It's been awhile since I've had a good rant about "financial planners/advisors," so I figure I'm due. Next to pets, they are my favorite whipping post. ;-)
Here's a piece I found from Money that offers bad advice from a "financial planner". It starts with the following question:
I plan to retire in three years and expect to be able to live well from my retirement plan and other investments. I'm also thinking of paying off my mortgage early so I won't have a large house payment in retirement. But an adviser has suggested that I instead take out a home equity loan on my house and invest the loan proceeds in an insurance policy, which he says will accumulate cash value tax-free. Can you give a second opinion on this advice?
Are you kidding me????!!!!! Here's a better idea: cash all the equity out of your house and send it to that guy in Nigeria who keeps sending you email offers. Seriously. It's almost as good of an idea as this "financial advisor" (translation: salesperson) offers up.
Fortunately, Money wastes no time answering this person's question the appropriate way:
Yes, here's my second opinion: don't do it.
Why? Money's reading my thoughts:
The plan your adviser suggests would work out great for him since he'll probably get a nice big fat commission on the sale of the insurance policy. Things may not turn out so nicely for you, however.
In fact, I believe you would be embarking on a plan that entails quite a bit of risk and that you may be seriously jeopardizing the later years of your retirement, just when you would have fewer options to repair the damage.
Money then explains in a bit of detail why this is a bad idea and then issues this warning:
I'm sure your adviser can provide all sorts of projections that will make this scheme seem like a no-brainer. But make no mistake: this isn't a risk-free proposition, and the most dangerous point in this strategy isn't early in retirement, but much later on when you've got huge loans outstanding.
Here's what Money suggests as an alternative:
So my advice is pay down your mortgage as you were planning so you can lower your monthly expense nut in retirement. Or put the money you would have used to pay down the loan into a nice mutual fund so you'll have that cash to fall back on after you retire.
And some final advice that's right on the mark:
But if I were you, I would I not go along with your adviser's recommendation. And I'd consider looking for a new adviser.
I don't know where to start on this topic -- there's so much to rant about. But I'll try to keep it short. Here goes:
1. Why is this guy a few years from retirement and still with a mortgage anyway? If he would have followed my formula for buying a house, he would have been debt free decades ago. It may be too late for him, but not for you. Check out the post and act accordingly.
2. There's not much to say about this sort of "financial advisor" that I haven't said already -- other then reiterate how mad this sort of person makes me. Check out these posts for some details:
- FMF Speaks: My Thoughts on Using Financial Planners (Or "Why I Don't Go to a Fat Doctor")
- Comments: FMF Speaks: My Thoughts on Using Financial Planners (Or "Why I Don't Go to a Fat Doctor")
- MND: How to Choose a Financial Advisor
- MND: Operate Your Household Like a Business when Hiring a Financial Advisor
- MND: Hiring the Wrong Financial Advisor is Bad for Your Net Worth
3. It's too bad that guys like this "advisor" give legitimate financial planners a bad rap and make it hard to sort out the sharks from the people really working in your best interest.