Full disclosure: I used to work in management consulting for the financial sector, so I may be a bit biased against the people who work in this field.  But based on the events of the past 5 years, I’d say my dislike of this industry and the blowhards who work in it is not all that misplaced.

Your Retirement Account Means Nothing to Big Brokerage Firms

I’ve been having some issues with the “Financial Advisor” who provides retirement account services for my company.  I won’t name the specific firm, but let’s just say any of the advisors who come out of the big, outdated, slow behemoths like Fidelity, Prudential, Edward Jones, etc., are all pretty much the same.  When I started with my current firm almost two years ago, I went to see the advisor to pick out my retirement funds (the only options were mutual funds or bonds, not securities) and designate my contribution amount.  Since I’ve never been good with saving, I’ve always been good about contributing to a retirement account since it doesn’t change my pay amount by much and it reduces taxable income.  That’s fine.  I tried to get into a friendly conversation with her to explain my background and decent knowledge of investing, but she wasn’t too interested and she offered zero advice on choosing funds.  Obviously, she can’t say “Choose this fund and you’re money”, but she could have explained key factors to look at, why historical performance doesn’t really matter, what websites are useful for reviewing funds and other general information.  But she didn’t.  About six months ago, I tried to call her to do a friendly “check in” of how my account was performing.  It took a couple back and forth calls with her assistant until she called me, and I know it sounds like I’m just ranting here, but she sounded pissed to have to be talking to me, a lowly retirement account holder.  This was the gist of the conversation:

Advisor: “What is your question about your account?”

Me: “I wanted to look over the funds I’ve chosen and how they’ve performed and see if you think I should consider better performing funds.”

Advisor: “There’s no need to come in for that.  You can check Morningstar.com and get any information you need.  At your account value (about $3K at the time), there’s no need to look at it all.  Until you’re at about 100K in account value, there’s normally no review we do of your investments.”

Me: (dumbfounded silence).  OK then, well thanks for the advice.

Advisor: Absolutely!  Yes, like I said, until you’re at about $100,000, we don’t really review your account as far as strategy.

She got off the phone as fast as she could.  I admit, I should have been more assertive, but this woman throws me off every time I talk to her.  When am I EVER going to have $100,000 in my retirement account for this company based on my salary?  I’m not saying I’m not going to get there, but it’s not going to happen at shitty Edward Jones (ah, it slipped, but I promise the rest aren’t any better) with their lack of investment advising and their ridiculous idea that you need ONE HUNDRED THOUSAND DOLLARS before you can even start considering your investment strategy.  I hate to break the news, but the person who has $100,000 was very actively managing his or her money and making investment decisions all the time to get there.  If they got there simply by sitting in the same funds for years and years, then they were making much higher contributions than the average worker.  If you’re maxing out your contribution at $15k a year, then yes, you probably will get to $100K in 5-8 years.  But I still don’t think they would get there without research and reviewing their account.  Because mutual funds do not outperform the market year after year, they have up years and down years.  Yes, there are some strong funds, but you can’t go off reading a prospectus or two and expect to win big.  I think the least the advisor can do is sit with you and be honest about all of these things, instead of showing you their chart about exponential growth if you start investing at 21 instead of 31.  That’s a marketing gimmick.  I’ve been contributing to retirement accounts since 2005, and they’re all losing money on a cost basis, because I haven’t made intelligent, well-researched decisions on funds.  I just haven’t committed the time to it, although I am going to now.  So even though my account is measly, her lack of respect epitomizes what’s really going on.

Wait!  My battle with my so-called financial advisor isn’t over yet.  I am invested in 4 funds, which are all Franklin Templeton funds, and they were all doing well until about May 2011, and as I believe we are in a market correction, I am not too concerned that they are slightly down from where I bought them.  I believe they are good funds and will allow what’s been invested so far to sit there.  But I had a revelation as to how exactly the brokerage firm invests my money.  I make a bi-weekly contribution to my retirement account, which my firm sends over to them, and they automatically make purchases as soon as they receive the money.  This means there is ZERO consideration of share price of the fund, even though they could set “buy” prices that I determine to be a fair buying price for the fund.  But what happens in retirement accounts is that you choose a group of funds to invest in and you designate a percentage to each fund.  Then the firm can basically go about buying shares willy-nilly, even if the price has climbed significantly since you first chose (making it more expensive to you), or dropped significantly (which may also be adverse, considering that means the fund is now performing poorly).  Both of these may be opportunities, but I think it doesn’t make sense to simply buy shares every time a contribution is made, as shares fluctuate and there are good opportunities within those 2 week periods.  So I called again with the instruction that until further notice, I want all of my contributions to sit in cash, until I can figure out what is the best next move.  My advisor sounded annoyed as usual.

Advisor: You want your contributions to sit in cash?

Me: Yes, because you don’t consider share price when you buy the fund, right?

Advisor: (raised voice and pitch) Absolutely not!  We do not look at share price for retirement accounts.  They are automatic purchases.

Me: Right, so that’s my point.  I don’t want that.  So,

Advisor: (cuts me off) Well, I don’t know if you’ve ever invested in the market before–

Me: (cut her off) Yes, I have invested in the market. I’ve been investing since 2005 and no mutual fund I have chosen has outperformed or even performed the market on a long-term basis.  I have actually lost money.  So just making purchases on an outdated strategy from 2 years ago is not making me money.

I think I did get a word in this time around, but she still was so incredibly condescending that it left a lingering bad taste with me.  Anytime someone says “Absolutely not” in response to a question, it’s frustrating.  It’s the deputy, it’s the final word, the gavel slamming down, and it’s cringe-worthy.  I was being polite but asking honest questions, and this advisor is crazy abrasive and always reminding me that this is nothing but a retirement account, as if she’s so busy handling Taylor Lautner’s investments (I live in LA), that she can’t be bothered to consider my more-annoying-than-scraping-gum-off-the-bottom-of-her shoe retirement account.  Well, my apologies.  But at least now I know what’s going on in my account and what to consider for future investments.

To Recap:

Advice for Taking Control of Your Retirement Account

1. Investment advisors that are your company’s official advisor are usually worthless.  I keep hoping to meet a great one, but I haven’t yet.  They will not provide you guidance or advice, and they consider you worthless because your account doesn’t generate a ton of fees for them or have at least $100k starting out.
2. Mutual funds are only a decent investment.  Past returns are no indication of future performance, and there are fees to consider for the mutual fund as well.
3. Don’t let people in the financial industry act superior to you.  Whether it’s the banker or the financial advisor, the majority are as clueless as the rest of us.  Oh, you don’t know if I’ve invested in the market before, Ms. Crabby Advisor?  Just set them straight.  Politely, of course, but be assertive.  There is nothing wrong with saying, “I am doing my research to learn more about investing and retirement strategy and if you can offer specific advice, I would appreciate it.”  They also have no real interest in your account performance because they do not benefit any more when you do well.  Life is too short to consider people to be the authority just because they say they are.  Your mahogany and leather executive accessories don’t help you manage my money any better.
4. Investing research is more tedious than other types of research. Don’t try to find the magic guide or secret.  Start with the basics: The Alchemy of Finance by George Soros, The Intelligent Investor by Benjamin Graham and Seeking Alpha.  And there’s a ton more reading you’ll need to do if you are serious about understanding the market (I know I don’t, I’m just getting started).

What do you think?  Have you done well in your retirement accounts?  How often do you track your progress?  I’d love to hear from you!

I’ve written a few times about doing your own research without explaining what that entails.  It’s similar to due diligence, which is a period of investigation before a merger or acquisition is undertaken by a business.  Businesses take every purchase/investment/acquisition seriously, and so should you.  When it comes to your money, how you spend it and invest it, you want to take the time to verify what’s being sold or portrayed to you is accurate, and can be verified by some independent or legal sources.  I think that a lot of unaffordable mortgages could have been avoided during the “easy money” period of 2004 to 2007, if everyone hadn’t jumped in head-first without bothering to do any research because the hype just sounded so damn convincing.

True Story Interlude: I went and saw a few new condos back in early 2006, blissfully unaware of the impending bubble burst that would come that fall.  All I knew was that home prices just kept going up and up and I better get in on that, quick.  I saw a few 1-bedroom condos* in the NW area of Washington, DC (where I lived at the time) and I’m a sucker for new construction.  I was also a sucker for the gym, movie room and rooftop deck and spa.  After the tour, the sales consultant talked to me about my financing options.  The price for the 1-bedrooms were about $375,000.  She said that with good credit (which I had and have, even though I carry debt I have a credit score of 720), I could possibly get an interest rate around 6%, but the option she was really pushing for me was the adjustable rate mortgage (ARM) so that my payments in the first two years would only be around $1,200.  Then she showed me that after those two years, the interest rate would go up or down, and my payments would most likely go up because the interest rate would probably go up by 2 to 3%.  I don’t remember all the details, but I could do enough simple math to see that the financing was a shit show and I would end up being unable to handle that kind of monthly mortgage ($1,800 or more) when my rent was $1,000 and included utilities and cable.  I really wanted to have a place of my own.  But I wasn’t blinded by the hype, when the truth was right there on those laminated sheets in front of me: this payment is going to go up and so is your interest rate.  

So the point is that you want to take the time to research things you want to buy, stocks you are thinking about investing in and anything else that involves money.  Here are a few things I have learned over the years.

Financing a Purchase: The whole point of getting out of debt is to not finance stuff, but I have financed things in the past and I can handle listening to all of the jargon to make sure I am not getting screwed.  If someone says they are going to offer you 4.9% APR, make sure the papers you sign state exactly that.  At the dealership, I was offered 4.9% APR but when the finance guy was typing it into the computer, he had me check the screen and it said 4.99% APR.  I pointed it out, he fixed it.  That .09% reduction saved me a few hundred dollars in interest!   A few other tips when signing an 80-page loan document:

• Ask what fees there are, if any. Then ask for those fees to be waived.  (My general rule on any fee is that you should ask for it to be waived.  It’s a bullshit fee, I promise you.  They can take it off 80% of the time.)
• Make sure there are no prepayment penalties.
• Read the whole document, or at least skim it.  Hopefully those “gotcha” clauses will jump out at you.

Investing:  I was a very amateur investor before the past year.  I’m still an amateur, but I am learning how to view investing, what to research and analyze and how to analyze the market without following the market and the emotional, irrational trading that results from following the market.  Even though I majored in business, worked in management consulting and advised large corporations on their investments, I still didn’t know sh*t about investing.  To be honest, I would like to go back to my investment classes in college and call out my professors for not giving us the following essential reads:

• The Richest Man in Babylon by George S. Clason (Click for the complete book as a PDF)
• The Intelligent Investor by Benjamin Graham

The other essential part of investing is reading company’s annual reports, SEC filings, and financial statements.  You can also listen to earnings calls (usually done every quarter) online, and all of this information is public and free.  A few websites that I find useful are:

• Business Insider
• Seeking Alpha

To sum it up, I like doing my own research because it puts me in control of the situation.  I ask a lot of questions of everyone, and I read everything I can before making a decision.  All “doing research” means is just double-checking what people are telling you.  Do you have it in writing?  Do you understand what it means?  Are you getting what you expected?  Do you have an uncomfortable, queasy feeling about going through with something?

If you answered yes to every question but the last one–you should be good, dude!

 

*Never buy a 1-bedroom condo unless you want to keep it forever.  As the saying goes, you’ll be the first and last owner when you buy a 1-bedroom.