Now That Hes Gone

she was in on the meetings.
    At their first appointment, the financial advisor took on a fatherly air. “I know you aren't real savvy when it comes to investments,” he said. “And you don't have to be. Your husband has left you very well off and you can trust me to take good care of you. Leave everything to me.” Katherine looked around the plush, well-appointed office, saw plaques on the walls attesting to this advisor's training in various financial products and remembered that her husband had a high regard for him. This seemed to be enough to satisfy her, though she was a little uneasy about how little she understood when it came to her investments.
    Wanting to know more, but not quite sure what to ask, Katherine simply said OK and let the advisor decide how to reposition her assets. He put the entire million dollars into a single premium deferred annuity. On the surface, this appeared to be a reasonable investment. Annuities are insurance contracts. There are several different kinds of annuities and hundreds of annuity products to choose from. The basic idea of an annuity is to give the investor a regular income, for life if she wants it, with little or no financial risk. Sounds good, doesn't it? Usually, it is.
    In this case, however, the annuity was one that paid the financial advisor a 12% commission. That means he got $120,000 up front when she signed the contract. That's one-hundred-and-twenty thousand dollars—a huge payday for the advisor. You must understand that the insurance company doesn't use its own money to pay the commission. It uses the investor's money. This means that Katherine's $1 million annuity was immediately worth only $880,000. Since the insurance company guarantees that upon redemption, Katherine will get at least her principal back, they put heavy penalties into the contract to discourage her from trying to get out of the contract before they've had a chance to make that money back—in this case, 10 years.
    When Katherine came to me and showed me what she had, I was angry and saddened. It angered me that a member of my profession had taken advantage of Katherine in this way, cashing in on her ignorance and betraying her trust. It also saddened me that she was stuck in this contract for all those upcoming years because the advisor did fill out all the forms properly and did explain the items he was required to by law. In order to get her money out and move it to a more appropriate (and less expensive) investment, Katherine will probably have to sue the man that her husband dealt with for so many years.
    To help you avoid something like this happening to you, I'm going to give you some suggestions that will help you to determine if you have the right kind of financial advisor for you.
1. You must take responsibility for your financial numbers.
    A lot of women view financial figures as some big mystery. They're not. Or at least they shouldn't be. If you're intelligent enough to read and understand this book, you're intelligent enough to understand your finances. What I'm saying is you must understand these numbers. You cannot settle for taking the advice of someone who does not show you how they got those numbers. He must explain them in a way that makes sense to you. If he does explain and it still doesn't make sense, ask him to explain again. Don't sell yourself short. You can understand. If you don't “get” what he's saying, take your business to someone who explains things in a way that you do understand.
2. The advisor must be willing to tell you how and how much they get paid.
    Financial advisors get paid in different ways. On some products, they receive an up-front percentage of the amount invested, as with Katherine's annuity. On others, they receive a transaction fee when you buy and another fee when you sell. Some advisors don't take anything up front. Periodically, they get paid a percentage of the value of the assets under management. Very often the advisor's compensation is hidden and won't be disclosed to you unless you ask. Sometimes the compensation information is contained in the prospectus, a document that's typically so thick and hard to decipher that almost no one reads it. Many advisors count on this. As long as they're giving you the prospectus to read, they are technically complying with the disclosure laws, even though you have no idea how much they're being paid.
    The important thing to remember is that the advisor should tell you exactly which method is