Jimmy J. Williams, CPA/PFS, CFP®
Know Where You Will Land Before You Jump
What if you purchased an investment that the insurance salesman informed you would give you annual payments for your lifetime? What if you were 83 years of age? The reasons for the preceding questions are due to the factual case of a client that came to our office.
One of our retiree clients began asking questions about an insurance product that paid annual lifetime payments and earned an unusually high rate of return the first two years. Puzzled by the initiation of the conversation on this topic, I asked her why she was interested in this product. What transpired was a conversation that both shocked and irritated me.
The client’s mother is a widow and 83 years of age. She began to regale me with a story of her mother and a friend attending a free luncheon where they were introduced with a story about “guarantees” and “lifetime income”. Of course, with no understanding of what she was buying, her mother was informed by the salesperson, or she understood him to state the fact, that her money was insured.
We asked the daughter to bring her mother to our office to personally discuss the matter and confirm the facts of the purchased investment. After a few minutes of her mother describing the event and “nice young man” that spoke, she provided a copy of the contract for our review. Quickly I noticed the product came with a 12-year surrender period. Keep in mind, the lady was 83 at date of issue.
Complicating matters was that she had placed all her liquid cash except for $50,000 in this investment. After our discussion, she was quite upset and acknowledged that she and her friend had made a mistake buying the long-term, illiquid product.
The story doesn’t end with our conversation. Due to the recent purchase of the product, we informed her that she was in her 20-day Free Look Period and that she could cancel the product purchase with proper notice given the insurance company. We assisted her in the cancellation process, and she thanked us for helping her understand the investment more comprehensively.
These types of incidents occur too frequently to the elderly in our communities. Without knowledge of the products in which money may be invested, the elderly are prime targets for unscrupulous salespeople.
I should point out that the person selling the long-term investment to the elderly lady had a proper insurance license and wasn’t a CERTIFIED FINANCIAL PLANNERTM professional.
The lesson learned is that nothing in life is free. This has been borne out from my father’s teachings when I was a little boy. There is always someone paying the bill for the service or product you supposedly receive for free.
Want to know how the story ended? The elderly lady received her sizeable amount of investment back and was provided a plan for her future that addressed cash flow, estate, and tax matters to empower her to make good decisions. She has a reasonable amount of reserve for potential emergencies and no longer eats free meals offered her by strangers. So, as the storybook always reports, all lived happily ever after.
Investing requires understanding, education, and awareness about the strategies you employ for your future. Don’t invest your money in sophisticated strategies that are incomprehensible. Consistent investing over a period of time in a fully diversified portfolio that is easily monitored and rebalanced gives you greater comfort and confidence in your future. Seek out the advice of a CERTIFIED FINANCIAL PLANNERTM professional to help you understand your investment portfolio. One of my favorite quotes of Abraham Lincoln applies in this situation: “The best way to predict your future is to create it.”
Registered Principal, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Jimmy J. Williams is an Investment Advisor Representative of Compass Capital Management, LLC, a Registered Investment Advisor. Cambridge and Compass Capital Management, LLC are not affiliated. 321 S. 3rd, Ste. 4, McAlester, OK 74501.