Broker Check

To Safeguard Your Wealth, Avoid the Exploiters

January 06, 2024

KEY TAKEAWAYS:

  • Exploiters are professionals who recommend aggressive variations
    of financial solutions and strategies that are legal—for now—but
    likely to blow up on you down the road.
  • Anytime you’re presented with a financial strategy that seems
    overly aggressive or promises you the moon and stars, hit the
    brakes and dig deeper—you could be dealing with an Exploiter.
  • Be wary of excessively large fees associated with financial
    strategies—especially if the provider can’t break down the reasons
    behind those fees.

Back in the inaugural issue of the VFO Inner Circle Special Report, we showed you how to
steer clear of two types of financial advisors who could erode your hard-earned wealth—or
even destroy it.

1. Pretenders are advisors who do not serve their clients well due to incompetence, or
who have good intentions but limited expertise. They may want to do a sensational job
for their clients, but they are just not capable.

2. Predators engage in illegal behavior to cheat and swindle people. A whole range
of Predators look to manipulate other people—particularly accomplished, affluent
individuals and their families—by breaking the law.

But there’s a third type of “professional” who is likely to be devastating to your personal
wealth and emotional well-being:


They are the Exploiters.

The goal of Exploiters is to behave dishonorably, but not illegally, for their own satisfaction
and gain. Unlike Predators, Exploiters do not break the law; their actions are technically within
the bounds of current laws. But the aggressive solutions they advocate have a good chance
of exploding down the road or generally not working out as promoted—and the Exploiters
are fully aware of that fact.

Based on our experience, many of the top successful business owners know to be on the
lookout for advisors seeking to exploit them in these ways—they know the warning signs,
and they know to seek out a second opinion whenever those signs start flashing.

Here’s what these top entrepreneurs can teach you about avoiding the Exploiters.

Four key traits of professional Exploiters

Let’s take a closer look at four ways Exploiters are different from Pretenders and Predators
(see Exhibit 2).

1. Expertise. Pretenders have limited expertise but are often unaware of that fact. Also,
Pretenders’ expertise is a function of the subject matter. A financial advisor can be very
capable when it comes to money management, for example, but is not necessarily

proficient at tax planning (although he or she doesn’t fully realize this).


Predators may or may not be experts on a subject. They are pitching a very appealing
and intriguing story—and that, many times, is enough.

In contrast, Exploiters tend to be very technically competent. They will regularly hang
their legally untested solutions on nuances in the law. Often their grasp of the subject
matter is exactly what they use to confound clients and even other professionals they
work with.

2. Integrity. Pretenders intend to do what is best for their clients, but are in over their heads.

Predators are criminals with no concern for clients, whom they view as marks and
suckers.

Exploiters have very little integrity and only some—but not much—concern for their
clients. They are not willing to engage in illegal activities, but this is usually due to fearing
the consequences and not because of any sense of responsibility. A bad outcome for an
Exploiter is a financial hit, but rarely jail.

3. Interpersonal skills. The ability of Pretenders to build rapport with clients ranges
extensively. Some are exceptional, while others are poor. Most fall in the middle.


In contrast, the interpersonal skills of Predators and many Exploiters tend to be high.
Exploiters are excellent at impressing others with intellect and/or charm. Their charisma,
charm and personal appeal are often part of their ability to manipulate clients. That said,
some Exploiters might have limited interpersonal skills. In these scenarios, their ability to
overwhelm clients and other professionals with evidence of their brilliance drives their
success.

4. Legitimate solutions. To the best of their knowledge Pretenders offer only lawful
financial products and legal strategies. Unfortunately, they really don’t know that much—
leaving them susceptible to promoting questionable products and services.

Predators, of course, lie from the start. They, by design, do not offer legitimate solutions.

Exploiters offer legitimate solutions—at that moment in time. To be clear, they are not
Predators. The products and strategies (or the variations of them) they advocate are currently
legal, often because they have not been adequately tested in the courts or have not drawn

IRS scrutiny. Their solutions are regularly considered to be aggressive and “pushing the
envelope.” Sometimes the results will indeed match up to everyone’s expectations—but a
great many stars have to align for that to happen!
Indeed, the recommendations of Exploiters (and Predators) have a certain “too good to be
true” quality.


Red flags to watch out for

Exploiter red flags, part 1: aggressive-sounding solutions lacking in detail. Often,
Exploiters will withhold information to muddy the waters to get business owners to make
decisions that are not in their best interests. Anytime someone approaches you with a way to
purchase life insurance with pretax dollars outside of a qualified retirement plan, for example,
there is the good possibility that strategy is aggressive and in a gray area in terms of its long-term
effectiveness. While not illegal today, it could easily become a problem in the future.

Exploiter red flags, part 2: playing the blame game if something goes wrong. From the
world of confidence artists, there’s the concept of the “blow off.” This is when the confidence
artist constructs the situation so that the mark (the victim) goes away and does not cause
trouble. Exploiters apply this concept expertly. Sometimes it is a matter of shaming the
victim. Sometimes it is a matter of directing the blame to the victim or the client’s other
professionals.


Exploiter red flags, part 3: too-good-to-be-true assumptions and promises. If you’re
promised the moon, be wary. For example, Exploiters may promote premium financed life
insurance as cost-free life insurance. Always slow down if you’re promised that something is
free, as it could be a sign the strategy is pushing the envelope. The assumptions underlying
the projections seem somewhat magical, but the client and his or her other advisors are so
impressed or confused that they end up enamored. While the strategy will likely falter, it can
be many years—more than a decade—before it truly collapses. By that time, the financial
advisors are long out of the picture. Likewise, any guarantees of future performance results
should not simply be accepted at face value.

Exploiter red flags, part 4: large fees that aren’t explained well. Another example is lawyers
who charge egregious fees to do work for which most lawyers would charge much less. If
you’re given a fee, ask the lawyer to spell out exactly why you’re being charged that fee. You
should be given specific reasons—maybe your situation is more complex than is typical, and
involves setting up certain trusts. If you are given reasons for the fees, and the logic behind
them makes sense to you, great. But if the answers are vague or you’re told “that’s just what
we charge,” don’t simply smile and nod. Of course, this applies to all the fees you’re being
charged.

The smart move: Get a second opinion

If you’re ever presented with a financial product, solution or strategy that promises the moon
and seems too good to be true, or that is presented to you as an aggressive way to use the
strategy, listen to your instincts. Don’t immediately move forward with that plan and that
financial advisor (or other professional).

Instead, seek out a second opinion about the proposed solution from another financial
advisor with the knowledge and capabilities needed to accurately assess the solution. By
having “another pair of eyes” do a thorough review, you can avoid potentially becoming the
victim of an overly aggressive strategy that could blow up in your face months or years down
the road—and derail your financial security.

Of course, a second opinion review might reveal that the proposed solution is acceptable,
valid and right for your situation. The point is to know one way or the other so you’re not
separated from your hard-earned wealth by someone who doesn’t have your best interests
in mind.