My Dad Wants Me To Work With His Advisor

Summary

Podcast Summary: Ramsey Everyday Millionaires – "My Dad Wants Me To Work With His Advisor"

Episode Information:

• Title: Ramsey Everyday Millionaires
• Host/Author: Ramsey Network
• Description: Explore stories of ordinary individuals who have amassed extraordinary wealth. Learn strategies millionaires use to live below their means, avoid debt, invest wisely, and maintain financial discipline. Hosted by Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, and Dr. John Delony.
• Episode: My Dad Wants Me To Work With His Advisor
• Release Date: March 31, 2025

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1. Introduction

In the episode titled "My Dad Wants Me To Work With His Advisor," Monica from Houston, Texas, reaches out to the Ramsey Network seeking advice on managing her 75-year-old father's annuity. Her father, who has recently suffered a stroke affecting his communication abilities, is contemplating the future of an underperforming annuity. This episode delves into the intricacies of handling such financial instruments, especially when dealing with impaired decision-making.

2. Listener's Inquiry

Monica's Situation: Monica explains her father's predicament:

Monica [00:23]: "My dad is 75 and he's had a stroke, so he has difficulty in communication. And he's asked me to visit his financial planner with him to decide what to do with an annuity that isn't making any money. So I was wondering, what kind of questions should I ask the financial advisor? What should he do with the money? Are there any penalties, things like that?"

Monica is seeking guidance on how to approach the meeting with her father's financial advisor, specifically concerning the annuity that's currently yielding low returns.

3. Dave Ramsey's Guidance on Navigating the Financial Advisor

Understanding the Advisor's Role: Dave Ramsey emphasizes the importance of the financial advisor acting as an educator:

Dave Ramsey [00:34]: "What the financial advisor's job is as far as I'm concerned, and you may have to help them with what their job is, is to be the heart, is to have the heart of a teacher."

He advises Monica to ensure that the advisor clearly explains the annuity's details and the available options, enabling informed decision-making.

Evaluating Communication and Decision-Making: Dave underscores the necessity of assessing whether Monica's father retains the capacity to make sound financial decisions despite his communication challenges:

Dave Ramsey [03:36]: "Are his decision making skills impaired?"

Monica confirms that her father's primary issue is aphasia, which affects his verbal communication but not his decision-making capabilities.

4. Evaluating the Annuity: Fixed vs. Variable

Annuity Types Explained: Dave provides a concise breakdown of annuity types to clarify their functions and suitability:

Dave Ramsey [04:18]: "All an annuity is is a savings account with an insurance company. And there are two types. There are fixed annuities, which is a savings account with a fixed interest rate, usually today's world, 4%, something like that. The second type is a variable annuity and that is a mutual fund inside of an annuity."

Fixed Annuities: These offer a fixed interest rate but may underperform in a fluctuating market environment.

Variable Annuities: These are akin to mutual funds within an insurance framework, often marketed by insurance agents rather than licensed investment advisors. Dave expresses skepticism about their value, especially given their complexity and fees.

Dave Ramsey [05:50]: "There is no point in that even in this situation. They're sold quite a bit by people in the insurance world because they don't have a securities license to sell mutual funds."

5. Recommendations for Moving Forward

Assessing Surrender Charges: Dave advises Monica to inquire about any surrender charges associated with the annuity, which are fees for withdrawing funds before a specified period.

Dave Ramsey [04:20]: "What would be an exorbitant surrender charge? Like what, half of it or something like that?"

He suggests that if the annuity has surpassed the typical surrender charge period (around seven years), Monica should prioritize withdrawing the funds to avoid hefty penalties.

Exploring Alternative Investments: Monica considers moving the funds to a more productive investment, such as an index fund.

Monica [02:03]: "I was thinking like an index fund would probably be the best way for him."

Dave agrees, highlighting that even a high-yield savings account could be a viable alternative given its liquidity and simplicity, especially if the total funds are limited.

Dave Ramsey [02:11]: "Either way, depending on either, either of those is fine. I mean, high yield savings is fully liquid."

Evaluating the Financial Advisor: Dave questions whether the current advisor is an insurance agent rather than a certified investment advisor, hinting at potential conflicts of interest.

Dave Ramsey [05:53]: "Is this financial advisor an insurance agent?"

Monica confirms her suspicion, leading Dave to recommend distancing from the advisor if he's affiliated with an insurance company.

Dave Ramsey [06:06]: "If you figure out that it's a life insurance company then just get the money out of there, get away from it."

Seeking Expert Assistance: To ensure Monica makes an informed decision, Dave advises consulting with a certified investment professional from Ramsey’s SmartVestor network.

Dave Ramsey [06:19]: "Jump on ramseysolutions.com and get one of our smartvestor pros that are actual investing advisors and they'll sit down with you, help you get the money moved into something good and so forth."

6. Final Thoughts and Takeaways

Annuity Suitability: Dave asserts that in Monica's father's situation, an annuity may not be the most beneficial financial instrument, especially with limited funds and no immediate estate tax concerns.

Dave Ramsey [07:00]: "You do not need an annuity here. It's not a valuable doc. It's not a valuable financial instrument in this situation."

Advocating for Transparency and Understanding: He stresses the importance of obtaining clear, understandable information from financial advisors and being prepared to seek alternative expert opinions if necessary.

Dave Ramsey [07:01]: "Gather information. Facts are your friends."

Avoiding Unnecessary Fees: By moving the funds away from the underperforming annuity, Monica can prevent excessive fees from eroding her father's savings, ensuring the money works more effectively.

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Key Quotes with Timestamps:

• Monica [00:23]: "My dad is 75 and he's had a stroke, so he has difficulty in communication. And he's asked me to visit his financial planner with him to decide what to do with an annuity that isn't making any money."

• Dave Ramsey [00:34]: "What the financial advisor's job is as far as I'm concerned, and you may have to help them with what their job is, is to be the heart, is to have the heart of a teacher."

• Dave Ramsey [04:18]: "All an annuity is is a savings account with an insurance company. And there are two types. There are fixed annuities... The second type is a variable annuity and that is a mutual fund inside of an annuity."

• Dave Ramsey [06:19]: "Jump on ramseysolutions.com and get one of our smartvestor pros that are actual investing advisors and they'll sit down with you, help you get the money moved into something good and so forth."

Conclusion: This episode provides valuable insights for listeners facing similar financial dilemmas, emphasizing the importance of understanding financial products, questioning advisor motives, and seeking trusted expert guidance to make informed decisions that safeguard and grow personal wealth.

Transcript

[Dave Ramsey]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Monica is with us in Houston, Texas. Hey, Monica. Welcome to the Ramsey Show.

[Monica]

Hi, Dave. Hi, Dave. Thank you so much for your help.

[Unknown]

You bet.

[Dave Ramsey]

Sure. What's up?

[Monica]

My dad is 75 and he's had a stroke, so he has difficulty in communication. And he's asked me to visit his financial planner with him to decide what to do with an annuity that isn't making any money. So I was wondering, what kind of questions should I ask the financial advisor? What should he do with the money? Are there any penalties, things like that?

[Dave Ramsey]

Okay, well, what the financial advisor's job is as far as I'm concerned, and you may have to help them with what their job is, is to be the heart, is to have the heart of a teacher. Okay. And so if I'm you and I'm sitting down there and I'm going to say, okay, tell me exactly what this annuity is. It doesn't seem to be making any money. What our options are and what you would do with it. And here's the important question. Why would you do that with it? And let them kind of explain to you what the details are and teach you. And then you look at it and say, okay, it's not making any money. The surrender charge is small. So we're going to take the money out and we're either going to put it in a investment account or we're just going to put it in a high yield savings, but we're going to take it away from this annuity. Okay. If there's a huge surrender charge, maybe the option is to roll it to a different annuity with that, that goes into good mutual funds, which is called a variable annuity. And you may want to try to do that. But if you can move it with, without some kind of horrendous, you know, throat punch, surrender charge, you're going to want to move it.

[Monica]

I was thinking to put it in. I didn't want to go high yield. He's 75 and not the best of health. But I was thinking like an index fund would probably be the best way for him.

[Dave Ramsey]

Either way, depending on either, either of those is fine. I mean, high yield savings is fully liquid. That's just a simple savings account at money market rates. You know, if he has he got plenty of money?

[Monica]

No, not really. And it's only 35,000 in the annuity. But how much total does he have?

[Dave Ramsey]

How much Total. Does he have.

[Monica]

He hasn't told me all that, but I wouldn't think that it would be even in the high tens of thousands. He doesn't have a ton. He was mostly off of Social Security.

[Dave Ramsey]

So a lot of it is in this 35 in this annuity.

[Monica]

To the honest truth, I'm not sure, but it probably.

[Dave Ramsey]

Well, I mean, if he's got tens of thousands and 35 is in the annuity, even if he's got 100,000, a third of it is the annuity. Right, True.

[Unknown]

Well, hopefully you can learn that when you meet with the advisor and you can kind of see what he's got.

[Dave Ramsey]

Is he giving you up any kind of a power of attorney in this process as well?

[Monica]

I think we already have one through my mom. He's just asking me for my advice.

[Dave Ramsey]

So your mom has power of attorney?

[Monica]

I think so, yeah. But he's asking me for advice and it's. Everybody's together on it. It's. He's asking information, so.

[Dave Ramsey]

Okay, that's nice. That's a good. It's a good position to be in. And it sounds like he's being humble about this and not secretive or weird or something. So. Yeah, I think you just gather up the information and make sure. Is he. His communication is impaired, but are his decision making skills impaired?

[Monica]

No, he's got aphasia. The words he says are different than the ones he thinks he's saying.

[Dave Ramsey]

Yeah, yeah. Okay. So, I mean, if he can sit there and grasp what the guy's saying and you can too, and then you guys go back home and talk about it and maybe he needs to type it out or something so that he gets the right words to tell you what he wants to do. But I mean, you can say, dad, this is what I think I would do. And if you want to take a minute and write out, since he's struggling with putting the right words in the right order, if there's a way he's communicating, clearly use. That's all I'm saying. And he could tell you too, because it sounds like he's capable of making decision. He just wants some extra input given that he's fragile right now. That's smart.

[Monica]

Exactly.

[Dave Ramsey]

That's very wise.

[Monica]

What would be an exorbitant surrender charge?

[Dave Ramsey]

Like what, half of it or something like that? I'm getting it out of there, given the situation you told me. I mean, only if they got like a $12,000 charge or something, but I can't imagine that. How long have they had it in that do you know, I don't.

[Monica]

It's probably been a good while though.

[Dave Ramsey]

Yeah. You're going to guess and say more than seven years.

[Monica]

Yeah, probably.

[Dave Ramsey]

You may have zero surrender charge. That'd be great because most of them evaporate around the seven year mark.

[Monica]

Nice.

[Dave Ramsey]

Okay. If that's the case then it's a no brainer. You get it out of there. See, all an annuity is is a savings account with an insurance company. And there are two types. There are fixed annuities, which is a savings account with a fixed interest rate, usually today's world, 4%, something like that. I'm guessing that's what he's got because it's underperforming. The second type is a variable annuity and that is a mutual fund inside of an annuity. And there is no point in that even in this situation. Okay. They're sold quite a bit by people in the insurance world because they don't have a securities license to sell mutual funds. So they, it's a way for them to create a. In air quotes investment to sell to someone and act like they're real investment advisors when all they are is insurance agents. That's usually where these things come from.

[Monica]

That's what I'm gathering. Okay. Well thank you so much for your.

[Dave Ramsey]

Is this financial advisor an insurance agent?

[Monica]

I'm sure he is with everything you've said.

[Unknown]

Yeah, sounds.

[Dave Ramsey]

It sounds. Is the company. Don't tell me the company name, but is the company name an insurance company?

[Monica]

I honestly don't know. He's only ever told me the man's first name. I don't know who he's with.

[Dave Ramsey]

Okay. If you figure out that it's a life insurance company then just get the money out of there, get away from it.

[Monica]

Yeah.

[Unknown]

Don't even talk to. Don't even talk to.

[Dave Ramsey]

We're not even discussing it. I'm going to go jump on ramseysolutions.com and get one of our smartvestor pros that are actual investing advisors and they'll sit down with you, help you get the money moved into something good and so forth. I got it. You know, I just now had a bad feeling run down my spine that that's what this is. But it could be. Sometimes a financial advisor will sell an annuity, but usually if they do, it's a variable. That's what's spooking me here. And a variable should be performing because the market's done well. Yeah, not sure.

[Unknown]

Unless it was something he got into a long time ago and you know, did some other things since then and got an advisor who knows it's possible.

[Dave Ramsey]

But he doesn't have much money.

[Unknown]

No, he doesn't.

[Dave Ramsey]

Only 100 grand. So he's not been playing much with it. Yeah, it's interesting. It's interesting. Yeah, Monica. So the thing is, gather information. Facts are your friends. Make sure the person is explaining it to you in a way that you understand. That's their job. If they can't do that, get the documentation and take it to somebody who can, like a smartvestor pro. So if you get an insurance agent that does political doublespeak, then you've got to get away from them to even get the answers straight. But if they'll actually tell you what the flip's going on, I think you're going to want to just move the money. And I think it's old enough. You shouldn't have a surrender charge and it makes it a no brainer to move it. You do not need an annuity here. It's not, it's not a valuable doc. It's not a valuable financial instrument in this situation. So there's no point in it, especially with 35,000 bucks. They're feeing you to death. So. Wow. Good question. Okay, well, let's just keep on that for a second. One of the benefits of a variable annuity and a fixed annuity, but we never do fixed annuities in any circumstances is there's a couple things. Number one, you can name a beneficiary on them and they pass outside of probate. So if you've got an estate tax problem, which that gentleman does not have, he doesn't have enough money. But if you have an estate tax problem, you can pass the money directly to a beneficiary and it is not taxed for estate tax purposes. The second thing with variable annuities that they're doing out there is some of them, if you hold them for a little while, three years, two years, there's a principal protection. If you're in a variable annuity on a mutual fund, if the market goes down, you put under 1,000 in the market. Now it's worth 60,000. They'll cover the 100.

[Unknown]

Interesting.

[Dave Ramsey]

And so they give you principal protection and they'll guarantee you at least an interest rate of a floor, like a 5% rate of return.

[Unknown]

When would you suggest it for someone?

[Dave Ramsey]

I'm 64 and have a lot of wealth and I don't own one. I don't like them because I can get the same guarantees just by understanding the marketplace.

[Unknown]

True that.

[Dave Ramsey]

And I don't have to pay the extra fees to the insurance company to put the things together, so pretty simple.