Fee Overload: How I Was Sold a Costly Pension Plan with Hidden High Fees and Poor Performance

This is the type of advisor that deserves more than just a punch—maybe an eye gouge, a knee to the groin, or even a "people’s elbow" from The Rock.

I had a client whose mother was doing business with another advisor a couple of towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me. When her mom brought in her account statements, I couldn’t believe what I saw. I had asked both the daughter and the mother what the intent of their investments was, and both agreed that the safety of the principal was a major concern.

The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future. When I hear an 80-year-old widow tell me that she’s worried about her principal and needs access to the money in a short amount of time, I immediately think of CDs, money market accounts, or a savings account.

Well, not this advisor. No, this advisor put most of her money into different preferred stocks and long-term bonds. One of the preferred stocks had a maturity date of 2040. Now, for those of you who don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond. So, they can fluctuate like a stock and pay interest like a bond.

Well, when the time came that the mother needed the money, interest rates were fluctuating, and in just a few months' time, she saw a 30% drop in principal on those preferred stocks. When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time, but that was of little comfort after taking such a huge hit on her money.

Lesson learned: If you think you need to access the money in your investments short term, don’t let an advisor con you into buying anything other than a CD.

I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I learned that he had purchased a fixed annuity at his local bank a couple of years prior.

Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple of years prior.

My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge and that they could take their money; principal and interest, and walk away at any time.

Why did they believe that you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty. Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.

Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table.

Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away! Lesson Learned:Just because the advisor tells you something doesn’t necessarily mean it’s true. If something sounds too good to be true, ask for it in writing.

Long story short, recently saw a Financial Planner as I was about to make my first home purchase. It was a stressful time and I was looking to consult a professional to make sure I could afford long-term. I'm not financially illiterate but I'm not an expert, especially with things like forecasting how finances can affect my future long-term. In retrospect, I really should have seemed multiple planners but ended up going with the one due to time restrictions in the property search (pre-approval and the like).

This planner wasn't exactly badly reviewed. The process seemed legit, starting off with an SOA (Statement of Advice) being issued and a good amount of questions and direction from me. I wasn't quite sure what this document would entail but basically, it had some basic general advice (skewed a little bit) followed by switching my super to their fund and buying some life insurance through them. I got the piece of paper with this advice and found out that they would cost 11% of my total super to engage for the entire year which is huge. There was more content of disclaimers than actual advice. Probably only 3 pages of actual numbers.

Basically, after a year of engagement, I'd be worse off financially than if I hadn't engaged them at all. I should have read between the lines but this wasn't clear during the engagement phase.

Anyway, I coughed up the amount for the SOA (a month's salary) because I had signed for it, but I feel like they shouldn't have engaged me if I was going to be financially worse off after their services. The percentages weren't made clear until the advice was issued which was basically a glorified fee proposal.Anyway, let this be a warning to you all to really hone in on what you're getting if you do seek it and decide if it's not something you can figure out yourself. It was a waste of time and money for me and can't help but feel I was tricked as I'm not an expert in this field. I've put it down to a hard lesson learnt.