I met with a very dear lady the other day who had just recently retired. Prior to retirement, she sat and down and talked with an Edward D. Jones broker to get advice regarding whether or not she could retire.
She had roughly $348,000 at the time. After looking at the situation and maybe even the commissions that would be made off of the rollover, he tells her that she definitely should retire.
The problem is that she would need an annual withdrawal from that IRA of $27,000. That would require her money to earn at least 7.7% a year just to meet the withdrawal. With inflation hovering between 2 and 3%, she would actually need between 10 and 11% a year just to keep up.
So, based on the horrible (irresponsible) advice, she leaves a company that she has worked for for 41 years. She didn’t necessarily need to retire. She was happy working. It would just be nice if she could retire. So, the broker gives her bad advice, she retires, and he makes a fat commission.
If that is not bad enough, this is how he invested the money:
28% One Stock – Categorized as Aggressive
10% Fixed Income – Through Mutual Funds
62% Stocks – Through Mutual Funds
That is 90% stocks and 10% bonds. From my standpoint, that is very aggressive. Thus far, she has lost roughly $40,000 or 14% in just a few short months.
Now she will have to go get a job to help support her monthly expenses.
There are three things to know about the financial advisor community.
1) Just because a person calls themselves a financial advisor, planner, consultant, doesn’t mean that they are qualified to give advice.
2) Always get more than one opinion.
3) The financial advisor community is working for commissions. After the sale, there really is no incentive to do anything for you unless you have more money to invest. It is a SALES BUSINESS.
Of course, there are exceptions to the rule. You just need to be careful of the ones who just sell product.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
