Mortgage financial advisors pushing risky loans
In the fall of the year 2005 and when the real estate market was going crazy and all kinds of real estate investors were giving speeches and masquerading as advisors, I attended a local seminar about real estate investing.
I already had my rural land property/investment business model developed and most of my current advisors in place. A mortgage broker was speaking about loans for real estate.
These so called mortgage financial advisors were recommending people take interest only loans to fund their real estate purchases because the rates were low and it cash flows easily. There are many problems with this dumb advice.
Here are some:
- Debt at some point has to be paid back. Anybody who has done any investing and used debt with real estate, stocks, or a business knows this. Delaying indefinitely paying off a debt is foolish.
- Even if an interest only loan for any type of investment cash flows today, it might not tomorrow, next month, or next year. The investment might quit paying. For example:
- The tenant lost his/her job. The property flip did not work as the foundation crack was not discovered during the euphoria when the property was bought. Funds (from more debt) were needed to fix the crack when an engineer who looked at the property to buy it discovered it.
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Whole life insurance before...your 401k?
Not advice that I was given, but I've worked with plenty of clients who were told by someone else to buy whole life insurance BEFORE investing into IRA or 401(k)...young, no kids, no spouse...just bad financial advisors looking for commissions.
Fee Overload: How I Was Sold a Costly Pension Plan with Hidden High Fees and Poor Performance
I went to see one about setting up a private pension because I don't get one through my employer (employed through an offshore company). Got charged about 150 quid for them to go away and "research" some options for me (probably very little research to be done; they already have a standard set of funds that they use through Openwork). For the first year they wanted 35% of my contributions.
The fund that they "found" for me (something Graphene, can't remember the name of it and I'm not at home to check) consisted of several individual funds to apparently lessen the risk of a single fund manager going to shit. In total the funds consisted of about 70% UK equities (why?), had rubbish past performance when compared to a global index tracker and would've cost me well over 2 or 3% per year (can't remember the exact number sorry), plus about 1% per year to the financial advisor for "management" after the initial 35% for the first year.
The “12%” Advisor
A few years ago, I was competing for a client’s business. I was one of two other advisors who were being interviewed, and I gave my traditional spiel. It turns out that one of the guys I was up against had guaranteed to the potential client that he could make 12% in the stock market.
Now, keep in mind that this was not before 2023, and even if it was, it wouldn’t matter. The advisor was using basic mutual funds and still had the audacity to claim to my client that he could net him a guaranteed 12% return.
I was in shock.
Lesson Learned: If you ever come across any type of advisor that guarantees you any rate of return, and isn’t quoting you a fixed annuity, a CD, or some type of insured bond – don’t fall for it. It’s too good to be true. Get out of their office fast.
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