By day, I’m a mild mannered engineer working at a large corporation which houses bunches of other less financially minded employees who give all sorts of crazy financial advice. I mind my own business and let his colleagues make peculiar cash choices. By night I put on the Cash Rebel mask and wield posts of financial truth, freedom, and the American Way!
I almost never mix up these two personas, but a fellow employee of mine gave me an intriguing opportunity the other day.
My Arch Nemesis: A Slick Financial Adviser
At first, when he offered to set me up with his financial adviser pal, I chuckled a Ron-Swanson style chuckle (only on the inside) and politely declined. After pondering it for a few moments, I changed my mind and set up a meeting (I mean, what the hell… I’ve always wanted to see what these guys actually do). Although I was pretty sure that most financial advisers are just corrupt sales guys looking to make money by skimming cash off the top of your investments, I felt compelled to see what they had to offer.
So the day of my meeting arrived, and the adviser I’d set up my meeting with informed me that it would be himself and his colleague. When I met them in the lobby, it was clear from the get-go who was in charge. The guy who’d set it up said one word at the beginning, and a few sentences at the end. He was clearly the junior member of the team delegated to setting up meetings and reaching out for new clients. It felt a little odd that he never offered his point of view, but I guess you’ve got to start somewhere.
They other guy, clearly a seasoned salesman, started off with some classic small talk and eventually got down to business. I’m good with small talk, but it creeps me out a little when I know somebody’s just getting to know me so they can make money off of me.
The Personal Finance Audit
So then he started in with his “audit” of my lifestyle, my finances, and my hopes and dreams. I don’t know what I was expecting, but I felt a little strange opening up to a complete stranger about my life goals. It was even stranger because we don’t exactly share the same financial reality.
He started out by asking about short term, medium term, and long term goals. My answers were all pretty abstract, but what do you expect, I’ve only been in the work force for two years! Then he asked when I’d like to retire. Not wanting to freak him out with my actual goal of age 35 (11 years from now), I wen with a more conservative answer.
“How about by 40?”
Chuckles from both advisers… “we can only run the model for retiring at age 60 or 65, so which one will it be”
I guess I’m glad I didn’t tell them 35, it might have broken their model…
From that point on, I tried to conceal my extreme frugality and early retirement dream as best I could. Though it was a little difficult once I told them that my net worth was about $50K after earning about that much for just 2 years. You could tell they were trying to do the math in their heads and couldn’t quite figure out where I’d gotten my money…
So the whole financial review took about 40 minutes, and just as we were about to finish, we got onto the topic of passive investing vs active investing. I knew this was coming because that’s what financial advisers do. They actively manage your money and promise that they will beat the market because they have “market intelligence”.
Beating The Market
Eventually he mentioned that my passive index fund investing was a pretty smart way to go, but if it would probably make sense to buy his funds and have him actively manage my money so I could earn greater returns. At this point I had to turn away so he didn’t see my smirk. I just could take his delusion of grandeur seriously because I know the facts about actively traded funds. 79% of money managers lose to the index. It really is that simple, and he makes a living by convincing people that this isn’t the case. It just doesn’t sit well with me.
I don’t get how there is still confusion about this topic. After reading a few books on investing and statistics, no one in their right mind would expect better returns from actively managed funds. Like these well researched books point out, a money manager might be able to beat the market one year, but the chance of doing it 5 years in a row is about .041%. It just doesn’t happen because it’s essentially all based on luck (or insider trading I suppose).
Another weird point he brought up was that he was 100% sure that social security would not be there at all when I retired. I know that social security has problems, but I’m pretty sure that it’s solvency is an open question. It’s not like everyone has decided that we are no longer going to support old people after 2041. As far as I know, we’ll just have to reduce benefits. Please, correct me if I’m wrong, because this financial adviser jumped all over me when I mentioned I thought there was a chance it’d be around in some form…
So What’s Next?
Well, he’s going to go back to his office and run the numbers and build me a handy dandy model to explain why I should invest with him. Based on the research I’ve done and the thousands of blog posts I’ve read, I really don’t see an advantage to giving him my money. But I’m going to try to keep an open mind. I’ll tell you all about it in Part II when he comes back to show me my money model.
Do you use an financial adviser Does yours feel shady? I’m I to arrogant to admit that he’s smarter than I am?