Do You Need Fraud Insurance, and other Important Retirement Questions

Have you ever considered buying fraud insurance for your portfolio? How about moving abroad to save on health care costs? On this episode of Retirement Starts Today we go over articles that tackle these questions as well as why many financial firms are giving back money to their clients. Listen to this episode of Retirement Starts Today to catch up on the latest retirement headlines.

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Outline of This Episode

  • [3:22] Why are 79 financial firms giving back over $125M?
  • [7:30] Should you buy Bernie Madoff insurance?
  • [13:06] Should I retire abroad for healthcare?

Why are 79 financial firms giving back over $125M?

The SEC says that 79 financial firms will give $125 million back to clients as part of a clemency period. This restitution went to retail investors like you and me. The financial firms sold inappropriate high fee mutual funds without disclosing the 12B1 fees they were taking. This is part of a crackdown on 12B1 fee from the SEC. This is particularly egregious since there is a lower cost fund available.

What is a 12b1 fee? If you work with an advisor that is part of a broker/dealer it is part of the expenses you pay. It is disclosed, but it is a nefarious marketing fee. If you prefer to avoid the 12B1 fee then work with an advisor that has signed a fiduciary statement. They are more interested in low-cost options rather than hidden fees and will always choose the lower cost option.

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Should you buy fraud insurance?

You probably remember Bernie Madoff from 2008. During the financial crisis, he was part of a huge Ponzi scheme that affected 4,800 clients. Madoff is probably the most recognizable name when it comes to fraud. A company called Capital Shield Insurance Services will insure your portfolio for $1500 per $1 million. Although it is not a huge cost, I don’t recommend it since every little cost adds up. You should explore this road if you feel that is necessary but I feel that any investor with due diligence can protect themselves.

How can you protect yourself from fraud?

Protecting yourself from a fraudulent advisor isn’t that hard. If you follow these 3 steps you should be well protected.

  1. You want to make sure to work with an advisor that works with a 3rd party custodian such as Fidelity or Charles Schwab. You want a disinterested 3rd party to access your accounts rather than the financial advisor directly. The 3rd party is highly regulated and held to rigorous standards which heightens your protection
  2. Your financial statements should come from the 3rd party– not the financial advisor.
  3. Don’t write checks directly to your advisor. Only write checks to the custodian of your accounts. That is a red flag for fraud.

If you follow these steps you shouldn’t need fraud insurance.

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Should you retire abroad for health care?

It’s no question that healthcare in the U.S. is expensive. It is usually the biggest expense in retirement other than a mortgage and taxes. So it is no surprise that we see more and more articles about medical tourism. This recent article discusses going one step further and actually retiring abroad to reduce healthcare costs. In many places, if you become a legal resident of the country you can gain access to their public healthcare system. But often people opt for private insurance as well. It is important to remember that the quality of healthcare varies greatly by location. Before you leap out the door with your bags packed it is important to do plenty of research first.

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