Perhaps it’s just one of those day, but my news feed now seems to have developped an obsession for pumping out the: “How Much Money do I Need to Meet with a Financial Adviser?” There are two answers. None and Plenty. There is a pretty big chasm in between.
In 40 years of law practice where my daily work was fighting over and dividing assets in divorce, I have had a fair amount of experience with the financial management world ranging from my local credit union offering to sit down with me up to clients who had their own “offices” with staff to manage family financial affairs. Over time when some of the folks in between (the private wealth outfits) would take me to lunch I tried pitching them with ideas for what my clients needed in terms of financial planning. Suffice to say, I got nowhere.
First, some easy observations. Americans are terrible at managing their money. We don’t get any training about how to do it and without training we tend to ignore problems or act impulsively. It really didn’t matter how sophisticated my clients were. I represented former bank examiners who hadn’t filed taxes. I saw people who profess to advise others about managing money who had $10,000 in savings earning 2% while juggling $25,000 of consumer debt at 24%. Conclusion one. If you are anxious about the entire subject you are not alone. But realize that financial ignorance is a costly malady to endure.
Second. Just about everyone providing money management services is nice. But nice is not really an attribute you need. For years I would enjoy nice lunches with my colleagues in this field who would talk about Monte Carlo outcomes of an investment pool or the beta of a portfolio. I was nice too, so I didn’t blurt out what I was thinking. That was: “Neither my clients nor I understand betas or Monte Carlo outcomes. We just wanna know if we are rightly placed to enjoy retirement and whether we are crazy if we have two $60,000 vehicles in our driveway.” Currently. there is an ad running for Fisher Investment where the client couple is sitting down with a “CFP Professional” and asking whether they can afford a house at the shore.
The candid answer going through the head of the “CFP Professional” won’t be uttered. But here it is: “NO. NO. NO. A shore house is taking money that I can earn returns and get paid on out of my hands and putting in a place where I don’t get paid. So,” no shore house. Just keep sending money to me to invest and everyone will be happy. Understood?” Get this shore house or antique car or trip around the world out of your heads. Your money is best under my management.”
I have represented financial professionals. Almost all are paid for based on the value of their “assets under management.” They get nothing for the “investment” parked in your garage or in the safe deposit box or hanging on your walls. In their dream world you live like Top Cat (who lived in a garbage can if you recall) but send them money to invest every chance you get. Again, they won’t come right out and say these things. They will nod charitably while you talk about how much houses have appreciated at the shore in the last decade. Then they gently note that barrier islands don’t last forever and they have heard nightmare stories about how much homeowners and flood policies are increasing in price. They dream of buying a Porsche or sailing the seven seas too. But they only get there when your money is in their hands.
Should you not meet with these people? Recently published articles suggest that artificial intelligence is going to replace 40% of them in the next decade. AI is ideal at crunching numbers. But AI also cares less about your outcome than anyone else in this world. You can’t yell at AI like you may have done with your financial professional in 2000 or 2008. And you really can’t converse with AI in a setting of empathy. So for now, much as I have unmasked their true motives, you really should talk with a human “financial professional” about how your retirement and other investments should be composed. Just don’t think they are going to be help deciding whether its wasteful to get the new BMW M4. Instead, just ask if their like theirs.
When to do that? Now. Not this week, but soon. If you are the guy or girl with $10,000 in savings and $20,000 in debt, don’t expect a two hour meeting. But any financial professional is sizing you up on the basis of whether you can be a regular source of money in the future. You could someday be a holder of IRAs, 529s, brokerage assets, crypto or bond funds. You just need to bury the consumer debt and learn to save. That’s good for the financial profession and great for you.
Assuming you get on the path of financial righteouness you also need to form a talking relationship with an accountant. I am reading lots of articles purporting to ask whether you should convert your IRA to a Roth or start rolling 401k into Roth assets so they can grow tax free. Folks, in that world timing is everything. Early on I learned that if you want to do those kinds of transactions, rolling some money on December 31 and the rest three days later can save you a lot of potential tax liability. Financial planners know these tricks but you don’t have a legal right to rely on them for tax advice. That’s where the accountant/tax adviser comes in.
The other thing which all of us need to do is develop a bucket list of needs. Bucket 1 is what you need to survive while living comfortably and saving for the future. Bucket 2 is that savings plan. It includes social security, long term care planning, pensions or defined contribution plans. Bucket 3 is the stuff you dream of; whether its botox, skiing in Whistler, a shack in Virgin Gorda or a first edition of “A Farewell to Arms.” Do not kid yourself with Bucket 3 by calling those investments. They can sometimes pay off handsomely. But that is the product of luck rather than strategy. I have endured too many meetings where I heard that “our family business is our retirement.” So imagine retirement where you owned six Blockbuster franchises and signed 20 year leases in 1990. Today you would be living in your 1992 Honda Accord and watching the collection of 1,000 DVDs you keep in the trunk.
If you don’t have a financial adviser, take some time to search for one. Now you have a target for Bucket No. 2. But, don’t expect that person to help you figure out whether you should climb Mt. McKinley this Fall or take on Kilimanjaro.