Financial Advisor, Financial Independence, Financial Planning, Investing, Podcast, Saving
June 02, 2019
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In this episode of Women & Money, Suze describes the five mistakes you need to avoid when dealing with a financial advisor and delves into the topic of how your mind makes you poor.
June 2, 2019. It is June 2nd, 2019. Three days before my 68th birthday. And so many moms have been writing in. Actually so many grandmothers as well and they're saying to me Suze, where were you all these years ago? How do I teach our kids? How do I teach our grandkids to be smart with money? To have values, to really know how precious money can be? And so I decided that's a great question and I have a great answer. I wrote a book called The Adventures of Billy and Penny. And this book really is for five-year-olds, six-year-olds, seven-year-olds, eight-year-olds, anybody can learn from it. But it was really to teach the value of money. Fabulous book. So fabulous that I decided that for my birthday I'd like to give gifts rather than to get gifts. So starting today, June 2nd through June 7th, 2019. If you go to Amazon you can download for free, the e-book version of the Adventures of Billy and Penny. So you can download it, it's free and you can start educating your kids, your grandkids, people that you know, people that you don't know. Anybody and everybody. Again, my gift to all of the young guns out there. So take advantage of it, spread the word, tweet it. Facebook, tell everybody about it. Download as many as you want. Again, it is free. Happy birthday to me. Alright, let's begin today's podcast. The other day I'm sitting on my front porch. And I'm watching people go by, and I'm having just the best time, and I decide oh I know, I'll check to see, do I have any emails at the email@example.com? That is where you write in when you want to ask a question. And I'm checking to see, I wonder if I have any new ones because I've answered all the ones that have come in. Oh yes I have. So I'm looking and I see quite a few now have come in and there's this one email from a woman by the name of Chaz. And I'm reading it, and I'm reading it, I'm like no no no no this just can't be. And I'm reading it and I'm going oh my God I think it is. And I write her back and I go what is your phone number? She sends me her phone number. I call her back immediately. Yes, I call her. And I'm saying, Chaz, can you just tell me if what I am reading in this email is true? Did you do everything that you just said that you did? And she said yes, I did. I've already done this. I did this two weeks ago. I'm like really? Really? No Chaz, no. So before I tell you what Chaz did, I asked her well if you've already done it, why are you writing me? What do you want to know? And she said I wrote you Suze because I had a feeling that what I did wasn't right and I just wanted to check in with you in the hopes that you thought it was right so that everything would be okay. But the news is it wasn't okay. Hopefully I made it okay. But let me just briefly tell you what she did and why she did it. Chaz was simply looking for a tax-free income later on in life when she retired. And so she went to some financial advisor. I don't know how she even found this person. And was saying I want tax-free income what is the best way to do it? A Roth IRA, a Roth 401K? What can I do? And somehow this financial advisor convinced her to take $250,000 from her 401k. Which her company allowed her to do, and do what's known as a partial IRA rollover because she had more money than that in her 401K. And put it in this IRA rollover, and start to withdraw $1,500 a month every month for the rest of her life. By withdrawing $1,500 a month, she would avoid the 10% penalty tax by taking money out because she wasn't 59 a half. And there is a rule under the IRS codes that allow you to do that, but it's something none of you want to do so I'm not going to explain it to you. So now, Chaz is taking out $1,500 a month or $18,000 a year that she is going to have to pay taxes on. Oh he never told her she was gonna have to pay taxes on it. When I said Chaz, do you know that this $18,000 a year is going to be added to your income and between federal and state income taxes, given how much money you make, you're gonna lose about 50% of it or $9,000 a year? $9000 a year. That could have been in your 401k earning money for you, growing for you. But instead, you're gonna pay taxes on it now. And he convinced her that she was going to take that $1,500 a month, and put it in to an insurance product, that would grow and grow, and later on in life, she could take out a loan tax-free against the amount of money that was in this insurance policy. Now did any of that just make sense to you? I doubt it, because it made absolutely no sense to me. Did any of that sound complicated to you? It should, because it sure sounded complicated to me. But yet Chaz went for it, because again he seemed so professional, right? All the people around him who were doing these things seemed like it was just great. And yet, it makes absolutely no sense on any level what so ever. The good news is, and you should know this, is that in a good insurance policy when you buy an insurance policy, there is usually a 30 day look back. Which means you have 30 days to look back and decide, do I really want to buy this? Is this something that I really need? Because chances are, maybe somebody sold you something that you didn't need, like in this particular case and therefore you're able to get out of it. I was able to give Chaz instructions of what she needed to do to cancel this policy, demand that they put her money back in a 401K, and hopefully start all over again. All Chaz needed to do was to open up a Roth IRA. Even if it were a backdoor Roth IRA. Put her money in there, let it grow, and eventually that would be tax-free. But Chaz got complicated. So today's podcast, I want to talk about the five mistakes that you need to avoid when dealing with a financial advisor. Because these are the five mistakes that most people make. The first mistake I want you to avoid is this. I want you to think twice about the recommendations that other people give you when you're choosing a financial advisor to use. You can't just take recommendations from anybody. What do you know about those people and maybe they're your next door neighbors. Maybe they're your good friends, maybe they're your mother, your father. Maybe there are all these people that you love and have respect for. But are they good with money? Do you in fact know that they know without a shadow of a doubt that the financial advisors that they are using are really making them money? Do you have any idea how many times when somebody has told me that they have this great financial advisor, and I say you do well, how much do they make you every year? I don't know. All I know is I see that my money is growing. Then it turns out it's growing because they keep depositing money. Well what are you invested in? I don't know. They know nothing about it. So if you are going to take the advice of somebody else, or the recommendation of somebody else that this is a good financial advisor, can you just spend some time asking them questions like how do you know they're good? How long have they handled your money for you? Did they handle your money when markets were going up, or did they also handle your money for you when markets were going down? How many times did they call you? All these questions. What is the return they get you? You need to ask questions, and not just take other people's words for it. And the reason that I emphasize that as the very first mistake that you need to avoid is that how do you think everybody got into trouble with Bernie Madoff? One person gave a recommendation to another person, to another person, and to another person. And I interviewed a lot of these people, and I would always say to them, well I know you got a recommendation from this movie star, from this person, from this director, from this very wealthy person. But when they told you that they were making this much money, did you believe it? Every single one of them said, well it sounded too good to be true. In my gut I wasn't quite sure, but they had been with Bernie for many years, so I decided I needed to go too. Again, their mind was leading them to be poor. If they had simply trusted their gut, they never would have given all of their money to Bernie Madoff. Maybe a little bit. But most of them gave it all. That is the number one mistake I want you to avoid. The second mistake I want you to avoid is this. I know the advisors are nice, and I know you call them. And they talk to you, and they're so happy to hear from you. And they say to you, we’ll come see you at your house and you go, oh great. And I don't have to go to them. No. If you are going to use a financial advisor, it is mandatory that you go to their place of business. You want to see that number one. Where is it, is there more than just one person there? Do they have a, you know, administrative assistant? Do they have other people around them? Is their office messy? Is it organized? You want to know everything about them. That is essential. If they come to see you, if you ask me, they have too much time on their hands. So that mistake has to be avoided. The mistake where they come to you versus you going to them. Also under this mistake, it is essential that if you are in a relationship, you are married or you are with a significant other that you are going to be with forever, both of you need to go. This is not just a relationship where it's just you and the other one gets to do something else with their money. It's both of your money on some level. So both of you need to go, both of you need to agree, both of you need to feel good about it. The third mistake you need to avoid is this. To not ask how they make their money. You know, you don't like to talk about money, You don't even want to know how the person giving you the advice is charging you. You just wanna go in, get out, get rid of it, it's over, you did it, you don't have to deal with it anymore. Wrong. You need to ask them, are they on commissions? How do they make their money? Are they a registered investment advisor? You need to ask every single thing about how are they going to charge you. And it has to feel right to you. It can't feel like oh, that's a lot of money. Or oh, all right. And then you be afraid you need to know. Chaz never asked this advisor how much money he was going to make and he most likely was going to make 60, 70 or 80% of the first year of commissions into this insurance policy. He was going to make a lot of money. So over time, what you pay an adviser takes away from you unless that advisor can make you more money than what they're being paid and you need to just understand that. Again, the fourth mistake I want you to avoid is you do what they tell you to do, you don't do what your gut tells you to do. Now I started out with this one but I'm going to re-emphasize it again. In Chaz's gut she didn't feel like she should do it, but she did it because somebody told her to do so. You are to avoid that mistake. You are to not do anything other than what you feel is right for you. Again, remember it is better to do nothing than to do something you do not understand. And the 5th mistake that I want you to avoid is this. That you are afraid to tell somebody you don't like what they did with your money. You think they made a mistake with it. That you want your money back. That you want out of there. Chaz was afraid of, would she hurt this person's feeling? Would she not know what to say to him? So, she asked me to dictate to her. Now. All right. I need to tell him this. I want to do this. I want to do that. And it was almost as if she needed me to help her to raise her courage levels to tell him that he screwed her financially speaking. And she wanted out. You are not to feel sorry for a financial advisor who has done wrong by you and therefore you want to leave him or her. You need to be stronger than that. This is about your life, your money. They should be afraid to be facing you if they did something that is wrong. Not the other way around. But no, as a woman, you don't even want to hurt somebody's feelings that took advantage of you really. These are just five little mistakes that I want you to avoid. There are other ones as well. Obviously, you are never ever to write a check directly to a person. You always want to make sure that a financial advisor, even if they have their own office, is associated with a big brokerage firm, like a Schwab, like a Merrill Lynch, like a Fidelity, like a TD Ameritrade, somewhere. And that is where your money is held. You want to make sure that everything is safe and sound. But those are five mistakes that you always need to avoid. Not just one of the five, not just three of the five, but all five of the five. I've said to you a million times that you will never be powerful in life until you are powerful over your own money. How you think about it, how you feel about it, and how you invest it. Please don't let your mind keep you poor. Please don't let your mind tell you that just because you're not good with math, just because your parents weren't good with money, just because you didn't have the education, that you can't do this. You can't do this because you don't even try. Because you don't want to. So the question has to be asked and answered, why don't you want to be a powerful woman? Why don't you want to be a strong, smart and secure and independent woman? Why? Why? It's not enough just to make money. I'm watching all over the place, all of these people, all of these women now giving these seminars on how to get ahead, how to make more money, how to you know, do these things so that you can be and be paid the money that you deserve to be paid. But nowhere at any of these seminars do I see the thing of what do you do with the money that you make. It's not enough just to make it. It's enough when you make it, when you invest it, when you're powerful over it, when you're making your own decisions, when you know what to do, when you know what not to do, when you are not afraid to say, I don't want to do this. All of those things are involved. It's not enough just to make money. It's what do you do with the money that you make. Because let me just go back to Chaz for a second. She makes good money. She saved money. And if now we weren't able to help her reverse the mistake she made, she is going to lose a lot of money. So what good did it do her to even make that money? So now the choice is up to you. You're gonna start getting involved with your money. You're gonna start to want to get involved with your money. Not just because Suze Orman sits here and harps on you and tells you that you should. Can't you just want it for yourself? Is it really that hard? I don't think so.
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