Buyer Beware

Making Smart Decisions with Josh Tirado

Josh: This is Josh Tirado, welcome to the Making Smart Decisions Podcast. Today's title is going to be Buyer Beware and is going to be a Storytime. When you picture this, we have changed the names, of the hypothetical clients to the Smiths and the other advisor. We'll call him John. Just imagine that we can peer in and see everything that is going on with that situation and what we can learn from this situation.

[00:02:02]John had some very nice clients. They were friends, they're friends of the family for a number of years. They became clients. They were very happy clients. Then one day John is in his office and he gets a phone call from a new advisor. That's sitting with his clients of Smith's and they inform him that they are switching to this other advisor.

[00:02:20]John's professional. John keeps his composure, handles the phone call, cause whatever information they need to help facilitate the transfer of the accounts. And then afterward, John follows up to see what is going on. Try to do a little quality control. Maybe you want to call it an exit interview and see how to see if he can further assist those clients.

[00:02:39] During the phone call, the clients reveal that they are leaving because of the information given to them by the other advisor. Now here's where we need to start to learn a few things and we can glean some knowledge from this story. The other advisor told the clients that if there'd been another major market meltdown like there was an in 08', 09' and the market had gone down another 30 or 35%.

[00:03:05] The client's money would not last long enough. They were new in retirement- a year, maybe two years in, and this advisor said, if the market goes down 30 to 35, we have another 08' or 09', you will not have enough money. You will outlive your money and your money will not last. The client got very scared and very concerned about that.

[00:03:28] And was obviously very worried. The other advisor proceeded to recommend to put them into a product that would give them a guaranteed lifetime income that they could not outlive. However, later on, we come to find out that is a contract they're locked into now for life. And the amount of income they have is really not enough.

[00:03:50] To support their needs and their goals now nevermind in the future, once you account for the cost of living and inflation increases. as John was speaking with him, he thought that was pretty interesting, but they were very scared because of what the advisor told them. And the advisor also told them that she had run their numbers and it looks at their situation and the investments they were in that they would definitely run out of money.

[00:04:15] John inquired and said, Oh, okay. Did she provide you with a report? Could I see the report? I want to take a look at it, make sure the numbers going in there accurate. No, the other advisor never gave them a report. Never let them see the report, never give them a copy of it. John then says to his clients that is true.

[00:04:31] If there was another Oh eight Oh nine. And if the market was down by 30 or 35%, you would not be able to recover from that. And you would run out of money. However only a third of your portfolio is actually in the market, not the entire thing. And out of that third, they had used investments that had saved the nets and safeguards in involved in place seem if the market started to drop, their investments would have some sort of protection or guarantees or moved into cash.

[00:05:02] So there was no way the investments could go down 30 to 35%. So the client got more irritated, I believe at that. But John was just trying to explain to them, yes, it is true. If you lost a third of your portfolio, you would not have enough money, but only 30% of your money is in the market. And there are safeguards in place at the most you could lose is only 10 or 15% of that 30%.

[00:05:24] So really you were in no danger of ever running out of money. The client did not like that. Did not heed that advice. Thanked John, for his input and said, they're going with the other advisor. They felt better about the other advisor and trust the other advisor more because he felt the other advisor was being more honest with the data.

[00:05:46] Fast forward several months, John gets a call back from that client and says, Hey, I know there's still an account left with you. I need some cash. I want to close out the account. John happily obliges and asked why do you need the cash? The client says to John I've been unable to get ahold of our new advisor via phone or email for the past several months.

[00:06:09] In fact, the only way I can get a response from the new adviser was to threaten to file a complaint with the state department of insurance. They are now very stuck. Is it this advisor? It turns out did not have the appropriate licensure. To do what they were doing to comment on what they're commenting on.

[00:06:28] Never really ran the numbers, never provided a report, basically just operated out of fear to take advantage of the Smiths and the Smiths. And in a very sad, heartfelt moment said to John, we really should have spoken with you before jumping the gun and moving to the other advisor. We probably could have avoided all of this and have been in a better position than jumping at it.

[00:06:53] But we were scared and we felt we needed to act. This is a sad situation because now they're contractually obligated to do some of the other things they're doing. And it's hard to unring that bell, yes, this is a hypothetical. But this happens.

[00:07:09] This happens in every town and every city and every state across the country on a regular basis. And there are many laws out there to protect seniors and to protect investors. And they're adding more and more laws and rules all the time. But if people do not heed common sense and purely act on emotion, No amount of laws and disclosures are going to protect them because they will ignore them and move forward because you're driven by your emotion, especially fear.

[00:07:41] So if anyone is considering making a drastic move, Please take a step back, take a breath, review, all sides. Talk to everyone. Again. Most professionals are very good people. If you're considering doing something else or leaving them or working with someone else, they're more than happy to work with you. You, give you the pros and cons and you know what, if they don't take the news while you're going someplace else and they become mean or belligerent, or they don't want to work through, they're not nice.

[00:08:07] Then they're lost. You probably shouldn't have worked with them in the first place, but anyone who's a professional. , especially if they're licensed as I am and they're a fiduciary, they will listen to you. They will work with you and help you make a smart decision. So please buyer beware.

[00:08:24] When it comes to making major moves with your money. The other thing I heard this acronym recently was called halt H A L T. And what it stood for was hungry, angry, lonely, or tired. You should never make any major life decision when you are hungry, angry, feeling lonely, or you're very tired, any major life decision, whether that is calling somebody up, who you perhaps should not reach out to, whether that's making a financial decision, whether that's going in and buying something off late-night television, whatever it is.

[00:09:02] Make sure you are in a good mental place before you make any sort of life decision. And don't be motivated by spur of the moment and fear of something encouragin...