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|Subject: Slightly OT: Why I do what I do||Date: 5/29/2012 3:40 PM|
|Author: Hawkwin||Number: 70713 of 76418|
Even when I fail.
I met with a client today that I inherited from a previous advisor. She had purchased a brand new 2012 car with the intent to bring $8000 in cash to the table. She was financing the rest at .9%. Monthly payment was $271 for 60 months.
The account I inherited was a non-qualified fixed annuity paying 1.75% for 3 years, not to go below 1.5%. She is in her second year of the contract which carries a 7% surrender charge on withdrawals in excess of 10% of the contract value.
She wanted to cash in $12000 of the contract to pay $8000 down to keep her payment at $271. She is retired and her SS is set to start in a few months so cash flow is important to her. The $24k+ she has in this account is literally all she has. Don't even get me started on why she is buying a new 2012 car on her income when she should instead be buying a 2010 or older.
I told her to instead, keep her money in the account earning 1.75% since her payment is less than 1% and turn on the monthly income which would max out at $204 a month. We called the dealership and asked that they halt the paperwork (it was overnighted yesterday) in the hope that she could finance the entire amount. They called back about 20 minutes later and said that they could stop it and redo it with financing the full amount - new payment would be $408.
With the higher payment of $408 offset by the new monthly income of $204, her new net payment (cash flow) would be $204 instead of $271 ($67 positive cash flow), she would save over $500 in penalties, and she would keep most of her money earning more than the cost of the interest until she needs it.
Unfortunately, she declined my advice. She already had her mind made up and she was determined to keep her payment low, even though what she needed to keep low was her outgoing cash flow. This is the first time I had met this client so I had no previous opportunity to build raport or trust regarding my advice.
In conclusion, this client is paying a 7% (over $500) penalty to reduce the monthly cost on a debt at .9% when she is making 1.75% on the money - and she now has half of her retirement dollars. I almost made her sign a disclosure that I shared all this with her before I would complete the withdrawal paperwork. It is the opposite of this - the times when I am successful at getting clients or prospects to make wise financial decisions that I do what I do. It is times like this that will haunt me for months because I take her failure to see reason personally.
Neither decision on her part would either make me money or lose me money - but I would have felt great if I was successful in helping her save $500+ in fees plus the $67 a month net positive cash flow.
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