that are within about 10 years of retirement or already in retirement, and that’s where we really focus. I like the analogy… I heard somebody said, “You’ve got different types of doctors,” and everybody gets that concept. You have cardiologists. You have pediatrics. We have all these things, and you wouldn’t think of a cardiologist… Going and taking your baby to cardiologist and saying, “Hey, I need you to help me with my baby.”

            Now can that doctor know the basics of what they need to do to help that baby? Absolutely. But we would go to a pediatrician. That’s the way the financial world is set up. We all ourselves financial planners, financial advisors, but the reality is most financial planners, most financial advisors, specialize in an area.

            Some people specialize with doctors only for example, or with certain types of doctors even. Murs and I specialize, work with exclusively people that are close to or in retirement. For us that’s about age 55 or older, and that’s who our core client is.

            Now what we’re going to talk about today though is in this idea… And by the way, this is a series that we’re doing. They won’t be every week, but we’ll be referring back, but the series is how to choose the right financial advisor for you, how to do that.

            Some of these things that we’re going tell you, dos, and then we’re going to tell you some don’ts, some of these things apply no matter where you’re at, so even if you’re younger still apply.

            Today our main theme is how to avoid four retirement investments and planning ripoffs, things that you just need to know, so the don’t item. And then some of the shows we’ll talk in this series about here’s what you need to do. So we got four things that we’re going to talk about and break those down and have a little discussion around them.

            I’ll tell you the four, then we’ll come back. That way you kind of know a little bit of outline today. One is about fees. Number two is about what we’re going to call bait and switch. Number three is outrageous claims, and number four outdated beliefs. So we’re going to kind of go through each of those and help break those down. Murs, can you get us started with our first one, when somebody says there are no fees?

Murs Tariq:

Yeah. This is a big one. In the world that we live in everything that we do, everyone is very fee conscious about what they’re spending, or what they’re spending to get something else. The reality of the matter is there’s almost always going to be cost there in every situation.

            There’s a phrase where it says you never get something for nothing, and that’s pretty true. So think about it and let’s go to a situation where you’re going to the bank and you’ve been a longtime customer at the bank, and you want to go buy a CD at the bank.

            I know rates are whatever they are these days, but let’s just say it was a favorable rate that you wanted to get into. So in your mind you’re getting a decent rate for this one year, two year, three year CD, but when the person or the bank that you’re working with says this is completely free, well the back of that is it’s not actually completely free. There are hidden… Or not hidden fees. There are just fees in operating, and they’re always going to be there.

            So the bank is able to give you a rate, but they’re also making money on you leaving your money at the bank, and that’s always going to be the situation. Custodians all over when it comes to investments, they want you to put your money there.

            Sometimes we don’t see the fees. Sometimes the fees are very obvious. For anyone that works with us in the money management world at Schwab, they see our fee very clearly. They also know very clearly what they are paying for. They see that on their quarterly statement.

            Sometimes you work with some types of advisors that… Really there’s two types. One is there’s a fee that you’re going to essentially know about, fee base, where you’re maybe paying a percentage of the assets that are being managed, and the other side is maybe you’re working with an advisor that solely works under commissions, and they may be able to say there are no fees.

            The caveat there is that the fees are not as visible to you. There’s a lot of stuff going on right now that things need to be more transparent. There’s a lot of fees in mutual funds that we talk about all the time, and there’s a lot of commissions paid out in that world.

            In the annuity world, in the insurance world, there’s commissions. Sometimes this is not easily seen, but the story here is is that there are always fees. All companies when it comes to money are out there to make money, so you just want to be aware and be asking the questions, because if an advisor every says to you there are no fees here, it’s completely free and clear, I would just be wary of that and I would ask some more questions on it. Radon, you got anything to add there?

Radon Stancil:

No, I don’t. I think that’s the key. Anytime anybody says there are no fees… And I’ve heard different folks say that before, that’s just not possible, so don’t take that and go, “Wow, that’s amazing.” Just realize that there’s got to be some fees built into it. That does not mean that that’s a bad thing, just understand it. That’s what we’re trying to say here.

            So let’s go to point number two, bait and switch. What are we talking about there? Well, think about it this way. Let’s say that you’re in an interest rate environment that’s extremely low and all of a sudden you’re talking to somebody and they say, “Oh, no, this product is offering 7%, 6% guaranteed,” but yet we’re in an interest rate environment where you can only go get a CD paying one and a half right now.

            Think about that for second and say, “How is it that somebody else can pay me 6.5 or 7%?” Then say, “I need to understand what’s happening. I need to understand how this particular product or this particular thing works.” Now what there can be is there can be what are called teaser rates.

            The way a teaser rate works is that basically you do make a 6 or 7%, or even an 8% in year one, but that’s it. The rest of the time that you’re in that particular product it might not pay you but one or two, or maybe less. So don’t think that oh, this is paying me forever this way. It could just be a one year, sometimes it’s called a bonus and it gives you a big upfront interest.

            The other scenario is if somebody says, “No, this is guaranteed to pay you something high, like 6 or 7% a year for the next 10 years,” what you probably are looking at there, and probably what you’re being talked to about is an annuity with a rider, a fixed annuity or a variable annuity, either one, and it has a rider attached to it, and that rate or that growth rate that you’re looking at is only for the income benefit that you can take out as an income stream.

            It is not something that you can take out and walk away with. I always illustrate it this way. You put $100,000 into the annuity, it’s going to have really two sides to it. One is my walk away money, or my death benefit money. The other is my accumulation that I can take as an income stream.

            So just understand the differences. Don’t think oh, my goodness, this is offering six or seven and I’m so happy that I found it and it has to be the way it is, so I’m just going to take it because the person told me that.

            By the way, those particular annuities that I just described are not bad. You just need to understand them, the whole idea of understanding there’s two sides. We’ve had people come in before and they thought that this was… This 6 or 7% rate was for them to be able to walk away with, and then they get a little frustrated, when the reality is it’s still a good product. Just understand how it works. So, anything else on that, Murs?

Murs Tariq:

Yeah. In a previous life I worked at a bank for a little bit, so Radon was kind of talking on the investment side, but you see this all the time with credit cards and savings rates as well, where they can give you an introductory rate and you just hear a nice number of maybe 3% in a savings account or something like that, but it was for a small period of time, whether it was 90 days or maybe that first full year.

            Credit cards do this all the time, where you can get 0% APR for a small period of time, and sometimes you don’t realize it. So all we’re saying here is just try to understand what the rate is, and how good the rate is, and how long it’s going to last in these types of situations.

            The next big one that we’ve got is outrageous claims. It kind of coincides a little bit with what we just talked about, but this is all about essentially rates of return. Obviously return is very important when we’re talking about investments. When we’re talking about retirement and financial planning you need return, right? Every single year we need to earn some more money on our money to be able to have this dream come true.

            There are different ways that this can be done. Let’s talk about in the annuity world or in the life insurance world. A lot of the world works off of these things called illustrations, which they’re valid, they’re good, but sometimes they can overstate what your potential rate of return is.

            Radon and I, we’ve been using the fixed index annuity arena for quite some time, and illustration may say because it’s been back tested and somewhat proven you can earn maybe a 6 or 7 or 8% rate of return in some of these vehicles.

            While we have seen that happen, we don’t feel comfortable using those types of numbers. In the whole grand scheme of things we kind of compare that arena into essential a bond type rate of return. I don’t think anyone would ever say expect this bond to make 7 or 8%. It can do it every now and then, but not on average, not over a 10 year period.

            So be careful about just some outrageous claims. Or you may have an advisor that’s talking to you about how good they did last year or in a particular year, but they’re not really willing to give you their whole 10 year outlook, or their past 10 years or 15 years of performance.

            Or you may see a mutual fund talking about how it handled one articular situation. Well, you want it to be good at that situation, but also situations that come over the years, all the different market cycles that we have to go through. One year is not enough evidence of good investment management, so just don’t get overly-focused on a couple numbers that are thrown at you. Try to get some good history there. Try to understand how realistic some of these rates of return are that are being thrown at you.

Radon Stancil:

All right. Very good. Let’s look at number four, outdated beliefs. I’ll give you a quick illustration just so you can kind of understand where we’re coming from on this one.

            In the early 1900s there was no protection on the banking system. So there was a period in which people felt whenever we had a huge economic downturn that people basically did a run on the banks. They said, “You know what? I don’t believe that my money is safe in the bank,” and so people started wanting to withdraw their money.

            After that, the government put in place what was called, or what we know today as FDIC, which is insurance that pretty much backs the banking system by the government to say if I’ve got money in the bank, as long as I stay within those thresholds and the bank goes out, or goes out of business, my money is protected. The federal government will back my money.

            Now what if you were sitting here today and you go, “Yeah, you know what happened in the early 1900s? People lost money in a banking system. I don’t want to be a part of the banking system.” That would be holding onto an old belief that doesn’t need to be there anymore, because we have FDIC, so that protects us in that concept of putting my money in the bank.

            So what else could we have? Well, if you go back 20-something years ago you would have had a lot of financial advisors that would have told you never, ever, ever look at an insurance product for savings and retirement. In particular they might talk about annuities. They go, “I hate annuities. Annuities are horrible. I don’t want to ever go into an annuity. Just go into stocks and bonds.”

            Now if today, 20 years later, a person who heard that maybe from their parent, or maybe they had something earlier and said, “I don’t want to ever be a part of that,” because of something going on 20 years ago, that’s holding on to old belief system. We encourage people don’t hold on to old belief systems. Compare and say what has changed to maybe make this product more viable?

            Murs and I 100% believe that there’s a place for us to have investing in the stock market. The majority of our clients have money in the stock market that we manage in stocks and bonds. We do that in a specific way so that we have downside protection even there. But there’s many of our clients that we do use insurance products like annuities.

            We believe that today they have very good offerings. Now is that where you should put all your money? Absolutely not. Is it a place that you should say I’m going to put it and then compare it to the stock market? Absolutely not. Is it a place that I can put it and get guaranteed income for the rest of my life? Absolutely. Is it a place that I can put it and get a bond alternative type return, where instead of being in bonds and cash maybe I put some money over into a fixed annuity? Is that a great place? Could it fit? Absolutely.

            But we need to understand what was in the past is not today. Things have changed. Things have gotten better, and there’s a lot of… I would say a majority of financial advisors would say these now are different than they were 20 years ago. I think they got a place for them.

            Just as we look through these different ideas don’t just say okay, this is the way it was 20-25-30 years ago and this is the way it is today. Anything you want to add on that, Murs?

Murs Tariq:

No. I think that’s good. So that’s the four if you want to call them retirement, investment and planning ripoffs that we have for you today. Like Radon said, we are going to do a whole series of just things that you want to be thinking about when you’re searching for a financial advisor, questions to be asking, things that you can do your own research on, and we’re just trying to keep you up-to-date as much as possible.

Radon Stancil:

All right, everyone. Thank you so much. Please if you’ve not had a chance on this particular topic, there is a blog article as well that’s on our website. You can go to pom.net and go to the blog page, so /blog, and we got a whole article on this particular topic. If we went too fast and maybe you would like to have it in writing we make sure that we have these articles just for that purpose.

            We appreciate so much though you listening. We are blown away again that it’s episode 100. We are so happy to have you as a listener and we look forward to talking to you next week.