The “Surrender Charge Conversation is Optional” Advisor
I once had a person come to me who was very disgruntled with their current financial advisor. They had lost more money than they’d wanted to and really didn’t understand what they had. When I had a chance to take a look at their mutual fund portfolio, I noticed that all they had were B-Share mutual funds.
For those of you who don’t know, B-Shares, for the most part, are now non-existent. Although I can’t be certain why, my hunch is that they aren’t around anymore because too many advisors abused them. If they could still sell them, the advisor could make a handsome commission, and the client would never know.
Now, it’s not the commission on the B-Share that makes them so bad; it’s the fact that most of them had a six- to seven-year surrender period. That means if you buy the fund, you’re going to have to hold it for at least six or seven years before you can liquidate it without a penalty.
The client in my office had no idea what a B-Share was, and most importantly, had no idea that she had a surrender charge attached to it. So here she is—stuck in investments that had lost more money for her than she had wanted, and she can’t do anything about it. If she did sell it, she’d have to pay a surrender charge on top of her losses. Talk about a slap in the face.
Lesson learned: Read all the fine print and make sure you understand if your investment product has any type of surrender charge attached to it.
Related Horror Stories
Pushed to the Edge: How Three Financial Advisors Tried to Sell Me High-Risk Investments I Didn't Need
Had three different independent FAs try to sell me into high risk VCTs (despite being wholly inappropriate for my goals / financial position) - all I wanted was some one-off financial modelling that I couldn't figure out in a spreadsheet. I literally gave up trying to find an FA at that point.
My First Financial Advisor's Churning Taught Me to Take Control of My Investments
A lonnnng time ago, my financial adviser (my first brokerage account) churned my account. That means that he traded frequently, just for the purpose of generating commissions. In those days, there was no such thing as the low deep discount commissions that we pay today (and no internet). When I eventually figured out what he was doing, I began the process of learning about the financial markets and I have done it myself for 40 years.
What are some signs that your financial advisor is stealing from you?
He is a new friend
He is a long-lost relative
He approached you in church with a Bible in hand
He offers you a guaranteed high steady return
He is addicted to something that is expensive
The name of his company includes the name of any of the Founding Fathers, any prestigious US or British University or sounds like it is affiliated with Veterans or the US government
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