Recently a former coworker called me up with bad news and a plea for help: her husband had suddenly died and now she needed to decide what to do with her assets. Like a lot of widows, previously she had relied on her husband to make all the financial decisions. She asked me to go with her to a meeting with her bank’s wealth advisor, who is pressuring her to assign him to manage her estate.
Of course I’m going to go with her; meanwhile I’ve contacted several local fee-only advisors to see with whom I should put her in touch.
Her immediate need for financial guidance reflects a hidden reality in our culture: it’s so easy for people – even well-educated professionals (even some working in financial services) – to sleepwalk their way through life, oblivious to the possibly different paths their future could entail and the choices they’ll eventually need to make.
Financially illiterate anecdotes from my past
Here are a few vivid examples that come to mind.
- Engineer: Picked his financial advisor from an advertisement in the church bulletin. Got wise when the “advice” he received was to move all his assets to mutual funds with a 5% front-end load. This clarified the engineer’s appreciation of his advisor’s incentives.
- Doctor: A newly practicing M.D., fresh out of residency, asked me what to invest in in order to accumulate enough wealth to pay off some credit card debt. This doctor lacked an awareness of the fact the credit card APR was higher than any short-term investment would be guaranteed to offer.
- Actuary (not me!): A highly paid actuary asked, in all earnestness, why an underfunded corporate pension fund sponsor couldn’t just go find and invest in a bond yielding 14%. Fortunately this question was asked after leaving the client’s office. While an awareness of the real world shouldn’t have to mean memorizing yield curves every morning, it should mean your guess of obtainable current yields is correct to within 5 percentage points.
Nobody was born knowing this: Find someone who’s done their homework
In fairness to my friends, when it comes to personal finances, nobody was born knowing this. But somebody out there has bothered to think about or learn about whatever your needs might be. Many are paid to do so and give unconflicted advice.
One of the best places I’ve found to help consumers educate themselves about finances is the Consumer Education section of the Actuarial Foundation. There you can find sections on Saving for Retirement, Investing, Social Security and Medicare, and (not surprisingly) Insurance.
Once you’ve enlightened yourself, if you decide you need professional help you can find fee-only advisors at NAPFA.org, the site of the National Association of Personal Financial Advisors.
It’s fine to use advisors not listed on the NAPFA site; just make sure you understand your advisor’s incentives.