Meaningful Returns

I wrote yesterday about the problem with one-time advice, and drew a parallel there between going to the doctor and getting financial advice. Today, in the spirit of follow-up posts, I want to draw another parallel between the practice of medicine and the financial services industry.

So first, a story. I have a friend who is a doctor who started what’s now known as the Raleigh Wellness Project–a partnership with the YMCA here in Raleigh that sees doctors exercising with patients as a means to greater overall health. The idea is that a doctor-patient relationship ought to be close enough that a doctor would work alongside his or her patients as a means to arriving at better health outcomes, and while this doesn’t read as terribly earth-shattering, it’s incredibly uncommon in practice.

What’s more common is you get a drug prescription after a 20 minute visit with your doctor.

And I’m not out here saying all drugs are bad and you shouldn’t take them ever. I’m nowhere near saying that.

But what I am saying is, sometimes it feels like the only prescriptions are for drugs, rather than prescriptions for healthier eating, or more exercise, or more sleep, or a less stressful job. These prescriptions are highly effective, and yet underutilized. And why? Well, because people would rather ingest pills than do the work, and I suspect doctors know this. And this is why the Raleigh Wellness Project is so effective, because it’s recognizing the value of non-drug prescriptions while also realizing the fact that those prescriptions are useless if the patient doesn’t follow through with them.

Now, to the world of money. I wrote yesterday about one-time advice, but a very singular reality exists that the “advice” many people are paying for is not advice at all! I looked up the definition of “advice” about three seconds ago and here’s what I saw: “Opinion about what could or should be done about a situation or problem; counsel.” So let’s make this interactive. I’m going to give you a situation or problem, and then a few different hypothetical responses you might get from a “financial advisor.” You pick out which responses match the definition of advice.

Situation or Problem. You have some money, and a job, and two kids. These kids are 12 and 10, respectively. You would like to send them to college. You would also like to travel with your spouse when the kids are out of the house. You would also like to retire between the ages of 63 and 68 spending around $60,000 to $70,000 annually (in today’s dollars). You have two questions for the “advisors”: 1) Can I do these things I want to do? 2) How do I do them?

Hypothetical Responses:

• “Well, the important thing is to prepare for the next stock market crash and preserve your capital. Here, take a risk questionnaire. Don’t worry, we’ll make sure to invest your money effectively in these mutual funds that we will sell you periodically. Here are a lot of jargony words that I won’t bother explaining to you.”
• “Well, it’s really important to make sure we address this with a really complex financial product, so buy this variable indexed annuity from me.”
• “Well, the thing is, we need to figure out each and every one of your bills, and then project all of those numbers 30 years into the future. Can you send a spreadsheet and make sure to break out what your monthly car insurance premium is? It’s really hard to say whether you’ll be able to retire, but we would recommend saving as much as you possibly can.

Did you find a match? Not really? The third one was probably the closest, but, like the doctor who prescribes a strict workout regimen to his patient without joining her, it’s unlikely to be heeded, and therefore useless. The first two were making no attempt to give an “opinion about what could or should be done about” the situation at hand or the questions you asked, and instead prescribed some financial drugs that may or may not be helpful (probably not). And overprescribed Financial drugs, like real ones, are expensive, marginally useful, and sometimes terribly harmful.

What if, instead someone had said, “Well, I would say, given the assets you have right now, and the amount of saving you are comfortable with, you can do the things you want with a level of confidence that I’d be happy to explain to you in plain English. In order to do what we can to make this a reality, here are some steps I would love to help you take. You won’t ever pay me for any products, but I’ll be here whenever you need me…”

There are good folks in the field of financial advice, who actually give advice and help their clients follow through with it. Just like there are doctors like my friend Ben. But there are enough “advisors” peddling drugs and useless advice that you ought to take care of what you’re getting.