Life Insurance

As director of the Duquesne University law school clinic serving aggrieved investors, professor Alice Stewart has heard her share of horror stories.

Stupid is as stupid does, which is all too often the case with investors. No matter how much ink is spilled promoting "if it sounds too good to be true, it probably isn't" and other self-evident maxims, the obvious still flies over the heads of many investors.

"While they are obvious, they are in no way in the forefront of someone's mind when they're investing money," says Joseph Grieco, vice president with Sky Wealth Management.

"As a customer, and particularly if you're a new customer, you ought to make a broker put every recommendation in writing. Tell me why this is the best thing for me," says Charles Austin, a Richmond, Va., attorney who represents investors who have been harmed.

The explanation should include the brokerage's research on the investment or analyses compiled by investment researchers Morningstar or Value Line, Austin says. It also should compare the performance of the broker's recommendation with similar stocks or mutual funds.

In Grieco's mind, the biggest problem is "hyperactivity," otherwise known as churning. It refers to frequently selling investments and buying new ones. Many times, the only one who benefits is the adviser or broker.

"It's amazing how many people I meet who don't fully understand how their advisers are paid or what they are paying," says Geordie Crossan, president of NBS Financial Services.

Crossan has seen clients who previously were put into similar funds in five mutual fund families. Because fund families discount sales commissions based on how much is invested, they ended up paying more in commissions than if they had invested all the money with one provider.

Variable annuities, which offer a blend of life insurance and investment, can be appropriate for some investors. But they are frequently sold to investors who have no business being in them.

Austin recommends asking for a comparison between buying a variable annuity versus buying life insurance and investing in mutual funds similar to those offered by the annuity.

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