A friend of mine just took an early
retirement package and immediately turned all his savings over to a financial
planner. He's ecstatic. I'm worried for him.
I'm not saying he shouldn't work with
a financial planner. Unlike me, he has no interest in managing his investments. He can rebuild a car's engine; I don't even change my own oil.
But whether you do the work yourself
or hire someone to handle it, you still need to know what you're getting, and
how much you're paying.
For Christmas, I gave him and his wife
a copy of my personal finance book, Live Well, Grow Wealth. They have
yet to read it. (The problem with writing about personal finance is, the people
who could really use the advice aren't interested, and the people who are
interested already know about most of it.)
Before my friend visited the financial
planner, I suggested he ask some questions. The most important one: how does
the adviser get paid? I reminded him that in Chapter Six of my book, I cover working
with a financial planner/adviser/broker/whatever and provide a list of
questions/points to consider. If he and his wife didn't want to read the whole
book, they should at least skim those few relevant pages before their meeting.
Right. He barely wanted to talk about
what questions to ask, much less read about them.
The adviser came highly recommended.
His parents and all their friends have been using the guy for years. He's a
vice president at a major financial firm.
"Did you find out how he gets
paid?" I asked, after my friends had signed over their nest egg.
"Oh, he doesn't charge us. We
didn't pay him a cent."
Really? Is he a relative, doing them a
favor? How does he stay in business if he doesn't charge his clients for his
services? "Are you sure he doesn't charge anything? Maybe his fee comes
out of the investments?"
"Yeah, it just comes out of the
investments. We don't pay anything."
"Do you know what percentage he
takes for managing your investments? One percent? One and a half?"
"I have no idea. I don't pay
attention to any of that stuff. He's a genius, so whatever he charges, it will
be worth it."
"Do you know what he's having you
invest in? Mutual funds? Individual stocks? Bonds?"
My friend shrugged. "He had us
move everything out of Fidelity over to his firm. I guess it's a mutual fund.
My parents have been in it for years." (I couldn't help thinking about
Bernie Madoff.)
"He sold everything?" I
suspect the broker earned some hefty commissions from all those transactions.
"Yeah, he said it's better to sell
everything and start fresh."
"Does he use publicly traded
mutual funds? Or something proprietary to his firm?" (With publicly traded
products, you can track performance independently. And if you ever decide to
change brokerages, you can transfer the securities in kind, rather than
having to sell everything at once, when it might be an inopportune time for
some of them.)
Another shrug. "I don't care
about that. He said we're on track to retire at 65 and we don't have to worry.
He said we've done pretty well with Fidelity, but it's good we came to him when
we did, because now we have the right mix going forward."
My friend is happy, and I hope he's
right about being on track. He'll never know whether he could have saved money…
or how much.
What are your thoughts about working
with a financial planner? I'd love to hear your comments.
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