Beware Of Humpty Dumpty Financial Healers

Friday, September 2, 2011, AM | Leave Comment

Any time during a bearish market or a bullish market, there has always been a bombardment of advertisement in every media for financial advisers. Whether you need any, they are always there in your face, day and night. Now a time comes like these days, the lousiest market in memory, that you actually do need a financial adviser and needless to say a good one. There are, literally, hundreds of thousands of financial advisers trolling your Inbox, voice-mail and doorsteps ready to put whatever assets you have left to work.

However, some or probably more than some, are Humpty Dumpty healers who claim to heal your financial health. Beware and be warned what some financial advisers claim to heal but may not tell the whole truth.

As always, remember it is your hard-earned money. Don’t let anyone play with it or experiment with it.

  • Trust me – I have been a healer for many years

    This kind of statement has never made anyone an expert on anything. In fact, the law puts a burden on consumers to do research on their own. Financial advisers don’t have to disclose all past disciplinary issues to potential new clients.

  • I found a stock that is a great buy in this lousy market

    One stock can make you rich. You can retire in three years after you buy this stock. In that case, ask them to present to you their research of why they want you to buy that particular stock. Remember that the vast majority of brokers don’t do their own independent research and are compelled to recommend what their firms are telling them to recommend.

  • The mutual fund I recommend has no fees or no commissions to you

    That is not entirely true. On the surface, may be but even no-load mutual funds carry expenses associated with the management company that’s investing the assets, as well as commissions from trading.

    These expenses are always disclosed in the mutual fund financial statements. Do your own comparison. Read about it and educate yourself.

    At the end of 2007, the average stock fund had an expense ratio of 1.02%. Also, many funds have annual commissions called 12b-1 fees, which are deducted from fund assets before the daily circulation of the Net Asset Value (NAV) – a mutual fund’s price per share – like other fund operating expenses.

    “12b-1” fees in practical terms refers mostly to money incentives (kickbacks) paid to brokers and other wholesalers for pushing the funds to retail investors.

    The 12b-1 fee reduces after-fee performance of a fund and decreases the return on your initial investment. Brokers are not required to verbally disclose these, but they can be found in the prospectus of every mutual fund.

  • Upgrade to our annuity – no tax to you in the process

    When you sell one stock and buy another, you pay capital gain taxes on the first one. When you make a direct transfer of accumulated funds in annuity from one policy to another, you don’t create an event that is taxable.

    This provision in the tax code is known as “1035” exchange. It also applies to life insurance policy and endowment policy.

    • The problem is fees, expenses and other details. Most annuities carry high up-front fees for the broker and issuing company, often as high as 7% of the annuity value.
    • Also, remember that an exchange will mean starting a brand new “surrender period,” or the length of time that you have to pay a fee to get your money back.

In a Nutshell
Whatever and whenever you hear something which is “too good to be true”, it usually is. Just do research on your own. Don’t take anything for granted. Obviously, you have access to information online. Educate yourself as much as possible.

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