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 I won’t name the specific firm, but let’s just say any of the advisors who come out of the big, outdated, slow behemoths like Fidelity, Prudential, Edward Jones, etc., are all pretty much the same.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.
Advice for Taking Control of Your Retirement Account
- 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.
- 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.
- 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.
- 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!