Nov 21, 2024
There’s no such thing as a free lunch — or a free steak dinner at Ruth’s Chris Steak House, for that matter.
At least, that’s what one retiree learned the hard way, after a trip to the restaurant cost him a hefty portion of his retirement savings.
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George Wilson, who shared his story with Business Insider, said he sometimes attended free presentations — usually held at a nice restaurant — on how to make money in retirement.
He hadn’t acted upon any advice until that fateful night in 2010, when he attended a presentation at Ruth’s Chris and met broker David Escarcega.
Escarcega encouraged Wilson to invest in a fixed-income alternative product from GWG Holdings, a now-bankrupt firm. The high-yield securities were based on life insurance policies purchased on the secondary market, according to Business Insider.
While investors like Wilson earned a whopping 9% monthly return, brokers were earning up to 8% in commissions from GWG.
Long story short, GWG’s insurance contracts had been overvalued and, after a U.S. Securities and Exchange Commission (SEC) investigation, GWG filed for bankruptcy in 2022 and halted dividend payments.
The cost of a ‘free’ dinner
The steak dinner (and Wilson’s decision to invest) ended up costing him $158,000 of his retirement savings.
The first few years for Wilson went well, with regular monthly payouts, and in 2017 he renewed his investment. But at that point, unbeknownst to Wilson, Escarcega had been barred from selling securities after misrepresenting investment risks, according to the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization.
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More than a decade after that fateful dinner, Wilson is still fighting to get back his investment.
While a recent arbitration decision awarded him $267,252 in compensation, including damages for emotional distress, all claimants received a payout of $103,000. So, after costs, Wilson still won’t be able to recoup his initial investment.
Hosting a “free” lunch or dinner is common practice in the industry: taking potential clients out for a lavish meal and pitching them on investment opportunities (usually high-commission, high-risk products).
While this doesn’t mean all advisers and all “free” meals are dodgy, it does mean you shouldn’t be enticed to invest your retirement savings by a top sirloin steak. If something seems too good to be true, it just might be.
If you’re considering alternative investments, you should be savvy enough to know what you’re getting into. In the case of GWG, there were red flags, but a rookie investor wouldn’t necessarily catch them, especially after a few years of high returns.
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But, in general, if yields are consistently outsized, then there’s a chance you’re taking on more risk that you may realize.
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How to select an adviser
A good adviser can be invaluable in helping you protect and grow your retirement savings. But how do you find one?
First, understand the different types of advisers out there. A fee-only adviser charges a fee for service (typically hourly or annually, or a flat rate) and doesn’t earn commission on the sale of investment products.
A fee-based adviser might also charge a fee for service, but they could be earning commission (which could influence their advice).
If you’re not paying for service — and you’re getting free meals at fancy restaurants — then you should proceed with caution.
The National Association of Personal Financial Advisors (NAPFA) can help you find advisers in your zip code.
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You can also ask family and friends, but you’ll still need to be cautious, since Wilson also advised his ex-wife and a friend to invest with GWG. Ask a potential adviser about their credentials, if they’re a fiduciary and if they earn commission.
Then, do your research. If, for example, an adviser holds a Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) credential, they’re required to act as a fiduciary, which means putting their clients’ interests ahead of their own.
They also have to abide by a code of ethics; otherwise, they lose their designation. These credentials can be verified with the CFB Board or CFA Institute.
FINRA also has a search tool called BrokerCheck where you can find out if any disciplinary action has been taken against an adviser; it also has a list of brokers who have been barred.
Before investing a chunk of your retirement savings into any kind of alternative investment, it’s useful to get a second (or even a third) opinion.
That might mean talking to a Certified Public Accountant (CPA) or even an attorney. And, next time you get invited for a “free” meal, you might want to think twice.
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Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
