Most people who hire a financial adviser do so because they truly need the help. They may have a complicated financial or tax situation, or have just come into some unexpected money like an inheritance, and need advice on how – and where – to invest their money to secure the best possible returns while minimizing costs and unnecessary fees.
Unfortunately, not everyone listens to the advice they pay for. While having a financial advisor in your corner can help you make better financial decisions, most of us still have free will – including the freedom to ignore our adviser’s advice (and even common sense) altogether.
Should you follow your financial adviser’s plan for your money, or follow your heart instead? The advice of a professional or the advice of a friend? At the end of the day, it’s really up to you. But if you go rogue, you could pay a hefty price for it.
We asked some financial planners to share craziest things they’ve seen a client do with their money, and here’s what they said:
#1: Betting On a Winner
“I had a client tell me that he was going to withdraw $20,000 to invest in a race horse that his brother would train. His wife and I both tried to talk him out of it but he was convinced that they had a winner on their hands,” says Dave Henderson, CFP, of Integrity One Wealth Strategies.
“He was talking about how much he could make from winning races and then the breeding fees that come from a champion horse,” Henderson continues. “Well, no surprise: The horse never won anything! Unfortunately, these were not wealthy people, so the lost $20,000 will be missed.”
#2: Never Invest in Phone Books
“I once had a client that was set to receive a settlement from a lawsuit involving the death of her husband. Unfortunately, this newly widowed client was not financially ready for retirement and may have felt the need to ‘catch up’ by taking a gamble with her new nest egg,” says Benjamin Brandt of the podcast Retirement Starts Today.
“She rejected my proposal for a well-diversified, low-cost investment portfolio, and instead decided to invest with her friend starting a phone book company,” Brandt says. “When was the last time you used a phone book?”
#3: Invest In What You Know
“The craziest investment idea I’ve seen a client participate in was an electronic medical records company,” says Peter Huminski, president of Thorium Wealth Management. “Now, the idea of doing EMR was not crazy. Digital records is certainly the future of medical data. The idea was crazy because the client was not in the medical field or the software field, but sold restaurant equipment for a living.”
Huminski continues: “He took $100,000 out of his retirement account to start an EMR company with a friend of his. They spent four years trying to make the company go, and eventually he gave up because of the competitive nature of that business. The moral of the story is that if you’re going to invest in or start a private company, it should be in an area where you have some expertise or understanding.”
#4: Losing it All in the Wash
“The craziest investment I ever saw a client make was in a laundromat,” says Neal Frankle, financial advisor from Wealth Pilgrim. “This was a client who became disabled at work and was physically impaired. He never had his own business and was not an entrepreneur. The client was simply mesmerized by the dollars the business broker kept waving in front of his face,” he says.
“Despite showing this client the failure rate of laundromats and the risk he was taking, he pulled all his money out of his retirement and investment accounts, including the settlement he got at work, and invested in the laundromat,” Frankle continues. “Keep in mind that he had enough resources already to create the kind of income he needed. But he took the risk — for no good reason — and lost his entire nest egg in six months.”==============
#5: Drinking Liquid Assets
“I had a client once who won a fairly substantial sum on a scratch ticket. He quickly decided that he would invest the proceeds in buying expensive wines from around the world and holding onto them for a few years as they ‘age’ and turn around and resell them for what he thought would be a tidy profit,” says Eric C. Jansen, founder of AspenCross Wealth Management.
“A number of years later when I inquired how his wine investments were paying off, he admitted he and his friends had drank nearly all the bottles he had purchased. Nearly $150,000 worth apparently,” Jansen says. “At least he kept his investments ‘liquid’ in case he needed access to them…”
#6: Paying Crazy Fees and Having No Idea
“After more than 24 years as a financial adviser, I’ve seen a lot of craziness. However, the craziest, which I continue to experience regularly, is when a person has no idea what their investments are or how much they cost,” says Russ Thornton, financial advisor at Wealthcare for Women in Atlanta.
“I work with a lot of individuals who are dealing with divorce or widowhood, and many of them often have no idea what’s going on with their money,” Thornton explains. “As an example, I recently began working with a widow, and upon reviewing her current investment accounts, I discovered a ‘hall of shame’ investment. It was an illiquid, private placement fund with – get this – an 11.5% up-front charge, 10% of which was paid to the advisor that sold this crap to her.”
But wait, it gets worse. “In addition to the 11.5% front-end load on this fund, there were annual operating expenses of 6.41%. That means that every year, simply for the privilege of owning this awful investment, she was being charged almost 6.5%. Needless to say, though it took some time and effort, we got her out of it as quickly as possible,” he says.
“Whether we’re talking about illiquid, nontransparent investments like the one above, or expensive annuities with eight years of surrender fees, be sure you know what you own, how liquid it is, and most importantly, what it costs,” Thornton says. “To not know this basic information about your own hard-earned money is just crazy.”
#7: Investing in Secret Boyfriends
“Our client, Delores, was a compulsive spender,” says Charles C. Scott of Pelleton Capital Management. “And we knew it, so we had her sign a letter of acknowledgement absolving us of any responsibility if a compulsion suddenly hit. We also notified her adult children of our requirement of their mom.”
Delores was doing fine for many, many months, Scott says. “Then we got an email stating that she needed to send money to her boyfriend for his daughter. They were traveling overseas and the daughter was in an accident and needed immediate care, and the boyfriend didn’t have the funds to cover it at that moment.”
The way Dolores explained the situation, it sounded plausible enough. “We verified with her the validity of the story, and it all seemed pretty legitimate,” Scott says. “The funds, $25,000, were being sent via Western Union. Some of the funds were dispersed, and then Western Union put a stop on subsequent transfers when they realized the destination of the money was – you guessed it – Nigeria! It was a total scam,” he says.
“When we notified the client of what had transpired and got her to admit a bit more information, we found out that she had never met the boyfriend. It was all online,” Scott says. “And the picture she had of him looked remarkably like those you would find at Target in the picture frame section.”==============
#8: When It Sounds Too Good to Be True
“It’s always those get-rich-quick real estate scams that seem to pop up around the middle of spring. Many of my retired clients receive ‘special reports’ via certified mail, FedEx, or UPS, which tends to make the contents of the report appear as though it is more credible,” says Martin A. Smith of Wealthcare Financial Group.
“I had one client who was eager to catch up on retirement savings that he missed out on by beginning his retirement savings much later in life. He withdrew approximately $60,000 from his 401(k), opened a separate brokerage account with an investment custodian, and gave power of attorney to a real estate expert in Texas who had promised to 1) double his money in 90 days and 2) generate a stream of residual income by reinvesting his cash in rental property.”
You can probably see where this is going. “He eventually called to tell me that he borrowed funds from his 401(k) and wanted to know if I thought that he made a good investment decision,” Smith says. As soon as he heard the words ‘investment’ and ‘guarantee’ in the same sentence, Smith continues, “I stated that he made a very big mistake and would likely lose 100% of his $60,000 investment. Thankfully, the self-proclaimed real estate guru hadn’t yet accessed his money to invest in real estate. Therefore, my client was able to recoup 100% of his money while also learning a valuable lesson.”
#9: Investing as an Art Form
“One time I had a client request a $25,000 withdrawal via email so they could make a private investment,” says Grant Bledsoe of Three Oaks Capital Management. “The use of the term ‘private investment’ alone made my spider senses tingle, since he didn’t share any other information. Either my client was embarrassed to tell me what he wanted to invest in, or his email account had been hacked.” To make sure his client’s account hadn’t been compromised, Bledsoe left him a voicemail asking for a return call to confirm the request.
“When he called back, he did indeed confirm the request,” Bledsoe continues. “But when I asked about the private investment, he sheepishly told me the funds were for an art project. A contact of his had some type of traveling art show, and needed a van to go on tour. In exchange for the van, the contact had promised some of the proceeds from the project. Without sharing what his ‘cut’ was, my client insisted that he’d be paid out six times his investment once the tour was completed… which was only in 12 months!”
Bledsoe explained how quickly vans depreciate in value, in case the tour didn’t work out and his client needed to reclaim his property. “We also reviewed how much oversight my client would have while the artist was on tour, as he was the sole investor. I shared my thoughts on the investment, but my client wanted to proceed anyway,” he says. “That was about 18 months ago. To date there have been no proceeds to my client, and his artist contact disappeared in February.”