Financial advisors can do their best to guide clients to sound decisions but sometimes face a mess after a do-it-yourselfer makes a rash move on their own. It should come as little surprise that such scenarios arise, given that most Americans handle their own money matters without professional help.
Only 35% of Americans seek guidance from a financial advisor, although the pandemic prompted many to turn to advisors, a Northwestern Mutual study found last year.
Even those who do pursue financial advice don't necessarily follow it.
We asked advisors to describe the worst move a client made on their own with their investments and what the advisors did about it. (Note: There wasn't always much the advisor could do after the fact.)
The responses shed light on just a few costly mistakes that investors can make when they don't seek, or when they ignore, professional advice.
Richard Bergen, RLB Wealth Planning founder and president, recalled a client who withdrew $150,000 from her 401(k) to pay off a mortgage and had no taxes withheld. The client had a big surprise later when Bergen prepared her tax return and she discovered she owed "many thousands" in taxes.
"There was nothing I could do," he said via email. "She didn't understand the ramifications of such a transaction."
Mike Tyler, financial advisor and assistant vice president at Wealthspire Advisors, described a client error that could significantly curtail retirement income.
"Taking Social Security early — not even at full retirement age — thinking they could invest it and earn more than the increased amount they'd receive if they waited until FRA or beyond," Tyler said via email. "Social Security goes up 8% per year after FRA, capped at 3 years. Guaranteed 8% annualized returns are tough to beat, emphasis on the guarantee — a forbidden word in our industry.
