“Saving on Lattes Will Not Make You Rich”

pound_foolish_bmpSo says Helaine Olen, a freelance journalist and author of “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.”  Ms. Olen takes direct aim at investors and advisers alike in her recently published book. She makes some very good points.

Saving $3 a day on lattes, or $1,100 a year and investing it can help a plan, but it won’t build a fortune. Ms. Olen terms such faddish advice as the financial equivalent of miracle diets. Most people are looking for a quick fix or the next “home run.” A belief in instant riches lured millions into buying internet stocks in the late 1990s and overpriced houses in the mid 2000s. Millions watch Jim Cramer on TV looking for the latest tip when, in fact, Cramer’s picks have not done well. And, over 75% continue to invest in actively managed stock and bond funds when these funds annually underperform passive, low-cost funds.The fact is that there is no single financial elixir or silver bullet that can guarantee personal financial success.

Yet, lots of investors are still looking for that free lunch and promises of double digit returns. According to AARP, over 6 million people attended a free seminar in the last three years. Many elderly are terrified of outliving their savings. Desperation, fear and insecurity become the salesperson’s best friend. At the World MoneyShow, an annual event in Orlando, 80% of the attendees were over 55. As Ms. Olen, puts it, “a panicked baby boomer is their best customer.”

Ms. Olen includes many leading financial women in her book, including Jane Bryant Quinn and Elizabeth Warren. She doesn’t like Suze Orman, whom she criticizes for making huge amounts of money by telling others to be frugal. Further, Orman’s “affiliations with companies like FICO and Lending Tree raise questions about the impartiality of her advice.”

Furthermore, Ms. Olen points out that many financial plans fail because the investor and their advisor forget to stress test the financial and investment planning. Risk management analysis is often completely ignored. A plan with reasonable investment returns may be destroyed by death, disability, long-term care issues, a job loss, or high-interest debt. 

We agree with Ms. Olen. Some investors and advisers should be taken to the woodshed. There are no quick fixes and no one-size fits all solutions. Successful wealth management is a process, not a product.

It starts with investors working with advisers who don’t have conflicts of interests but rather are fiduciaries; putting the client’s interests first. Next, it requires experienced and trusted advisers to understand the client’s goals, resources, risk assessments and constraints to realistically and objectively prepare an initial financial plan. Then, that plan needs to be stress tested from risk management, estate planning, income tax and investment perspectives. Only at that point can an appropriate asset allocation be determined and implemented for the client. Going forward, the entire plan and investment portfolio need regular monitoring, rebalancing and stress testing. To be successful (aka not running out of money), it needs continual on-going professional review.

With the right help, you might be able to have it all: a successful financial plan and all the lattes you want.