When is a Recommendation to Change a Good One?

When markets are tough, emotions run high. Investors want change and advisors are willing to give that to them. You have to be careful when making changes to your investments. There is no room for mistake.

So, when should you make an investment change that is recommended by your advisor? That depends on two things. First, it depends on whether or not you are working with an advisor that is selling investment products and this is just the latest product. Second, it depends on whether or not this makes the most sense for you as a client.

The problem is that, for most people, it is tough to know whether or not you are being sold a product or given a good recommendation. So, to keep the playing field even and your money protected, let’s take a look at some of the recommendations that don’t make sense.

1) Be suspicious when the recommendation is based on selling an investment and investing it into the next great investment product that is going to revolutionize your life.

If a recommendation is really questionable, it will need to be dressed up. So, the recommendation ends up being over the top. This is what I am seeing today with the equity indexed annuities. These are being aggressively marketed as the cure all to everything. Here is what you need to know about investments – there is no one sure slam dunk way to invest money without taking risk. If there were, then you wouldn’t have thousands of money managers working that hard to figure out markets.

2) Be suspicious when the recommendation is to sell one commission based mutual fund and invest it into another commission based mutual fund.

For you to pay a commission a second time on the same investment money, there needs to be a good reason. If there is not a good reason and this is just to create commission, it is unfortunately going to be tough to recognize. The sales pitch is going to be pretty convincing. So, the key is to spend time making the advisor really explain the reasoning. Ask some very tough questions. Most importantly, pray about making a good decision and don’t go forward until you are 100% at peace with the decision.

3) Be suspicious when the recommendation is to move your money from one investment to another one and take a penalty when you do so.

You typically see this with annuities. I cannot think of any reason to sell an annuity to move money into another annuity and restart a new surrender charge penalty. These recommendations come with big justifications for selling the annuity and taking that loss.

Here is what typically happens when you are receiving the offer. Let’s say that you have $100,000 in an annuity. However, if you sell it, you are going to take a 5% loss. The recommendation is to sell the annuity, take the penalty, and then reinvest that money into this new annuity that gives you a 5% bonus for investing. Thus, you are reimbursed for that penalty.

Unfortunately, what most investors don’t realize is that you don’t get something for free. In this case, the investor will not only take the big penalty hit, but they will also be unknowingly paying for the 5% bonus that they just received in the new annuity.

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