Financial Advisors

I was visited by two financial advisors this morning. They seemed like nice guys, and had some useful information to impart. But I told them my misgivings about f.a.'s, how they charge too much, push people into high-cost managed funds, and generally skim off too much client money over lengthy periods of time.

Given my skepticism about financial advisors, it pleased me to read this:

Becoming a winning investor often means adopting a new investment philosophy that’s in conflict with your adviser’s self-interest. This is particularly true when you decide to transform a high-cost actively managed portfolio into a low-cost index fund strategy. ...

Expect that your adviser will urge you to meet in his or her office. If you go, be prepared.

You’ll get a barrage of information about your current investment performance. Most of these reports will compare investments to market benchmarks that aren’t really relevant ...

Next you’ll hear nasty stories about index funds and how they failed investors over the years. They will keep talking about the S&P 500 as the only index fund in the universe, and that the current price is below where it was in 1999. They’ll forget to talk about the S&P 500 total return including dividends ...

Funny thing about the S & P 500. This is what happened when I brought up the subject of Standard and Poor's benchmark index ...

Letting go of my broker/financial advisor of twenty-plus years wasn't difficult.

I had been quietly seething about costs and the nature of the investments he had me in for some time. Finally there was a meeting in my advisor's palatial offices in Newport Beach, California. He and his sons (who worked with him in the palatial offices) rolled out the pretty bar graphs to show how much my money had grown. When the presentation ended, I said:

"So how have my accounts done compared to the S & P 500?"

"Oh, we're outpacing the index. By a good 1%"

"Is that before or after you charge your 2%?"

Long pause.

Finally one of the sons said: "Uh, before."

"So if I'd just put my money in an S & P 500 Index fund, I would have done better."

By this time I wasn't getting much eye contact. Finally another of the sons piped up: "Yeah."

Soon thereafter, I vacated the accounts my broker/financial advisor had been managing for two decades. I didn't receive a lot of cooperation with the money transfers, and drove down from Los Angeles to make sure I got the checks.

By that time, firing my advisor wasn't hard at all. In fact, it was a pleasure. There were no farewell lunches.

Despite the above, I think there are useful purposes for financial advisors. When animation artists don't have a foggy clue about stocks and bonds or managing their money, advisors provide a service getting clients into savings/investment plans, in setting them up with a budget that gets over-the-top spending under control.

That part of the business is good. But 2% off the top? That's a pretty steep price for providing a budgeting service.