They must be the good guys, right?

At one time, just after returning back from UK, I had a significant balance in my HDFC savings account. HDFC people started calling me stating that they will send a special advisor to help me get good returns - better than savings account; all free. So I invited them to meet me at my home (COVID times).

At the first instance two gentlemen came and started preaching about HDFC Life Sanchay Plus scheme. I was not interested but I did not wish to sound rude. So I told them that I will think about it and meanwhile they can send me prospectus, etc. The next week the two came back.

They first called and said that their senior, a lady, would also like to meet me to explain the plan, options, benefits, etc. They came with rather good looking lady. This is a typical ploy. There is a group of people about 3–4 who come and target you. One of them is a pretty girl/lady who will go on to explain how life is uncertain, how one must be ready for the future, how their scheme works the best, etc. This is a psychological ploy.

First you are surrounded and hounded. Then the pretty lady, without saying so, tell you how you are making a colossal mistake. They play on your fears. You don’t wish to look stupid in front of a pretty lady. So you cave in. Once again, I was not convinced. I said I didn’t need insurance plans or pension plans. I may be open to look at investment plans and retirement income plan. Again, they went (or tried to go) for the jagular. They said that this plan they were suggesting “guarantees me” income for any term that I chose - 10 years, 30 years, life. The amount is free of tax. At my death, my nominee/heir will get the full invested amount, etc. I told them - let me think.

And no, we’re not talking about churning butter. I was talking with another potential client who was considering switching advisors and although they lived in a small town in the Midwest, they had somehow started doing business with an advisor out of New York. They had been with this person for several years and had a hunch that things weren’t all what they seemed.

They thought perhaps the advisor was selling funds and buying other funds just for the sake of earning a commission, and since I was the guy they were considering hiring, they were interested in me taking a look. After reviewing their account statements and the trade confirmations, it was quickly and easily obvious that was what was being done.

Sure enough, the advisor was selling A-Shares; another type of mutual fund, and turning right around and buying other B-Shares, sometimes it was the exact same fund. It made no sense other than the fact that the advisor made a commission on each of those trades.

Lesson Learned: If you are using an advisor on a commission-based relationship, be on the lookout for an influx of unusual trade confirmations. If you see a lot of activity, it might be worth inquiring about.

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.