No, the post title here is not a description of the variety of advisors out there. I have no doubt that they exist in much less kind versions than the title of this post. I could easily add in some colorful language that would not be at all safe for work.
The title refers to the insight we received from just one financial advisor.
Let’s start with a little context on why we sought out financial wisdom from people with more experience than we had at the time. Mrs. PIE was fortunate to get a windfall through stock options fully vesting upon acquisition of her company by another large pharmaceutical company. The windfall was decent sized, just north of six figures. With this sizable amount of money, we felt the need to treat it carefully and thus sought out advice on how to invest it. At the same time, we felt we could get other advice on our investments overall. Mrs. PIE got a recommendation from a trusted colleague who had been working with this particular advisor for a number of years. And so off we went and made the contact. I should say it was not with complete confidence but with a little trepidation…
There is one thing that is absolutely critical in what a financial advisor must provide. And that’s understanding with clarity the goals of the client. It was gratifying that our initial conversations revolved around this very topic. First of all we completed a questionnaire that defined our risk tolerance type as well as our personality type. A bit like Myers Briggs type analysis crossed with Financial Planning Philosophy. This was supplemented by at least two conversations where we went through the analysis in more depth. Call it two “financial therapy for the mind and soul” sessions. We were feeling good about all of this. The advisor was communicating well, was genuinely interested in our goals and gave feedback that told us he completely understood what we wanted. There was not even the mention of fees. Well that came soon thereafter. Remarkably, we were pleasantly surprised by the fees. About $275 per quarter “flat fee” (oh and of course all the hidden gems within different funds he could manage for us) for ongoing advice, regular teleconferences, e-mail interaction and periodic face-to face meetings at our home. Yes, he was going to come and visit us! What more could you want than a shiny black sporty Lexus arriving at your front door and a folio wielding, suited up, clean-cut dude skipping down your pathway. And maybe we would even get some more financial therapy in the comfort of our own sofa.
Our windfall was going to be invested in a managed fund. The background and performance and fund diversity were provided to us in a very transparent manner and we felt very good about the overall investment strategy. What happened next had absolutely nothing to do with the advisor. What came next was the summer wind tornado of 2008. We entered the Valley of Death. The crash hit us hard and within a couple of months 35% of our investment was wiped away. Kaboom. Gone. Adios. To this day, we harbor no ill feelings to the advisor. It was not his fault the global markets went into meltdown. To be truthful, how many of you saw that crash coming? Be very honest with yourselves. Not many.
We had no complaints with how our financial advice interactions started out and where we were heading despite the shock and awe of Mr. Market meltdown.
What happened next was The Bad.
The second requirement of a good financial advisor is to protect you from doing something plain stupid. An advisor should be objective, cool in the heat of battle and not be afraid to offer a candid professional opinion especially when the *!*! hits the fan.
We were shocked by the crash and apparently our advisor was too. We were counseled to enter protection of assets mode. A classic mistake. Our money was pulled out of the original investment strategy and placed in an account that gathered nothing but dust over the next 6 years.
Looking back, we were offered no objective advice to Stay the Course. We were honestly freaked out by the crash, yes, our investment type was more cautious than average. But still, we heard absolutely nothing about the opportunity to stay the course. Stay the Course. That remaining cash, if invested in a low cost index fund such as VTSAX over the intervening years, would have doubled and more. Hindsight is a tremendous leveler (duh!) and you may be thinking our cautious approach was our own downfall. But I will come back to the point I made – professional and objective advice when the crap hits the fan. Would we have played the set of cards differently if we were provided with an alternative and objective viewpoint? We honestly don’t know with 100% certainty but since Mr. and Mrs. PIE are card-carrying scientists, we can be convinced by new data and a need to change our experimental plan. If confronted by data that describes the historical market crashes and subsequent recoveries, the next steps may have been quite different.
The fluctuations of the market, at times extreme, was our blind spot. And here’s the thing about blind spots. You cannot see them. Repeat, you cannot see them! You need others to bring those blind spots into your view and provide a different vision of what could play out. And that is certainly the second thing a superior financial advisor should bring to the table. In our humble opinion.
We should add in here that after the market crash, we continued with our advisor. A number of OK investment strategies played out such as being introduced to REITs although the non-traded nature of these will be the subject of another post. They are doing quite well but not without considerable risk. The overall relationship went along just fine, no major concerns.
The third attribute of a good financial advisor is to be able to adapt and react appropriately to the changing goals of the client. Life happens, we evolve, we have new ideas. What got us into The Ugly territory with our advisor was when Mr. and Mrs. PIE started to cook up a plan to escape the rat race.
We tested the waters by floating the early retirement proposal to him. Nothing dramatic here. A date, a goal, a rough outline of our future expenses and income, and a few other nuggets of information were dispatched to help set his work in motion.
Days went by. No response.
A friendly e-mail reminder. Radio silence.
Another month went by.
I sent a terse e-mail. Finally, a reply.
Advisor: “We are working on it, we have some new software that will do just the job. My assistant is more experienced in this type of analysis”
Mr. PIE “What software tool are you using?”
Advisor: “ We can’t say but it’s state of the art”
(Background – Mr. PIE had been voraciously reading during the previous two months the very fine research on retirement calculators by Darrow over at Can I Retire Yet). Mr. PIE was already armed and dangerous.
I’ll never forget the evening when the retirement plan report came in. It was very late in the evening and excitedly, I opened it up……
|“Based upon the assumptions utilized in this report, you are projected to have a retirement shortfall of $7,080,470. There are several options presented below which, alone or in combination, might allow you to achieve your retirement objectives.”|
Seven bleepin million. Several options open to us. Laughable. If I wasn’t laughing so much, I would have cried. I think I did cry. Not under any Safe Withdrawal Rate on this planet, relative to our future expenses, would we require seven million greenbacks. State of the art indeed. I went to sleep that night, safe in the knowledge that an incompetent pair of fools were on the bridge of the good ship PIE.
So as not to bore you with the break-up details that ensued, we parted ways from our advisor, his assistant and their wisdom. The relationship was over. We are continuing to dig out of the many layers of bureaucracy between him and institutions where our funds had been placed. And we never did learn what state of the art software they were using in the FIRE projections.
But there was one last gem in the form of a parting e-mail from him. You are going to love the following excerpt which is Financial Advice Podcast Gold. To those of you in the FIRE communication business, please feel free to quote this anywhere. Tell it to your children. Share it with your beloved pets. It was our advisor’s final gift to us. I Quote:
“I have asked you to adopt a way of seeing the world that is different from conventional wisdom and that is a lot to ask. Especially when the results have not been there. I continue to believe that they will be there and what I want to make sure is that you think twice before going into a traditional approach of buying low cost index funds in a traditional asset allocation approach”.
Some people just don’t get it, do they?