Wealth is No Cure for Angst

Over the last couple of months, I have had the great pleasure to meet with more than the usual number of, what I like to call, the financially successful saver/investor. These are individuals that should not need our services, BUT THEY DO. These people have wealth but are still very concerned. They have scattered portfolios and have often lost faith in their advisors. To me it is a sign that there is a crack in the pillars of the mutual fund and securities industries.

Now invariably, the people have approached us because of some angst. They may be unable to make sense about what they hold in investments. They may be uncomfortable with some recent advice or action suggested by their advisor. They may be questioning perceived performance. They may be uncertain of the role of their advisor. They may be questioning why they are even in the “markets”. They may not understand what their wealth allows them to do. Or they simply may just be confused.

In almost all cases the source of the angst is the same.

1. They have no financial plan. I do not mean just some written document that was prepared long ago when they began that long savings path. They have no plan of any kind for their savings and never had. They just saved. Yes, they became financially successful, not with inspired investing in the markets, but through good old fashioned saving. I’ll come back to this.In most cases they have never thought broadly about the purpose of their saving, what the money will be spent on specifically nor have they quantified what their level of savings means to their future. In other words they did what they thought was right (and it was) without every asking “Why”? Or to what end? Or where has it got me?
2. There has been very little education provided to them from their current advisor. These are dedicated, disciplined, capable people that have been kept in the dark. They have been told the minimum, and somewhere along the line they were instructed that savings accounts and GICs would lead them away from prosperity. They have entered a world never studied nor explained properly.Critical information important to good decision making has never been proffered. For example, they are completely unaware of the actual cost of involving an advisor. When you tell someone that the 31/2 % that the advisory firm is taking will likely mean that the return on the investment they made can never exceed the GIC they used to own, the jaw dropping is predictable. I wish I had a nickel for every time that someone said, “My advisor never told me that”.
3. They have been sold investments that they do not fully understand. Do not misunderstand me here. These people are not stupid. They hold investments that even most people in the industry do not understand. Advisors everywhere are selling complicated products, born from the minds of mathematical geniuses that look so good at first blush that even I want to own them.I myself avoid owning or advising on owning such “manufactured products” simply because I cannot evaluate them properly even though I have most of the tools to do so. In the end I can walk away because I do not feel inadequate with my inability to understand them fully. Mere individual investors are led to believe that understanding is just beyond them, so they should leave the choice to their advisor.
4. They misunderstand the role of their advisor. Usually because the advisor has misunderstood, or worse, has misrepresented his role. Advisors too often talk about investment results as being the key to long term financial success. In looking back many investors realize that THEY were the key to their success.Financial planning is about assisting clients in making the most of their financial potential. It is about helping people husband the wealth they have created through their life’s work or their good fortune. Individual investors should not be led to believe that financial success will be CREATED from the participation in the markets. Rather, their own success can be enhanced and or protected through good advice. I often say that my greatest value comes in helping a client avoid that ONE big mistake.
5. They do not understand their own financial position. They have not done the math. Frequently clients are completely mistaken about their future income and expenses.I recently did a financial plan for a piece for the online Globe and Mail. The couple was convinced that they had not saved enough and would need to take risk in the market to grow their portfolio or they would not be able to retire as planned. Not so. They were wonderful savers and as such were modest spenders with more than enough capital to see them through the rest of their lives. They were needlessly fretting about their potential exposure to equity market risk, when no exposure was necessary.

So what is it that we tell these people? How do we help them get back a sense of control? How do we raise their level of understanding? Most importantly, how do we reduce or remove the angst? Watch for my next column for the answers!