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What happens when bad advice meets up with an unprepared professional advisor?

By Ted Polci, CLU, TEP

Four members of our staff and I have just completed the task of rescuing a very nice gentleman and his wife from an impending financial disaster. The potential loss to the clients was over $200,000 in tax and penalties, plus hundreds of thousands more in wasted insurance premiums. It has taken over a year and almost 100 hours of work on the file to correct the problem(s).

So, what happened to cause all of this ? An aggressive financial advisor without proper training and focused only on his own interests, oversold the clients and put them into a 10/8 plan that was totally inappropriate for them. The poorly conceived financial plan was a dangerous combination of:

a) Too much life insurance,

b) Incorrect advice on interest deductibility,

c) Hand-written spreadsheets from the advisor instead of company produced,

d) Use of increasing term rates instead of fixed level cost rates inside the Universal Life plan, and

e) Total disregard of the assets, income and stage of life of the clients (near retirement).

The C.A. advising the client at the time was a partner in a major accounting firm. She admitted she didn’t understand how the strategy worked, but the advisor was so confident and so forceful, she became convinced she could rely on his instructions and advice.

After the clients changed accountants, we were called in by their new accounting firm to see if we could help them understand what was in place because it didn’t look right.

We spent some time explaining how 10/8’s worked, where they fit and where there were concerns. They shared the client file with us and it became clear to all of us that these clients had been misled and were in a serious predicament.

What did we do ?