An Inside Look at How Helmstar Approached One Client’s Unique Challenges

The Situation

A friend of one of our long-time clients had a problem: they had invested the majority of their 80-year-old mother’s money with an advisor with the goal of creating more safe, “dividend income” — but since investing with this advisor, her account was down more than 25%!

They were confused. They were told they were going to be investing in low risk investments, since much of the mother’s money had been previously invested in safe (though painfully low returning) CDs. How could these investments be down so much? Would they be able to recover? Who could they trust to give them solid investment advice?

As the Helmstar team dove into the situation, the big issue became clear. The advisor (a stock broker, as it turns out) had invested heavily in some very high yield energy stocks and funds. At the time of these investments, this seemed to be a “safe” approach. But later that year, the energy sector was jolted, sending the value of many of these securities tumbling.

Our team helped explain the toll a lack of diversification had taken on their investments. While the sector they were so heavily invested in had been performing well, their lack of diversification meant they were vulnerable to a sector correction — and had been unlucky enough to experience it. So while it may have felt “safe,” the lack of diversification meant they were taking outsized risk compared to the expected returns.

We also uncovered some unexpected termination fees with these investments if they were to sell them. So not only were the investments down, but the fees handcuffed them to the holdings. And to top it all off, the majority of the investments were held in IRA accounts, eliminating the tax advantages of taking a loss on the securities.

This whole experience was a true education for him and his mother. We walked them through the risk of both sides of the situation: if they sell the investments now they have a crater to recover from that may take significantly more time than they have, especially with his mother’s age. But if they hold the investments, they maintain immense risk and now are “doubling-down” on one sector in the markets, reinforcing the behavior that got them here in the first place. Hearing this news was crushing, leaving a bitter taste in their mouth for investing. But we stuck with them, walking them through how proper planning from an advisor with a fiduciary standard from the beginning could have prevented this. And, as hard as it is to accept, sound planning moving forward may be the only way to know which is the best path to take now that this has occurred.

As difficult as it was to accept this reality, they understood and are now taking steps to correct course. We’re honored that we could be part of this education process.

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