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May 13, 2007 at 04:00 PM
Let’s connect the dots: Baby boomers are likely to run out of money in retirement. It is going to be a big surprise to them. Investors hate surprises.
Unhappy investors, particularly surprised and unhappy investors, run to their attorney’s office.
Out-of-money retirees do not have many alternatives at that stage, and the alternatives are all unpleasant: a) go back to work (if physically able and if firms other than big box stores will hire them); b) decrease spending dramatically; c) die; or d) sue their financial advisor who didn’t protect against this catastrophe.
Prediction: most times, they will choose d). In fact, they will file complaints and lawsuits in record numbers.
Now some advisors are thinking, “well, that is 10 years away, and the statute of limitations will save me.”
Think again. Earlier, the advisor’s chief legal counsel probably had a great idea–mandatory National Association of Securities Dealers arbitration on all new account forms. The legal counsel noted how this would put the advisor in a friendlier, less expensive forum than the county courthouse. Most advisors agreed, so they now regularly refuse to take on an investor unless the client gives up his/her rights to sue the advisor in a court of law.
The good news about that is that the advisor probably has saved some time and some money in arbitration.
But there’s bad news, too: arbitrators are unpredictable and have been known to completely ignore the statute of limitations, to the detriment of the firm. So advisors shouldn’t count on the statue of limitations to save their bacon.
To make matters more difficult, there is a great product that could help investors have a guaranteed income in retirement and allow them to have equities in their portfolio. This product gives retirees a steady stream of income they can never outlive. The problem is, many advisors are too scared to mention it, due to unwarranted bad press and misunderstandings.
The product is the variable annuity. There are at least 25 reasons why VAs are attractive from a litigation-prevention perspective. Here are just three:
1) Investors know their worst-case scenario the day they sign the paperwork. Granted, they will not know the best case on the day they send in a check; only time and the market will tell on that score. But they do know the worst. That means there are no surprises. And surprises are what drive unhappy investors to their attorney’s office.
