Six Financial Products to Avoid

Despite what Wall Street says, you can grow your wealth without fancy, high-fee products. Many financial products do more good for the person selling them than for the person who actually owns them. Here are six financial products to avoid.

But first - a little background.

Hello! I am Dwight Dettloff, CFP®, CPA!

As a CPA and fee-only financial advisor in Lafayette, Colorado working with retirees and those within 5 years of retirement. I am a financial advisor who sells no products and does not accept sales commissions.

And also… 

Here are some blogs we’ve written on this, which you may wish to read. 

• What Month Should You Retire? Here's What Actually Matters.

• 7 Hidden Costs of DIY Investing

• Rental Real Estate: The Pros, Cons, and What to Know Before You Buy

And now for the feature presentation – what are six financial products I'd usually avoid as a fee-only financial advisor. Let’s get into it!

Quick answer: Retirees should generally be cautious with complex, high-fee, illiquid financial products like certain cash value life insurance policies, hedge funds, private equity, structured notes, interval funds, and sometimes direct indexing.

Complexity is the enemy

When it comes to investing, more complexity does not usually mean better results.

In fact, some of the most aggressively marketed financial products are also the hardest to understand, the most expensive to own, and the least likely to improve your actual retirement plan.

That does not mean every complex product is always wrong in every situation. But in my experience, retirees and people nearing retirement are usually better served by simple, transparent strategies they can understand and stick with.

As a fee-only financial advisor in Lafayette, Colorado, I help people make retirement and tax-planning decisions without selling products or earning commissions. That means I have little incentive to steer someone into a complicated solution just because it pays more to the person recommending it.

Here are six financial products I would generally approach with a lot of caution, and in many cases, avoid altogether.

1. Cash Value Life Insurance for Investment Purposes

If you need life insurance, term insurance is often the most straightforward place to start.

Term life insurance solves a real problem: protecting your spouse, children, or other dependents if you die during your working years. It is relatively simple. You pay a premium for coverage over a defined period of time.

Where people often get into trouble is when insurance is pitched not just as protection, but as an investment, retirement strategy, or tax-free wealth-building tool.

That is where products like these often show up:

• Whole life insurance

• Universal life insurance

• Indexed universal life

• Variable universal life

These policies are usually far more complicated than they first appear. The illustrations can look polished and optimistic, but the internal costs, assumptions, and long-term performance can be much harder to evaluate. In many cases, the person buying the policy does not fully understand how it works, and frankly, sometimes neither does the person selling it.

That does not make every policy bad. But it does mean you should be very cautious anytime insurance is being sold primarily as an accumulation tool rather than as insurance.

For many families, “buy term and invest the difference” is still the cleaner and more flexible solution.

If you're near or in retirement, it's possible you may have a product that was purchased years ago, and maybe for a good reason. Now may be a good time to evaluate if that product still suits your needs and what alternatives might available to you. If you need help evaluating an old policy, please reach out and I'd be happy to help.

2. Direct Indexing

Direct indexing is often marketed as a sophisticated upgrade from owning index funds.

Instead of buying one mutual fund or ETF that tracks an index, you directly own many or all of the underlying individual securities. The pitch is usually centered around tax-loss harvesting, customization, and greater tax efficiency.

In some high-net-worth situations, there can be legitimate uses for direct indexing.

But for many investors, especially retirees, it creates a level of complexity that may not be worth it.

Instead of owning a handful of diversified funds, you may now own hundreds of individual positions. That can make the portfolio harder to understand, harder to monitor, and harder to unwind later. It can also create new tax-management challenges once the portfolio has appreciated and the early tax-loss harvesting opportunities are gone.

A good question to ask is this: does this actually improve your retirement plan, or does it mainly make your portfolio look more sophisticated?

Simple, low-cost index funds are still extremely hard to beat.

3. Hedge Funds

Hedge funds are often presented as exclusive, sophisticated investments designed for wealthy investors.

The marketing usually sounds appealing: access to unique strategies, downside protection, uncorrelated returns, institutional-style management.

The reality is that hedge funds can come with major drawbacks:

• High fees

• Limited transparency

• Use of leverage

• Liquidity restrictions

• Complicated strategies that are hard to evaluate

If you are retired or close to retirement, one of the most important jobs of your portfolio is to support spending, reduce unnecessary risk, and remain understandable. Many hedge funds work against those goals.

You do not need hedge funds to build wealth.

You do not need hedge funds to retire.

And you certainly do not need hedge funds just because someone wants your portfolio to sound more sophisticated at a dinner party.

4. Private Equity Funds

Private equity is another area where the sales pitch can sound compelling.

You may hear that private equity offers access to opportunities unavailable in public markets, or that it gives investors a chance to earn higher returns by investing in privately held businesses.

Sometimes that may be true. But private equity also introduces real tradeoffs:

• Illiquidity

• Long lock-up periods

• Limited transparency

• Difficult valuation

• High fees

• More complexity than many investors realize

For retirees, liquidity matters. Flexibility matters. Simplicity matters.

If part of your retirement plan depends on knowing what you own, what it costs, and when you can access your money, private equity can create planning headaches quickly.

That does not mean nobody should ever own it. It does mean it should clear a very high bar before being included in a retirement portfolio.

5. Structured Notes and Other Structured Products

Structured products are often sold as clever solutions to investor fears.

The pitch may sound something like:
“Get some upside, with some protection.”
Or:
“Earn enhanced returns with a customized risk profile.”

That sounds attractive until you dig into the details.

Structured products often involve complicated formulas, issuer credit risk, caps on upside, limited liquidity, and terms that most investors would never voluntarily design for themselves if they were starting from scratch.

That is usually a red flag.

If a product requires a long explanation, dense disclosure documents, and a salesperson to “help you understand it,” there is a decent chance the complexity is part of the business model.

Most investors are better off with transparent portfolios built from plain-vanilla investments they can explain in a sentence or two.

6. Interval Funds and Other Illiquid Packaged Investments

Interval funds have become more common in recent years, especially as firms look for ways to package less-liquid investments in a more accessible wrapper.

They may hold private credit, real estate, or other less-liquid assets. While they are often more accessible than traditional private funds, they still tend to come with meaningful limitations.

That can include:

• Limited redemption windows

• Valuation uncertainty

• More complexity than traditional funds

• Higher fees

• Reduced flexibility during market stress

That last point matters.

Retirement planning is not just about maximizing return. It is also about preserving optionality. If you need to make changes, raise cash, simplify your balance sheet, or adjust your strategy, illiquid products can get in the way.

The Bigger Issue: Complexity Often Benefits the Seller More Than the Investor

That is really the common thread here.

Many of these products are not just complicated by accident. Complexity can make it easier to justify higher fees, harder to compare alternatives, and harder for the client to know whether the recommendation is actually in their best interest.

In my experience, most people nearing retirement do not need more moving parts.
They need a plan.
They need tax awareness.
They need a sensible withdrawal strategy.
They need an investment approach they can understand and live with.

Usually, simple beats clever.

A Better Question to Ask

Instead of asking, “Is this product sophisticated?” ask:

• What problem is this solving?

• What does it cost?

• How liquid is it?

• How is the advisor compensated?

• Could a simpler solution accomplish the same goal?

Those questions alone can help you avoid a lot of expensive mistakes.

Final Thoughts

You do not need complicated financial products to build a strong retirement plan.

Many retirees and pre-retirees are better served by low-cost, tax-aware, diversified portfolios paired with thoughtful financial planning. That may not sound flashy, but flashy is not usually the goal. Reliable is.

If you are evaluating a financial product and are not sure whether it is helping or just adding complexity, that is worth slowing down and reviewing carefully.

Thanks for reading.

— Dwight

P.S. I’m a CPA and fee-only financial advisor in Lafayette, Colorado, and I help retirees and people close to retirement with tax-efficient financial planning and investment management. If you’d like help evaluating your retirement plan, investment strategy, or a financial product someone is recommending, you can reach out through my website.

FAQ

What financial products should retirees avoid?

Retirees should be cautious with complex, high-fee, illiquid products such as cash value life insurance used for investing, hedge funds, private equity funds, structured notes, interval funds, and sometimes direct indexing.

Why are complex financial products risky?

Complex financial products can be harder to understand, more expensive, less liquid, and more difficult to evaluate. In many cases, the complexity benefits the seller more than the investor.

Is direct indexing a bad idea?

Not always. Direct indexing can be useful in some situations, but for many investors it adds unnecessary complexity compared with owning low-cost index funds or ETFs.

Are hedge funds good for retirees?

Often, no. Hedge funds can bring high fees, leverage, limited transparency, and liquidity restrictions, which may not fit the needs of retirees.

Should I use whole life insurance as an investment?

It depends on the situation, but many investors are better served by separating insurance and investing. Term life insurance plus disciplined investing is often the simpler solution.

How can I tell if a financial product is too complicated?

Ask what problem it solves, what it costs, how liquid it is, how the advisor is paid, and whether a simpler alternative could do the same job.