One cause of the problem, of course, rests with advisors themselves. According to Phoenix Marketing International, only one-third of all households feel that financial firms look out for their best interests.
Can you blame them? Many, if not most, in the brokerage industry have been fighting a move to hold their reps to the same standard as registered investment advisors (RIAs). Their reps, who most of us refer to as ‘brokers’ – it’s really the firm that’s the broker, but I digress – operate under a ‘suitability’ standard; and, their recommendations are merely “incidental” to the product sale, not really advice. That’s quite different from the fiduciary standard required of all RIAs which mandates that the client’s best interest must be the sole consideration and any recommendation is considered advice. That’s about as far into the weeds as I dare go – I’m not an attorney and I don’t even play one on tv. And, it was just recently that congress voted down the fiduciary standard being extended to broker-dealers – I’ll leave it to you to figure out why.
There’s another converging force in this perfect storm leading to retirement insecurity: According to a well-written article by Mark Tibergien in this month’s Investment Advisor, only 14 states require a high school course in personal economics. He further states that even in those states where the course is offered (as an elective), the schools are having difficulty finding both qualified teachers who can teach the material and students interested enough to sign-up.
This isn’t new. Mr. Tibergien points out that almost half of the adults who do closely monitor their finances say they learned about personal finance from their parents or at home.
The problem exists partly because of the media, too. I actually re-tweeted a post a few weeks ago with advice from a financial writer about how to pick an advisor. One of the top criteria was to check for the advisor’s investment track-record against the market indexes. Did the advisor constantly outperform? Huh? My re-tweet contained a caveat for older investors.
People read this stuff and blindly follow this rather dubious advice, never stopping to think that one advisor may serve young investors, while another my specialize in older investors more concerned about wealth preservation, a strategy designed to protect against downside exposure while they’re drawing income. These clients have minimal market exposure and, indeed, don’t want to even try beating it. Still, some people in their 50’s and 60s, especially those who’ve done insufficient planning in the past, may see this ‘compare performance’ advice is logical, even if uneducated. Do the writer really think my 85-year-old should be chasing market performance?
Let’s face it. Managing money is something everyone thinks they can do, even without formal education, training, experience, or sophisticated tools, simply because we’ve been making, and handling, money all our lives! We’ve made big decisions (cars, homes, vacations) and we’re not eating dog food! Never mind we can’t calculate the time-value of money or dollar-weighted returns. Never mind that Monte Carlo simulation sounds more like a casino than the calculation of outcome probabilities. We’re still doing fine and nothing’s broken so far.
Unfortunately, too many will reach their second (and third) decade of retirement in financial distress, and thinking no one could have done it any better. They’ll never know. No one taught them.
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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.
The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.