By Pam Martens: December 14, 2012
Based on worries expressed by friends and comments I see under financial articles, there is great angst among Americans on a broad range of financial issues. I’ve frequently read comments indicating people are not opening their financial statements, just filing them away unopened, to avoid the stress of looking at their roller-coaster account balance. Frankly, that’s a recipe for disaster. Errors can, and do, occur and checking that statement carefully is a hallmark of prudent investing.
The best way to deal with angst is not to pull the covers over one’s head but to be proactive. Make a decisive plan and stay on course. If your investments are causing you sleepless nights, at the top of your proactive plan should be: speak to my financial advisor about my unease.
Under law, investments are supposed to be “suitable” for the client. That implies things like: don’t buy a risky growth stock for a 90 year old; don’t invest in non-dividend paying stocks for a couple who have stated their major need is income; don’t buy start-up companies if the client tells you his most important objective is preservation of principal.
But all too often, financial advisors fail what I think should be a core mission of personal money management: build the client a prudent, effective financial portfolio that also allows the client to sleep at night. A portfolio that is creating stress, upset stomachs, and insomnia is a failure in my opinion, no matter what the rate of return. It may be legally “suitable,” but it fails on the basis of giving the client comfort and peace of mind. In other words, it is depriving the client of the very quality of life for which he saved that money his whole life.
In such a situation, all that might be required is sitting down with your financial advisor and saying all of the following: “I need to sell down to my sleep level; or I need to make some adjustments in the portfolio so there is less dramatic fluctuation of principal each month; or I need to put a portion of my money in FDIC insured principal products so I can stop worrying that I’m going to lose all my money. What do you recommend that we change?”
If the broker hears the above words and responds with something like: “it’s better to stay the course and focus on returns over the long term rather than month to month, this is what you say. “I don’t think you understand what I’m saying. I’m saying that ongoing peace of mind is as important to me as the ultimate rate of return on my portfolio. What do you recommend?”
As difficult as this may be to comprehend for readers who have enjoyed the benefit of an empathetic broker or financial advisor throughout their investing lives, there may be a Neanderthal on the other side of that desk who will refuse to budge. There are many ego-inflated money men populating the ranks of Wall Street who don’t want their strategies questioned or challenged and will argue just for the hell of winning the argument.
If that happens, you have a number of options. Let’s start with the nuclear option. If you are generally content with the overall performance of your money, just not the wild swings, and would like to continue using this individual as your financial advisor, you say the following: “I appreciate the good counsel you have given me in the past and would like to continue using your services, but I’d like a second opinion on this matter. Let’s call in your branch manager and get his opinion.”
It will probably take 30 seconds for the advisor to magically understand your wishes clearly and make recommended changes. Here’s what is running through his head in that brief 30 seconds: “my manager could interpret this as my refusal to follow a client’s instructions and I don’t have a signed discretionary trading authorization from the client; my manager may see this as my failure to select suitable investments; my manager may interpret this as the beginning of a client complaint. Now my stomach is upset.”
There is the slim chance that the broker will call in the manager and the manager will parrot the response of the broker. There are numerous reasons this could happen. The likely suspects are (1) this broker is one of the top producers in the office and instead of him being afraid of his manager, his manager walks on eggshells for fear of losing him; or (2) your money is in a managed account which is paying a steady fat fee to this broker (which impacts the branch production and thus the manager’s pay).
Should you now be at a stalemate, but still want to continue the relationship because of good past performance of your account, you say this: “I understand what you are saying, but I’m going to have to ask you both to sign a letter that I can walk out of here with today that says the following: “Mr. Jones met with both of us today and asked that his portfolio be better aligned with his comfort level and we refused to do so.”
If that doesn’t produce the desired results, you are likely dealing with sociopaths and you should move your account.
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Pam Martens, the Editor of Wall Street On Parade, managed the life savings of average Americans for 21 years on Wall Street. Her personal finance columns seek to help the public better understand the jargon, complexities, and conflicts of Wall Street. The information that appears on this site cannot, and does not, take into account your particular investment goals, your unique financial situation or income needs and is not intended to be recommendations appropriate for you. When it comes to making your own investment decisions, you should always consult in advance with your financial advisor and accountant.
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