Retire Eyes Wide Open Episode #05
Episode #05 Trust – How to Find the Right Financial Professional?
Is your advisor worthy of your trust? Do you trust too much? Or not enough? What characteristics make an advisor worthy of trust? What things should you legitimately be worried about in your financial life? How do you get clarity? Scot Landborg, host of the weekly podcast, Retire Eyes Wide Open, shares about Trust and how you can find an advisor worthy of your trust.
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Welcome to Episode 5 of Retire Eyes Wide Open. I’m Scot Landborg –
On today’s episode, TRUST. How do you know if you can trust you advisor? Do you have too much trust? Not enough? Who is worthy of your trust and is it more than just a feeling?
We’ll review the week’s news in the Money Rundown
We’ll talk about the best thing I saw this week.
And our Scot Strategy Segment and Listener questions are all about whether or not you can trust the professionals in your life and how to hold them accountable.
This is Retire Eyes Eide Open!
Trust; today we’re talking about trust and your financial professionals. How do you know who to trust? Are you trusting too much? Are you not trusting enough? It’s a critical question that many people face. How do you trust your spouse, your kids, your friends? Let alone, how do you trust the financial professionals in your life? People struggle with this question.
I asked someone in my office what advice they’d give their mother and their answer was, “it’s a feeling.” That trust is a feeling. We’re going to tackle this subject today from a number of angles. We’re going to talk about what it looks like when you trust too much and the possible pitfalls. We’re going to talk about people that don’t trust enough and how to get over it. We’re going to talk about who is worthy of your trust. We it comes to professionals in your life, it has to be more than just about FEELINGS! It has to be. Too many people have gotten into trouble trusting slick salespeople that sold them down the river.
When it comes to your financial life, the stakes are high. You’ve got to make the right decision, the best decision you can. At the same time, you have to understand that by do nothing or by not trusting enough, you can set yourself up for some big mistakes. So what are some initial signals, if you’re looking to hire a professional that should make you more trusting and give you more confidence? What should you be looking for in a professional to trust?
- They educate you instead of selling you.
The best professionals today are not selling you anything. If you feel sold to or hard sold, RUN AWAY. There are great professionals that will spend the time to educate you. If you’re in a financial planners office and it’s a one size fits all strategy, go meet with somebody else. You’re being sold something. You need to be educated about what your options are. If someone is educating you, you should be more inclined to give them some of your trust.
- They are balanced in their approach.
Beware of extremes. Beware of professionals that take absolute views like, “I would never under any circumstance buy an annuity”, or, “I would never have my money in the stock market – it’s a casino!” An advisor needs to have a level head. Someone that can keep their cool and analyze the positives and negatives of different investment strategies. That’s someone that would be worthy of your trust. Someone that takes those extreme views, but someone that has a balanced approach to the advice that they are giving you.
- They’re comfortable with questions.
Pepper your advisor with questions. First, to test their competency, but also to make sure they are okay with questioning. No strategy, no investment approach should be engaged in blindly and they need to stand up to scrutiny. Any advisor that makes it seem that they don’t want questions--that they are too important or that you are not trusting enough, beware. This is a common thing in the financial planning world. Salespeople like to sell one investment, one annuity, one mutual fund. But you need to ask them why. And the ones worth of your trust, will be perfectly okay with that.
- They’re qualified and independent.
I started in this business over 17 years ago and I’ve always worked for independent firms. But I had friends of mine that weren’t so lucky. They went to work for XYZ brokerage firm and despite being great people and despite having great intentions, they were limited in the investment solutions they could provide. When I could recommend 50 money managers, they were limited to 2-3. When I could recommend 30 different annuity solutions, they were limited to one or two.
I worked with a client recently that loved their advisor. They were good friends. Their good friend advisor recommended an annuity, the only annuity should could. By taking an independent look and shopping around, we were able to increase her income by over 25%. It’s not because her advisor was bad. It’s not that she couldn’t be trusted. But that advisor lacked access to the independence to align her interests more closely with the client. Make sure they are qualified. Make sure they are independent. Make sure they have the tools in their toolbox to not only help you, but be worth of your trust.
- They are willing to give advice contrary to their own interest.
This is a hard one to find. But I see it when dealing with social security and pensions. An advisor that is telling you to take the lump sum pension and invest it with him/her may be acting in their own self-interest, not necessarily yours. One that advises you to take the pension at your employer because they can’t beat the rates, maybe he or she is worth of a little more trust. What do I mean by that? Well, it’s in their interest to recommend you take a lump sum because they are going to collect fees or commissions based on that recommendation. For them to recommend you to keep it where it is, it’s kind of against their self-interest to do that. And someone that can give you that advice is someone you should be able to listen to a little more and give them a little more trust.
- They have credibility in the marketplace.
Google your advisor. Look at their website. Look at their broker check. Do they have any complaints? Advisors do not have YELP reviews--FINRA doesn’t allow testimonials. But you can look at their involvement in the community. Are they published? Are they quoted by publications? Do they have a podcast or videos where they express their opinions? Did they do it with their iPhone or does it have some production value? What do some of their writings or recordings tell you about who they are, what they do, and if they do it well?
Those are my 6 signs that someone is worthy of your trust as an advisor. Later in the show we’ll talk about people that trust too much or ones that don’t trust enough. Remember, with the professionals in your life. It has to be more than just a feeling.
And that’s our Money Monologue for the week.
Our Money Rundown segment is where we cover the week’s news. There are a lot of media sources out there that are going to help give you updated information about the economy and the markets. My job is to help summarize and synthesize – help pick out a few stories that are most important for you, as a retiree or investor.
Story #1 – Longest bull market ever in the S&P 500
In late August the S&P 500 index set a record for the length of the bull market now over 10 years. The last low of the S&P was March 9th 2009 when it hit 666. It’s up over 300% since then. The last longest was from 1990 to 2000.
What does that mean for you? Open some champagne! Woohoo! Everyone loves a bull market. And this has been a bull market shared by most of the market. In the late 90’s it was mostly technology. But today the benefits have been much more broad.
Did you get enough of the market as it charged higher? Have you seen the results in your portfolio? What will you do if things go the other direction? That’s the questions you need to answer. We’re due for a recession. No one knows when. 1 year, 3 years, 5 years from now. Make sure your retirement plan doesn’t get interrupted by the end of happy times.
Story #2 – Corporate Profits Run Higher
According to the Commerce Department, corporate profits rose by 16% as of the end of the second quarter. Corporate taxes into the US Treasury are down 33% and the US economy grew at a 4.2% annual rate in the second quarter.
How does that impact you?
Well, the economy is strong. Companies are earning more profits. There is some real strength to this economic growth. The market is going higher because companies are making more money, not just because prices are being bid up. So let’s see how long this rally can go. And when you’re analyzing your portfolio, when you’re analyzing your investments and you’re thinking about retirement, you do need to think about the recession but you do need to ask yourselves, am I capturing enough of this upside as this market goes higher. And understand there are real reasons why it continues to go higher.
Story #3 – The Fed Keeps raising rates
September 26th the fed raised the rates again and projected lifting it another quarter percent by the end of the year. The fed funds rate currently sits at between 2% and 2.25%. They project more increases over the next year and finally leveling off at 3.4% in 2020 and 2021.
Why does that matter for you? The fed is putting a slight break on the economy making it more expensive to borrow for mortgages, credit cards, and auto loans. If you own bonds in your portfolio, you have to remain concerned. Bonds down over 3% YTD and for the past 4 years, they’ve really had a challenge making any money.
You need to ask yourself and your advisor, “Why do we have bonds in our portfolio?”, “Are there alternatives?”, “What are we doing to manage risk in a rising rate environment?” This is critical! They’ve told us what they are going to do—the Feds told us what they’re going to do! They are going to keep raising rates over the next couple of years. How do you respond? What are you going to do differently? Ask yourself that question and anybody managing your money. Hold them accountable.
More equities with a sell discipline might be worth exploring. Lower risk or managed equities. Also, explore annuity solutions and active bond managers as alternatives to try to do something different with that conservative part of your money.
And that’s our Money Rundown for the week.
Best Thing I Saw This Week:
Of course, you know what I mean--the most thought provoking. This week I saw a Facebook post: Mosquitoes kill more people in a day than sharks kill in a hundred years!
Bill Gates wrote about it in his latest blog and it’s one of the reasons his gates foundation targets diseases like Malaria. I honestly was caught off guard by this. 1300 plus people a day are killed by mosquitoes and 1000 for sharks over 100 years. And yet, I’m more scared to swim in the ocean than of hanging out on the lake in Minnesota where the state bird is the mosquito. Now I understand these stats a little skewed. Not many people in the United States are dying of malaria. This is a third world problem right? Then I came across another article: Animals more likely to kill you than a Shark.
Less than 6 people per year are killed by sharks. 1 person per year in the United States and yet they get all the blockbuster movie attention, right? Big blockbuster movies like Jaws, or new one came out recently this summer, The Meg….the mega shark.
130 people a year are killed by deer. 40 people a year are killed by dogs. 22 by cows. What are we afraid of that we shouldn’t be? What are we afraid of in our retirement that we shouldn’t be? What are some of the most irrational fears that I hear people talk about? I meet with thousands of people a year and I meet with some very interesting people with some very interesting theories. And with talking with people one-on-one, I think there are things that people are fearful of that maybe they shouldn’t be.
What are some of those irrational fears?
- The Banks are all going to go bust. The banks are going to go out of business.
That’s not going to happen. We have the strongest currency in the world. They can print more money if they need to. In 2008 was about as big of a shock to the banking system as you will see in your lifetime. We were teetering on some major, major stuff. Some banks went out of business. They did. But I think seeing another financial crisis like you saw in 2008 is probably not going to happen in your lifetime.
- Social Security is going to go broke and my benefits will go away.
Again, I think it’s an irrational fear. Social Security will have challenges ahead, but they are fixable and it’s likely to come at the cost of younger retirees. They are going to raise the age of retirement. They could adjust inflation. They could do means testing for higher, more wealthy people. But it’s not going away. Social Security is the third rail of politics. They’re more likely to print money and give it out as a benefit than they are to get rid of it. So I think, thinking that it will just disappear is an irrational fear.
- Annuity companies are going to go broke.
When people are looking at different investments, that’s one of their concerns—that the annuity company can go out of business. Thinking that they’re all going to go broke, that’s just not true and not likely. They weathered 2008 even better than the banks. AIG had an annuity business. They went bankrupt and sold that business to MetLife. Annuities are safe. Look at the strength of the insurance companies backing it, but it’s a safe and profitable business to the company. And even in the case of AIG when they went of business, they were able to sell it to MetLife and continue those contracts for the contract owners.
- Stocks are just paper and not worth anything.
I’ve heard this before. The whole financial system depends on equities and stocks having value. That’s not going to change. It has value because we say it does, just like paper money does. Stocks have value because we say they do. Paper money has value because we say that it does. But stock’s value is even more than that. These are companies that produce things--that create things, that own intellectual property. And that’s not going to change. To think that it’s just paper and it will go up in smoke is really just an irrational fear.
- Gold is the only safe currency as the dollar will not be worth anything soon.
Again, it’s an irrational fear. People have been talking up gold for decades. People that have been investing in gold in the past 5, 10 years have had kind of a brutal awakening. I have to be honest with you, in a worst case scenario where our entire financial system falls apart, I’d rather have ammunition or food than I would gold. You can’t eat gold. In all seriousness gold--it’s okay to have some, I’ve just seen too many people lose their butts on something that doesn’t even pay a dividend.
The financial system isn’t going anywhere and we just talked through my top irrational fears. Here are some of the things that you should legitimately fear instead of these irrational ones:
- Will you live too long? People don’t think about it but with changing technology and medical innovation, who knows how long you’re going to live? 100? 120? 130? This can be realistic stuff here with changing technology and you want to make sure you have enough money to go the distance.
- Will market volatility mean you run out of money? This is a real fear that people just don’t think enough about. They’ve forgotten about it because we’ve had 10 years of amazing performance in the market. If the market tanks, and you’re retired, and you’re pulling money out, you can run out of money in your retirement.
- Will you keep pace with inflation? That’s a rational fear. Is your money going to earn enough to keep up with inflation? I’ve got people that are so scared that they won’t invest in the stock market. They’ll put their money under a mattress. But the fear that they really should be thinking about is by keeping it under the mattress, it’s not growing. As inflation continues to grow, it becomes worth less and less every year you keep it underneath that mattress. So it’s a more rational fear to be concerned about inflation than it is to be concerned about the integrity of our financial system.
- Will you leave anything for your heirs? Will anything be leftover for your heirs? That’s a rational fear. Because the amount of money that it’s going to take for your lifestyle, for vacations, for your healthcare, for the things that you have to pay for.
- Will you avoid the big mistakes? I see investors making big mistakes all the time. They take all their money out of their 401k and convert to a ROTH IRA in one year. Terrible mistake. Puts you in a super high tax bracket and you end up paying a bunch of taxes. Pulling all your money out to buy a second home—had someone do that. They pulled out $400,000 and they had to pay the government $200,000 in taxes for their tax bill. Avoid those big mistakes. And you should be careful that you don’t make those big mistakes. Another one that people don’t think about is their income tax mistakes. By withdrawing $1 over certain thresholds, it can make your social security taxable at 50%. Or it can make 85% of your social security taxable. So make sure you’re avoiding those big mistakes.
And that’s the Best Thing I Saw This Week.
Scot Strategy Segment:
Earlier in the show, we talked about the characteristics of someone worthy of your trust. Hopefully, it gave you some help as you chose a professional that’s right for you.
In today’s Scot Strategy Segment, we’re going to talk about misguided trust. What are the top areas of misguided trust?
- You trust yourself too much!
If you don’t trust a professional, you are by default trusting yourself do the job of a professional. If you have the time, maybe you can do it. But you’d never hire yourself for a medical procedure. You’d never operate on yourself. Retirement planning is complicated. There are a lot of moving parts. And it’s more difficult than just growing your money. You need to talk to somebody! And trust someone, even with just a piece of your portfolio. Retirement planning is a profession for a reason. Managing your money in your 30’s and 40’s is pretty easy. Low cost ETF’s. Long-term growth is your biggest concern. Don’t pull out. But in retirement, its more complicated and you want to make sure you’ve got a professional around you that can at least give you a second opinion.
- You trust your advisor because they’ve made you money.
Big mistake. You shouldn’t be trusting your advisor just because they made you money. Everyone’s been making money over the past 10 years. What you want to be asking is, how they did in 2008 when the market was down over 50%? How did they do 2001 when the market was down over 50%? That’s more important and there’s a lot of things you should be looking at regarding trust for your advisor. Just them making you money is not enough.
- You trust your advisor is looking at the whole picture.
Are they really? Are they really looking at the whole picture? Has your advisor talked to your tax professional? Have they talked to your estate planning attorney? Do they talk to you in December if you’re in a low tax bracket or a high tax bracket? You think that they’re looking at the whole picture, but are they? Do you have an income plan? Have you laid out an income plan with them for the next 5 years, for the next 10 years, for the next 20 years in retirement? Are they really looking at the big picture or are they just looking at your investments? Challenge them on that and make sure your trust is not misguided.
- You trust because they are a friend or a referral.
Is your advisor a friend? Is your advisor, the way you met them, from a referral? Do you trust them more because of that introduction? It’s okay to give them a little benefit of the doubt. It’s okay to give them a little bit of trust because they’ve had a relationship with you in the past because you don’t think that they will screw you over, that they have some of your best interest at heart. But it doesn’t mean that you go in blindly. It doesn’t mean that you blindly trust. You need to trust but verify. Isn’t it Reagan that said that? Trust but verify. It’s okay to give someone your trust. But just because they’re a referral or just because they’re a friend, you still need to hold those professionals accountable in your life. Make sure that they’re looking at the whole picture and make sure that they’re doing what’s in your best interest.
- You trust because of how you feel.
You pick an advisor because of how you feel. Man, that is a big mistake! That is misguided trust. Having a good feeling is important. You should have some element of trust with your feelings, but it can’t just be about trust. Are they independent? Are they qualified? Do they understand your entire picture? Are they prepared for the next recession? These are questions you have to ask them. It can’t just be a feeling. A feeling is an important component. It’s okay for it to be a part of the equation and part of how you make your decision but it can’t be the only reason.
- You don’t trust anyone and have an irrational fear.
You don’t trust anybody! You miss opportunities. You don’t keep up with inflation. You’re paralyzed to make the right decisions, so you keep on doing the same thing. You are not positioned for the future. You’re continuing to do what’s been done. You need to be thoughtful. You need to be deliberate. And you need to make sure you’re not being paralyzed by having an irrational fear. Doing the same thing that you’ve been doing, is making a decision. And it goes, again, back to trusting yourself just a little bit too much. Have some courage. Analyze your options. Go into retirement with your eyes open. Make sure you’ve looked at different ways you can position your retirement, your investments, your taxes, your estate plan, and then make the best decision that you can. I say this to people all the time, but the process of investing is one of continual improvement. All you can do is get better with the information that you have. Keep getting better with the information that you have. Keep getting better as an investor. That’s the secret to having the best retirement life.
And that’s our Scot Strategy Segment for the week.
And now for this week's listener questions segment.
If you want your questions answered during the show, shoot us an email. Go to info@retireEWO.com or you can visit our website: retireEWO.com and click on “Ask a Question”. We'd be happy to get your question answered during the show.
Joining us is our producer, Angela. Angela, thanks so much for joining us and what kinds of questions do we have from some of our listeners this week.
[Angela] Hi Scot, and thanks so much for that introduction. Our first question comes from Jeff in Rancho San Margarita, CA.
Scot, I’m interviewing 3 advisors right now and trying to find the right fit. One is a passive manager with very low fees, one has high fees but may have better performance, and the other only does annuities. How do I get more clarity on who would be the right fit?
[Scot] Jeff, first of all, kudos to you for interviewing multiple advisors. It’s one of the most important things when it comes to retiring with your eyes wide open. Make sure that you’ve talked to enough professionals and make sure that they’re different enough to give you a sense of how different advisors could help manage your money. So, congratulations on taking the first good step. How would you get more clarity? Well at least have one meeting, if not multiple meetings with each one of those advisors. I think the passive manager with very low fees, you need to ask some important questions about volatility and how volatility may impact your overall performance. For the high fees advisor, challenge them on fees. See if they’re willing to discount. And see if you can find out why their feed are as high as they are. What’s their rationale? What’s their reasoning? Are you going to get something for that higher fee? Fees are always about value. What are you getting for the value? If you were accused of a crime and you hired an attorney to represent you, you wouldn’t hire the cheapest attorney—the lowest cost. You wouldn’t hire the most expensive attorney either. You would hire the one that would give you the most value--that will help you get the job done in the most effective way for the best price. So don’t be scared of high fees if there’s a reason for it—if there’s a justification for it and a rationale. And then third, you mentioned meeting with an advisor that only does annuities. I’d be a little bit careful of that. Maybe they could help manage just the annuity portion of your portfolio. I would never recommend someone having all of their money in just annuities. There’s just not enough liquidity. Having annuities be a part of your plan could make sense. You know, another thing you could think about is if you like two of them, have two of them work with you. You don’t have to have all of your money with one advisor. You can have more than one advisor if you need to. I think for getting more clarity, go over some of the things we mentioned earlier in the show about what would give you more trust. What’s their reputation in the community and make sure you take that checklist when you’re meet with each of them. Hopefully, that helped, Jeff.
[Angela] Our next question comes from Mike in Costa, CA.
I’ve been a CD advisor for 10 years since the last recession. I feel like I missed this bull market, and now I’m nervous to get back in. How am I supposed to trust anyone with my money with the market ready to turn over at any time?
[Scot] Mike, what an important question. Thank you for sending it. You’re not the first person I’ve run into that’s having to deal with this, right? You’ve missed this run-up since 2008. You’ve missed this 10 year bull market – longest on record, and you’re wondering what to do now. What I would say is, you don’t have to get in with both feet. Get in with one foot. Get in the shallow end of the pool. Start investing 10%, 25%, 50% of your portfolio in the market and dollar cost average into it. Don’t put it all in today because the market could turn south so you have to be very careful. The other thing is, look very closely at the volatility of any position that you’re buying into. Whether it’s an individual stock like Amazon or Facebook, whether it’s an ETF, whether it’s a Mutual Fund or whether it’s a professional money manager, you want to look at how they’ve been doing over the past 10 years, but you’re also going to want to look very closely at how they handled the previous recessions because that’ll give you a little comfort level at how they will be able to handle the next one. It’s not a guarantee how they’re going to handle the next recession but it gives you some sense how they’ll handle it. And again, put one foot in the pool. It’s not all in or all out. Put one foot in the pool and keep trying to improve your investment position. Hope that helped.
[Angela] And our final question is Joanne in Seal Beach, CA.
Is it okay to have more than one advisor in retirement? I met with an advisor recently and they said they would only work with me if I gave them my entire financial picture to work with? Is that a red flag? Is having 2-3 advisors too complicated? What if I want to keep managing some of my own portfolio?
[Scot] Personally for me, I kind of thing it is a red flag if someone tells you it’s all me or nobody else. But it doesn't necessarily have to be. It doesn’t have to be if you think they’re good at what they do and if you trust them. You know, most people before retirement will have more than one advisor. Once they get to retirement, they’ll usually narrow down that list and have maybe 1 or 2. You just don’t want to have your life too complicated in retirement so it’s not an immediate disqualification if an advisors says that you have to only work with them, but it does make me a little bit nervous. For myself, I play nicely with other people in the sandbox. I’ve got clients that were managing 100% of their money. We have some where we manage 50%, some where we just manage 25% and I think that’s okay. I really think that there is a place for low fee investing-for low fee passive investing. I think there’s still a place for that, but you have to understand how much of your portfolio should really have that strategy. And so if we’re going to be more active in how we manage your money or use some other strategies, it’s okay for you to kind of split that money up. Maybe keep a quarter at your old firm or with another advisor and have another advisor manage the majority. So again, I don’t think it’s a red flag, especially if it’s an advisor that you trust, but any advisor as well as any strategy, any investment strategy should be able to stand up to scrutiny. And to have some kind of blanket statement where it’s all or nothing, eh, not my style but again not an immediate disqualifier. Thanks, Joanne.
That’s the end of our listener questions for the week. Angela, thanks so much for joining us!
Again, if you want your questions answered during the show, go to our website retireEWO.com and click the button “Ask a Question”.
You can also follow us on Facebook, subscribe to our podcast on iTunes. I want to thank all of you so much for listening. Stay tuned next week as I continue to discuss how to retire with your eyes wide open. Don’t go into retirement with your eyes closed. Retire with your eyes wide open! I’m Scot Landborg and we’ll see you next week.