Seniors, savers, baby boomers and retirees are constantly bombarded with financial information written by those wishing to sell their products or services. The readers are prospective nails; and the authors tout their particular hammer as the best solution to your financial challenges.
Many have been credited for the above quote, including Mark Twain and Abraham Maslow. I prefer to use the Wiktionary approach, calling it a proverb:
1. With limited tools, single-minded people apply them inappropriately or indiscriminately
2. If a person is familiar with a certain, single subject, or has with them a certain, single instrument, they may have a confirmation bias to believe that it is the answer to/involved in everything.
For several years I attended the Orlando Money Show visiting booths looking to get educated. What I learned is not what the vendors hoped for.
The large mutual fund companies had a booth populated by young people with freshly printed degrees. I explained I was a do-it-yourself investor looking for ideas. They would all go into their pitch about their “family” of mutual funds. Turn over my life savings and their highly sophisticated computer would allocate my money into their various funds – I would be well diversified and safe.
When I asked about how they protect retirees from inflation they all gave the wrong answer – Treasury Inflation Protected Securities (TIPS). If you want to have some fun, ask them about how to invest in gold!
They had little understanding of the big picture from the perspective of a retiree trying to preserve capital.
I went into booths from insurance companies offering annuities. Many emphasized annuities tied to various indexes with projections of how much money I could make – depending on investment performance. I believe you don’t buy an annuity based on hype – you buy it for the contractual guarantees only.
I walked into booths offering great computer stock trading systems. They tout the fact that smart traders can beat the indexes using their tools.
My biggest surprise came when I visited booths with licensed Certified Financial Planners. They go through some stringent testing to earn their certification. I asked many about when you should file for social security. I asked about investing in gold and inflation protection. I was very disappointed in their responses. Some understood the big picture but many did not.
Reverse mortgages; those who tout them believe they are the best solution for retirees.
It’s not just the Money Show. We dumped Bank of America, tired of continually being hassled to buy CD’s every time we made a deposit. Once they teamed up with Merrill Lynch it was awful.
My lesson learned?
Individual stocks, mutual funds, ETF’s, insurance, annuities, CD’s and reverse mortgages may have their place in a diversified portfolio. Standing alone, each comes with a risk that leaves the nest egg vulnerable.
Everyone was an expert on their product and industry, however when I inquired about the big picture, most struggled. They had their hammer and knew how to use it! When I spoke with Certified Financial Planners, who are trained to see the big picture, I learned some are better than others.
Education 101
When I embarked on my encore-writing career, I asked my mentor a question: “I am not licensed or qualified to give individual, personal investment advice, nor am I licensed to sell insurance. How do I have credibility as compared to those who are experts selling those products or services for a living?”
He smiled and said, “Dennis, you are an educator, with many years of good experience, who knows how to research. You are not trying to sell readers on managing their money, investing in your mutual funds, or buying your insurance. You are the voice of experience, not talking theory out of a textbook. That is YOUR advantage!”
In time, I realized how right he was. What galls me is the amount of misleading information from companies pushing their products.
Protect yourself and your money
How do individual investors become educated and find good, honest sources of information – particularly sources that really understand the big picture?
Shortly after I married Jo, I became responsible for looking after her mother’s (affectionately called grandma) financial affairs. It was luck that our brokerage account was assigned to Mary Ann (fictitious name), a seasoned veteran at the brokerage firm.
Mary Ann was a good teacher; together we got grandma’s investments in order to everyone’s satisfaction. It wasn’t until we deposited a check that Mary Ann learned grandma held interest in a family farm. A few days later she phoned asking about the farm.
Had grandma died at that moment, the estate taxes would have been so large, Jo and her sister would have had to write a check to the government, above and beyond what they would inherit from her brokerage account. The farm would have to have been sold to pay the taxes. We quickly bought a life insurance policy to prevent that from happening.
I asked Mary Ann what made her call me. She was the voice of experience, having seen that situation many times before. I asked if most brokers would do that. She grinned and suggested I look around the office.
Most of the brokers were young. The employee parking lot was full of leased starter BMW’s. This was during the Internet boom and most of the young brokers were encouraging their clients to regularly trade so they could earn commissions to make the payments. Mary Ann made her point without directly answering my question.
Mary Ann was also an educator and mentor. When she retired, I embarked on my do-it-yourself journey hoping she had taught me enough to survive. The Internet bubble burst, online brokers came on the scene and most of the young hotshots are now gone.
The real world
When it comes to investment advice, advisers are held to different legal standards. The first is called the Fiduciary Standard. Certified Financial Planners (CFP) must adhere to this standard. The CFP board defines it simply:
“The fiduciary standard of care requires that a financial adviser act solely in the client’s best interest when offering personalized financial advice.”
That means they have to put the client first, ahead of their best interests. If they don’t they could be sued.
The other legal standard is called the Suitability Standard. This used to apply to stockbrokers and dealers. Investopedia defines it for us:
“Broker-dealers only have to fulfill a suitability obligation, which is defined as making recommendations that are consistent with the best interests of the underlying customer.”
The difference is this. Let’s assume an appropriate investment for a client would be a government bond fund. An adviser held to the fiduciary standard, must pick the BEST solution for their client. A stockbroker can choose any suitable bond fund – and could easily pick the one paying them the highest commission.
In 2016 the Obama administration issued a regulation that required all advisers to be held to the same higher standard. The rules were scheduled to go into effect in 2017.
President Trump wants to review the current laws and regulations. Investopedia reports: “The Department of Labor’s fiduciary rule was scheduled to be implemented starting April 10, and today’s memorandum delayed its implementation by 180 days.”
You can’t legislate ethics
Mary Ann was a stockbroker and lived her life to the fiduciary standard. I saw her recommend not using her own company-sponsored funds, confiding the fees were much too high. I asked why she did that.
Young stockbrokers had a guaranteed salary and pressured to sell their company sponsored products, with quotas to meet. Successful brokers build a base, become independent and paid on commission – selling what they feel is best for their client.
I asked how brokers get to that point. Her response was simple, “Always do what is right for your client – that is how you build your business.” Some of her clients had been with her for decades.
I’m sure there are some CFP’s who may have bent the rules a time or two – you can’t legislate ethics.
How do you keep from getting nailed?
Education is the key.
- Find advisers who will take the time to educate you; build up a trust.
- Talk to a lot of experts. Assemble information from many sources.
- Record your favorite TV shows and fast forward through the commercials. That frees up time to read educational material daily.
- Ask advisers the hard questions about inflation, stop losses and diversification.
- Ask “What if?” questions and press for logical, understandable answers.
- Don’t settle for any adviser on their learner’s permit.
- Talk about the big picture, how investments should fit together. You will quickly learn if they “get it”.
And the most important one of all:
- Trust your instincts. If you feel uncomfortable, pushed or bullied, keep looking for another adviser.
Look for a licensed, experienced adviser who understands the big picture – and couples those skills with a moral compass of doing what is right for their clients.
| While the adviser may have a hammer, and you may look like a nail, don’t behave like one. Take the responsibility for self-education. |
It’s the job of the salesperson to educate the client to the point they understand and are comfortable. There are good ones available, don’t settle for anything less.
And Finally…
“A government big enough to give you everything you want, is strong enough to take everything you have.” – Thomas Jefferson
For more information, check out my website.
Download our FREE special reports:
An Honest Person’s Guide to Social Security
10 Easy Steps To The Ultimate Worry-Free Retirement Plan
10 Things You Need To Know, That Brokers Won’t Tell You About Dividend Paying Stocks!
Until next time…
Dennis
www.MillerOnTheMoney.com
i want to plug the individual stock. you can buy one and hold it 50 years without paying capital gain tax, and when passed to your heirs the gain is wiped away by something called “stepped up basis.”
thus, in one instrument, you can encompass tax-deferred or tax-free gains, a growing income stream from dividends, and some estate planning. of course quality of selection is paramount.
and the annual management fee is zero %!
My best friend manage my parents estate for years. He did a great job and made them a lot of money. I told him one fact…if you churn my parents account and don’t act in their best interest I’ll beat your ass . He said…”I got it ” . LOL
I went to the bank to get a credit card in the wife’s name some time ago.
Young kid behind the desk….
“List your assets and liabilities please”…..
Sir! (to Fiatman60) “GOLD is not an asset!!!” Really??? What is it then?
“It’s a commodity!!!”…. exit said bank…..
Went to one of these investment shows with the young kids behind their desks. “So what about gold as wealth preservation?” I asked. Deer frozen in the headlights look……”We wouldn’t recommend that” Really? “What about your financial company’s preferred shares having 10% allocation to gold?” I asked. “We don’t know anything about that”
Long story short TBP – These kids are told what to say/sell and they know very little beyond that. When it comes to your savings, these people and their firm will say anything to gain access to your savings for their own personal gain via(commissions). It pays to shop around.
What it’s really about are the “fees”, slowly sucking you dry like a tick. Every other asshole is an expert now, the word’s meaningless , a joke.
I can tell you this much. Anyone that is truly an “expert” in investing, is already trading whatever assets they trade – for their own account. Anyone that is an expert in investing has no time to moonlight as an “advisor”, they are too busy either retiring due to their expertise, or managing their own affairs.
Interesting that an unlicensed, investment inexperienced retiree is selling $30 reports on products (annuity) in which he has no clue how they actually work. He does not even touch on contract structure, benefits and the varied calculation methodologies or actuarial formulas that must be attended to in order to understand. Barely touches on taxation, but is not a CPA either. But, in the same breath and sentence he cautions you to avoid the young kids with starter bmw’s. I would too, but I personally would avoid Dennis just as well as it seems he is unlicensed with no formal investment securities education or training. Seems as though he may have a business model of selling your info to the highest bidding investment broker, just like a wannabe, mini me Dave Ramsey et al. Seems one snake oil is better than another’s…..but in the end you are still buying snake oil, jus sayin.