And then there are clients who do dumb things only because they think themselves so smart. For Rose Swanger, a CFP and investment advisor with Royal Alliance Associates, one client has made three unwise money moves in the last year alone. And he has an MBA.
Last year, shortly after the birth of their child, he and his wife applied for life insurance. Insurance companies always ask about smoking. If the applicant admits to smoking occasionally—a promotion, the birth of a child—some insurance companies may overlook it or raise the premium only a small amount.
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This client did not disclose his occasional smoking, but enjoyed a cigar the night before his physical. The nicotine was of course detected in his urine sample. Instead of being offered a premium of $1,807 for a $700,000 death benefit, as he was originally quoted, the insurance company offered him a premium $2,981 for a $357,798 death benefit. He decided to forgo the insurance and is looking to increase the amount of his group life insurance policy at work.
The client also asked Swanger to assess his 401(k) plan, a well-designed plan with many low-cost options from Vanguard. What Swanger saw left her shaking her head. The client had 16 different target-date funds, all with different retirement-date assumptions.
"I've never seen that one before," she said.