[quote=HAAIC] [quote=HymanRoth] [quote=Spaceman Spiff]It’s because guys like that tend to think they’re invincible and they can’t possibly see their income drop by 40%.  So, they set up their lives to meet their income.   That’s not just a 3/2 house.  It’s the trophy house they “deserved”.  Probably 7000 sq feet, 5 beds, 6 baths, pool, bar, media room, etc.  And of course the huge mortage to go with it.  And you can’t park a Ford Focus in your 7000 sq ft house.  It has to be German with lots of letters and numbers on the trunk lid.  Private school, lake house, $5000 suits, blah blah blah.  They probably tell their clients to live within their means while their banker runs the numbers and tells them they can afford the second house in AZ for the winters.  

  Thus the reason we're in the mess we're in.   [/quote]

Indeed.

This is why I'm having a tough time feeling much sympathy.

How can someone who claims to be a financial advisor get themselves into a mess like this where they are so over extended?
[/quote]

The same way a doctor with a broken arm can tell one of his patients, with a broken arm, to get a cast.
[/quote] Totally different but nice try.  We have a choice in how we live our lives, last I checked, most drs who are practicing with broken appendages did not get that way by choice.  I am not saying that advisors who overextend themselves are incapable of good advice, but I do think they have a duty as sensible business owners to be there for their clients and part of that involves the ability to manage their own affairs prudently.

I would do everything you can to avoid filing BK. You can workout a small payment plan with your creditors till biz picks up. If you’re able to get a deal --go for it. The peace of mind of having your debt paid or almost paid is worth it. You can then focus entirley on rebuiling your business.

  I got myself into financial problems after the 2000 dot com bust. it took me 5yrs to dig myself out of it. I have since promised myself to live below my means.   Good Luck!

[quote=Iocaine][quote=HAAIC] [quote=HymanRoth] [quote=Spaceman Spiff]It’s because guys like that tend to think they’re invincible and they can’t possibly see their income drop by 40%.  So, they set up their lives to meet their income.   That’s not just a 3/2 house.  It’s the trophy house they “deserved”.  Probably 7000 sq feet, 5 beds, 6 baths, pool, bar, media room, etc.  And of course the huge mortage to go with it.  And you can’t park a Ford Focus in your 7000 sq ft house.  It has to be German with lots of letters and numbers on the trunk lid.  Private school, lake house, $5000 suits, blah blah blah.  They probably tell their clients to live within their means while their banker runs the numbers and tells them they can afford the second house in AZ for the winters.  

  Thus the reason we're in the mess we're in.   [/quote]

Indeed.

This is why I'm having a tough time feeling much sympathy.

How can someone who claims to be a financial advisor get themselves into a mess like this where they are so over extended?
[/quote]

The same way a doctor with a broken arm can tell one of his patients, with a broken arm, to get a cast.
[/quote] Totally different but nice try.  We have a choice in how we live our lives, last I checked, most drs who are practicing with broken appendages did not get that way by choice.  I am not saying that advisors who overextend themselves are incapable of good advice, but I do think they have a duty as sensible business owners to be there for their clients and part of that involves the ability to manage their own affairs prudently.[/quote]

Exactly.  The analogy would only hold water if the doctor had a broken arm because he had weak bones due to a poor diet...perhaps.

FA's who end up in BK have largely brought it upon themselves, unless there is some disastrous health situation in the family or something similar.

Too often it's due to the syndrome described by other posters, where managers and colleagues encourage conspicuous consumption.

[
This is why I’m having a tough time feeling much sympathy.

How can someone who claims to be a financial advisor get themselves into a mess like this where they are so over extended?
[/quote]

The same way a doctor with a broken arm can tell one of his patients, with a broken arm, to get a cast.
[/quote]

Totally different but nice try.  We have a choice in how we live our lives, last I checked, most drs who are practicing with broken appendages did not get that way by choice.  I am not saying that advisors who overextend themselves are incapable of good advice, but I do think they have a duty as sensible business owners to be there for their clients and part of that involves the ability to manage their own affairs prudently.[/quote]   stay positive.   do your best.   love your family.  be honest.  accept whatever happens.  life is short.  its only money.  everything happen for a reason.   watch this:   http://www.youtube.com/watch?v=ol2fN0bZCso  

[quote=iceco1d] [quote=Iocaine][quote=HAAIC] [quote=HymanRoth] [quote=Spaceman Spiff]It’s because guys like that tend to think they’re invincible and they can’t possibly see their income drop by 40%. So, they set up their lives to meet their income. That’s not just a 3/2 house. It’s the trophy house they “deserved”. Probably 7000 sq feet, 5 beds, 6 baths, pool, bar, media room, etc. And of course the huge mortage to go with it. And you can’t park a Ford Focus in your 7000 sq ft house. It has to be German with lots of letters and numbers on the trunk lid. Private school, lake house, $5000 suits, blah blah blah. They probably tell their clients to live within their means while their banker runs the numbers and tells them they can afford the second house in AZ for the winters.

Thus the reason we’re in the mess we’re in. [/quote]Indeed.This is why I’m having a tough time feeling much sympathy.How can someone who claims to be a financial advisor get themselves into a mess like this where they are so over extended?[/quote]The same way a doctor with a broken arm can tell one of his patients, with a broken arm, to get a cast. [/quote]









Totally different but nice try. We have a choice in how we live our lives, last I checked, most drs who are practicing with broken appendages did not get that way by choice. I am not saying that advisors who overextend themselves are incapable of good advice, but I do think they have a duty as sensible business owners to be there for their clients and part of that involves the ability to manage their own affairs prudently.[/quote]



OK, word it this way…it’s the doctor that smokes, but advises his patients to quit.[/quote]



My preferred analogy is the attorney with no will or trust at death and the family has to run the estate through probate. Very common.

It’s all about cash flow. As posted, an advisor takes a big check and is now living in a very different world. Even if the advisor was “smart” with the money and invested it he/she’s in big trouble now. Income down 30 to 40% but expenses are not reduced. In fact the biggest monthly bill is the tax nut on the front loan. Between the reduced revenue and the big tax bite these guys are getting seriously squeezed. How can anyone fault their ability as advisors because of this? They didn’t crash the market. They didn’t reduce their own income through any fault of their own. Bad luck? Their ability to come out of this in the black depends on where the lines marking an income recovery and their own dwindling assets cross. The longer the recesssion lasts the more unlikely a positive outcome becomes.

  This same scenerio applies to trainees and those young in the biz. Most used assets to launch themselves. Some used credit cards to help cash flow, racking up debt now with the promise to pay it back later when the hard work paid off. How is this different than any other small business? In fact, Ira Walker, one of this bizes biggest producers used credit cards to launch himself.  he's a five million dollar producer. If the market had done then what it's doing now, he'd be selling siding in his families business. Again, I see no reason to be critical of those caught on the underside on the financial coin.

[quote=BondGuy]It’s all about cash flow. As posted, an advisor takes a big check and is now living in a very different world. Even if the advisor was “smart” with the money and invested it he/she’s in big trouble now. Income down 30 to 40% but expenses are not reduced. In fact the biggest monthly bill is the tax nut on the front loan. Between the reduced revenue and the big tax bite these guys are getting seriously squeezed. How can anyone fault their ability as advisors because of this? They didn’t crash the market. They didn’t reduce their own income through any fault of their own. Bad luck? Their ability to come out of this in the black depends on where the lines marking an income recovery and their own dwindling assets cross. The longer the recesssion lasts the more unlikely a positive outcome becomes.

  This same scenerio applies to trainees and those young in the biz. Most used assets to launch themselves. Some used credit cards to help cash flow, racking up debt now with the promise to pay it back later when the hard work paid off. How is this different than any other small business? In fact, Ira Walker, one of this bizes biggest producers used credit cards to launch himself.  he's a five million dollar producer. If the market had done then what it's doing now, he'd be selling siding in his families business. Again, I see no reason to be critical of those caught on the underside on the financial coin.[/quote]   This is an excellent post. 

3rdyrp2:

But BondGuy, I’m talking about guys that were making over a quarter of a mil or more(Not the initial poster, I’m talking about the guys who were million dollar producers).  Ok, so you take a big bonus check and all of a sudden you’re making $150-$200k, all in the same year.  You’re telling me that bonus check, used wisely, couldn’t cover the missing income for one year, and then some?  Being that high of producers, there isn’t a cash reserve or investments to liquidate before bankruptcy?  And if income is going down 40%, why aren’t some expenses being reduced?  Unless you have a $900k mortgage and 3 german cars to pay off.  There is absolutely reason to be critical of those who lived frivilously and did not prepare for an emergency with some type of 3-6 months of expenses cash account or weren’t smart enough to cut some unnecessary expenses when their income started dwindling. 

  What's frivilous?   Everthing is relative. So, even to a lower producer, not a million dollar guy, they have their own hurdles to jump through every month. The question is; how long can you go with a reduced income or no income before the hammer falls on your lifestyle? Thousands of people, laid off from very good jobs, are struggling with this question right now. It's a scary thing because there for the grace of God go us all. We've already passed the 6 month emergency slush fund stash that all top planners recommend. It's gone or will be gone very soon. Now what? Now what for these people?   Back to our business. let's look at our million dollar producer. He's 15 years in the biz. He's been at the million dollar level for two years. He's been above 1/2 million for the past 8 years. His gross income is $450,000. After tax, not including deal, his take home is about $247,000. That's about $20,625 per month. That does not include his sales assistant's monthly bonus of $1500.   Our guy lives an upper middle class life style not unlike other highly paid professionals. He owns two homes. His primary residence is a home purchased 3 years ago on Harmony Lane for $750,000. It's an average house for the neighborhood and actually, less than average for the toney town he lives in. The place is very nice but needed some work as it's getting older. He and his wife chose this town because of its excellent school district.  He has a $500k mortgage on the place at 7% giving him a mortgage payment of approx $3300 a month. Let's make him a Jersey guy and put his property taxes at $1500 per month. Total housing cost including homeowners and utilities comes in at under 6k a month. Note: well within guidelines of what is acceptable.   Home number two is a townhouse at the Jersey shore. Our advisor bought this place for $160k cash before prices took off. It looked to be a great investment as well as a family refudge. No mortgage is good news, taxes and homeowners association fees, bad news. Taxes are $800 a month, association fee is $200. Utilites run about another $300 a month.   At the dock behind the summer house sits a 26 foot Searay Sun Dancer. With 15% down in cash he financed 75k two years ago giving him a boat payment of $700 a month. Additional boat costs are insurance, hauling and storage which adds another $200 a month. Our guy adds this cost to his family recreation budget.   Speaking of recreation budget; he takes his family of five on one kick butt vacation every year. Cost is usually in the 4 to 5k range.   On the transportation front our guy is not a car guy and leases a run of the mill Lexus ES370. Wifey tools around in a leased Lexus  RX350. Leases for both cars run about $1200 per month.   The kids are teenagers, two are driving and one is about to start. He bought the eldest a car for cash but is leasing a Honda Civic for the middle child. That cost is about $200 a month. His total car insurance bill is $900 a month. Remember this is in New Jersey.   Add it all up and we're at about $12,400 per month. Yet there is more.   Gotta eat: monthly food bill is $1250 a month. Additionally, our guy eats out-orders in lunch every day, eats cheap, but  add $300 per month. And every Friday he and his wife go out with friends to a new restaurant of choice burning another $100 per week. So, all up his food bill is about $2000 a month.   Cars use gas; he has four cars to fill every month. Average family mpg is 22mpg and total miles driven by all is 45,000 miles per year. About $300 a month in the Garden State.     And clothing takes another$5000 per year.   Adding in these living costs brings monthly cash burn to about:$15,000. And yet there is more:   Life insurance cost is 300 per month for he and his wife. And we can't leave out the dog, Spot, that costs them about $1000 per year for food and vet bills.   I'm sure i've left out quite a bit. But our guy has about a $5000 cushion every month. That's 5k positive cash flow that goes to savings every month. In other words the guy is saving about 25% of his take home pay after all the bases are covered. How many out there doing that?   Now let's add in a deal. Our guy gets a 100% front money 7 year deal. That's a million bucks! Whoo who!   So, what does he do with that money?   First thing he does is add $200k to to the $150k he got saved for his kid's education. That should get him close to what he needs there. Next move is to pay off the house. And even though his accountant advises against it he writes a $450,000 check to become mortgage free.  Next is paying off the boat, that takes another $70K. Our guy mulls around a little bit about how to invest the rest of his cash. His 401k is about $400k, and he has about $150k sitting in a brokerage account invested in various stocks. He budget's about 5 months take home, 100k, to getting his business up to speed at the new place. He knows it won't take that long but, better to be safe. He takes 80k and buys some zero coupon munis and banks the last 100k in a short CD.
  Now let's look at cash flow once our guy is up to speed:   The house and boat mortgages drop off saving $4000 a month. Hmmm, yet they are repalced by yet another bill, the monthly tax nut on the front money. Our boy has to pay taxes on about $143,000 in income every year on oncome he isn't getting. Of course he already got it all up front. Now paying off the house doesn't look so smart. Or does it? Well, from a cash flow POV the tax bill is about the same amount, $4000 a month. So, as it stands our guy has increased his net worth and did not increased his monthly expenses. He could of held out the money for the taxes and fed it in monthly to his income but it's six of one half a dozen of the other. He's still about 5k to the good every month and now owns the house free and clear.   But trouble is brewing. In the spring of 2008 the market is scaring his clients. They don't like what they're seeing. Biz drops 5%. Still no strain. Then the other shoe drops with a vengence in the fall of 2008 and biz is off 35% total from a year earlier. Our guy is now a $650k producer. With the grid reduction his income falls to $273,000 a year. His monthly take home, before the deal drops to $15,000, with the deal it's $11,000. Which matches his at home out of pocket expences.   He's at breakeven. And he's got that without being frivilous with his money. He covered his bases, house paid off, kids college taken care of and money in the bank. Still, with six plus years left on his deal, unless he picks up the slack the lines will cross. He will be forced into liquidation.   Just for fun and because i'm under the weather at home let's finish the story and see how our guy could end up completely under water.    His brokerage account is down to 90K and the zero munis he bought are worth about 60k. His CD is good but he doesn't renew it. He put the cash into his money market.   His biggest client decides to move his account, reducing his production to $600,000. Then he number three client dies unexpectedly, reducing his production to $570,000. Think this stuff doesn't happen? Think again! Now it's really ugly. Our guy's grid is now 40%. His take home is about 160K per year-$9000/month after deal. Net capital burn per month is $2000. And here's the problem, He has no way to get positive. He could brown bag it and stop going out to dinner. Butt!   He feels trapped and uncomfortable. He wants to restore financial security and also batten down for the future. He wants to put the shore house on the market and hires a realtor. Bad news! He bought the place for $160,000 in 2000. And it climbed to $280,000 by 2007. But now, it will only bring $190,000 max. But there is a problem. While the homeowners association is on the hook for all the outside maintanence that doesn't include the dock or bulkhead on his slip. Both of which need to be brought up to the new code put in place in 2006. Cost $54,000. OMG!   Our guy tries to put the boat up for sale but can't find a broker who will take the listing. "Waste of time right now, those boats are a dime a dozen. Nobody wants them. Now if you've got a center console fishing machine we can talk. " comes the retort.   Meanwhile back on Harmony Lane one of the kids notices a bad smell coming from the mud room, a small room leading from the garage to the kitchen. The wife says it smells like mold and she is right. There is mold growing in the plaster wall. She calls their local handyman to take a look. The news isn't good! The mold is being caused by an outside leak in the roof. And there are two more leaks causing unseen damage. The lowest of the three estimates to replace the roof is $17400. But it's gotta get done, our guy writes the check. Fixing the mold takes another 2g's out of the bank.   Our former million dollar producer finds solice at his office where things are about to change. The BOM announces that they are closing this office and all the advisors who qualify will be moving to the office in Capital City. The staff, including our guy's assistant is being laid off. The BOM will not be making the move. really negative news as the Capitol City BOM is known as an A-hole who doesn't support his people. Without support from the mgr, and without his assistant whom he was just managing to hold on to, he can't run his seminar marketing program. Our guy comptemplates this when the phone rings. It's his wife. She can't get the hot tub on the deck to turn on. He can't believe this call and tells her to call Mr. Handy. She does, and calls back three hours later with more good news. The hot tub has termites! Actually the entire 1200 square foot deck, which is the center piece of their back yard and outside entertaining has termites. And by the way there is a water stain on one of the ceiling tiles in the basement. 30k to replace the deck, 5k for a new hot tub and that water stain? The dishwasher in the kitchen above is leaking. It's ruined the solid plank floor, $4000, and damaged the subfloor, $1000. Plus one ceiling tile at Home Depot, $7.95.     Our guy suffers another production drop because 15 clients with 11 miilion in assets think the 40 miles to Capitol City puts them too far from their money. His monthly net drops to $5000 after deal tax is taken. Net monthly cash burn is now $6000.  The news doesn't help our guy's mood as he fights the depression of having a broom closet interior office. He shares an assistant with seven other guys. He had only one attendee at his last seminar serving to further darken the sky of his future. Between the markets and the loss of clients, his production is half what it was a year ago. The BOM has no repect for any of the new transferees and a cast system has developed in the office. There are those who get and those who don't. He's on the wrong side of that equation.   Our guy considers remortgaging the house to give him some more breathing room. The probelm is it will only deepen the cash flow shortfall. If business doean't come back anytime soon he'll be in a worse off position.   The realtor calls with an offer for the shore place. She's embarressed to tell him, but by law has to present it-$119,000. "It's a done deal at that price?" he asks. "Well, as soon as you get the dock and bulkhead up to code" comes the reply. He hangs up without responding just as the BOM pops his head in to his office. He'd like to talk to him in his office when he has a chance. He takes a client call and then goes to the BOM's office. The BOM announces that our guy is now below the minimum to maintain employment at this office. He puts our guy on three month probation and says, off the record, it's time to consider other options. All the transferrees get the same speech.   Shell shocked, back in his office, his head spinning his assistant delivers a message from his wife... the Sub Zero has stopped making ice and there's another water spot on a basement ceiling tile...   And so it goes.   At home trying to entertain myself on a sick day. But, as you can see, even for those who are secure, 400k in a 401k, hundreds of thousands saved outside those plans, plenty of income, all the bases covered, things can change. Business conditions, major illness, unexpected expenses. All can take one's lifestyle to the matt. It has nothing to do with being a good financial advisor. And as i said way, way above, it's all relative. Here we are talikg about a million dollar guy. The numbers may be less and there may not be things like second homes or two Lexus' in the driveway, but this scenerio is the same for us all.