Lifestyle & Culture

Financial Well-Being: The Best Information I Ever Got From an Adviser

June 26, 2017



WHEN YOU GET to a certain stage in life where you’ve managed to amass a bit of money—and it doesn’t really have to be all that much—you suddenly find that all sorts of people and companies are eager to help you with all that cash.

They call it “wealth management,” a term that flatters more than describes (Wow, me wealthy!?). They call it “asset management.” They want to be your “personal financial adviser,” your “retirement adviser.” All that attention can go to a grownup girl’s head.

What these people and these companies, big and small, basically want, of course, is to get their hands on your money. They want to arrange and rearrange it for you, allocate and reallocate it, but they also want to play with it, their version of Play-Doh (get it?). You’ve seen the taglines in financial ads, “5 gazillion dollars under management”? Those are bragging points for wealth-management firms (a/k/a mutual-fund companies, a/k/a/ brokerage firms, a/k/a investment firms). See all those people who trust us? You can trust us too! 

Even mutual-fund companies that come through with really rock-bottom expenses get a little grabby when you start asking questions. Every question seems to turn into a conversation and an offer to manage your money for you. An outfit such as Vanguard will manage your portfolio for as little as .3% (it depends on how much money you have), and the  TIAA-CREF * investment firm offers that rate for customized online management, with a $5,000 minimum. But many financial advisers/managers charge 1.5% of your total portfolio amount.

The idea that an adviser’s compensation is based on how well your portfolio does should be reassuring: We’re all in this together, right? But you tack 1.5% on to whatever the rate of inflation is (2%?) and all of a sudden you’ve built a little hurdle that your portfolio has to jump over before you’re actually ahead. (And no, no one should assume returns of 8% or 10% per year anymore.)

But because most of us don’t have that much money—$50,000? $600,000? $1,600,000?—these advisers will rightly advise against individual stocks and bonds for most investors. Much more appropriate are mutual funds, spreading any risk over a curated collection of stocks or bonds. But guess what: Even when the mutual funds are “no load,” meaning you pay no fee to buy into them, they have what are called 12b-1 fees tucked away in the innards of each fund’s structure. Tagged as money to cover the marketing of the funds themselves, the 12b-1 fees are generally modest, but there they are, another downward tug on your money.

All of this is a very long-winded way of getting at what happened to me a week or so ago: I was happily blown away by a conversation with a “wealth management adviser” at TIAA, which holds an old account of mine. The amount of money in this particular account isn’t substantial, but the law requires that I pay attention to it and start to withdraw funds to finally pay taxes on them.

I go into all such conversations (I’ve now had several) by saying up front that I’m “too cheap” to pay anyone 1% or 1.5% to manage my money for me. But there’s always that little doubt in the back of my mind: What if I’m missing out on something that these smart financial folks know about; I certainly don’t feel confident about choosing stocks or even properly allocating my money among funds, and there are tons of guys who are, or at least seem to be.

My TIAA adviser, Val Volkau, was quick to allay those fears. If you read as many personal finance stories as I do, you already know that managed funds don’t really have much advantage over funds that automatically shadow various indexes. And yet the fund companies implicitly promise a better ride in the markets under their guidance.

But Val said his job was to educate participants, not to sell them services. And educate me he did.

If you’re fearful of “missing out” on some up-and-comer, some stock that’s going to skyrocket, having a financial manager guide your portfolio is not going to ensure you catch that puppy. Portfolio management, in TIAA’s view, is about management, period: managing for risk, managing for income and managing for incapacity.

Let me take that last goal first. Managing for incapacity means that when I drop into a final coma at age 137, my younger sister and brother won’t have to worry about my various financial bits and pieces while they’re still trying to figure out where to toss my ashes. TIAA, or your portfolio manager of choice, would keep on keeping on until given official word to stop.

Managing for income seems pretty straightforward, but maybe not so simple in execution. It basically means that my  manager will arrange and rearrange my assets to make sure that income from them is enough to pay for my needs and maybe even some of my wants.

And managing for risk means that someone who knows how to read a balance sheet will figure out how to keep my various investments on the safe side of risky.

I’m grateful to Val Volkau for this perspective. I’m also grateful to John Bogle for starting The Vanguard Group and pioneering those low-expense index funds. And I’m even more grateful to billionaire investor Warren Buffett (the “Oracle of Omaha”—he’s fun to read about!) for investing in The Washington Post and guiding the Graham family owners to set up the journalists’ 401(k) plan at Vanguard.

All in all, I remain undecided about professional portfolio management, but if I do take the plunge it will be with realistic expectations. And if you’re drawn to such management, be aware that new fiduciary rules took effect earlier this month, although the Trump administration is trying to get them  delayed. (What, you didn’t know your adviser was supposed to have your best interests at heart?? Pay attention! And perhaps read this New York Times article.)

—Nancy McKeon

* It’s a mouthful and stands for Teachers Investment Annuity Association and College Equity Retirement Fund. TIAA is the “leading provider of financial services in the academic, research, medical, cultural and government fields,” according to its self-description.

3 thoughts on “Financial Well-Being: The Best Information I Ever Got From an Adviser

  1. Candy Sagon says:

    You’re echoing every fear and doubt I’ve had about managing my so-called assets/wealth (ha!)/money. Thanks for the good advice.

    1. Nancy McKeon says:

      as a total non-professional, i “advise” using a Total Stock Market index fund and maybe an S&P 500 index fund. then go out to dinner, or to bed. nothing you do is going to change the market or the economy anyway. (i do have about a dozen individual stocks that i chose for their dividends– i LIKE dividends!–but you can get that income as well with a fund that says it’s an Income Fund. not too complicated, that). i am obsessed with money, read personal finance stories all the time, but i know nowhere near enough to really write meaningfully about it. still, i do think my fears speak to the fears of others, even those as young as you, Candy!, so i may report personal experiences from time to time.

  2. g says:

    Excellent story loaded with great insights. Thanks Nancy! More in personal finance! Regards, Gerry

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