Free Lunch??
We recently moved to The Villages, Florida – the largest, active adult retirement community in the world. Nearly 150,000 people occupying almost 57 square miles of land, double the size of Manhattan.
The daily paper is full of large advertisements offering a “free lunch” in exchange for listening to a vendor’s presentation. Between cremation services, audiologists and financial planners, we could lunch for a month if we took advantage of all the offers.
One ad said:
“You worked hard to earn a comfortable Retirement. Don’t let modern challenges cause you to lose it now. …. People experience mismanaged, poor planning advisement paired with outdated and stagnant solutions.”
That’s scary! I’d bet the ad resonated; no one wants to lose money and spend their golden years constantly worrying about money.
A good financial advisor is worth their weight in gold. “Poor financial advisement paired with outdated and stagnant solutions,” can destroy your retirement dreams.
Baby boomers work hard to build a nest egg; hoping to provide a decent lifestyle, without constant money worries for the rest of their life. I’ve had hundreds of readers share horror stories about “poor financial advisement.”
How do you find a good one?
Following are some tips to help in the process.
Cast a wide net. I Googled, “Certified Financial planners near me.” Several names popped up. Many are referral services, computer matching services based on a few buzz words. Go through their link and they receive a commission from the service provider.
Selecting a financial advisor because they pay the best referral fee (or provide a free lunch) can be a recipe for disaster.
DON’T abdicate your responsibility. A frequent comment is, “I’m tired of worrying about money, I want to turn things over to a financial advisor.”
No one cares more about your money than you do. A financial advisor is a part-time employee, to help guide, mentor, educate, and manage your investments to meet your investment objectives. Your retirement (and future) depends on how well you select and manage your financial advisor.
“Set it and forget it!” is high risk when applied to financial advisors. Commit yourself to staying involved and working together. Retirees who abdicate this responsibility should be worried about “poor advisement” – and finding out when losses are catastrophic!
Proper credentials are a must. The SEC, government agencies and professional associations established two levels of responsibility.
Fiduciary Responsibility – They must serve their client above all other interests. They are required to put your interests first, even at their own expense. They must seek out the best investment for their clients even if it pays them less commission or fees.
This is the highest standard of responsibility. Licensed Certified Financial Planners (CFP) are held to this standard.
Suitability Responsibility – Advisors held to this lower standard may guide you to investments deemed “suitable” for your investment objectives, risk tolerance, age, net worth, etc. This is the threshold for a traditional stock broker.
For example, it may be “suitable” for you to invest in a growth fund. The “suitability requirement” allows them to guide you into high-commission funds, even if they perform poorly. They are not required to guide you to the “best” investment for your situation.
Don’t be fooled by fancy titles and wall certificates. Many are designed to create the illusion of a fiduciary relationship. Those with the proper education, training and certification will gladly provide the information.
Do a background check. Cull your candidate list using Brokercheck.
Look for the experience & proper credentials you need; as well as complaints.
Require a report (in writing) on how they are paid. Fiduciary level advisors generally divulge information about direct and indirect income they may earn from YOUR money.
“Retirement experts” at brokerage firms may be compensated not only for trading commissions, but also for investing client’s money into their company sponsored, ongoing fee-based products – regardless of how they perform.
If a financial advisor receives compensation based on the products they buy with YOUR money, it is a giant red flag!
Look for any potential for conflict of interest – protecting YOUR nest egg above all is mandatory!
How do they select the right investment for you? While the ad mentions outdated methods – don’t be fooled by computer solutions, fancy charts and spreadsheets. They are just tools, saving manual labor and time.
I was shocked when I asked a well-respected Certified Financial Planner how they select individual investments for each client. He said, “We turn their information over to [a well-known mutual fund company]. They feed the data into their computer and give us what we need.”
Expect a fancy computer spreadsheet encouraging clients to invest in their company sponsored, fee-based products; the programs are designed that way. Is each fund really the best one available?
Why pay a financial advisor never ending fees to be a courier for someone else’s research? If you went directly to the company, they’ll gladly do the same analysis; they want your money invested in their fee-based products. A competent financial advisor does more than just delegate their research to someone who writes a computer program?
Understand all the fees. When you are paying an advisor fee on top of fund fees, what is left for you?
If you are paying for expertise, I suggest researching the funds top investments and buying the same stocks the funds are invested in. You’ll pay a small commission when you buy and sell, however, you eliminate the never-ending fund management fees.
Demand adequate inflation protection. For years I attended the Orlando Money show, visiting booths of vendors touting their money management expertise. I always asked how they protect their client’s life savings from the ravages of inflation.
Not one invested in precious metals or associated stocks. All used historical data to tout their success. Of course, that was always followed by the legal disclaimer that “past performance does not guarantee future performance.”
Highly suspect, published inflation is currently 2.4%. Retirees know it is much higher.
| If your portfolio is not growing (after taxes), more than the combination of inflation and all the money management fees, you are losing money! |
While planners might advertise updated, modern solutions; unless they allocate a reasonable amount toward inflation protection, it is antiquated.
Macrotrends graphs the price of gold over the last five years.
On March 15, 2021, gold was $1705.30. Five years later it topped $5,000.00/oz.
Understanding history is important, however, no computer predicted the 2008 bank bailouts, the Covid years, and the huge inflation spike since 2020. Beating inflation works best when you stay ahead of the curve. Would you rather own gold at $1,700/oz. or begin jumping in (along with millions of other panicky investors) as it blasts through $3,500?
Many explained they invest their clients in Treasury Inflation Protected Securities (TIPS). TIPS, by design, hedge the individual investment against inflation but DO NOTHING to provide an inflation protection umbrella over your entire portfolio. If an advisor is not investing 10% or more in true, inflation beating assets, they are outdated, not keeping up with the real world.
Understand and agree upon the goal. I first completed a retirement planner in my early 50’s. The planner began with our current net worth, then calculated how much more we would need to generate retirement income to maintain our standard of living.
We didn’t need current income, we needed growth – and set our sights on a “magic number” in our brokerage account. Once you hit the magic number, it should generate enough income to allow you to quit working and enjoy a comfortable lifestyle – “theoretically!”
Baby boomers were taught to estimate 6% return on their capital. The 2008 bank bailouts destroyed those projections.
Ask your financial advisor to explain how you will get from where you are today to where you need to be when you want to retire. Focus on growth from solid companies and reinvested dividends. Continually trading stocks is fraught with risk – money you can ill afford to lose.
The most important element of these projections is continuing to add funds to your account. If you have a 401k, maximize your contributions as soon as possible.
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Retirement changes everything! Your objectives pivot as you near retirement. Your advisor must pivot with you.
Do a realistic budget. How much do you need to live on? Add your social security and other forms of retirement income. Your nest egg must provide enough income to make up the difference – comfortably so you can sleep well at night.
Focus on dependable income and dividends. Stock growth is a plus. Macrotrends charts the annual performance of the S&P 500:
When the market drops your bills remain. In order to pay their bills, many retirees were forced to sell some of their holdings during the 2008 crash, the worst possible time. The old saying, “Live off the interest, never touch the principle” should be modified to include dividends and other forms of income. Once the principle is gone, it’s generally gone forever.
Require your planner to explain how you will generate your withdrawals safely. Adjustments are less severe when you are younger with most of your nest egg still intact.
Free lunch??
When you are working you exchange your time for money. When you retire, you exchange money for time. Both require WORK! A good financial planner is a great asset, but WORK with them closely. There is no such thing as a free lunch!
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On The Lighter Side…
College basketball’s March Madness begins with the announcement of the 68-team bracket on Selection Sunday (March 15), and the opening round begins Tuesday the 17th. Final Four weekend will be played in Indianapolis, beginning April 4th.
It’s an exciting time of the year for sports fans. There is always a small school that advances in the early rounds that becomes a sentimental favorite. Historically they bite the dust and the top seeds dominate the final weekend. Who are you rooting for?
Many sports fans break out a second television as major league baseball starts their regular season March 25th. Sports bars, with their multiple televisions do a booming business. Our local “Cubs World” will host a watch party on March 28th at a local eatery. Jo and I will be there.
Friend Chuck Butler, like myself, is a huge baseball fan. He’s long advocated that opening day should be a holiday. In my younger years we used to sneak a radio into work and put one of those small earplugs in and listen to the first game.
Quote of the Week…
“You always get a special kick on opening day, no matter how many you go through. You look forward to it like a birthday party when you’re a kid. You think something wonderful is going to happen.” —Joe DiMaggio
And Finally…
Dear friend, Courtenay W. shares some baseball quotes for our enjoyment:
- My wife claims I’m a baseball fanatic. She says all I ever read about is baseball. All I ever talk about is baseball. All I ever think about is baseball. I told her she’s way off base. —Unknown
- There have been only two authentic geniuses in the world, Willie Mays and Willie Shakespeare. —Tallulah Bankhead
- I never threw an illegal pitch. The trouble is, once in a while I toss one that ain’t never been seen by this generation. —Satchel Paige
- If a woman has to choose between catching a fly ball and saving an infant’s life, she will choose to save the infant’s life without even considering if there is a man on base. —Dave Barry
- If you get three strikes, even the best lawyer in the world can’t get you off. —Bill Veeck
- Bob Gibson is the luckiest pitcher I ever saw. He always pitches when the other team doesn’t score any runs. —Tim McCarver
- Trying to sneak a pitch past Hank Aaron is like trying to sneak the sunrise past a rooster. —Joe Adcock
- Beethoven can’t really be great because his picture isn’t on a bubble gum card. —Charles Schulz
- I think I throw the ball as hard as anyone. The ball just doesn’t get there as fast. —Eddie Bane
- Well, it took me 17 years to get 3,000 hits in baseball, and I did it in one afternoon on the golf course. —Hank Aaron
- “You don’t realize how easy this game is until you get up in that broadcasting booth.” —Mickey Mantle
- So I’m ugly. So what? I never saw anyone hit with his face. —Yogi Berra
And my favorite:
- All I remember about my wedding day in 1967 is that the Cubs lost a doubleheader. —George F. Will
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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