Boring Money is Beautiful

Dina here …

I have a bird’s-eye view into the many ways investors have been misdirected by their financial salespeople; but this past week I encountered a perplexing situation – which is rare, as I’ve seen a lot.

In the past, the usual “suspect-behavior” has been selling investors expensive mutual funds and annuities when better, lower cost options existed.  I’ve seen investors saddled with unnecessary surrender charges and no asset allocation strategy.  In short, I’ve seen no rhyme or reason to the recommendations that were made, but for one consistent theme:  It was really good for the person selling it; not the poor investor buying it.  This week, I can add illiquid, inappropriate investments to my list of worst things I’ve seen.

A new client came to me unhappy with his 403(b).  After we set about fixing that, he asked me to move over his IRA, as well.  That’s when the fun began.  The rollover request couldn’t go through, as the investments needed to be sold at the previous firm holding the assets.  The client and I called the firm together; the trading desk was very helpful but the trader informed us that there was one investment he couldn’t sell as it wasn’t held there.  He was kind enough to give us what contact information he had.

We set about on a hunt – probably about 30 minutes later we started to get some answers, but they were not good answers.

On an account worth under $20,000, more than half was invested in one position – an illiquid REIT (Real Estate Investment Trust).  The share price is 44% less than its purchase price – which tells me, someone collected a large commission to recommend this.

We were placed on hold as the rep dug around trying to find the right information/paperwork.  It turns out that in order to get out, the client had to apply during a limited period (tender) and, based on how many people were also putting in a request, and how many shares that constituted, they may or may not be able to liquidate all of the shares (at 44% less than what he purchased the shares for).

As if that wasn’t enough, they required a Medallion Signature Guarantee (i.e., an onerous roadblock) from a very specific entity (another roadblock) – and that entity would then be responsible for sending in the request to liquidate.  Then he would have to passively wait to hear when he could have his retirement funds, and how many shares would be available to him for liquidation.  The rep had no contact information for us to reach out to this entity that was integral to the liquidation process.

We were on the phone probably a total of 40 minutes.  During one of the many long periods we were on hold, I remarked, “For the record, we would never recommend anything to you that can’t be liquidated the same day.”

He laughed out of exasperation, not humor.  There was some embarrassment mixed in there, too.

Not that I needed reminding, but many people are overwhelmed with the process of getting out of these unfortunate investment choices because it is difficult, time-consuming and can feel like there is no end in sight to the hurdles and delays.  Often times, they give up and their assets remain hostage at a company they now have grown to hate.

Know this: It is a stall tactic to crush any desire to move forward.  What you need to decide is if you’re okay with someone else wagging your tail.

Furthermore, there are plenty of good straight-forward, low-cost index funds out there to satisfy a multitude of investment needs.  There is no need to put your money where you can’t access it without being tortured or gouged. That is never in your best interest.

The client was grateful that I had spent so much time on the phone trying to get answers.  Companies like this make it very easy for clients to see why working with a fee-only fiduciary, like me, is a different, client-focused experience.

They did all the talking for me. I just wish it didn’t have to cost my new client so much wasted time and money.