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Confessions Of An Investment Advisor

Confessions of an Investment Advisor

Confessions of an Investment Advisor

I have a confession to make.  A couple months ago, I did something I’m not very proud of.  In a moment of (youthful?) indiscretion I told some clients they should keep a high fee annuity they were sold by a previous “adviser.”  You have no idea how much it pained me to do this; I’m pretty sure I took a shower when I got home that night.  Let me explain.  This couple was almost eight years into a 10-year guaranteed minimum withdrawal benefit, so if they followed the rules for another two years, they would get a guaranteed income stream for the rest of their lives.  As with many couples, one spouse was more conservative than the other and liked the knowledge of having this guaranteed income stream.

Being fundamentally against annuities, this wasn’t easy advice for me to offer.  But as a fiduciary, I had to put the client’s best interests first, and that’s what I did, even if a small part of me died that day.

Last month, we wrote about the conflicts of interest that exist in our relationship.  Today, we’ll take a look at several ways we work in our clients’ best interests that actually run opposed to our own best interests.  The slightly dramatized story above is one example.  Clearly, we’d stand to gain if we urged a client to cash out the annuity and let us manage the proceeds.  Here are two more examples.

  • Spend your money – We have told our clients on numerous occasions (read our past quarterly letters) to spend some of their own money, especially after the stock market has had a nice long run.  You need to taste the grape in order to make all this saving and investing seem worthwhile.  Clients who take our advice are in a better position to withstand the next downturn and stick with their investment plan if they’ve enjoyed some of their money along the way.
  • Open a donor-advised fund – If you don’t like the idea of spending your money willy-nilly because your advisor said to do so, then consider giving some of it away instead.  If you’ve held stocks or mutual funds for several years or longer, you likely have nice capital gains built up in these investments.  A great way to stretch your charitable dollars is to donate a portion of these investments to a donor-advised fund.  There are many to choose from, but we’ve found Fidelity’s to be amongst the best.  Many community foundations have their own as well. For example, if you live in Lincoln, Nebraska and do most of your giving to Lincoln area charities (or national charities with a local presence), then the Lincoln Community Foundation’s charitable checkbook might be of interest.  Opening a donor-advised fund allows you to avoid capital gains taxes on the investments you donate, get a current year charitable deduction, and gift the proceeds to most 501(c)3 organizations over time.  We’re big fans of donor-advised funds and have written about them before.

Since we are only paid by the assets we manage, urging people to take money out of their accounts (or not bring money our way) in effect hurts our revenue stream.  But over the years we have been rewarded for showing our clients repeatedly that it’s about them first and P&A second. – Jon

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