Wealth Management and the Best Financial Advice I’ve Ever Received

wealth management

When you get to a certain stage in life where you’ve amassed a bit of money, you suddenly find that all sorts of people are eager to help you with all that cash.

They call it wealth management, a term that flatters more than describes. They call it “asset management,” and they want to be your “personal financial adviser” or your “retirement adviser.” All that attention can go to a grownup girl’s head.

What these people and these companies, big and small, basically want, of course, is to get their hands on your money. They want to arrange and rearrange it for you, allocate and reallocate it. You’ve seen the taglines in financial ads, “5 gazillion dollars under management”? Those are bragging points for wealth management firms: See all those people who trust us? You can trust us too! 

Even mutual-fund companies that come through with really rock-bottom expenses get a little grabby when you start asking questions. Every question seems to turn into a conversation and an offer to manage your money for you. An outfit such as Vanguard will manage your portfolio for as little as .3% (it depends on how much money you have), and the TIAA-CREF*  investment firm offers that rate for customized online management, with a $5,000 minimum.

But many financial advisers/managers charge 1.5% of your total portfolio amount.

The idea that an adviser’s compensation is based on how well your portfolio does should be reassuring: We’re all in this together, right? But when you tack 1.5% on to whatever the rate of inflation is (2%?), all of a sudden, you’ve built a little hurdle that your portfolio has to jump over before you’re actually ahead. (And no, no one should assume returns of 8% or 10% per year anymore.)

money management

Because most of us don’t have that much money, these advisers will rightly advise against individual stocks and bonds for most investors. Much more appropriate are mutual funds, spreading any risk over a curated collection of stocks or bonds. But guess what: Even when the mutual funds are “no load,” meaning you pay no fee to buy into them, they have what are called 12b-1 fees tucked away in the innards of each fund’s structure. Tagged as money to cover the marketing of the funds themselves, the 12b-1 fees are generally modest, but there they are, another downward tug on your money.

All of this is a very long-winded way of getting at a very pleasant conversation I had recently with a “wealth management adviser” at TIAA, which holds an old retirement account of mine. The amount of money in this particular account isn’t substantial, but the law requires that I start to withdraw funds to finally pay taxes on them.

I always think (and say) that I’m “too cheap” to pay anyone 1% or 1.5% to manage my money for me. But there’s always that little doubt in the back of my mind: What if I’m missing out on something that these smart financial folks know about?

My TIAA adviser in Washington DC, Val Volkau, was quick to allay those fears. He said his job was to educate participants, not to sell them services. And educate me, he did.

Meeting with a financial advisor

The Key Word is “Management”

If you’re fearful of “missing out” on some up-and-comer, some stock that’s going to skyrocket, having a financial manager guide your portfolio will not ensure that you catch that puppy. Portfolio management, in TIAA’s view, is about management, period:

  • Managing for risk
  • Managing for income
  • Managing for incapacity

Managing for Incapacity

Let me take that last goal first. Managing for incapacity means that when I drop into a final coma at age 137, my younger sister and brother won’t have to worry about my various financial bits and pieces while they’re still trying to figure out where to toss my ashes. TIAA, or your portfolio manager of choice, would keep on keeping on until given official word to stop.

Managing for Income

Managing for income seems pretty straightforward, but maybe not so simple in execution. It basically means that my manager will arrange and rearrange my assets to make sure that income from them is enough to pay for my needs and maybe even some of my wants.

Managing for Risk

risk vs reward

And managing for risk means that someone who knows how to read a balance sheet will figure out how to keep my various investments on the safe side of risky.

I’m grateful to Val Volkau for this perspective. I’m also grateful to John Bogle for starting The Vanguard Group and pioneering those low-expense index funds. And I’m even more grateful to billionaire investor Warren Buffett (the “Oracle of Omaha”—he’s fun to read about!) for investing in The Washington Post and guiding the Graham family owners to set up the journalists’ 401(k) plan at Vanguard.

All in all, I remain undecided about a professional portfolio or wealth management, but if I do take the plunge, it will be with realistic expectations. And if you’re drawn to such management, be aware that new fiduciary rules took effect earlier this month, although the Trump administration is trying to get them delayed. (What, you didn’t know your adviser was supposed to have your best interests at heart?? Pay attention!)

This post was contributed by Nancy McKeon, our friend at mylittlebird.com

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