Tricks in My World

Mother Nature is playing some tricks on us in NE Ohio right now. We set a record high of 74 for Akron yesterday and tonight we are supposed to have snow. Oh, I am writing this on Monday morning. Since she is playing tricks on us, I figured I would share some of the worst “tricks” I’ve ever seen in my industry. The definition of “tricks” is going to be up to you, however, I thought I would share some direct observations.

Official disclaimer - these are outliers. Most people in my world are honest and always put clients first. However, you know the expression about bad apples and all that. However, I quickly learned I spend a lot of time protecting my clients from some of the bad parts of this big and confusing world I live in that is the financial services industry. 

Your first trick. Making someone sticky. This was a term I heard frequently when I first started in this industry a lifetime ago. The basic concept is you get a client so connected to the services your firm offers they can never leave. Hotel California is running through my head regarding checking in and never leaving. It is things like handling their investments, cash accounts, mortgages, insurance, corporate banking, and whatever else is available. My philosophy has always been if a client doesn’t want to be with me I want them to be where they want to be. 

Next trick is one about fees. Now, I only saw this one time so I hope it is an anomaly. But I think the advisor who told me about it learned it from someone else. His trick was when a client asked the fee they were paying he would tell them the amount he netted of their fees and not their entire fee. Let me explain. At most larger firms advisors get paid out on a grid. Most of the fees a client pays go toward overhead charges at the firm and not directly to the advisor. Just to keep things simple and semi-accurate, let’s assume the firm keeps 60% of the fee and the advisor keeps 40%. So, if your advisor charges 1% on a $1 million portfolio you are paying $10,000 a year. $6,000 of the fee goes to the firm and the advisor gets $4,000. Well, what this advisor would do is tell clients his fee was $4,000. Technically this is correct, however, it is not the whole story nor even half the total fee the client was paying. My point is to be sure to get clarification on all fees you are paying and not just what the advisor is netting. 

Our third trick is one you hear me talk about frequently. There’s nothing more expensive in the world than free. I think this is the quote from the Deacon of The Wire. It is 100% true. These offers of “free” things seem to be never ending. Here are a few of my favorites:

• “Complimentary second opinion on your portfolio.” Now, there are a few advisors in my world who are actual physicians, but even they do not use the trick code of “free second opinions.” 

• Another complimentary one is a consultation to review your situation. This is usually after a “free” dinner. My favorite with the dinner invitations is to read the fine print of who is not welcome at these. The language often says “financial advisors, CPAs and attorneys are not welcome.” I wonder why? Actually, no I don’t as I know why. They don’t want to be fact-checked. 

• I just lump all TV commercials and radio spots into this category as they are always offering “free” reviews for anyone who calls in. This is especially true for the 30-minute TV or radio show. I don’t know what a 30-minute segment on TV costs, but I imagine whatever fees happen after the “free” reviews are rather hefty to pay for the air-time. 

• The final one I have just started seeing is not only “free” consultations, but also $500 discounts toward final costs. Now, the couple of times I have seen them come from attorneys, but it certainly caught my attention.

 Onto the next trick. Again, this is one I saw only one time, but I know the guy learned it from someone. I have to give some background first. Years ago I was invited to a training event hosted by a national TAMP. This stands for Turnkey Asset Management Program. Basically, these are companies that create and manage investment portfolios. I went because I knew of the company and wanted to learn more. Well, I did not realize their cohost was an insurance company. 

There was an inordinate amount of time spent talking about selling annuities and various high-commission insurance products. One “advisor” stood up and explained how he sold. I don’t recall all the details, but it was not good. Basically, he would put half of a client’s investments in an annuity that paid him a commission around 10% of the account balance. So, if the client had $1 million he would put $500,000 into an investment portfolio paying $5,000 a year and then $500,000 into an annuity that paid him a $50,000 commission. However, he explained to the clients his fee was actually only $5,000 because “the insurance company paid the fee” on the $500,000 that went into the annuity. He was somehow allowed to tell clients their fee would be .05% or $5,000 for the $1 million and not the actual fee of 5.5% or $55,000 they really paid. And if you believe that I am sure this guy had an oceanfront home in AZ to sell you. 

Oh, the insurance company that was a cohost was one that produces those 30-minute radio shows you hear early weekend mornings. Final note, last I heard that “advisor” was eventually bounced from the industry, but who knows how much damage he did. Again, verify all fees! 

Your final one is not a trick, just the worst sales pitch approach I have ever heard. It is also a big joke in my world, but one that is still used frequently. It is cheesy, but sadly it works as I have a friend who told me years ago he always does this with his “advisor” at their annual meeting.  Oh, this should sound familiar to you as I have referenced it before. It is the old – “I get paid in two ways. The fee you pay me and the referral of your loved ones and friends you care about.” This is usually followed up by a request to write down the contact information for three people this advisor should talk to. Better yet, if you could call them right now so you could all talk together. Again, super cheesy but is still used and still works. I did not laugh or comment when my friend told me his advisor does this as he was really proud to refer so many people his advisor’s way. 

This seems like a good place to stop. I am starting to get too cynical, even for me. The point with today’s article is to simply remind you to ask questions, be sure you understand everything, and know you are always in control as it is your money. As I said, this is a big and confusing industry and part of my job as a CFP® is to help protect clients from the all too uncommon tricks.

I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.