Clark Howard's Tips
June 10, 2008
If you've spent a lifetime working for one employer and built up a sizeable nest egg, you don't want to be targeted by a 401(k) predator.
401(k) predators are those stock brokers or insurance companies that promise great wealth if you move your 401(k) from your ex-employer over to them.
Business Week recently did an investigation into the lives of those who made the transfer. In most cases, their life savings were destroyed.
One stock broker got $320,000 from a retired factory worker and reduced it to $57,000. The broker did so by running the money through bad investments with giant commissions. The factory worker had to come out of retirement and work as a school janitor for $9/hour to avoid impoverishment.
This is an extreme example, but so many people like this are profiled in Business Week. Clark was recently speaking to a man who took his retirement savings to a broker he knew socially. The result? An 80 percent loss of his money.
There are many fine, reliable, honest and decent people in the brokerage industry. The problem is that brokers don't have "fiduciary duty" to you. That means they're not required to put your interests first. Instead, they're allowed to put you in high-commission investments that are generally "suitable" for you and get away with it.
The Business Week report also shows that those free lunch and dinner seminars where they push trashy annuities are terrible rip-offs.
If you need some investment advice, Clark prefers that you seek out a fee-only financial planner. They don't earn any commission from steering you to a certain product. You simply pay them for their advice.
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