Fintech executive, writer, math geek, and investment systems developer. Founder and CEO of Altruist and Founder of FormulaFolios.

Danger: Con Artists Masquerading as Financial Advisors Coming to a Town Near You!

I'll probably do a weekly market update tomorrow - but ran across something today I had to share with my blog readers. As a financial advisor I'm constantly being bombarded by companies trying to sell me their products/services; or trying to get me to try to sell my clients their products/services.  99% of the time I ignore the shiny objects and go about my independent, objective research.

But today I got an email that peaked my interest, though not in a good way.

The advertisement was basically a pitch to annuity salespeople on how they could double, triple, or even quadruple their annuity sales by becoming an RIA (Registered Investment Advisor).  Hmm.

For those that aren't aware of the various distinctions between financial folk, there's basically three types of financial advisors:

  1. Fee-Only Investment Advisors
  2. Commission based agents/reps/brokers (those that sell things like annuities, life insurance, load mutual funds, or stocks and bonds)
  3. Fee-Based advisors (advisors that get paid commissions AND charge fees)

What the advertisement was basically saying was:

"Hey - most smart investors know that the majority of annuity salespeople are just looking to get paid.  Imagine if you advertised you were an objective advisor?  That you could tell people you are a fiduciary and had a legal obligation to act only in their best interest?  Yeah, you'd be a real professional in the eyes of investors in your local market.  Well, we'll show you how to do that - so you can then sell them more annuities and get paid more commissions that your clients won't even have to know about.  How's that sound?  Well then, what are you waiting for?  Let's get you licensed and teach you how to not really lie, but not tell the truth either!  Yay!"

So I meandered over to this companies website, and you'd never believe what they posted on the site!  They actually recorded their conference calls showing annuity salespeople how to actually mislead investors into buying high commission products.  And a ton of things they said are (for the most part) illegal.

Here's a little proof.  I recorded a short bit of their recording, just so you all know what's happening behind the scenes in the not so sunny parts of the financial advice world.

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A Quick Recap of the Recording

The speaker mentions how the Series 65 license is this wonderful license that opens all these doors.  It will allow salespeople to look like real advisors, transfer entire brokerage accounts electronically, and make selling larger and more annuities much easier.

He even says, " creates the opportunity to market yourself as a fiduciary."

Well, in reality when you are a Registered Investment Advisor you actually ARE a fiduciary.  It doesn't mean you can market that you are, and then not actually be one.

He then goes on to brag about how this great "marketing" technique of looking like a real advisor but not actually being one allows him to transfer a clients entire brokerage account and then sell them "...50%, 60%, or 70%" into annuities.  In the past it would have been pretty much impossible for this to happen because the client would otherwise have had to call their brokerage firm and sell 50-70% of their current investments in order to buy said annuity.  Of course as soon as the phone call would happen, the brokerage account people would advise against the annuities.

That killed a lot of annuity sales.

With the model they're advertising, well, it does nothing but confuse and hurt investors.  So watch out and be highly skeptical of anyone who leans so hard on their "fiduciary" standard but cannot say they are 100% fee only and will never make a commission from their recommendations.  I suspect you'll start to hear more and more advisors talking like they're fiduciaries and working on a fee basis, but ultimately just try to sell products that pay rather large commissions.

Annuities aren't the Problem - Bad Advisors Misleading Investors is the Problem

Now before anyone beats me up for this article - I'd like to mention that not all annuities are bad.  Many times they are appropriate for a portion of ones money.  In fact, I've seen quite a few investors do very well with annuities.

The problem I have is the blatant misleading of investors and highly illegal way people are going about it.  I sincerely hope someone shuts outfits like this down.

If you know someone who might benefit from this then please forward it on.  If you have a facebook account you can use our social share buttons below to "like" the article, and pass it along that way too.


Jason Wenk

Thanks Veterans! Market Update 11/11/11

Another look at Tactical Asset Allocation

Another look at Tactical Asset Allocation