We come upon lots of interesting situations as wealth advisors, especially during the discovery phase or our planning process. Discovery is when we try to get a handle on our client’s life and gain an understanding of what’s going on with their money. Client situations and financial product problems are almost always detected during discovery – it’s a very important part of the process!
A new client referred to us recently came in with an assortment of insurance products that they were sold by a representative at a major local bank that I will refrain from naming, reluctantly, because this bank seems to love to sell insurance products – namely life insurance and annuities. First they convinced the client to exchange an older, perfectly good, life insurance policy for a new one to collect a commission. Then, to make matters even worse, the bank sold the spouse an annuity for her IRA rollover account. Yes, for her IRA which is already a tax deferred wrapper that doesn’t cost a thing! The cost for the annuity is 2.5%/yr for the mortality and expense charges and internal mutual fund expenses, PLUS another 2.5% for two riders (lifetime income and death benefit) that they will probably never need or use! This $370,000 annuity came with a total of $18,000/yr in annual fees – yikes!
We’ve seen some pretty egregious things over the years and this one ranks up there with the best. How did this happen? The sales agent played on the emotions of the client. What client wouldn’t want income and death benefit “guarantees” after all. Unfortunately the client just didn’t know what questions to ask from there. We see this happening all the time. And the banks you think you can trust are the worst offenders!