by John Darer CLU ChFC MSSC RSP CLTC
Advisors Face Major Conflicts On Pension Vs. Lump-Sum Decisions
So says George Yacik in an article published November 5, 2018 in Financial Advisor magazine. Yacik reported how Ford recently gave its UK employees the option to take half of their defined benefit pension as an immediate cash lump sum while leaving the other half as a company pension. Lots of American workers have been offered that option over the past several years as companies look to divest themselves of large retirement liabilities. But it’s often a tough decision for the recipient: Should they take the money and run, so to speak, or leave it where it is, which often provides guaranteed payments for life and some of peace of mind.
Not surprisingly, financial advisors themselves are divided on how to counsel their clients. For one thing, “financial advisors have a conflict of interest when it comes to the pension vs. lump sum decision,” notes David Ruedi, a financial advisor at Ruedi Wealth Management, a fee-only RIA in Champaign, Ill. “If a client chooses a pension instead of a lump sum, there will be no assets for the advisor to manage, which means less revenue for the advisor. For that reason, I feel the best approach to helping clients answer this question is to discuss the financial and emotional considerations involved, so they can make an educated decision about what is best for their life. The ‘right’ answer is ultimately going to depend on the specific details of the pension options, the financial circumstances of the individual, and the emotional makeup of the individual.”
“When I explain the tradeoffs to clients, that is the main thing I stress: Do you want to take the risk of having to manage the money or do you want your former employer to do so?” says David Zavarelli, a certified financial planner in Danbury, Conn. “Clients generally cannot replicate the risk-free return of a pension plan. They may be able to grow the money to generate income greater than what the plan illustrates, but they will have to put it into the markets and that means they have to have confidence and patience while the investment value rises and falls with the markets. That is easier said than done. Many see a loss, then panic and sell.”
Conflict on Interest Applies to Buyers of Structured Settlement Payment Rights Giving Financial Advice
Many of the people giving financial advice have no financial licenses of any sort or any financial planning credentials.
Most structured settlement payment buyers offer you only two options (1) a partial sale and (2) a sale of all of your payments. With each of those options the best they can offer you is a significant monetary loss. Even the best companies can only offer pennies on the dollar.
In recent times two companies in South Florida have printed materials with manipulated illustrations that show nonsensical hypothetical rates of return that you "could potentially get on your money', if you sell to them, for pennies on the dollar. It's not only a conflict of interest but it's also a sham. Sooner or later there will be litigation over it. Mark my words.
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