Last week I talked about some of the ways to find an adviser and some key items to look for when selecting an adviser. Ironically this past week, news broke that yet more high profile and wealthy athletes were victims of investment fraud.
Former New York Jets quarterback Mark Sanchez and major league baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. These professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment adviser who appealed to their Christian faith.
Even though a potential adviser may come to you through a trusted resource or friend, you still have the responsibility of vetting the potential adviser yourself. After all, it is still your own financial life. When going through the vetting process of a potential adviser, beware of the following:
- Flattery, whether extreme or mild, be very perceptive around someone who is telling you exactly what you want to hear in order to have you hand over your money;
- Guarantees, if something appears to be too good to be true, it likely is. There are no guarantees in life especially in the world of investing;
- Complexities, some people/advisers want you to believe that investing is too complicated for a lay person to understand. It’s not. If an investment cannot be explain in a few bullet points/sentences then it is likely dangerous for both your actual and financial health;
- Defensiveness, if the potential advisor becomes defensive, agitated, or combative when you ask questions surrounding investment style or financial management process, this could highlights underlying issues/concerns.
While not fool proof, here are a few points that could help you protect yourself:
- Make sure that your spouse or partner meets with your potential adviser at least once prior to you moving forward. If you are single, invite a trusted friend to come along with you. An unbiased viewpoint may be able to alert you to details that you have overlooked;
- Request a meeting with your adviser at least annually or whenever you need further explanation regarding your investments or strategy. A trusted adviser should always be able to respond to your needs and questions in a reasonable time frame. If you feel that your adviser is avoiding you, that could be a red flag;
- Understand how much you are paying in fees and how those fees are being deducted from your accounts;
- Review your financial statements on a consistent basis (quarterly should be sufficient), be on the lookout for fees or transactions that seem out of the ordinary, investments that you are not familiar with, or that do not align with your financial plan.
Know your values and what is important to you, how you decide to manage your finances/investments says a lot about who you are.
Searching for a financial adviser who is the right match for you takes a lot of work. While automated or “robo” advisers have increased in popularity in recent years, they aren’t set up to handle every aspect of your financial life. Try asking one of them if you should buy or sell a house and the impact that it may have to both your short-term and long-term financial and lifestyle plans?
Financial relationships dive into some of the most private and complicated affairs that someone will likely have during their lifetime. A trusted adviser is someone who will help you build that bridge from where you are today, to where you want to be in the future. Although finding the right adviser for you can take a lot of work, it is one of the most important financial management decisions you’ll ever make.
Over the course of the past 5 years, TAMMA has grown based upon the endorsements and recommendations of our existing clients. Clients simply discuss their experience in working with TAMMA during every day conversations with family, friends, and co-workers that have led to new client introductions. Begin your search with those closest to you, they may already know someone that you should know.
- Prepare a standardized list of questions for them that center around the following: Capability, Process, Fee Structure, Discretion, and Interaction.
- Email the advisers on your list and ask them to send back a signed copy of their answers.
- Google an adviser’s name and that of his or her firm looking for lawsuits and customer disputes.
- Enter the advisers name on BrokerCheck, a website run by investment regulators; which could highlight issues.
At TAMMA, we communicate the following common threads that we believe help to create and build strong relationships:
- Capability, we are a registered investment adviser (RIA) in the State of MI and hold the Certified Financial Planner (CFP®) and Charted Financial Consultant (ChFC) designations. These credentials should give you confidence that you are working with a professional.
- Process, most mutual funds tend to underperform the markets while charging a fee on top of any fee that your adviser charges. We personalize an investment strategy utilizing stocks and bonds to match your risk/reward profile without paying excess fees. In addition, because of our independent structure, we are able to manage all of a client’s investable assets including 401(k), 403(b), SEP’s, IRAs, etc.
- Fees, most advisers charge a percent of the assets they manage. Fees can range from 1% to 2% depending upon the size of your portfolio. Typically, advisers charge more to manage a smaller asset base than a large base. At TAMMA we charge 1% regardless of your asset base.
- Discretion, we clearly define the client’s investment strategies and provide them with peace of mind that their assets are being managed based upon their risk/reward profile and agreed upon wealth management goals. Giving TAMMA discretion means we make daily investment decisions and perform transactions on the client’s behalf so you don’t have too.
- Interaction, at a minimum we meet with clients for an annual face-to-face review in addition to quarterly communications. Clients should feel empowered to contact us any time that they have a question regarding their account or investment plan.
The most important aspect of having an adviser is maintaining an open and trusting relationship. You should feel that your adviser listens to you, has your best interests in mind, and empowers you to make better financial decisions.
It takes time, focus, and knowledge to manage investment assets. If you don’t feel comfortable handling this important responsibility on your own, then you should seek out an expert adviser.
On most weeknights, depending upon the needs of my kids’, my wife and I will watch a recorded version of the ABC Nightly News. Although this may sound like a strange thing to do given our 24 hour news cycle, most days it is the only chance that we get to sit down together to talk about what is going on in the world. Once upon a time I often found some of the pieces to be interesting in my attempt to see another person’s view.
But over the course of time I have noticed that everything is breaking news. What is so earth shattering about another Donald or Hillary tweet? Even more so, I see a constant amount of fear and anxiety in just about every headline breaking story. I can even look over at my wife and see her emotions building up. With the recent mass shooting in Orlando, these emotions and fears are amplified to a greater level.
I had come across this article What are You Afraid Of? by Dr. Steven Novella, an academic clinical neurologist at Yale University School of Medicine. Dr. Novella who also writes on his own NeuroLogicaBlog site, in his article he raises the question as to why do so many people worry about the (statistically) wrong things. Below are a few of his answers;
- Humans are intuitively terrible at probability; "for most of us, our brains are just not built to be comfortable with large numbers. That is why people gamble and play the lottery."
- Availability of heuristics; "A heuristic is a mental short-cut that most people tend to make, without thinking. It is true enough most of the time to be an efficient assumption, but it is not strictly logically true. The availability heuristic is the tendency to assume that something is common or likely if we are easily able to think of an example. We are given the false sense that the events we see on the news are common or likely. Therefore, the news has a tendency to give us a distorted view of reality. They also tend to focus on fears, because that is what sells. “Should you be afraid of X? Find out at 11.”
- Social media; "There is an entire cottage industry that exists to sell fears about food and toxins. People worry about trace amounts of “chemicals” in their food rather than whether or not they are getting enough exercise.
Just like the mass media evening news, the financial media works in a similar fashion trying to sell at times all types of fears or in the opposite case highlight why everything is going to be great. The truth as in most cases, likely falls somewhere in the middle.
Dr. Novella goes on to conclude in his article the following;
- Fear and anxiety are adaptive emotions, but their net effect in a complex technological civilization is not always adaptive. Not surprisingly for a skeptic, I find that backing up our intuitions with an analytical approach is extremely helpful.
- Fear can be a net negative when it is hugely distorted, and fear can be manipulated by people with an agenda. Analyzing actual probability, and going through a thoughtful analysis will help put our fears into perspective and identify measures that are likely to be helpful rather than harmful.
While emotions can work to our benefit, they can certainly work to our detriment especially when it comes to handling our financial lives. At times we may become so consumed with our fears and emotions that we don’t know how to hit the stop button in order to reset and begin anew with a different perspective.
What I Am Reading
Long-Suffering Michigan is Finally Enjoying Below-Average Unemployment (WSJ)
Why Luck Matters More Than You Might Think (The Atlantic)
The Importance Of Creating Small Financial Planning Goals (Nerd's Eye View)
25 Incredibly Useful Free Sites And Services (Fast Company)
As the graduation season winds down, I usually come across several articles or videos offering advice for new graduates. Sometimes I will even find a few inspiring commencement speeches that can stir your soul. Probably one of the most famous commencement addresses was given by Steve Jobs at Stanford in 2005.
Over the years, I believe that some people have confused the message behind Jobs’ speech and some of his other thoughts on career and life advice to simply mean to follow one’s passion. His focus which he reveals at the very end of his Stanford speech is to “Stay Hungry. Stay Foolish.”
Passion is not something that just happens overnight. It is something that takes time to develop and shape with its essence surrounding a very important question: “What do I Want to be When I Grow Up?”
This gradaution season I came across a very inspiring commencement address given by a young lady wise and more mature beyond her years. Ms. Bailey, who will be attending Indiana University at Bloomington in the fall, is a graduating senior from the International Academy located here in Michigan which requires students to earn both high school and International Baccalaureate (IB) diplomas. This is an extremely rigorous program that is more on par with college than high school.
In her impressive 3-minute address, Ms. Bailey not only asks what do you want to be when you grow up, but just as important, who do you want to be when you grow up? Her answer, to be happy. As she closes her remarks, Ms. Bailey used one word that held my attention, strive.
Thomas Jefferson in our Declaration of Independence noted three unalienable rights that we have as Americans, “Life, Liberty, and the pursuit of Happiness.” But as we all know, happiness is something to be pursued and strived for but is never guaranteed.
When I started investing when I was 13 years old, I never once thought about wealth and asset management as something that I would do when I grew up. Going through college I had changed my major 3 different times and most were unrelated to what I do today.
However, it was that pursuit of trying to find out who I wanted to be that led to me finding the answer of what I wanted to be when I grew up. It wasn’t until later in life that I discovered that I was most happy when I was helping people to not only invest and manage their assets, but when I could help people to realize their own happiness through the achievement of their own lifestyle and financial goals.
While there are no shortages of distractions in life that can take you off your course to pursue who and what you would like to be, Steve Jobs in his address provides some cautionary advice. “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”
Ms. Bailey holds a very special place in my heart as her parents were some of my very first clients over 5 years ago when I started TAMMA. Their trust, faith, and belief in me along with all of my clients, has allowed me to continue to help others find and reach their own happiness, including my own.
I have recently read several articles in several different publications about the death of retail, namely in the apparel brick and mortar space. Recently several retailers such as Macy’s and Kohl’s have reported lack luster financial figures. I don’t have to look very far from home in this area to see that much of what my wife buys is online. I believe that much of this shift to online vs. a traditional store is convenience.
Companies make it rather easy to buy something online and then return it if it doesn’t fit or you simply do not like what you bought. You may have to pay a fee to ship it back but hey, look at all of the time and potential money that you saved by not having to go to a mall or individual store. A few weeks ago I went out looking for of all things a few specific style of socks. After going to two major retail stores and striking out, I went to amazon and found exactly what I wanted in minutes.
Personally I hate shopping for clothes which is maybe one reason why I am never in tune with the latest styles and my wife is always harassing me about how outdated I may look. I have also been targeted recently by several of these new personal styling services such as Trunk Club which was acquired by Nordstrom’s a few years ago. My wife, bless her heart again, tried to sign me up for one of these services for my birthday which I politely passed on again.
Based upon some of my previous research in the retail area, I used to believe that a company such as Macy’s or Dick’s Sporting Goods could hang with Amazon within the online space by having their stores act as mini distributions centers which could save shipping costs and lead to a better customer experience by delivering goods faster and/or on time. Looking at results over the past year for these companies I am not as confident in this thesis as I once was. The only part of retail apparel that is growing is the online channel.
Another reason why this theory may not pan out is that companies are now trying to go directly to the consumer themselves. For example, Nike and Under Armour rather than selling their goods exclusively through Dick’s or even Kohl’s, are now trying to go directly to the consumer through their own retail channels.
While other life expenses such as healthcare, education, and housing have become a bigger share of a household’s expenses, consumers seem at this point to display an unwillingness to pay a premium simply to own a brand. If the product does not perform markedly better than the competition, consumers are looking for the lowest cost product which they can typically find online with greater convenience.
Although Amazon may not have the cheapest prices online any longer, there are several companies who offer the ability to price shop online for you to find the best price. Once again it boils down to time vs. convenience. If you have the time, price shop all you want. But if you are looking for convenience then going online to either a place like Amazon or a consumer product company directly may be a better option.
So where does this leave us from an investment perspective? As tempting as it may be to buy some of these retailers many of which are down 40% to 50% over the past year, I believe that it is best to sit on the sidelines with the retail apparel sector. Dick’s would be a stock that I would like to have within our portfolio but the uncertainty is simply something that I do not want to take on right now. I would say the same for the Buckle and Nordstrom’s who both carry very high and likely sustaining dividend yields and who also largely cater to a more affluent or luxury good buyer who has more discretionary income.
What I am Reading This Week
What are the chances of a recession? Not what you’d think (WP)
The Secret Shame of Middle-Class Americans (The Atlantic)
The Paradox of Finding Motivation Through Fear (NYT)
10 demographic trends that are shaping the U.S. and the world (Pew Research Center)
Smartphones Are Boring: Here’s What Happens Next (WSJ)