Tales of the Rescue Clients

Many people will adopt so called “rescue” dogs or cats. This is a very noble endeavor. These animals are rescued from cramped, lonely kennels and offered a second chance from a loving family. This is also a much better story than hearing about another purebred being flown in from the Midwest at a cost equivalent to a small automobile. My fee-only RIA firm works with many rescue clients: people abandoned, neglected, and abused by financial firms using the suitability rule and having a sales-based culture. I will leave out the names of the firms involved, but they all have pleasant, inspiring TV commercials that do not at all resemble the situations I have seen:

1. U.I.T Boy– This investor was rescued from an endless loop Unit Investment Trust. These products usually consist of a group of securities hand-picked with a fixed expiration date. In theory, they provide benefits such as lower costs, and customization. In reality, my soon-to-be client was paying 5.75% every two years when his fund expired, and his money was placed in a newly-created U.I.T. (kind of a perverse version of a CD ladder designed to generate a huge up-front load numerous times, instead of just a couple). I am happy to say this rescue client has found a new home in inexpensive ETFS as part of a broad asset allocation strategy.

2. SHY Girl– This investor had her fund managed by a major firm and was charged 1.5% for the privilege. When she mentioned she was approaching retirement, the “advisor” moved all of her funds into SHY which holds 1-3 year Treasuries yielding about 0.2%. The client could not figure out why she never made money. A rescue operation was implemented and now her dividend/interest is comfortably above the management fees she pays.

3. 403B Hostage– This teacher had his 403b money in a very expensive annuity, which has no business being in a tax-deferred account. Once I explained the situation to the teacher, he promptly called the sales agent from the large insurer who sold him this stinker. The agent’s reply was, “Please don’t tell anybody else about your findings.”

4. Go For It Girl– This client had a segregated account in which she told her broker he could take some extra risk. After becoming disillusioned with the inattentiveness of the sales rep, she decided to move her accounts to my firm. I received the funds but inquired that this aggressive account had yet to arrive. She called the firm and was promptly told the account was worth nothing! Apparently all the money had been lost!!! I call this a partial rescue.

5. Buy Them All Guy– This investor had an account with over 300 stocks in it that were all pretty much in the S&P 500 with a large, well regarded firm. When I asked him to inquire about the possibility of just being in the Index and saving a lot of recordkeeping energy, the response from the firm was interesting. Evidently there was someone over in Scotland who was a major stock picker and this strategy had beaten the market for decades. I dug deeper into the case and found out over the last 15 years this strategy had underperformed the Index by 2%, not including management fees. This operation is in progress and will hopefully have a happy ending.

6. No Meeting Man– A newly added client had not had a meeting with his previous broker of 10 years, even though he was approaching retirement and had children about to enter college. When his account was liberated, I also discovered all of his funds were of the Class A variety and were at twice the level of risk he was comfortable with. We have already had three meetings in two months.

7. Computer Program Couple– These clients showed me their portfolio and I noticed an ungodly amount of trading activity. I asked them to inquire why this was necessary. They were told their money was being managed by a computer program that was capable of “reading human emotions” and was able to “time” the market with uncanny accuracy. Needless to say, the money was moved and market forecasts and timing are no longer part of the investment conversation.

8. Sorority Sister– This woman lived out of state and was told to put her child’s 529 funds in a state plan that was located 3,000 miles from her home. She asked me to investigate it and the conclusion contained damning evidence. The fund that was recommended to her was sponsored by the brokerage firm that held her other accounts, and was known for its excessive fees. Her own state’s plan was better and she could have even received a state tax deduction for her contributions. An emergency rescue was put in place just in time before another $50,000 was about to be wired to this dog.

I could have mentioned many more, but you get the idea. The villains in this story are the household names that are currently spending millions of dollars to avoid legislation that would force them to look out for their clients’ best interests. The sad part is there are many people out there in need of caring advisors who do not make investment decisions based on the size of a commission check. Rescue clients and animals both deserve a better life. Adopt the pet and write your Congress person to pressure them to support a fiduciary rule for all financial advisors. In both cases, you will be doing the right thing for animals and people alike.

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  1. Andrew Comstock commented on Mar 11

    Excellent post! In my experience running a fee only firm I have encountered many of these same situations. I have also seen more private REITs that many clients who are near retirement were sold has yield replacement products. They have proven to be very expensive to exit.

    • Anthony Isola commented on Mar 11

      Thank You. It really is a shame but on the bright side it makes it easier for people like us to gain new clients. Had someone today who didn’t know he had a margin loan on one of his securities!! Most financial advisors are salespeople and that is the cold hard fact and root of much of the evil. Thank you for reading my stuff.