Cringeworthy money mistakes advisors have seen their clients make


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“He who makes no mistakes makes nothing.”

Talk about a silver lining, especially when applied to finance. This 200-year-old quote, attributed to Casanova, gives hope to all those ruing a grave error or missed opportunity.

And it’s true: We learn what not to do going forward when we do something incorrectly. Money mistakes can be costly in the short term. On the bright side, it can help us improve our financial future if we apply those lessons wisely.

We asked nine members of the CNBC Digital Financial Advisors Council, along with Helen Modly of Buckingham Strategic Wealth, about the biggest mistake with money they’ve ever seen a client make.

Louis Barajas, founder and CEO of Wealth Management LAB, Tustin, California: “Over the years, I have had several clients come to me and tell me that they were offered investments with guaranteed returns of 20% or more. In 100% of all the five occasions, I warned them that what is too good to be true usually is. One of the investors withdrew $250,000 from their account with me and invested it in the ‘guaranteed’ investment. I heard through a friend that they had lost the money because they couldn’t find the [sponsor].”

Sophia Bera, founder of Gen Y Planning, Austin, Texas: “I think the biggest mistake we’ve seen clients make is when they buy a more expensive house than they can afford. If your monthly mortgage is taking up a significant amount of your net income (40%-plus), you really limit the money you have to put towards your other financial goals. Plus, when something goes wrong on the house, it can become a money pit really fast. Rarely do houses provide the happiness that clients think they will.”

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Douglas Boneparth, founder and president, Bone Fide Wealth, New York: “It’s cliché at this point but, during [the recession], I watched client emotions get the best of them as the selloff intensified. A few clients sold their portfolios right at the bottom of the market. No matter how hard I tried to convince them not to, no matter how much rational data I placed before them, their emotions were in control. There was no relief I could provide. They didn’t stay clients for long, and I wonder to this day if they are OK.”

Cathy Curtis, founder and CEO of Curtis Financial Planning, Oakland, California: “Spending down a large inheritance over several years instead of using it to fund a secure retirement. It was painful to watch but, as an advisor, I only have so much control over what a client ultimately decides to do.”

Rianka Dorsainvil, founder and president of Your Greatest Contribution: “When clients make fear-based financial decisions, it usually isn’t serving them. I want to help empower clients to make choices that will benefit them now and in the long run.”

Stacy Francis, president and CEO of Francis Financial, New York: “Overspending to forget the memory of traumatic event that created her wealth. Olivia came to us with a large sexual harassment settlement that was more than $1.5 million. As soon as the money came into her possession from the lawsuit, her spending behavior changed significantly. Olivia could not spend the money fast enough. We watched it dwindle and continued to show that she would be penniless in a matter of years.

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We also had the deep conversation with Olivia wondering if this money felt dirty to her – launching her into a spending spree to rid herself of her painful memories about her traumatic sexual harassment experiences at her former job. We urged Olivia to see a therapist and offered to pay for the first few sessions. Olivia never went and spent every last dollar and then some. I heard from Olivia just last month asking me about debt consolidators, as she is looking at this option and bankruptcy.”

Zaneilia Harris, president of Harris and Harris Wealth Management Group, Upper Marlboro, Maryland: “I think the biggest mistake I have seen a client make is blindly taking advice about their money. When I was an advisor at a retirement community, I spent a lot of time educating and explaining to clients the financial transactions that were initiated by other financial advisors. That is why I strongly encourage my clients to ask questions. I tell them that it is part of my job description to help them grow their financial knowledge. They should know more after working with my firm then they did before they came to us.”

Ivory Johnson, founder of Delancey Wealth Management, Washington, D.C.: “One client took all of their money out of an individual retirement account to buy rental property. I told them the tax advantages of rental property would be mitigated by the early withdrawal penalty and tax implications, but they were convinced the real estate value would increase enough to make it a good investment.”

Diahann Lassus, co-founder, president and CIO of Lassus Wherley, New Providence, New Jersey: “A client was spending so much on supporting their adult children that they started depleting their retirement savings. It didn’t happen all at once but started out with smaller dollars and maybe a one-time contribution to college for grandchildren, which didn’t really impact the overall plan. Then, later, the dollars began to increase and it became very evident that the investment portfolio wouldn’t be able to keep pace with the spending. Even though we advised them not to continue to provide the support because they were depleting capital, it is ultimately the client’s choice.”

“Unfortunately, there are times when families are faced with very difficult decisions about whether to continue supporting adult children or preserving assets so that they can continue to be financially independent in later life. It always reminds me of the announcement we hear on an airplane before we take off which is ‘put your own oxygen mask on first before helping others.’ If you aren’t financially able to continue to support yourself, the future will be really challenging for other family members who have become dependent on your assistance.”

“In many cases, the client puts the adult children first, which can jeopardize their ability to provide for themselves later in life. It is probably one of the most difficult situations any of us can encounter. Having to make a decision between the family and your own financial health is beyond challenging. However, there may not be another backup for you or your family if you run out of money.”

Helen Modly, wealth advisor at Buckingham Strategic Wealth, Middleburg, Virginia: “Refusing to divest and diversify a highly concentrated stock position. I’ve actually seen this tragedy multiple times, with AOL in the dot-com days, with Freddie Mac in the mid-2000s and with GM during the Great Recession. Some investors just cannot sell a stock that they believe to be bulletproof. Even when presented with historical evidence that such companies can and do fail, advisors sometimes cannot crack that emotional attachment. It is such a classic blunder, but one that inevitably will happen again and again.”

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