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Never Refinance any Mortgage (or make a new one) to Drum Up Money to Invest!

This is one of the oldest tricks in the book used by unethical "financial planners."

The reason they do it is obvious - they do it not so you'll make more money, but so they'll make more money.

The reasoning usually goes like this: "You'll get at least 10% annually in the market, and only after paying a few grand in fees to do the deal, you're paying less than 4% in interest after the tax deduction. So you're almost guaranteed to make 5% on all the money you invest. You can't lose, and you'll pay less taxes!"

As you can probably imagine, you'll hear about this trick more in bull markets than bear markets.

About borrowing money to invest.

The last time we saw this being used in real life was by a financial planner named Joe in Scottsdale in 2000.

Over our objections, he convinced a nice retired doctor to pull $350,000 out of his home, which he was smart enough on his own to have already paid off, and invest into the equity markets. So he took out the loan at 7%.

Joe assured him that the recent declines in the market were just temporary, and that now was a good time to do it because we'd be back to 20%+ annual investment returns any day now.

You can probably guess how this turned out - the good doc has not only lost the initial $5,000 in loan fees, which went right into the pocket of Joe's friend the refinancing guy; but he lost about $5,000 every month in the markets for over a decade. On top of that, the good doctor now has an annoying $2,400 mortgage payment every month. After the tax deduction, he's still spending $2,000 of wasted money to the bank every month. Not to mention the emotional suffering. Since then, the markets have been down-to-flat, and the good doctor had lost over $250,000 (in mid-2001).

Joe doesn't care one little bit, and is sitting pretty with his $2,000+ in annual management fees he gets every year from the investments.

We don't know how this turned out long-term, because in-person work isn't done for these types of "financial planners" anymore.

But we hope the good doctor got smart and sued, pulled his multi-million dollar account away from Joe, and at least liquidated that new portfolio and paid off the loan, using the tax loss for many future years. Then took his money to an ethical investment manager.

Just this one Real World example should be lesson enough to never fall for this scam.

If you're a financial planner thinking about using this revenue enhancement trick - then just don't.

It's only going to lose you the client, not to mention the potential bad boy entry on your Finra U-5 record, if you're lucky.

If you're not so lucky, you could easily lose the lawsuit and end up paying the client for all their losses, all of the interest, fees, court costs, punitive damages, lose your licenses, etc.

So just trying to pull this type of shenanigans once could ruin your life.

If you're being prodded by your sales manager or Broker Dealer to use these kinds of tricks, send them to this web page, just say no, and then find a better working environment.

A good place to start is with this eBook for financial planners and/or learn how to become your own RIA.

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Financial Planning Software that's Fully-Integrated
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Investment Policy Statement Software (IPS)

Life Insurance Calculator (AKA Capital Needs Analysis Software)

Bond Calculators for Duration, Convexity, YTM, Accretion, and Amortization

Investment Software for Comparing the 27 Most Popular Methods of Investing

Rental Real Estate Investing Software

Net Worth Calculator (Balance Sheet Maker) and 75-year Net Worth Projector

College Savings Calculator

Financial Seminar Covering Retirement Planning and Investment Management

Sales Tools for Financial Adviser Marketing

Personal Budget Software and 75-year Cash Flow Projector

TVM Financial Tools and Financial Calculators

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Miscellaneous Pages of Interest
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Primer Tutorial to Learn the Basics of Financial Planning Software

About the Department of Labor's New Fiduciary Rules

Using Asset Allocation to Manage Money

Download Brokerage Data into Spreadsheets

How to Integrate Financial Planning Software Modules to Share Data

CRM and Portfolio Management Software

About Monte Carlo Simulators

About Efficient Frontier Portfolio Optimizers

Calculating Your Investment Risk Tolerance

About Discount Brokers for DIY Money Management

About 401(k) Plan Management

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