Broker fails to share clients’ concerns
.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:
I’m 72, and my wife is 74. We’ve frugally raised three children, and both of us worked all of our lives. We have Social Security income of $21,000 a year, plus $12,000 from $357,000 in stocks and $1,500 from $43,000 in savings. We also watch three young children (from next door) from 3 to 5 p.m., when their mother returns from work. This gives us $75 a week, or $2,500 a year. Our total income is $37,000, our home is paid for, and we have no debts. We’re comfortable but extremely concerned about a recession and very worried about our stocks because the dividend income is very important to us. At the end of the year, we are lucky to have $500 remaining in our budget.
We keep our expenses tight, but sometimes the cost of our pills is a killer and our nursing home policy premium just increased by $600. We also contribute to the nursing home costs for a very dear family member, and we are told those costs will increase next year. We need to know if we should sell our stocks (financial statement enclosed). Our young broker — who brags that we were born on the same day — wants us to sell all our stocks and invest the $357,000 in a U.S. government bond fund paying 5.1 percent because he says the bonds are guaranteed and won’t lose money. He also wants us to sell our home (his wife is in real estate), which would easily sell for $225,000, and also put that money in the U.S. government fund paying 5.1 percent. He says the 5.1 percent interest from $582,000 would give us a $30,000 income.
Add this to the money we currently get from Social Security, baby-sitting and savings, and our new annual income would be $55,000. He also wants us to rent an apartment in a building owned by him and his wife, which would cost us $8,400 a year. It’s much smaller than our three-bedroom home, but because we then won’t have to pay taxes, maintenance and insurance of $3,600 a year, that rent would only cost us ($8,400 less savings of $3,600) $4,800 a year. So after earning $55,000 and paying $4,800 in rent we would have $50,200 to spend before taxes. I’ve also enclosed the broker’s numbers. This would allow us to replace our 1981 Mercury, which is giving us lots of trouble.
Please tell us if you would advise us to follow our young broker’s plan, which he and his wife worked so hard on to help my wife and me. We don’t want to have to worry about the economy.
R.D., Erie, Pa.
Dear R.D.:
You and that young brokester were not born on the same day. As with most young brokers, this kid is pathologically unable to identify with your insecurities, needs and comfort levels. His advice is unprofessional, self-serving and dangerous to your wealth and health.
Don’t you ever sell your home, which must be full of wonderful memories of children and family since 1963. You’ve had breakfast in that kitchen and the family has watched TV in the living room for 44 years, and you know every creak in the floor, every groan in the framing and every shift in the foundation. Selling could be psychologically traumatic. There’s a better way to provide you with the security, comfort and extra income you need.
Visit the broker’s office manager and demand an adviser closer to your age. The manager will understand your reasons and will match a broker to your needs. Most brokers at Merrill Lynch are good guys, and selecting a good broker should be as easy as a nickel. When you meet your new broker, give him this column and have him execute the following suggestions.
There are 28 issues in your account, and I want you to keep Allied Capital Corp. (ALD-$25.47) yielding 10.2 percent, Bank of America Corp. (BAC-$44.85) yielding 5.7 percent, Gabelli Dividend and Income Trust (GDV-$20.70) yielding 6.4 percent, Nuveen Multi Strategy Income (JQC-$11.08) yielding 10.3 percent, Enterprise Products Partners (EPD-$31.09) with a 6.3 percent yield, Black Rock Global Floating Rate (BGT-$16.44) yielding 9.1 percent, U.S. Bancorp (USB-$32.59) with a 4.9 percent yield and General Motors Corp. 7.735 percent Preferred (HGM-$16.73) yielding 11 percent.
Sell the remaining 20 issues and insist on a 50 percent commission discount. If Merrill won’t give you that discount, transfer the account to Charles Schwab. The issues have yields between nothing and 2 percent. Most are too volatile for your taste, and not one of them would butter my bagel.
Those you will keep have a $71,000 market value, a combined yield of 8.2 percent and pay $5,740 in dividend income.
After the liquidation you will have $283,000 in cash. Put $100,000 in a 5.65 percent certificate of deposit that will pay you $5,600 a year. Invest $100,000 in an immediate annuity that will pay $9,500 a year, of which 90 percent is nontaxable. Finally, invest $83,000 in the Equitable Variable Annuity, which guarantees 6.5 percent a year or $5,400. These three investments will yield 7.3 percent or $20,500.
Add up your $21,000 Social Security income plus the $5,740 from your eight stocks, the $2,500 in baby-sitting money, the $1,500 from savings and you are now receiving almost $51,500. This allows you to remain in your home, purchase a new Mercury, meet your increased expenses and even be a little profligate. You deserve it.
And if you need another $8,000 or $9,000 guaranteed, tax-free, we can discuss how to get a reverse annuity mortgage on your home.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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