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Shoot the Inner, Sitting Duck

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My last post, “Nailing Financial Predators,”  may have left some feeling like an easy mark.  But what if we could take our six natural human responses to persuasion and make them work in our favor?  Well, we can.  Here are some ideas on how to proactively take charge and shoot that inner, sitting duck:

1. Authority – If we respond to the perception that someone has expertise or power over us, it’s best to make sure that that reverence is actually warranted before heeding their advice.  Seek out respected authorities on investing, such as Warren Buffett; who keeps his advice simple:

“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”

2. Reciprocity – When someone does a kindness (even with ulterior motives), we are tempted to do something kind in return.  What if the good starts with us?  Seek out a helpful resource, such as Vanguard’s tips for becoming financially responsible and pass it on.  Doesn’t that feel good?

3. Liking – We want to do business with people we like — there is no crime in that.  Just make sure that they can: give objective advice, keep costs low, provide a plan that is thoughtfully personalized, explain everything  – including fees, and not press for an immediate commitment.  If they can make good on that, there truly is a lot to like about this arrangement.

4. Scarcity – Salespeople love to create a sense of urgency so we will be manipulated into prematurely pulling the trigger.  What if we were to make attaining our goals the urgency — and the scarcity is time?  Every day we fail to plan is one more day we lose.  Stop procrastinating, make a plan and get at it already.  The meter is running.  Tools, such as Vanguard’s When Can I Retire? can be a great way to assess the current situation and start the process of goal-setting.

5. Social Proof – Because we tend to look to others to help us make decisions, this can get tricky if we turn to the wrong person.  Luckily, facts have no feelings, nor do they lie.  The Financial Industry Regulatory Authority (FINRA) has helpful resources to protect investors.  BrokerCheck is a great tool to investigate the background of a financial professional and a firm.  Make sure to look at the firm, as well. Why do business with a company that engages in questionable behavior?  Also on FINRA’s site are the very useful Fund Analyzer and 529 College Savings Plan Expense Analyzer, which allow investors to examine the costs associated with different investment options.  Remember Warren Buffett’s advice — keep costs low!  For teachers, understanding the fees associated with their 403(b) plans can be like solving an open-ended riddle.  Two great resources to help cut through the fog of ambiguity are 403bcompare and 403bwise.

6. Commitment and Consistency – Once we commit to something, it makes it uncomfortable to turn back on our word.  Instead of committing to someone else’s agenda, what if we commit to ourselves, our goals, and the financial well-being of our families?  When these become the motivation for our efforts — when we fear disappointing ourselves more than others — we can move in the right direction.  Systematically investing every paycheck, treating investing as a bill that must be paid every single month,  and increasing the amount every year — this consistency will turn commitment into meaningful action.

These six natural responses can be our best friend or worst enemy.  The decision is ours as to whether to sit like a duck and let others take aim, or make our efforts reflect the goals we aim for.  It seems like a pretty easy choice, doesn’t it?

 

Nailing Financial Predators

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“A prize fighter in a corner is told, hit where it hurts.  Silver and gold.”   – U2*

Every time Tony and I have met with prospective clients who have come from traditional brokerage channels (literally, every single time) there is an uncomfortable point in the meeting where they are ashamed at the fact that they received no financial plan; no real coherent diversification strategy to minimize risks; no exit strategy as to when they can jump off the hamster wheel and enjoy the fruits of their labor; and no clear handle on what they are paying.

Instead, we watch as realization spreads across their faces – they were sold something they may not have needed, paid more than was necessary and still have no sense as to whether financially they are on track.

The look we get is always the same — like they just dropped their towel and we saw more than we should have.

I always try to ease their embarrassment, discomfort and anger – because these emotions can be quite damaging and may cause paralysis.  The world seems pretty scary when being talked out of your money was so stupidly simple.  Yet, sitting on the sidelines is another form of self-inflicted punishment.

For those stuck in this zone of not knowing whom to trust, I say trust yourself.  Trust yourself to find credible sources of information.  A good starting point is learning how human nature can make you vulnerable.

In “6 Principles That Predators Will Use Against You,”  (Psychology Today, September 16, 2016)   Katherine Ramsland, Ph.D., highlights six ways people are persuaded.  I’ve taken these examples one step further to show how it plays out with a salesperson trying to get over on you:

  1. Authority – Someone who seems to be an expert and who exudes confidence is more readily trusted, and even obeyed. If technical, complicated concepts are tossed around, it could easily appear that someone knows what they are talking about, when they are really reading from a sales script (I know, I used to write them. Forgive me.) Don’t assume that they are experts in anything other than getting you to buy.
  2. Reciprocity – When someone is nice, we tend to want to do something nice back. So a “free” pizza, box of donuts, lunch or dinner can make someone open an account to do a good turn. Do not partake in a freebie and you won’t feel obligated.
  3. Liking ­– A good salesperson knows how to be likable and goes to great lengths to identify how best to relate to you. This usually involves referring to personal notes made after meeting you, such as: likes golf, has three kids, son plays football for local high school.  Then, these tidbits get woven into conversation so that it appears that he actually cares about what matters to you most.  Do your best to keep conversations strictly business-like to give yourself the inside edge.
  4. Scarcity ­– Imposing a deadline for an offer or making some opportunity seem exclusive creates irrational urgency that can get you into trouble.  Recently a friend of mine asked me whether he should turn over his life savings to an annuity, but he had an hour to decide.  Needless to say, I told him to run like hell.  If someone is pressuring you to make a decision, they are in a rush to get their money (from you).
  5. Social Proof ­–  When there is uncertainty, we look for direction.  “Helpful” sales guys always have the solution and it always benefits them.  I cannot tell you how many times I have seen someone talked out of their low-cost 529 College Savings Plan that involves no commissions, in favor for an inferior product laden with fees and heavy commissions.  I let it be known that NY has a great low-cost plan offered through Vanguard at  NY Saves.   I do this not because I earn a dime from that recommendation, but because it is the right thing to do (it’s where we have our sons’ college funds).  Innocently float out a question about a respected, low-cost option, such as Vanguard or the 529 plan I just mentioned.  If you are being steered elsewhere you need to question if the “advice” you are being given is truly good for you.
  6. Commitment and Consistency ­–  People like to make good on their promises, so when you agree to one small commitment it makes it that much easier to get you to agree to something more.  I have seen this especially with teachers and their retirement plans.  A sales guy who comes in to talk about their 403(b) retirement plan options first sells a horribly expensive annuity or over-priced mutual fund to the unsuspecting victim.  Then a crappy whole life insurance policy gets sold to them, followed by infiltrating the spouse’s accounts and the kid’s college funds.  Ask for all fees and terms in writing, signed and dated.  If that is a problem, you’ve got a problem.

Not sure how to undo the damage?  Find a fee-only fiduciary, who is also a Certified Financial PlannerTM (search for one here).  Just make sure under “compensation method” you look for fee-only – which means the advisor never earns commissions or compensation for recommending certain products.  This keeps the advice objective and serving your best interests.

Now that you know, and possibly recognize what may have been done to you, you only have one choice: hit them where they live – in the wallet.  Pull your accounts and never be prey again.

And, if you want to earn good humanitarian points, pass it along.  Not because you will earn anything from it, but because it’s the right thing to do.

Don’t you wish everyone worked that way?

 

*Source: U2. “Silver and Gold.” Rattle and Hum.  Island, 1988. Compact Disc.

When the Meter is Running Out on College Planning

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Your child is just a few years away from going to college, and the acid in your stomach is churning.  You worry if you will have enough; you’re mad that you didn’t focus on this sooner.  Desperation is a dangerous thing.  It can cause reckless behavior — a gambler’s mentality of, “Let’s try and hit it big!”  Of course, anything that can rocket can plummet; that’s the way it is with investing. When any goal is short-term (5 years or less), the money needs to remain “safe”.  You can’t afford to lose it now.  So, what can you do?

First, understand that you still have time to position yourself in a more favorable light to receive financial aid.  Colleges start looking at your finances from January of your child’s junior year to December of your child’s senior year (the look back period — “LBP”). Effective 2017, they are changing this period to the “Prior, Prior Year” (“PPY”); meaning your finances will come under scrutiny from January 1 of the child’s high school sophomore year to December 31 the junior year.

They look closely at income, with assets in the child’s name heavily counting against you.  Minimizing your income, and removing assets out of your child’s name prior to this LBP/PPY can significantly impact your financial aid eligibility.  Here are seven key actions you can take now:

1. If your child has money or investments in his/her name (bank accounts, investment accounts, etc.) get this into your name before the LBP/PPY.

2.  Make sure any 529 plans are owned by the parent with the child as the beneficiary.  Having a grandparent as the owner would be detrimental, and this would count as student income.

3. Your income is looked at heavily.  If you know that you will be getting a bonus/commission check during the LBP/PPY, see if your employer can pay this in advance of the LBP/PPY.

4. No consideration is given to the debt you are carrying.  Pay down credit cards — it will take some cash out of your accounts (which would count against you for financial aid purposes) AND get you healthier, financially.

5. Spend — provided you can afford to, and it is necessary.  For example, if your child needs a new computer for school, or a car; or if your roof needs to be replaced, spending the money can benefit you if it comes out in advance of the LBP.

6. Seriously consider the local, in-state education system.  In NY, SUNY and CUNY schools are well regarded and very affordable.  Community colleges can offer a steep discount on the first two years of college (when most students are taking introductory courses).  Look into what Transfer Agreements the institution has with four-year colleges.  Also,  investigate Honors Programs, as they often have partnerships with prestigious universities.

7. Most important, make sure you fill out the FAFSA form, as it is required if you hope to get any merit-based scholarships or if you plan on taking a Stafford Loan.

You can’t control what you haven’t done in the past, so move forward, controlling what you can.  Make the most of the time you have left, and make these adjustments while you still can.  Remember, the meter is running.