Conflicting Advice and Actions You Can Take

Q. My mother is trying to make some financial decisions regarding her investments. Neither she nor I know much regarding this. She does have a financial counselor, but she has gotten conflicting advice regarding a municipal bond in which she invested $30,000. She is in the 10-15% tax bracket. Her advisor states this is a bad investment for her, but the bank where she was advised to do this tells us it is a good investment. She has had this invested since approx. Feb. The value now is slightly more than $34,000. It is in a Nuveen Class B bond. Her advisor has given us reasons why this is not a good investment, but quite frankly I'm not sure that I truly understand, and my mother REALLY doesn't understand. I feel I need the reasons somewhat simplified so that I can explain to her.

I have confidence in her advisor, but in order for me to either convince her or agree that her investment is a good one, I feel as if I need to be able to explain this to her more simply.

A. You've come to the right place. Thanks for asking.

The big advantage of a municipal bond is that you don't have to pay income tax on the interest you earn, whereas on an investment like a CD you have to pay taxes.

That being said, it normally only makes sense to buy a municipal bond when you are in a higher tax bracket. If someone is not in the higher tax brackets they should be able to earn more on a fully taxable investment.

Let me say this differently. In you mother's tax bracket, she could have a taxable investment, pay the taxes on what she earned and STILL end up with more money to buy groceries than if she has the municipal bond.

You mentioned that she was in a Nuveen Class B bond. It sounds like this is going to be some sort of bond fund where she paid a commission to get in (even if she didn't see it). As a result, it is probably worth less than when she bought it.

See what she can sell it for. If it is more than when she bought it then sell it. If it is worth less than when she bought it you or she should contact the compliance officer who oversees the investment part of the bank that sold it to her. This sounds like it was an unsuitable investment and she should press them to get all of her money back.

They will initially tell you that it's her problem and not theirs (but probably in more polite gobbly-gook!). If that's the case, tell them that you will file a formal complaint against the broker and the bank. To do so, you can go to the NASD website and file the complaint right there. It may not help, but there are strict procedures that firms must follow every time a complaint is filed.

Your posted comments on this and other questions are welcome.
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