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April 3rd, 2008 at 01:06 pm

I just had to share while I Was thinking about it.

I was preparing a lengthy tax return for my boss. A "rich" client that my boss always gives me to do all the grunt work on. So when he gave it to me I Was reading all the piles of correspondence for the year, trying to get a feel of what was new for 2007.

Anyway, they moved to another state, and purchases a home before selling their old home. They talked to their 2 investment brokers (with whom they each have lots of money - maybe millions. I'd assume around a million dollars with each one). They wanted to structure the stock sales in the best way possible (tax-wise) for the cash purchase of their home.

OR course, investment guy #1 says, get a mortgage for the tax write-off. Of course you don't want to sell any stocks!

Investment guy #2 was evern better. Same spiel, but why not pay for half of it with a mortgage, and half with a margin loan against their investment account.

Oy vey.

So they send this off to my boss and asks his opinion. HE says, are you crazy? You want to pay $40k/year interest in order to save $20k in taxes? (Something like that). HE says, sell the dang stocks, and pay cash.

IT probably took much restraint to not say, why are you paying these people? They obviously don't have their best interest in mind. But I think for us it is a fine line. We don't give investment advice, and stay away from that whole thing with a 10-foot pole.

Anyway, on the radio this morning there was a similar conversation. How so many "professionals" were advising people to do the ARMs and 0 downs, and all that. People think if a professional tell them to do something, it's okay. & this is where much of this mess stems from. Likewise, most of the professionals giving this advice, took it themselves, and got in a lot of hot water. (Story after story of laid off mortgage brokers with way too much house, in the paper). OF course, the few that didn't follow their own advice, but dished it, well they made a lot of money off the whole thing.

& clearly, the investment advisor doesn't want you to take any of your money out and "invest" elsewhere.

I guess you have to consider who is giving your advice. What is their expertise really? & more importantly, what's in it for them?


I had a client last year who wanted to invest in trust deeds and I Actually talked them out of that. IT was a friend and she was scaring the crap out of me. I even consulted with my boss on that one, and we were okay to tell her, no way! Well, I mentioned all the risks anyway, and talked some sense into her. So they decided to invest in real estate and pulled out $200k out of their home. Then they decided in the meanwhile they didn't want to, so just put it in stocks. (Someone advised them to do so - an investment broker of course!!). Anyway, they panicked and paid the money back eventually (after taking some serious losses). Now they just have a monster mortgage payment that they can't afford.

I mentioned gingerly that they may want to refi, since rates have come down, but they are so burned they don't want to go there again. Really gullible though. I just cringe to see what they do next. They expected if they just paid it back, that their payment would go down, I guess.

It's just such a mess. But they had "professional" advice for most of their actions. All I Can hope is they learned something.

9 Responses to “Professional”

  1. merch Says:

    My mortgage broker was trying to talk me into some crazy stuff like Ios, ARMs, and things like that. I also put 45% down on my house just to stay out of jumbo territory. Very high house prices outside Boston, probably very similar to parts in California.

    Anyway, I settled for a 30 year fixed and never looked back. I am hoping to pay it off in the next 5 years. We shall see.

    But yea, those mortgage brokers were crazy. The 45% down caused by mortgage broker to almost yell at me. You just have to know how they get compensating and those are usually the gotchas.

  2. Ima saver Says:

    That is why I have always managed my own money!!

  3. Broken Arrow Says:

    Wow, that's really something. All the more reason to become self-informed, so at the very least you won't get cheated from people who do not have your best interest at heart. Thank you for sharing!

  4. My English Castle Says:

    We're trying to decide if we should pay off our mortgage. It's small and we could do it. Maybe this post will inspire me look at the numbers again.

  5. Maismom Says:

    It's totally true. I used to be in insurance business and was amazed to learn that knowledge makes a huge difference when it comes to obtaining the best return on investment. It doesn't hurt to learn these financial stuff.

  6. monkeymama Says:

    I wouldn't rush to pay off the mortgage. But if it's paid and you have more money than you know what to do with OR if it's paid and you don't have much money. The above 2 examples - kind of extremes). Either way, borrowing a large sum makes little sense.

    I didn't mention that the first client gives away a lot of cash and stock every year because they just have more than they know what to do with. IF they just paid cash they would be generating less taxable interest dividends going forward. So made more sense for them to just pay cash. (& pay the negligible capital gains taxes for selling long term investments).

  7. baselle Says:

    I wonder if these idjits get weeded out during recessions or whether they, like a leech, find a large fish and attach themselves to the underside and ride out the storm.

    A rich man told me that whenever a financial planner or other "professional" came a knockin', the rich man asked for the "professional's" tax form because he wanted to see if the "professional" had a better year. He never saw a tax form. Big Grin

  8. monkeymama Says:

    Baselle- yeah, they are getting weeded out - that is for sure. But there will always be a lot out there. So just be careful!

  9. My English Castle Says:

    We've got the cash--it's just in British money and British home prices haven't taken the hit that American prices have. And if we move back there.....too many decisions!

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