How to avoid bad advice or outright fraud when finding financial advice

An Army financial counselor will spend years in prison after his conviction on defrauding Gold Star Families. If nothing else, the story should alert members of the military and their families to use care in picking a financial adviser in the first place. The Federal Drive Host Tom Temin spoke with someone who has witnessed this sort of bad advice, and he has some tips for avoiding it: Thiago Glieger of RMG Advisors.

Interview Transcript: 

Tom Temin There’s some really bad advice that happens out there, isn’t there?

Thiago Glieger Yeah, there’s a lot of really bad actors that are very interested in enriching themselves at the cost of other people. Which is a really unfortunate part of the industry. And it can be seen in a lot of industries, but particularly in the field of finance, given its complexities. And so oftentimes, people are not exactly certain about what’s happening with their accounts, such as was the case in this scenario where people were not really sure about what was happening, what was occurring, what kind of fees were being charged on the account. And ultimately, they paid the price.

        Discover how agencies ensure end-to-end security of software development in our new ebook, sponsored by Synack.

Tom Temin Yes. Well, in that case, they were actually defrauded out of some of their principal as opposed to just paying fees for bad advice. So at some point you can get that advice, but it’s not necessarily criminal and theft. In this case it devolved over to fraud. Are there signs that people can watch for possible fraudulent activity?

Thiago Glieger Yeah, I think the big thing that you want to stay on top of is making sure that you’re looking at account statements. I’m a big proponent of not following every single day, because if you’re watching the markets, that could make you very nervous, but you don’t want to neglect looking at what’s happening in the account. There should be the place or the custodian that the money is there is going to be reporting dollars that are coming in, dollars that are coming out. In this case, I understand there were fraudulent signatures that were a part of it as well. And so money was leaving the account. And if you’re staying on top of those accounts statements, you’ll be able to see, hey, wait a minute, where is this distribution going? Did I authorize this? Does it look right to me?

Tom Temin Especially if it’s a TSP account or an equivalent, an IRA account. Then there would be normally, until you retire, no disbursements at all.

Thiago Glieger That’s right. Unless you’re the one that’s initiating a distribution directly with the TSP, there should be no distributions coming out of there. So if you’re working with a financial planner or an advisor or someone who is positioning themselves as a financial counselor and they’re presenting you with forms, or they’re talking through how to make a distribution, moving money from the TSP, you really need to understand exactly what’s happening there. Where is it going? Why is it being done? How is that going to help you in the long run? Questions like that.

Tom Temin And then of course, this particular person who is just convicted, whatever his name was, was just a piker compared to the greatest Ponzi thief of our time, which was Bernard Madoff. And the issue there was the returns were so good and so consistent that he was hiding in plain sight. And so if you see the market fluctuating and you keep rising, I guess nowadays, in the latter days after Madoff, that itself is a sign.

Thiago Glieger That’s right.

Tom Temin Too good to be true.

Thiago Glieger That’s exactly right. Advisors are not miracle workers. When we create portfolios for clients, we are participating in the markets for clients. And so if the markets are going up, clients should be going up. If the markets are going down, you should be going down with that. There are a lot of products out there that pitch guarantees. A lot of federal employees are often pitched, these products where they will say, well, you protect your principal, the money can’t go down, ever. And those are usually built around insurance policies. So that’s how there is some protection there. But again, that too good to be true should always be in your mind. If something is seemingly like it’s going to protect you constantly asking those deeper questions, how does this work? If you’re not fully comfortable or you don’t fully understand how the investment product works, I always like to start asking more questions and make sure clients understand.

        Read more: Defense News

Tom Temin And sometimes the assumptions might be rosy, even though it’s a legitimate investment. About a year ago, I was somehow on a mailing list for people that operate wells, oil wells, and I did some research and they seemed like a legitimate company going back some time. I looked at third party sources and not just their website. I also looked at the map of where they said these sites will be. And yes, it’s a huge area of the country where some drilling is going on, but there assumptions on crude oil prices seem to be pretty good. And plus they wanted a substantial investment in a piece of this and so forth. And our advisor said, well, just buy some oil stocks if you want to do that rather than try to be a well person. So that kind of exotic thing also, it’s something to maybe, take a second look at.

Thiago Glieger Yeah. The commercials invest in Belize that maybe you’ve seen on TV and those kinds of things. Those are they’re called direct participation programs where you go in essentially as a limited partner. So you sign this agreement saying you’re going to contribute X number of dollars, and there can be some interesting tax benefits from that kind of stuff, write offs and things like that. But I would venture as far as to say for most federal employees that I have seen, it’s really not the most advantageous thing because it’s so hyper specialized. And again, thinking about an investment as a tool, you got a Home Depot, you go to Lowe’s, you’re grabbing a tool for a project. Investments are the same thing. What kind of tool is best going to be available in useful for you to support whatever you’re trying to accomplish, whether it’s retirement, college funding, buying a house, whatever it is.

Tom Temin We’re speaking with Thiago Glieger, a private wealth advisor at RMG Advisors of Rockville, Maryland. And there’s ads on TVs for firms that are fiduciaries. And that’s considered, I guess, the gold standard, someone who has no alliance to a particular fund or set of investments. But is that always the way to go? Our fiduciary is really the gold standard. Or can you do well with someone connected to an operation that makes a profit off investments?

Thiago Glieger Yeah, I think that when it comes to your personal financial future, you have to understand whether somebody is giving you advice toward that end or if somebody is offering you a specific product. And so if you go when you buy a car or you buy a life insurance, you buy a house, those are very transactional types of businesses and that can be totally fine. Somebody is selling you a policy. They’re not necessarily operating in a fiduciary capacity, and that’s okay. But if somebody is giving you advice about your financial future and really these very large transactions that are happening, I feel that somebody should be a fiduciary because, legally, somebody that is a fiduciary is one who has to act on behalf of somebody else and is legally bound to act in their best interest. And so, I think beyond that legal obligation, I think it’s also an ethical one. In this case, there was a tremendous breach of ethics from this counselor when he was making recommendations to people to do things in their accounts that was really more beneficial for him, in the terms of commission and all kinds of other things, rather than what’s going to help that family.

Tom Temin So what are some of the questions you should ask then, of anyone trying to sell you something, or fiduciary or otherwise?

Thiago Glieger I think the first question is always asking them, are you operating under a fiduciary duty? Is that in an agreement somewhere? Because if they are, there has to be a legal statement that’s written that they signed saying they are acting in a fiduciary capacity to you. I think there’s also questions surrounding whether or not they can help you beyond just the investments. I think someone who is is operating in a fiduciary capacity is talking to you about things like taxes and health care and things that matter to you, like your family. And how do you want to spend your time? Those are signs that someone is interested in your well-being, not just necessarily interested in getting you the best or hottest investment.

Tom Temin One of those areas is as you approach retirement, there’s a lots of complicated decisions with deadlines connected to it, especially if you’re going to be anywhere near Medicare, which is a Byzantine system. Someone should be able to help you with questions like that, for example.

        Sign up for our daily newsletter so you never miss a beat on all things federal

Thiago Glieger Yeah, and Medicare planning, Social Security planning. There’s over 500 different iterations of filing for Social Security, and sometimes even the information online is very overwhelming. And so doing the planning, looking at different options, whether one scenario was better for you if you’re married, should one of you file first and then the second? Wait until 70. Should you both wait till 70? All kinds of other things that are well beyond just what are you invested in?

Tom Temin And the other issue is tax policy or your reaction how you deal with tax policy. So can a fiduciary, are they necessarily tax experts? Or can they know enough to make sure that you don’t make a mistake and pay taxes you shouldn’t have to.

Thiago Glieger Yeah. There’s a pretty fine line between tax planning and tax advice. The IRS wants to make sure that somebody who is not registered as an accountant is not giving somebody tax advice. But I would go as far as to say tax planning is a big part of a financial planning process. When you’re retired especially, it’s the first time that you are in control of generating your income. If you have a first pension as federal employees do obviously that’s taxed. You don’t have too much control over that. Big part of Social Security is also taxed. But everything else, all of your savings, how you choose to make withdrawals, what you’re invested in, the kinds of things you’re doing during the year with your assets. Those are all things that are influencing your taxes and making sure that you’re making use of Roth. I know we’ve talked about that before, so that you don’t have huge RMDs down the line. Those are all very important questions in planning considerations that can add a lot of value to somebody that doesn’t necessarily pay an advisory commission. And so if they’re interested in those conversations with you, it’s I don’t want to generalize, but they’re probably interested in your well-being, not necessarily just trying to earn a buck off of you.

Tom Temin In some ways your TSP account is like artificial intelligence. The experts say part of the issue is the data you put into it. But an important way to get good results is what you ask of it. If you ask the wrong question, you’ll get crazy results. By the same token, you’re withdrawal strategy should be something you consider as carefully as your input to it strategy.

Thiago Glieger That’s right. I recently was talking to a family who, they were looking at a large tax bill that they were going to need to deal with, and they thought the best circumstance was to make a TSP distribution. And at the time, they were a little bit more limited in terms of their options. But as a result, a huge TSP distribution also came with its own tax problem for the following year. And so really coming up with strategies, what is the best way to deal with this? Rather than how do I just pay the tax bill? It’s thinking about other things that are all interweave together.

Tom Temin And by the way, what about those tax help firms that advertise on the radio so much? Sometimes you hear them and they have actors saying, I didn’t pay my taxes for 11 years. I was in trouble. My response is, well you should go to jail. The rest of us paid for the last 11 years. Are those firms tend to be worthy of what it is they’re trying to sell you.

Thiago Glieger I think those firms are mostly targeting people who are in tax trouble. People who maybe didn’t file their tax returns, they forgot to do it. They didn’t want to do it, whatever the case is. They’re more so looking at working with the IRS and keeping you out of jail, because at this point, it’s a crime. And so they are not really looking at reducing your tax liability on a regular tax planning basis. They’re working backwards to make sure that you don’t end up in prison for a really long time, for owing all those back taxes.

Tom Temin Because they imply that they can make the tax bill go away. But I don’t think too many people can do that.

Thiago Glieger Yeah, there is some degree of negotiating that they can do and working with the IRS on your behalf and having conversations, sending letters back and forth, much what an accountant would be able to do for you too. But you can’t just vaporize your tax liability. That’s something that’s going to be around.

Tom Temin They’ll vaporize you. And then I guess the final question is, what is the right number of calls, meetings that you can demand of a fiduciary? You don’t want to call them daily, but you also don’t want to wait once a year to check in.

Thiago Glieger Yeah. With our clients. Especially in the first year of working with people, I like to see people anywhere between 6 to 10 times in the first year. There’s just so much, especially when you’re first retiring. There’s so much to look at. Beyond that, I really encourage folks to check in with their advisors a couple of times a year. I think that’s a really healthy number every six months or so, just to get on each other’s calendars, but also have communication open through email, open communication of quick questions that come along. Anything with a dollar sign attached to it should be fair game for someone who’s looking out for your best interest. Whether you’re going to file an insurance claim because there’s a hole in your roof. Is that a problem for you down the line? Because you may be uninsurable for XYZ reason. And so those are conversations that I think are important to have. And you shouldn’t feel ashamed or bothered of asking your advisor a question. They’ll tell you if it’s out of bounds or something that they’re not comfortable giving you an answer for, but raise the question. That’s what they’re there for, there are your advisors.

Tom Temin And probably it’s good to remember by the same token, most things in life do have a dollar sign attached to them, but they’re not psychiatrists.

Thiago Glieger Yeah. That’s right. I think there’s a Nobel Prize that has been won in behavioral economics, which is really just the study of why we make decisions around money. And some advisory firms do take a more therapeutic approach with folks. But you’re right. I think you’ll get a sense for what they’re comfortable with.

Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.