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Old 07-24-2018, 08:51 AM   #1
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A former departmental admin. at MegaMotors is retiring soon. She's a frightened at the prospect of leaving and is feeling overwhelmed by the choices she needs to make with regard to Medicare, SS, etc.

I get the sense that she's possibly not in the greatest shape financially. I'm trying to stay very much at arm's length.

She mentioned having a FA. (He is one that a corporate V.P. and another coworker use also, which is probably how she connected with the FA.) I suggested asking the FA whether he is a fiduciary, how he's paid (whether he is fee-only), etc. She sent me an email this morning, "He gets paid from the companies he represents. Not from our transactions. Is that good or bad?"

I have ZERO experience with FAs and how their pay/commissions/fees might be structured.

How would you respond?

omni







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Old 07-24-2018, 09:14 AM   #2
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Then he would have a conflict of interest (to push those company's products on you), and not have your interests at heart.
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Old 07-24-2018, 09:14 AM   #3
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The FA is not a fiduciary. His interests are not aligned with hers. He is incentivized by these companies to sell her products that make him the most money, which may or may not meet her needs.

She should look for an independent CFP to look over her assets, any pension she has and her Social Security. The CFP can make projections of her future income and give her better advice about what assets to own in retirement. Another option would be to open accounts with Vanguard or Fidelity and let them do some analyses of her assets and income.

She needs to dump this FA before she retires. Otherwise she may end up with a bunch of expensive annuities not appropriate for her needs, as this is the common retirement "advice" given by these salespeople.
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Old 07-24-2018, 09:17 AM   #4
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I would say that is "far from ideal" as the FA has a potential conflict of interest given that the products he may recommend may not be in her best interest because his compensation is tied to her buying them.
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Old 07-24-2018, 09:28 AM   #5
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Have her give you a couple of fund names. Five will get you ten, they're class A or C funds. She's paying, every year. Her FA is....
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Old 07-24-2018, 09:37 AM   #6
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Originally Posted by omni550 View Post
She sent me an email this morning, "He gets paid from the companies he represents. Not from our transactions. Is that good or bad?"

How would you respond?
I'd respond "That's bad."

You might wish to suggest that she engage the services of a fee-only fiduciary financial adviser to at least give her a second opinion.
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Old 07-24-2018, 10:35 AM   #7
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Thanks everyone, for the responses.

I've summarized them and let her know he is not working in her best interests...and also cautioned her that the FA may put up a bit of a stink if when she chooses to move her monies elsewhere.

omni
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Old 07-24-2018, 10:48 AM   #8
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Respond that "If I were using a FA, I would only consider FA's who operate exclusively under a Series 65 SEC license. They are often referred to as Fee Only planners or Registered Investment Advisers (RIAs). As such their relationship is required, by Federal law, to be at the fiduciary level which can be confirmed on their ADV disclosure. This requires them to place your financial interests above theirs. Other licenses, such as those used by broker-dealers, only require a "suitability standard". In this case, they can sell you investments that are a better deal financially for them than for you."

PBS Frontline had an hour long episode, available at this link, that documents the financial damage that these types of non-fiduciary relationships can cause in the 401k space.

I would also mention that her FA may make her feel good and at ease about her finances. If she wants to feel good, then the current FA may meet her needs. If her concerns, on the other hand, are financial then she should explore the issues mentioned above.

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Old 07-24-2018, 01:23 PM   #9
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What gauss said X 100000000000000000000000000000000000
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Old 07-24-2018, 01:53 PM   #10
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I came here years ago and asked the same question (for myself) and the nice people on this board shared this URL: https://www.napfa.org/find-an-advisor#tab=filters which led us to our fee-only advisor.
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Old 07-24-2018, 02:05 PM   #11
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What gauss said X 100000000000000000000000000000000000
Almost. There is also a Series 66 exam that makes the FA into a fiduciary. IIRC the difference is that the 65 is for individuals and the 66 is for people who are or might be managers.

Just to thicken the stew, there is also a fiduciary called an Investment Advisor Representative (IAR) who is a fiduciary because his/her employer is an RIA. In this case, the rep many only have a Series 7 exam, which is otherwise cause for suspicion.

Thicker yet, in some cases a supposed fcduciary may not be operating in that role when selling insurance.

So ... the most reliable fireproofing is to get in writing a statement from the FA that he/she is acting as a fiduciary in all aspects of the customer relationship.

And always (always) go to https://brokercheck.finra.org/ and run a check.
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Old 07-24-2018, 02:40 PM   #12
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Almost. There is also a Series 66 exam that makes the FA into a fiduciary. IIRC the difference is that the 65 is for individuals and the 66 is for people who are or might be managers.

Just to thicken the stew, there is also a fiduciary called an Investment Advisor Representative (IAR) who is a fiduciary because his/her employer is an RIA. In this case, the rep many only have a Series 7 exam, which is otherwise cause for suspicion.

Thicker yet, in some cases a supposed fcduciary may not be operating in that role when selling insurance.

So ... the most reliable fireproofing is to get in writing a statement from the FA that he/she is acting as a fiduciary in all aspects of the customer relationship.

And always (always) go to https://brokercheck.finra.org/ and run a check.
Thanks. I just ran the FA's name and company through the search on brokercheck.finra.org ....zip, zero, nada showed in the results.

I started digging around the FA's site and saw he is Top of the Table on MDRT (Million Dollar Round Table), The Premier Association of Financial Professionals. They look to be doing commission-based sales of annuities and insurance products.

Professional success is just one of the pillars reflective of MDRT levels of excellence. While members must meet a certain level of premium, commission or income during the year, they must also adhere to strict ethical standards. They must love helping others with their financial needs, and ensuring that they are prepared in the event of a catastrophe. MDRT members come together not for accolades and personal gain, but to share how they provide peace of mind, save lives, and protect the futures of clients.

I wonder how they save lives?

Yikes.

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Old 07-24-2018, 02:44 PM   #13
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I wonder how they save lives?
I think I heard about one who was out on his yacht and rescued a drunk passenger who fell off a cruise liner.
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Old 07-24-2018, 02:51 PM   #14
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My FA is series 65, 63 and 7, been in the business for 24 years.
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Old 07-24-2018, 02:56 PM   #15
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... I started digging around the FA's site and saw he is Top of the Table on MDRT (Million Dollar Round Table), The Premier Association of Financial Professionals. They look to be doing commission-based sales of annuities and insurance products. ...
Yes. MDRT is an insurance thing. If he didn't show up on brokercheck he is not licensed to sell securities of any kind. If he is doing so, you should report him to your state's department of commerce or insurance commission.

Probably he has sold annuities and variable life insurance and the transactions will be impossible to unwind because they are not patently unsuitable and presumably she is in possession of all of her marbles. If there is any question, though, she should talk to the state insurance commission.

I predict that his next move will be to try to get her to take a lump sum instead of whatever pension she might have, then he will offer to "invest" it for her. (The AARP magazine this month has an interesting article that DW tore out for me: "My 10 Commandments of Smart Money." #10 is "Above all, thou shalt not forget that people wish to separate you from your money.")

Definitely get your friend out of there. You will be doing her a huge favor. The NAPFA link posted by @SumDay is a good place for her to start.
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Old 07-24-2018, 03:43 PM   #16
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I predict that his next move will be to try to get her to take a lump sum instead of whatever pension she might have, then he will offer to "invest" it for her. (The AARP magazine this month has an interesting article that DW tore out for me: "My 10 Commandments of Smart Money." #10 is "Above all, though shalt not forget that people wish to separate you from your money.")

Definitely get your friend out of there. You will be doing her a huge favor. The NAPFA link posted by @SumDay is a good place for her to start.
+100 The only people that I know who retired from MC's, and are now having visible financial problems, are those who let a friendly FA separate them from their DB pension (ie lump sum cashout) and then "invested" it for them.

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Old 07-26-2018, 03:12 AM   #17
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Yep, I agree with others ... not good for your friend.
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Old 07-26-2018, 05:27 AM   #18
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Thanks everyone, for the responses.

I've summarized them and let her know he is not working in her best interests...and also cautioned her that the FA may put up a bit of a stink if when she chooses to move her monies elsewhere.

omni
When she finds a new FA or home for the funds, that person or company can handle the transfer for her. It should be done on an "in kind" basis as much as possible, to avoid capital gains taxes in non-retirement accounts until new decisions are made.
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