Is There a Right Way to Offer Financial Advice?

I struggle with how to NOT help people. 

This statement might seem counterintuitive, but it’s not.  Let me explain. 

Sometimes you just need to bite your tongue.  You want to speak up.  You want to help someone out.  You know they are making the wrong decision. 

But you need to take a step back and remember, it’s not your decision.  It’s their decision. 

When it comes to helping someone with their finances, we see this all the time in the FI community.  Just a little tweak here, or a little tweak there, can save someone hundreds of thousands of dollars in the long run.  It seems so obvious to us, but to them, it might seem scary and risky. 

Even if you disagree with it, you have to respect people’s decisions.  You aren’t them.  You don’t know what is going on inside their heads. 

My parents use an asset management company to manage their wealth (i.e. retirement accounts).  And I’ll preface that my parents aren’t rich, they are good, hardworking middle-class people who have paid their dues.  Hence, why it pains me to see their well-earned retirement savings locked up in this model. 

Their financial firm charges them a 1% fee for assets under management, which is the typical rate for services like this.  So using a hypothetical scenario, if they have a $1M portfolio, the annual fee will be $10K.  On a $2M portfolio we’re looking at a $20K annual fee. 

That shit adds up fast. 

Maybe to you that’s chump change, but to me, that’s a whole lot of money.  $10K-$20K a year up in smoke just for the privilege of having this company hold their money.  And I have no idea what the churn and brokerage fees might be as well? 

Instead that money could be going to their healthcare, traveling, or anything else that could help them lead a more productive life in their golden years.  They’ve worked hard for their retirement.  They deserve it. 

I hope they are getting the best bang for their buck.  But with an honest conscience, I can’t help but think they’re probably paying excessive fees they don’t need to. 

Would I recommend going this route?  No.  And that’s an emphatic NO! 

But when I try to have this conversation with them, I don’t get very far.  And I’m not telling them this is what they should do, because this is their money (I want to be CLEAR on that.  My best-case scenario for them is to leave zero inheritance and use all of their retirement funds to live the best possible life they can.)  However, I do ask them if they have ever considered a fee only planner instead as a comparison? 

The usual answer is “that’s nice” and “we’ll think about it.”  But no action comes. 

Why? 

When you are comfortable, and something has worked in the past, it is hard to change. 

My parents say that the financial company has given them good advice on how to delay social security and manage RMDs, etc.  Again, I hope this is the case, but this is basic financial advice that any good fee only CFP should be able to advise as well. 

Have they gotten their money’s worth?  I don’t know.  It’s up to them.  I do think they have their peace of mind, though.  So that’s a step in the right direction. 

However, I think the biggest factor playing into why they are staying with this asset management firm is that it feels like the safe way to go.  It’s a path they’ve already traveled.  It’s familiar, inviting and soothing.  No action is necessary to be okay. 

But with a little effort and an open mind, a small change might save them thousands overnight.  The problem is, how do you initiate that first nudge? 

Just because we have the knowledge, does not mean it is not our place to mandate.  I like to offer suggestions with what I call “persistent kindness.” 

If at first you don’t succeed, at least plant the seed.  Allow room for growth, and see what develops. 

I’m also the executor for my parents’ trust, so as their son and the trustee to their estate, I feel even a greater responsibility to help them manage their assets.  I’ve asked them numerous times can we please sit down so that I can understand what they want.  I’ve probably asked this over 10 ten times but have yet to review it with them. 

I know it’s hard and awkward, so I don’t push.  It will be the right time when they are comfortable with it.  But I keep asking respectfully.  Because at some point, you can’t continue to ignore reality and put things off. 

We all have to face the music someday. 

Sometimes we bury our heads in the sand, because the alternative, actually looking at our problem, is the scariest notion of all.  Because it requires action. 

My father-in-law is a prime example of this. 

He also has his wealth managed by a large financial firm for an assets under management fee.  Ask him what the fee is, or the funds he’s invested in, or the overall portfolio strategy and he’ll answer honestly, “I have no idea.  But if my guy’s making money, then I’m making money.” 

There’s no point to argue with this statement.  If this is the logic you are using to manage your wealth, all I can say is “good luck.  And pray that the market never goes down.” 

Unfortunately, he is more the norm than an outlier.  It’s more common than not, for people to not understand the actual costs they are paying for the services provided. 

Yet, how do we better educate people?  How can we push this message constructively? 

One of the greatest tricks of the financial services industry, is that their marketing is pure genius. 

The last point I want to touch upon is actually how beautiful the marketing message is for these firms.  It’s genius how they use scarcity and fear to convince people they will run out of money in retirement if they don’t use their services, knowledge and expertise. 

When I was first discussing my parents’ finances with them, it was fascinating to hear how they were describing the investment firm that was managing their money. 

“Well Q-FI, this is the firm that your aunt uses, and all of her siblings are doctors who make a lot of money and they have managed their finances for a long time.  Also, these guys only accept high net worth individuals and decided to take us on.” 

My parents sounded almost as if they were lucky that these guys were going to let them in the door and take their money.  These firms are so good at marketing what they do, that they make you feel like they are doing you a favor by granting you the privilege of letting them take your money in a percent of assets managed fee. 

I mean, it’s brilliant.  Like taking candy from a baby.  And so many people don’t even question it.  If these guys are charging such high rates, then they must be worth it, right? 

I gotta give credit where credit is due.  And these guys are good.  Real good. 

I’ve said it before, and I’ll keep saying it again, “there’s no one who will manage your money better than you.” 

Even if you know nothing, or only a little, just starting to understand your financial situation or how investments work will pay dividends down the road for you. 

The more informed you are, the better decisions you can make for you, and not what benefits your advisor the most. 

Keep up the savings and finish strong this year my fellow FIers! 

-Q-FI 

Does anyone else struggle with the best way to help advise their parents?  Let me know below.  It’s something I continue to work on.