Money Management in Retirement: Do You Still Need a Financial Advisor?

There is a lot of negative talk about financial advisors – can we trust them, or are we better off managing our own savings and funds? Financial expert Pam Krueger is here to expose the truth about financial advisors. Enjoy the show!

Margaret Manning:

My guest today is Pam Krueger, a financial and investment expert. Pam is a television personality and the author of several books. She co-hosts at the PBS show MoneyTrack and has created a really cool online tool called WealthRamp which connects consumers with financial fiduciary advisors. Welcome, Pam.

Pam Krueger:

Thanks, Margaret. It’s great to be here.

Margaret:

It’s my pleasure to have you here. I’ve mentioned before that the Sixty and Me community reaches about 500 thousand women all around the world. Most of them are reaching that point in their lives when they are transitioning into retirement.

Many are really happy to keep working and others are ready to let it go. On that note, I wanted to chat with you about who can help us women navigate this transition. Should we bring a financial advisor into our life or can we go at it on our own?

Pam:

That’s a great question, and we get it a lot on my show. Intuitively, you think that as you accumulate wealth you should hire a financial advisor to tell you how to invest.

Everybody’s big end goal is retirement, as though it’s the finish line, right? But the truth is, retirement is not the finish line! It’s the starting line.

So, no matter where you are financially – whether you have enough, or not so much – the question is, can you use an advisor? To me, the answer is that there is no better time to have the advisor. However, they have to be a real advisor.

Margaret:

That’s a wonderful place to begin this discussion. I know there are many myths about financial advisors, please help us to understand what we should be looking for.

Pam:

Indeed, this is critically important. Perhaps if you have 20, 15 or 10 million dollars, you can afford to be wrong a few times, to make mistakes and rebounce.

If you are a typical retiree who has saved up anywhere from 100 thousand dollars to 2 million dollars, you cannot afford to make big mistakes any more. You’re not in your 30s or 40s, and you are unlikely to recover from a big hit on your finances.

Is there a better time to pick the right person to collaborate and give you advice? No, there are no do overs. This money has to last you the rest of your life. That has to be your goal.

There is a whole world full of people who call themselves financial advisors, investment advisors, wealth managers, finance planners, etc. They might work at Merrill Lynch, or UBS; they may be independent and work on their own. They all go into a single bucket.

So how are we as consumers supposed to figure out who is good, who’s competent, who’s qualified, who’s honest and who’s just trying to sell us something? My goal here is to make this choice super easy.

Margaret:

Okay, we’re ready for it.

Pam:

The first step is to take that big bucket of millions of self-described financial advisors and divide them into two groups. Now we’ve got two buckets.

One bucket consists of the financial advisors who only call themselves advisors, but they used to be called brokers or insurance agents. They all go into a bucket we title ‘salespeople.’

They work for broker firms and insurance companies. They are not full time fiduciary advisors, because their firms do not accept fiduciary responsibility for the advice they give.

That means that they can sell you products that make them huge commissions and kickbacks and get away with it by saying, “Oh, but that was a great fund for you, Margaret.” It didn’t have to be the fund that was best for you, however.

These so called advisors account for about 80-90% of all financial advisors. By taking them out of the way we are now left with the remaining 10% who go in a tiny bucket. This is the bucket of the fiduciary financial advisors.

They don’t work for any insurance company. These are independent advisors who set up their own companies. It might be Margaret Manning Investment Advisory Services, for instance. You are not going to see that advertised on TV, so you are unlikely to know about it. They hide in plain sight.

This independent group of advisors is held to a different set of rules that dictate and govern how financial advisors have to behave.

Margaret:

Before we completely disregard the ‘salespeople’ group, do you know if they’re held to an educational standard? Do they need a special test in order to be able to sell financial products?

Pam:

There is no special education required, though they need to pass a test in order to get their license. But let me stress on this – this is a sales job.

When I was 22, and up to my late 20s, I worked for a brokers’ firm and an insurance company. My job there was not to help you invest. My job was to make sure I was selling enough of the firm’s products to you so I would keep my job and maybe amass a fortune while doing that.

So this group is not really meant to advise you financially. They are not accountable at a fiduciary level.

Margaret:

What does that mean?

Pam:

The smaller group are held to a higher legal standard because they are independent. They have to answer to a standard called the Fiduciary Standard.

So, in order for them to be fiduciary, they have to accept full fiduciary responsibility. Legally, this means they must put your best interests ahead of anything that they suggest to you that might pay them.

This kind of advisors don’t get paid commissions because they don’t work for brokers’ firms.

Margaret:

How do they get paid then?

Pam:

They get paid by you, and they work directly and only for you.

Margaret:

Is it like an hourly rate?

Pam:

It’s usually a fee that’s based on a percentage of the money that you’re asking them to manage. If you have a 500-thousand-dollar nest egg, and you want them to manage that for you – plus give you financial planning – that might amount to a $5000 yearly fee. One percent is typical.

This is different from what you see with the salespeople group, because legally, the fiduciary group actually have to be transparent with you about the fees.

When was the last time you sat down with a broker or an insurance agent and they said to you, “Now let me explain about all the fees involved here”? This never happens, because the firm forbids them to ever talk about fees.

That’s not what we want, especially when it concerns our retirement money. This is too serious a subject to take to a sales person.

However, even if you find a fiduciary financial planner, you can’t simply expect them to be competent. In other words, you still need to check how long they’ve been in business. You want to make sure they put the fiduciary oath in writing to you. You also want to make sure they put every fee in a transparent way, lay it out to you and explain it to you.

At this point in life when you’re getting ready for retirement, or you’re stepping over the starting line of retirement, here’s what you’re really looking for: cash flow.

So, what you need is an advisor who will sit down with you and take time to look and model your cash flow projections.

You need to find someone who will say, “Margaret, if you spend this much money this month, and you’re bringing in this much money from these sources, here’s what your life looks like. If you sell your family home, if you do this, if you do that, etc.”

Margaret:

Yes, the what-if scenarios.

Pam:

Exactly. That’s the advisor’s job, which has to do with advising, not selling. Then and only then, after you’ve done a really good, detailed, serious financial plan that models your cash flow, you can look at the investments.

So, when you go to a company that wants to sell you investments, it’s like going to the doctor’s office and the doctor says, “Margaret, I’ve never met you before, but I’ve got the perfect pill for you. Perfect! Let me describe the benefits for you and what it’s done for thousands of other people.”

You’d be sitting there, thinking, “I’m sorry, but you don’t know anything about my family history. You don’t even know what I came in here with.”

A real financial advisor is like a real doctor. They’re going to sit down with you, and they’re not going to say, “Here’s how you should invest your money. Here’s the best mutual fund for you.” Instead, they’re going to say, “Let’s sit down and look at where you are right now.”

Margaret:

That’s all valuable information. But here’s the tricky part: Where do you find these fiduciary magicians? I’m certain many women in our community didn’t even know there were different kinds of advisors.

Perhaps they even associated advising with a particular brand that they’ve trusted for years. Maybe they’ve had good luck with them, or have stayed with them for some reason.

Now we know that it’s not all about investments – the advising role is way more valuable. So, how do we find these people?

Pam:

Well, here is the truth, though it may sound totally self-promotional. When I was doing the third season of the Money Tracking show, and at live presentations, I had so many people who asked the same question.

They’d say, “Pam we really like your show. You are always talking about bad broker behavior and exposing the good, the bad and the ugly about the advisors. But how do you find the unfindable who you say are hiding in plain sight?”

Embarrassingly enough, my answer was, “I don’t have a good answer. I’ve got this resource, and that resource, and then you go to that website…”

There were five or so websites that had to be navigated. It became too complicated, and people’s eyes would glaze over. A woman in the audience actually hollered out at me and said, “Why don’t you do something about it?”

Margaret:

So you did.

Pam:

That’s how I created WealthRamp. WealthRamp is the only platform that exists right now that matches you, the individual, to the right type of fiduciary advisor. We used a Harmony-like algorithm to create that match.

I wanted to make sure that if I had a client come in who has a child or a grandchild on the autism spectrum, that they would get matched to an advisor who understands special needs trusts, but will not unnecessarily sell them insurance.

Aside from the algorithm and the matching, which contribute to the magic, I had to start with a curated list of the existing fiduciary advisors. I had to invite them on my platform and vet them, so that you, then, can get matched.

Margaret:

So, you have created a tool that people can use to get matched to the right advisor. Of course, people should know that it is up to them to decide how much to engage with the advisor. Perhaps they need much guidance, or only a little. There are also those who want to look after their own investments. Do you think that’s a wise thing to do?

Pam:

Absolutely. Everybody is different. 15% of the population really do want to milk their own cows, cut their own hair and change their own oil.

However, 85 percent of men and women want some kind of collaboration in retirement to make sure they are on track. They’ve got to turn to somebody they can trust, who is going to be patient, and take the time and say, “You really don’t need a lot, you only need a little.”

Or you may want to work differently. There are people who want to hand over their investments to a professional – which is fine, they exist – and say, “You do everything, just don’t get me in the weeds. Just tell me what I need to know, and send me a check every month when I need it for my expenses.”

There are others who are the opposite. They’d say, “No, I make every decision. You’re just here to be my co-pilot and sounding board.” It’s critically important that we match the right person in a way they want to interact with the right advisor.

Margaret:

Thank you so much for undertaking such a really big project. I haven’t yet checked out your tool myself, because I’ve not been looking for a fiduciary. I probably should though, and that’s a really great tool to start with.

I think it’s important to remember from this conversation that retirement is the best time to be looking for financial guidance. Up until now we have ridden the boat and have managed to weather the ups and downs, but retirement is a different ocean altogether.

Pam:

I will give you one little example with a couple who lived not far away from me. He was a math major at Tufts University in Boston and she raised the family. They are in their late 60s. Did I mention he was a math major at Tufts University? That is critical to this story.

He hired a financial advisor from a brokers’ firm, and of course, the emphasis and the attention was all on the investments. It was all about stock market listings, not holistic financial advice.

We asked Steve, the math major, “Hey Steve, how much are you and Linda spending a month, do you think?” He guesstimated: “$4500 a month.” He looks to her, she looks at him. “$4500 a month, I’m pretty sure. Remember, I am a math major. $4500 a month.”

It turns out that they were spending about $6500 a month, and they were taking that from their savings. It doesn’t sound like a lot of money, a couple thousand dollars a month, but guess what? Their retirement would go off a cliff at that rate.

They would run out of money, and that with a financial advisor! So, Mr. Math Major was obviously asleep at the switch, and the advisor, who only sold on investment, was also asleep at the switch, so he missed the big punchline: cash flow.

We don’t have enough cash flow but we are spending too much money a month. That is why you want the advisor: you want someone to tell you how much money you can spend. That’s what a good advisor does.

Margaret:

As you explained in another interview, it’s important to keep your savings in one bucket. Then you should have your cash flow working for you so you can put enough in another bucket – which then you can invest to make an income.

In your example, the couple were spending $2000 a month extra from the bucket which was savings – what a waste of resources, all due to a lack of planning. I’ve already learned so much from you, Pam!

Pam:

That’s exactly right. This is not extremely complicated, as long as you don’t allow yourself to be bedazzled by somebody trying to talk over your head.

Please remember that if you are going to talk to an advisor they have to be a legal fiduciary. They must put it in writing and must be transparent about their fees. Also, make sure that they are capable of talking to you about your cash flow and planning – not just about where to invest.

Margaret:

Pam, thank you so much. There are tons of information on your website, and your tool WealthRamp is something we should all check out. Then there are your PBS videos, which are also available online. The PBS show is continuing, right?

Pam:

We have a MoneyTrack channel on YouTube. We also have a brand new PBS one-hour special that focuses on the importance of getting fiduciary financial advice at the point of retirement and how critically important it is to understand the two different types of advisors.

You now know that advisors play by two entirely different rules: the salesperson rules and the real financial advisor rules. Remember, the real financial advisors are only about 10% of all the advisors, so you have to find them.

Margaret:

I am sure you are going to help people a lot with these services, Pam. Thank you very much for your advice and expertise. We will see you again soon.

Pam:

Thank you.

Margaret:

Take care.

Have you met with a financial advisor already? Which type of advisor did you stumble upon initially? How well do you think they are managing your savings? What tips can you offer the community? Please join the conversation below.