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ONE OF THE PERILS of being a HumbleDollar contributor is that you sometimes get hit up for advice that you aren’t necessarily qualified to give.
Such was the case recently when I was having breakfast with an old buddy. The topic turned to money and investments. Joe and I have been good friends since the days when we played on the high school basketball team. We try to get together every month or so to catch up and reminisce about old times.
These days, our conversations tend to revolve around aging joints, Medicare and, of course, retirement. Both of us turned age 65 last year. While I’m now semi-retired after leaving the corporate world three years ago, Joe is still gainfully employed as a minister for a local church. His goal, if he can make it happen financially, is to step back from the work world in the next four or five years.
Now, Joe is one of the kindest, most caring people I know—traits that have served him well in his career as a pastor and spiritual counselor. He’s the first to admit, though, that investments are not his strong suit, and it doesn’t help that the ministry isn’t exactly a highly paid profession.
Joe’s wife doesn’t make big bucks either as a hairdresser and yet, despite their limited means, they have managed to raise four kids, who are all now out of the nest and married. Joe and his wife own their house, which is mortgage-free, and they have been careful to steer clear of carrying credit card balances and other high-interest debt.
As for retirement assets, they have two buckets of funds: a 403(b) plan sponsored by the church, which matches 50% of the contributions that Joe makes to it, and a rollover IRA where Joe has consolidated retirement funds from previous employers.
This is where the problem comes in.
About five years ago, as Joe explained to me over eggs and toast, he handed over management of his IRA to an advisor friend from church who works at Edward Jones. It was a big move for Joe and his wife, since the majority of their retirement assets are in that IRA.
Unfortunately, the portfolio has not performed well. Over the past five years, the account is up only 4% net of fees. This is despite the portfolio climbing 26% over the past year, buoyed by the overall market’s rising tide.
While Joe and his wife are happy about the recovery in their balance over the past year, they aren’t at all pleased with the fact that their seven-figure IRA is barely larger today than it was when they handed it over to their friend five years ago.
Joe’s wife is pressing him to move the account from Edward Jones to Vanguard Group, which manages their 403(b) plan. While Joe sees the sense of this, he’s concerned about the impact on the relationship with their friend at church.
“Do you have any suggestions?” Joe asked me.
My first thought was that we were in dangerous territory. I learned long ago that money and friendships don’t mix, and I’ve been careful over the years to avoid financial entanglements that involve friends or family members. It’s a surefire way to either ruin a relationship or end up with subpar results, and sometimes both.
I told Joe that, while I have an MBA and possess a basic understanding of finance and investments, I’m not a financial advisor and don’t consider myself qualified to give financial advice. It was for this reason, I told him, that I have my own retirement portfolio being managed by an independent advisor at Vanguard.
Joe said he understood, but would still welcome any thoughts I might have. So, I gave him a Boglehead’s perspective on the basics of investing: the difference between active and passive funds; the power of indexing and dollar-cost averaging; the advantages of trying to track the long-term performance of the overall market rather than attempting to beat it; the importance of minimizing management expenses and fees in delivering results.
I asked Joe what his portfolio at Edward Jones was invested in. Sure enough, when Joe showed me the account, it was loaded up with active funds that charged commissions and high fees. This likely explained why Joe’s one-year performance of 26% was below the S&P 500’s 32%.
The gut punch for Joe came when I told him what my own fund performance at Vanguard has been over the past five years: 90% vs. his 4%.
That was it, he said. He was going to talk to his friend at church and inform him he was moving his rollover IRA to Vanguard. If it damaged their relationship, so be it. This money was too important to his and his wife’s future security.
I reminded Joe that past performance is no guarantee of future results, and that it was possible his portfolio, when rolled over to Vanguard, could underperform his Edward Jones portfolio in the short term. Joe acknowledged this, but said the risk was worth it.
He thanked me profusely for my help and we left the restaurant. I admit that I gave a sigh of relief, feeling confident that I’d stayed within the bounds of providing factual information without giving financial advice. As I drove home that morning, it struck me that the test of a good friendship—just like that of a good investment portfolio—is how it fares over the long term.
Author and blogger James Kerr is a former corporate public relations and investor relations officer who now runs his own agency, Boy Blue Communications. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.
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you gave him your best ‘mirror’ of reality, not the funhouse mirror that commissioned brokers and financial advice that works best for the ‘advisor’.
you did it without judgement and having no agenda other than to advantage your friend…
that’s what friend are for.
Had someone with Edward Jones who had her IRA in 90 (not 89 or 91) funds that were underperforming the market. Has to be poor corporate supervision. Her and I talk each quarter for an hour with less than 20 investments. Makes you wonder if we are only seeing the tip of the iceberg.
I was in the financial advisor and money management world for over 30 years. I’ve told my 4 kids to focus on asset allocation and choose index ETF’s. I guide them when they ask for help, and told them the perils of working with commissioned advisors.
It seems you did not give him financial advice. You gave him investment advice, or better yet, an elementary or introductory financial education. He needed that.
I worked in the investment business for 40+ years and have see this situation repeatedly. Sadly, the average investor does not know how or where to look in order to figure out what their total fee nut is. Mostly, the fund investments get overlooked or their investment manager has given them some song and dance about only using the very best funds.
In retirement, I’ve helped a few family members and friends figure out what their investments were costing them, and they are more often than not shocked to learn the extent of the fees they are actually paying, versus what they were told they were being charged.
Not everyone is equipped to manage their own investments, but for those who can – even with a little help- the cost savings and improvement in long term performance can be significant.
Thank you James, I’m referring this wonderful article to my Sis who has an E Jones account. We looked at some of the offered investment there with a sorted spreadsheet and she put her money in the lowest fee, highest historical return funds.
But, maybe another company could do better for her!
Thanks buddy!
you might have been the very first person he spoke to that didn’t have an agenda other than his success and happiness…
all others have agendae that need contexting, namely, quo bene??
good on you!
Seems like you did a great job threading that needle. Sorry your friend missed what may have been a historic bear market. I wish him the best. Some of the experts think we are in for a few years of more muted returns. However, his change may reduce his out-of-pocket costs and those savings will go to the bottom line.
I approach these types of financial discussions with much trepidation. As you said “I reminded Joe that past performance is no guarantee of future results.” It is even difficult with one’s spouse.
My spouse had a 403(b) and her employer made no contributions but dictated which brokerages to use. Vanguard was not on that list and that cost her. However, we did sit down with the “advisor” and reached a compromise portfolio. In 2004 I did enroll her in a Roth-IRA and maxed out her contribution. Those self-directed funds at Vanguard did better. A few years after retiring I convinced her to take her 403(b) and move it to a self-directed rollover IRA.
She’s actually quite pleased overall. First, the bull market performance did have a positive impact on her accounts. Second, she never thought she would have a retirement account, and she has two. Third, in combination with a pension she is somewhat surprised how well this has all turned out.
I might be less charitable and suggest that one should carefully consider whether the advisor was really acting as a true friend to him. I realise that sometimes agents working for some of the named suppliers in personal finance are all about their networking opportunities but I’d hope anyone smart enough to advise me is also smart enough to know the flaws and risks in the products they provide.
Now in a normal client relationship I only expect those to be called out as much as regulation requires but if it is a friend I would expect more honesty and transparency, perhaps a gentle steer as in “but you can do do it yourself much cheaper and get passive equity exposure etc so are you sure the costs work for you”.
Otherwise I’d be just another mark.
Clearly that was not the case in this situation. Many advisors network and create friendships as their major marketing tool.
Agree completely
I think you did a great job of explaining this to your friend. You didn’t cross any ethical lines and you let your friend make and implement the final decision.
Indeed. I agree with the advice (that wasn’t really advice) but I’m not sure I would have done as good a job of giving it.
Thank you, both. We’re still friends, so that’s a good thing. 🙂
Early on, I signed on with Edward Jones primarily because my friends used EJ and really liked our local rep. Met with them, set up a plan and left it on auto pilot with not alot of attention to all the details. As retirement got closer i joined a Facebook group called Retirement Planning and Education hosted by Andy Panko and the real education began. It didn’t take long to start paying real attention and learn that the fees charged at EJ were detrimental to my success. After reading The Simple Path to Wealth I left EJ and moved to Vanguard and began with their advisory service. I immediately saw Vanguard fees charged per quarter were less than EJ charged per month and with very little change in the service provided which is by phone rather than an office visit. EJ employs lots of really nice people but at the end of the day there is a big price to pay if you aren’t paying attention to ALL the details meaning the plan they sell you also includes paying plenty of fees. Lived and learned!
Yes, very true. I’m very happy with Vanguard myself.
Jason Zweig recently wrote a piece in the WSJ which told the shocking story of a financial advisory firm using Fidelity as custodian for their firm’s client’s assets. One day his Fidelity rep told him the business needed to generate $90k more in fees per year for Fidelity and suggested asset “shifts” that would achieve it. The changes would violate the CFP’s fiduciary duty by reducing returns for clients, and in some cases create taxable gains. This firm refused, but how many others would roll over?
Your advice is sound. Returns rise and fall but fees are forever. Or as Bogle said about investing: You get what you *don’t* pay for.
You get what you don’t pay for. Love that. Thanks, David.
Breaking up is hard to do, I hope they can still be friends, though I am pretty sure the advisor won’t take it well.
Regarding Edward Jones, I have seen many portfolios that are similar to your friends.
Your advice was solid in my opinion. You gave your buddy a lot to think about. I hope this article has a sequel.
Here’s the sequel: I recently talked with my friend, who said he had a chat with his EJ advisor. The advisor suggested they go more aggressive with their stock allocations, which didn’t make a lot of sense to me given that my friend is getting close to retirement. The bottom line is that my friend is still with his EJ account with all those high fees. Sigh. Breaking up is hard to do …
Certain personalities cannot handle conflict. In this case, that is a costly weakness.
Wow, I’m really surprised! It’s amazing how persuasive a good advisor can be. I know people often overlook objective data, but I really thought that after you laid out the Boglehead approach and showed the returns, he would have made the switch to Vanguard. I guess sometimes familiarity and personal connections outweigh the numbers. Hopefully, he still ends up in a solid financial position—though as we know, some friendships can come with a hefty price tag!
Sad to hear. I would not be surprised to hear that the EJ advisor is telling potential clients, especially in that congregation, that he is the advisor for the pastor. I had an advisor call me up out of the blue and tell me he was the personal advisor of a pastor in our church, who was pleased with the results. I turned him down and he was clearly frustrated. So be it.
My same old story here which maybe you can share with your friend:
https://humbledollar.com/2019/04/unloaded/
Jim, thanks for a really well written article. I think many of us have had similar experiences, and have felt the same sense of concern about providing investment advice. I sounds like you handled the situation quite adeptly, and well within the bounds of friendship. So many financial planning questions are best answered with “it depends”.
I’m much more comfortable providing factual or technical information, like tax topics or eligibility requirements for retirement accounts. The other topic I often emphasize is the importance of having a holistic plan, and not just focusing on investments. It was the topic of my first article on HD.
Great points, Rick. Thanks!
Jim, your story brings a mixture of thoughts, starting with the conviction that the Edward Jones representative should be confronted with the facts as you describe them. It’s a sticky situation for a pastor, but if the rep is knowingly selling a product that is so inferior he is harming himself spiritually and others materially by doing so.
I gave similar advice to a friend three or four years ago, We fell into a discussion of retirement accounts, and I found he had no idea what he was invested in or the cost. I looked up the high fees and explained how they were harming him. He soon moved his money to a Vanguard account, and it pleases me to think how well it must have performed over the last few years.
Thanks, Edmund. Sounds like your story has a better ending than mine. As said above, my friend is still with EJ. He’s a super-kind individual and I think it’s just too hard for him to break off the investment relationship with an advisor who is in the church. 🙁