Your financial advisor: just a car salesman?

Retro Car Salesman C

Is this your financial advisor?

Wall Street is trying to prevent new rules that would require financial advisors to put your interests ahead of their own. Big brokerage firms have said they simply won’t serve the middle class if they can’t offer conflicted advice to them. Even more telling, MetLife Inc. CEO Steven Kandarin recently used a car salesman analogy that compares financial advisors to Ford and Chevy dealerships. Car salesman aren’t required to point out the better deal across the street, Kandarin asked, so why should financial advisors?

If you think the people advising you about your life savings should only be held to the standards of car salesmen, then do nothing. If you think they should be held to a higher standard, contact your Congressional representatives now:

http://www.usa.gov/Contact/US-Congress.shtml

Q&A: Financial advice and family

Dear Liz: Regarding the brother who has the financially irresponsible sisters, in general I agree with you about not pestering people who don’t want advice. But with family, it’s different. It is quite obvious to me and other readers that this man is concerned about his sisters coming to him later in life even if he didn’t state that in his letter. Telling them he won’t help when they come to him later in life (and they will) isn’t realistic. Maybe his continual pestering will finally make them come to their senses.

Answer: If you’ve had any problems in your own life — you needed to lose a few pounds, say, or stop smoking — think about how you would have received the “continual pestering” of a sibling on the issue.

Announcing to his sisters that he won’t help them financially before they ask may have an unintended side effect. If Mom has any money left when she dies, she may well allocate more of it to the sisters under the assumption that they’ll “need” it more because their mean old brother won’t help them.

Q&A: Unsolicited financial advice

Dear Liz: Your answer to the financially savvy brother whose advice is lost on his sisters was a bit harsh and shortsighted, so my guess is that you may not know anyone who has siblings who will continue for the next few decades to need help. It is hard to deny a sibling help while enjoying the benefits of prudent saving. It is harder to watch a sibling suffer, even if they should have avoided it. Seems to me completely different from giving advice about child rearing, which I might add is sometimes simply a statement of the obvious and one that should not even have to be mentioned, like don’t let your kids scream in public. This young man is almost certainly going to live with either guilt over not supporting his sisters when the mother dies or the frustration of having to give up hard-earned funds to avoid the guilt. You should have said he needs to write them a letter citing the guidance given and making it clear not to come to him when they get in trouble.

Answer: Thank you for providing a perfect example of why people find unsolicited advice so annoying.

The brother asked what he could say to his sisters to make them more financially responsible and to his mother to make her realize she should stop supporting them. The answer, of course, is nothing. There are no words that can make other people change unless they want to change. Since his family has made clear they’re not interested in his advice, continuing to offer it would be pointless.

The brother didn’t express concern that he would wind up supporting either his mother or his sisters. Even if he has such concerns, writing such a letter would be churlish, at best. If he’s asked for help, he can make his position known then.

Vanguard–the new robo-advisor?

IiStock_000014977164Medium‘ve written a lot recently about digital advisors (including the piece I wrote for AARP, “Do-it-yourself made easy“). Wealthfront, one of the leaders in this space, now has $1.7 billion under management.

That seemed pretty impressive, until I saw a recent piece in InvestmentNews about Vanguard’s Personal Advisor Services. Although still basically a pilot program, the “human-augmented online advice platform,” as IN termed it, now has $4.2 billion under management.

For all that’s been written about the start-ups who use powerful algorithms to manage your portfolio while you sleep, it’s the the Vanguard offering that may be the game changer. Vanguard can offer everything the start-ups do–asset allocation, automatic rebalancing, ultra-low-cost investment choices–in the mantle of a trusted firm known for its integrity and thrift. The cost? Three-tenths of one percentage point, or $300 a year for a $100,000 portfolio. That’s only slightly more than the .25 percent the newcomers typically charge.

Advisors charging more certainly will argue they’re adding value. But if you’re paying much more for financial management, you might want to at least take a look at what you can get for less.

 

Friday’s need-to-know money news

crop380w_istock_000009258023xsmall-dbet-ball-and-chainToday’s top story: How to decide which debts you should pay off first. Also in the news: Financial topics you should never discuss at work, a key tax move you need to check before the end of the year, and how to offer financial advice to your adult kids.

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Tuesday’s need-to-know money news

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Advisors to women: Don’t quit

Zemanta Related Posts ThumbnailWomen with young children often discover that child care costs eat up much of what they earn. If they’re married to a big earner in a high tax bracket, they could lose most of the rest of their wages to high marginal tax rates.

But advising them to quit working is short sighted, two Certified Financial Planners suggest in the most recent issue of the Journal of Financial Planning.

Jerry A. Miccolis and Marina Goodman note in “Advising Married Women on Investing–in Themselves” (may be restricted to FPA member access only) that child care costs usually drop when the kids enter school while the mother’s income typically rises over time. Stopping out, meanwhile, often leads to lower lifetime earnings. The authors suggest women view those early years, when they’re working for not much financial gain, as an investment in their future–sort of an extended internship, if you will. They write:

“[W]ork experience leads to career advancement, which could have a quantum-level impact on her financial future. Say a woman spends five years working while getting no financial benefit due to taxes and child care costs. Her youngest then enters school and suddenly child care costs plummet. After five years of experience, she may get promoted and now her income may be $75,000. If, instead, she was just starting out at that point, she would be earning $50,000. (We’re ignoring inflation in this simple example—it would, of course, merely magnify the effects.) The difference is not $25,000. It is more like being an entire professional level higher for the next 30 years. Over the course of a career it can be the difference between middle management and eventually being in the C-suite.”

The authors note that “A woman’s ability to earn a decent salary is the most comprehensive insurance policy she can have.” Staying employed, even part time, and keeping up any professional credentials can help her family if her partner loses a job, becomes disabled or suffers a business setback. It can also be an insurance policy for her in the far greater risk of divorce:

“Even among upper-income families, many women would still experience a significant decline in lifestyle upon divorce, especially if they have no means of supporting themselves. The risk that a woman will get divorced is greater than the sum of the risks of her husband’s premature death, disability, or just about any other financial catastrophe all put together.”

This information may be most relevant for the kinds of women financial planners are most likely to advise: college-educated women with careers, rather than jobs. The price for stopping out may be less if you’re in a low-wage, low-skilled job rather than one where significant financial advances are possible. But any parent contemplating time away from work should be looking at the longer term financial picture, and those who choose to stay home should make sure they have significant savings to help offset their greater financial vulnerability.

Thursday’s need-to-know money news

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Thursday’s need-to-know money news

Today’s top story: Five pieces of personal finance advice from those in the know. Also in the news: Renting with bad credit, how to raise cash in an emergency, and when to admit your finances are out of control. Offering Advice

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