Reading this article really hits home because this is the type of stuff that gives my profession a bad reputation at times. So many unscrupulous salesmen are using phrases like “your principal is guaranteed” to mask the risks and drawbacks of certain products. In this example an insurance broker is peddling an annuity product to an 83 year old with dementia. These products have heavy fees sometimes up to 12%, and according to Allianz, to pay the early termination fee the client would have to forfeit 12.5% of the principal investment.
Another product that I’ve seen misrepresented are private R.E.I.T.’s. Often brokers sell these products and don’t fully disclose the potential risks to principal, and the heavy fees involved. I’ve seen numerous clients that have been sold both annuities and other fee intensive products that have wanted to get their money out but have been denied due to the lack of liquidity inherent in them. In an egregious example I’ve seen a client who needed his money out of a private R.E.I.T. for a brain surgery to save his life, but both the company and the agent would not give him the money for months on end. The agent flat out refused to talk to the client because the client “just didn’t get it” so I took over the matter to find a resolution even though I had nothing to do with those products or that client.
These situations can be avoided by increased financial education, and through more attention being paid to the financial services industry’s obligation to honor its fiduciary obligation, which is to always act in the clients best interests.