Should your financial advisor be a nice guy?

Posted on January 11, 2012January 11, 2012 by Danielle

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Guy?! What! what! If you’ve read even a few of my blog posts, you already know the answer. I’ll even ignore the word “guy” for a while, that part of the answer being just too obvious. What’s sparking my ire is 45 pages in the November Chicago magazine (I read it at the doctor’s office) of sycophantic advertorial crap about the top wealth managers in the Chicago area. I hope people aren’t stupid enough to identify this as actual reportage, although that’s certainly what the magazine and the “winners” are hoping for, and shame on Chicago magazine. Oh shucks, I guess they’ll never feature me now.

Okay, for 35 pages I’ve looked at smiling white-guy suits (with some chicks thrown in, mostly blondes and under 40) declaring how they give “unbiased advice”, are dedicated to the “best interests of the client” and talk about how hard they work and how they’ll work to build your wealth. Yeah, right, but they’re gonna work to build THEIR wealth a lot harder, I guarantee. Because surprise, surprise, every one of them as far as I can see is a stock broker(okay, maybe a CPA or attorney thrown in). They have no legal duty to work for your best interests, only to recommend “appropriate” investments. So let’s see what these nice guys will cost you.

I’m going to give them the benefit of a doubt and assume they’re going to recommend fairly reasonable investments to you, say, a large cap mutual fund and not some insane hedge fund scheme or Ponzi-scheme non-traded REIT. Okay, so this lovely fund carries a 5.75% load (par for the course if the fund is called Lord Abbett or Putnam or Oppenheimer–bet you’ve heard those names if you’ve ever talked to a broker). Plus, the Lord Putheimer fund has yearly management fees of, let’s be nice, 1.5%. Invest a million bucks and you’re going to lose 7.25% right off the bat–$72,500. No wonder those guys are smiling. Are you? Do you think the Lord Putheimer fund is going to make you that much this year?

In contrast, I’ll meet with you on an hourly basis. If you have the most complicated investments around (you were working with a broker, right?), you can still take a zero off that number and cut it in half–it’s highly unlikely that advice alone would cost more than $3,500, and plenty of clients pay far less. Want investment management? My fee, which includes a financial plan and an actual person who will talk to you without canned junk to sell you and do most of the worrying for you, would cost you $8,000 for that million, billed over a year. Not cheap, but not $72K, either. The funds I recommend generally have management fees in the range of 0.17% to 0.50%, so you’ll get professional management and investments at less than their funds alone nick you for. I don’t collect any commissions, or referral fees. I do get some free brochures from Vanguard, pens from Scottrade, and a refrigerator magnet now and then, which I can assure you are compelling my recommendations. Not. I’ll even wear a lavender tie if it’ll make you feel better. I draw the line at blonde.

But back to the original question. I don’t think nice is the important quality here. There’s no nice way to tell you your dog is dead. You are paying for and should be getting honest advice–the truth–not some suck up that will pat you on the back as he picks your pocket. The advisor who really has your best interests at heart will tell you the truth about any stinkers in your investments, help you face what you need to, and move forward with investments that have a reasonable chance at success without skinning you alive. THAT will be a lot nicer when you look to your dough for retirement, or sending your kid to college. A lot nicer than visiting that nice guy in his very nice office.

My Economic Forecast for 2012

Posted on January 5, 2012January 5, 2012 by Danielle

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What’s ahead for the market in 2012? What hot stocks, or sectors, or investment vehicles should you put your money in? Well, I have the inside dope and I’m going to tell you…

I have absolutely no idea. If we look at the record for all the star pundits of 2011, they have publicly proven that THEY had absolutely no idea either. I mean, look at Bill Gross (Pimco) or John Corzine (MF Global)—all they are is living proof that having a good education, an insider view, and probably a pretty fair IQ can help you lose investors a lot of money and maybe get you a free ticket to jail. But hey, I ask people to trust me on investment recommendations. Gee, I’ll even move your money around for you. So where do I get off?

I like to be able to look myself in the mirror in the morning. Okay, no photographers are ever going to greet me when I get out of my limo (at least I hope so, about the photographers, not the limo), but I do like to be able to answer my phone without fear of enraged clients. So, here’s my best advice—don’t follow the advice of some know-it-all in a custom-made suit. Even if they’re nice. Nobody can second guess the market, but research gives us some pretty good guidelines on what will work, and so did Burton Malkiel in his Wall Street Journal column this morning, and in his great book A Random Walk Down Wall Street.

Ready? I can hear the snoring already. Get rid of your individual stocks, your stupid market timing ideas, your addled day trading schemes, your charting for market moves, yadda-yadda. Buy a portfolio of passively managed index funds. That means, find no-load mutual funds (the kind your friendly neighborhood stock shark, er, broker DOES NOT SELL) pegged to a recognizable index like the S&P, total bond market, etc. (not some goofball index made up by some crazy mutual fund company pitching micro-ETFs), distribute your dough in reasonable proportions based on how much risk you can tolerate, your age, and how soon you need how much of the money, and rebalance once a year. Okay, you can go back to sleep now.

The details on this are that you need to pick a decent mix of the type of investments, and research says you’ll do better if your small-company fund has a value tilt (meaning undervalued or out of favor companies rather than market-darling “growth” companies). But the diversification itself is what balances out the highs and lows (and maybe not the precise kinds of assets, although we try). The rebalancing causes you to sell the good stuff and buy the crap. Or if I were nicer, I’d say that means sell high and buy low, and over the long term, that makes more money. As Malkiel points out, emerging markets, non-U.S. markets, and natural resources have been the crap this year, so take a look at those when you rebalance, if they’re part of your asset allocation plan.

Establish a plan based on good research, stick to it, and rebalance. Some of this stuff will do well in 2012, and some will crash like a ten pound roast falling out of your freezer. That I can guarantee. The key is, more of it should do better than do worse, or at least the whole portfolio (as in 2008-2009) should do less badly than those of your “investment savvy” friends. Write this on your bathroom mirror: If it sounds too good to be true, IT IS. If it sounds about right, cautious but plausible, with a controlled margin for error, well, now you’re in the real world. There’s no tooth fairy, either. Slow and steady, you’ll do fine. Sleep well and happy new year.

Goals! resolutions, not so much

Posted on December 28, 2011December 28, 2011 by Danielle

English: New Year's Resolutions postcard

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I don’t have time for resolutions, but if I did, probably the first one would be to slow down a little. But like most of us, I’m always looking over my shoulder to see whether the bill collectors, overdue work tasks, needs of my kid-dog-cats-friends, excess pounds, etc. are catching up with me. Generally, they’ve outrun me. However, there is something I do every year during the last week of December (and finish up the first week of January, because, well, I’m late again).

I write down goals and I write myself an evaluation of the past year’s goals. I urge you to consider trying this—it’s not the goals, it’s the writing it down that matters. Why? Because too many of us get into trouble, financially and otherwise, by the natural human tendency to avoid the bad news. I would love to find that if I ignore things, they would go away. While this occasionally works with a part of the junk in my in-box, in general ignoring things or failing to face them causes them to grow into much bigger problems. To whit: ignore thinking about your retirement and along about 55 you’ll have a huge and nearly intractable problem. Ignore the real cost of your house, your car, or your children’s education and you’ll give yourself a whopping headache if not a full blown disaster.

Even if you think there’s nothing you can do, writing goals down forces you to 1)face the facts, 2)gather your records, 3)see what needs solving and 4)if you’re lucky, gain some insight and ideas. I can still hear one of my professors intoning, “Goals must be measurable: set objectives which can be evaluated.” He was speaking of governments (and ours could use that advice), but it’s a good policy personally. So, for example, don’t set a goal of saving more. Set a goal to save 10% (or 5% or $10) from each pay period. Better yet, set it up to be automatically withdrawn from your check or bank account.

One of my goals is to automate everything possible. Since I often feel that my head will explode from details, I’m trying to make a good decision once, and then ensure that that decision operates on its own, with no further choice from me. So, in the financial world, if you automate your savings, you have some likelihood of actually having money to invest down the road. Then, you set your “investment policy”—the right mix of investments designed to get you to your financial goals. And once you’ve thought that through (perhaps with your financial advisor), you automate THAT—with rebalancing out of all the crummy investments and into a decent mix. From that point on, you’re automated and you know where to put savings, and you won’t be prey to the newest hot idea from your neighborhood stock broker, insurance agent, or other commissioned salesperson trolling for suckers.

Resolutions generally engender guilt, but that has little place in real achievement. I evaluate last year not to beat myself up on the (inevitably) huge amount of goals that were not met, but to try to understand why they did not come about, what could be done to improve in the future, and to get better at allocating time and resources. I firmly believe in dreaming big, and am happy to see, each year, that there is a satisfying amount of things that were achieved. Also, I break down goals into business, financial, personal, and family, and I can get a good picture of what has been given too much attention, and what, not enough.

So, take a look. Whatever you’re avoiding probably isn’t going away. On the other hand, making a plan wrests some control away from random forces and into your hands. We can’t fix everything, but we can control the stuff that depends on our own efforts. Make that effort and best wishes for a prosperous new year.