Analogies that Don’t Make Sense!

In the advisory world, there are many different methods and tools used to convey ideas.  The intention, in theory, is to help the average investor better understand some of the more complicated aspects of saving or investing.  These methods might include images, stories, charts, etc… and analogies.  As a matter of fact, there was just a post in a LinkedIn group I belong to (which I really should get out of) called “Analogies are a great way to make investment concepts more relatable.” Over the years, I have become very cynical about the use of analogies as tools to effectively convey ideas.  It’s not because they don’t work, but because what they convey, more than anything else, are sales messages.

I was pleasantly surprised to come across this excellent post by Scott Burns.  I can’t tell you how many times I have heard advisors compare their service and guidance to other professionals – even though they are very dissimilar.  In addition to this ridiculous comparison of advisors to brain surgeons, I have heard other analogies, many times relating to products, that are just as inane and misleading.

Using analogies can be a very effective way to simplify concepts.  But is investing such a complicated concept that most consumers cannot get it?  Do they need to have it compared to something else they can relate to?  How about just trying to provide information and facts in a straightforward fashion? Maybe that’s just not clever enough.  It is my view that with a simplified approach and patience, investing can be easier to understand for most consumers.

So, when you hear analogies from the financial services industry, you might stop and consider what is being compared.  The way these things are thrown around is like…well, something, I guess!

How Much Time Should You Spend “Watching” Your Investments?

Or how much time should you have a professional do that for you?  In my view, I would say that it should take anywhere from nothing to maybe 30 minutes a year. Yes, that’s right.  I have been in the industry long enough to have realized that most of the activity involved in trying to enhance your investment return is probably, over the long run, just a waste of time and money.  This recent article in the Wall Street Journal speaks to this idea.

Obviously, many advisers would dismiss this approach.  They would say that you need to stay on top of the markets and opportunities so you can take advantage of the trends to enhance your wealth.  You need to get your money working harder. And most importantly, they would argue, you need their assistance to do this.  Blah, blah, blah.

I think the smartest strategy is to set-up a well diversified, low-cost portfolio of investments and leave it alone – for the most part.  You should only modify it if something in your life changes that requires rethinking your strategy.  This could include things like unemployment, divorce, inheritance, triplets, career change, upcoming retirement, etc…  Another reason for a change would be if you do not feel comfortable with the amount of risk in your portfolio.  Other than that, you are better off focusing on saving, controlling expenses, and planning.

And if you don’t spend any time watching your portfolio each year, that is fine with me!

Free Dinner Anyone?

I have been planning on writing a post on Free Lunches and Seminar Selling, but came across this one from Allan Roth – so I will pass it along.  I enjoy Allan’s straightforward approach and appreciate his research. Of course, not all financial seminars are like the one he describes. You could definitely get some useful information that will help you navigate your financial future.  But don’t be naive. Financial service firms do these to get clients. I heard one advisory firm on the radio a couple of weeks back, when promoting their seminar, explain that they offer them because of their concern for the greater good of the community. Riiiight – I am sure that is why they do them. From my experience, you might lose your appetite quickly if you knew how some advisors use “Seminar Selling” to grow their business.  This is a link to a warning posted by FINRA in 2009 on seminar selling. FINRA is an independent, regulatory body for the financial services industry.


Plan Design, Consultants, and Your Money

How much does it cost for a small to mid-sized plan sponsor to get good advice on plan design? Maybe the better question is how much should it cost to get good advice on plan design?  In my opinion, plan sponsors pay far too much for this type of guidance.  And this is money that could otherwise go to funding for their employees.

Plan design refers to, for the most part, how employers construct their plan to best meet their intentions and the needs of their workforce.  Design options include employee eligibility, access features like loans or withdrawals, vesting schedules, auto enrollment and escalation, rollovers, and other less visible plan components. Plan funding is also a feature of plan design.  

I have set-up, roughly, 40 to 45 plans for some very small employers – 1 to 2 employees – to employers with multiple thousands of employees.  In my experience, speaking with the correct representatives of the organization, this conversation would normally take maybe 1 hour or so. Really! In most cases we were able to reach a consensus on how the plan would be structured.  The next step in larger organizations was to share these ideas with the Board or Committee for final approval.  There may have been some brief follow-up work, but that would normally take care of it.  In smaller organizations, they were ready to move ahead. That was it!

I found these plan design discussions to be straightforward.  Plan sponsors tend to know what will work for their people and can decide how to structure their plan with relative ease.  In addition, an experienced advisor can help in framing how some plan design features may impact plan operations and employee satisfaction as well.  As such, they can provide useful guidance on the pros and cons of plan features.

Once in place, I experienced little reason for modifications.  Sure, changes were necessary from time to time, but these were infrequent.  And I typically had to bring these considerations to their attention!  

I encourage plan sponsors to understand that plan design guidance is not a mystical process involving several reports full of industry jargon, decades of research and several thousands of dollars. It can be accomplished quickly with a straightforward conversation and, this is key, minimal cost!  Be a good fiduciary for your plan – don’t waste money on unnecessary consulting fees that add limited value to your employees’ financial future.