Not Your Friends

Catherine Horiuchi

FINANCIAL FIRMS spend heavily on marketing to create a friendly, customer-first impression. But these firms aren’t your friends, at least not in the ordinary sense of the word. They make their money, fairly and legally, by providing specific services to customers.

Friendliness at a retail level keeps your capital in place, where it works for the firm’s benefit. Every once in a while, I see language that clearly expresses what they want from our “relationship.” These communications help me review where I do business, and why. Consider two examples from a single day online.

First, “check your spending power” appeared on a web page when I was paying off this month’s credit card charges. It encouraged paying the minimum required, with the number highlighted on the page. But that, of course, would trigger steep financing charges.

The site’s other suggestion: Run up my credit card balance closer to its current limit. That might completely derail my financial plans. For most people, our spending superpower lies in paying off the balance in full each month.

Second, on one of my investment accounts, I spotted a line item labeled “excess liquidity.” This represents the cash value of dividends that I have chosen not to reinvest. There’s nothing “excess” in this holding. I need the “liquidity” to pay next semester’s college tuition and housing for my twins.

The investment firm sees cash in an investor’s account as something it would like to retain and no doubt fears it’ll be moved elsewhere. Calling it “excess liquidity” is a cognitive trap. It’s a nudge to buy more stocks in the same account. But that would be a mistake for me. Stocks are too volatile for money I’ll need for college bills over the next three years.

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