Third Time’s a Charm
I MADE A MAJOR change late in my career, leaving behind my job as a financial manager at a dying computer business. I knew I needed to change. If I didn’t, there was a good chance I’d soon be out of work.
My new job, however, wasn’t what I expected.
I’d been with the computer company since graduating college. I was in my mid-50s and smart enough financially to know I still needed more savings for a successful retirement. The company had frozen the company-funded pension plan. Instead, it offered a 401(k) where we—the employees—had to make investment decisions. Most of my colleagues had little or no investing experience and had relied on the company-funded pension plan to provide their retirement needs. I helped fellow employees with what knowledge I had.
Around this time, my parents were forced into early retirement by the company where they both worked. They asked me to help them with their retirement decisions, including meeting with a financial advisor who’d been recommended to them. Because of the good decisions made at this time, my parents’ retirement funds lasted until they were in their 90s, even with their early retirement. My brother and I were able to continue to manage their retirement accounts and handle our mother’s assisted living expenses until she passed away at 100.
After these experiences, I decided to go back to school to obtain the required licenses to work in the financial services industry. My hope was to help others approaching retirement make sound financial choices.
At the first firm I joined, I was told, “Everybody needed whole-life insurance.” I was told the policies would provide clients’ entire retirement needs, as well as any financial needs during their working years, because they could borrow from the policy. An IRA and other personal savings accounts were—supposedly—not needed. Available funds should be put into whole-life policies. Clients weren’t told about the high commissions that came with the policies or that borrowed funds would need to be paid back.
I was informed by my managers that whole-life insurance was what I “needed” to sell. If folks already owned one policy, they needed two or three. Colleagues who were successful told me to search only for wealthy potential customers who could afford the policies and not to be too customer-oriented. Whole-life insurance offers very high commissions—many times more than what a salesperson would get for selling an equivalent amount of term-life coverage. The insurance agent receives 30% to 90% of the premiums paid by the client in the first year of a whole-life policy. In later years, the agent might receive anywhere from 3% to 10% of each year’s premium, which are called “renewal” or “trailing” commissions.
Because I was, by nature, less of a salesperson and more of a financial advisor, I left and joined another firm. Again, I thought initially it would be a good fit, allowing me to help people achieve their financial goals. But shortly after joining, I was pulled into a manager’s office and told that, if I wanted to succeed at the firm, I needed to sell the company’s annuity product. I would receive good commissions, keep my job and “everybody needed an annuity” because it would provide all their retirement needs. With an annuity, clients also didn’t need an IRA or other savings accounts. Available funds should be put into the annuity.
If customers had one annuity, they should have two. Colleagues who sold the company’s annuity product were handsomely compensated. Those who didn’t would have trouble meeting their sales goals, were put on notice and were soon let go. Among new hires, just 20% survived at the firm. Typically, brokers received a fixed fee or a 2% to 3% commission when they advised a client on investing through an IRA or another type of retirement plan. But when they sold an annuity, the commission was as high as 7% to 10% of the large six-figure sum usually invested. Once again, this second firm didn’t prove to be a good fit for me.
With my third job in the financial-services industry, I was told to always do what was best suited for the client. If I did this, I would be successful in my career. I would only have problems if the company found I was doing otherwise—selling a product that wasn’t the best fit for the customer. I was paid a salary, not a commission based on sales. I received a bonus when I received good reviews in the customer surveys that were frequently conducted by the firm. I ended my career at this firm and am now happily retired, feeling I was able to educate people and help them to make sound financial decisions that best suited their goals.
My advice: Don’t hesitate to ask financial advisors how they’re compensated. Ask whether they have a fiduciary responsibility to help you—the client—make good financial decisions. If they don’t, their recommendations may be best suited not for your retirement goals, but theirs.
Paul Puglia lives with his wife in North Carolina. They play golf, enjoy visiting their kids and grandkids, and take trips during a retirement that they both worked hard to achieve.
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