What your financial advisor isn't telling you : the 10 essential truths you need to know about your money

227 Pages·2016·6.23 MB·English

by  Davidson

Contents
Title Page
Contents
Copyright
Dedication
Author’s Note
Introduction
Keep Your Money Where You Make Your Money
Paying Off Debt: Your Best Investment
Beware of Bogus Advisors
Avoiding the Worst Investments: The Best-Performing Mutual Funds
Taxes: Why Your Investment Statement Is Not Entirely Accurate
Your Life Partner May Be Your Worst Financial Enemy
Become an Automatic Millionaire Without an Advisor’s Help
How to Find the Right Advisor for You
Holistic Wealth: The Path to Financial (and Physical) Health
Follow the Money Trail to a Better Financial Future
Appendix: Financial Independence Day Checklist
Acknowledgments
Index
About the Author
Footnotes
Copyright © 2016 by Liz Davidson
All rights reserved

This book presents the ideas of its author. It is not intended to be a substitute for
consultation with a financial professional. The publisher and the author disclaim
liability for any adverse effects resulting directly or indirectly from information
contained in this book.

Please note that several of the names and personal details in the book have been
changed in order to protect people’s identities.

For information about permission to reproduce selections from this book, write
to [email protected] or to Permissions, Houghton Mifflin Harcourt
Publishing Company, 3 Park Avenue, 19th Floor, New York, New York 10016.

www.hmhco.com

The Library of Congress has cataloged the print edition as follows:
Davidson, Liz
What your financial advisor isn’t telling you: the 10 essential truths you need to
know about your money / Liz Davidson.
pages cm
ISBN 978-0-544-60230-4 (hardback) ISBN 978-0-544-63334-6 (ebook) 1. Finance,
Personal. I. Title.
HG173. D335 2016
332.024—dc23
2015015902

Cover design by Brian Moore
v1.0116

The chart on page 63 is courtesy of the Investment Company Institute. 2015.
2015 Investment Company Fact Book: A Review of Trends and Activity in the
Investment Company Industry. Washington, DC: Investment Company Institute.
Available at www.icifactbook.org. All other graphs and diagrams throughout the
book are courtesy of the author, including the DebtBlaster chart, which was
developed using software licensed from Highsoft AS, Norway.
For mom.
Your courage has been the greatest lesson of my life.
Author’s Note

Before you read any further, please know this: I am not a financial advisor. I
have zero investments, insurance, or mutual funds to sell you. I couldn’t legally
sell them to you even if you asked, because I’m not licensed to sell securities. I
don’t have a pitch, an ulterior motive, or a quota to reach. And that’s precisely
why I am the author of this book.
As the founder and CEO of Financial Finesse, I run a company that provides
people with entirely unbiased financial guidance, no strings attached, and this
book is an extension of that practice. While the mission of this book is to shed
light on the limitations of the financial advisor industry and to offer education,
support, and insider knowledge that you are unlikely to receive in a typical
advisor-client relationship, What Your Financial Advisor Isn’t Telling You is not
intended—in tone or in content—to be an exposé of financial planners or the
financial services industry as a whole.
Rather, the purpose of this book is to educate you about the vitally important
questions you need to ask about your long-range financial future, whether or not
you choose to have a financial advisor. Many millions of Americans put their
faith and trust in their advisors, and that’s fine. But you really owe it to yourself
to know the right questions to ask your advisor. After all, if you can’t have a
truly open dialogue with your advisor about your money, you may never get on
the same page. Furthermore, it is important to bear in mind that if you don’t ask,
your advisor is not always going to volunteer certain information.
As the employer of a team of elite CERTIFIED FINANCIAL PLANNER™
professionals who work exclusively as full-time financial educators, I know
what a unique and valuable opportunity it is to work with exceptional financial
planners. These professionals have the extensive training and experience to help
people in all areas of their financial lives and a deep commitment to helping
others become more financially secure.
The problem with financial advisors does not lie with them as people; the
problem is that they work in an industry that is typically not incentivized to
operate in the consumer’s best interest. Back when the CERTIFIED FINANCIAL
PLANNER™ professionals at Financial Finesse were employed at large financial
institutions, making a living by selling financial products and services, they were
generally limited to working with people who could afford to purchase high-
priced financial products and services. They entered the profession to help all
people, but the current system didn’t always make that financially feasible.
In today’s financial services industry, those who most need serious financial
help are the least likely to get it, and those who can afford it too often receive
sales pitches rather than the unbiased guidance they’re looking for. As you will
learn in the introduction to this book, this is what inspired me to open the doors
of Financial Finesse in the first place—the strong belief and personal conviction
that everyone is entitled to the benefits of unbiased financial education. By
writing this book, my staff and I now have the opportunity on a broader scale to
share financial knowledge that will better equip you to be in control of your
money.
This book is being released at a time when the financial industry is moving
toward more transparency, which is good news. The even better news is that this
book is the tool that will help you capitalize on this new transparency.
Introduction

DAN AND MARGIE’S STORY

After Dan and Margie sold their mortgage-free home and moved to Florida, they
were $500,000 richer in cash. While transferring their account from their branch
in New York, the Florida-based bank teller suggested that they meet with the
bank’s investment brokers, so they did. After discussions and an evaluation, the
broker sold them a variable annuity, in which they invested about $350,000. The
plan was for the annuity to generate lifetime income payments to pay for their
regular monthly expenses in retirement.
What Dan and Margie didn’t realize was that the variable annuity was
invested primarily in stocks. When the market took a downturn, their annuity
income did too. This meant that Dan and Margie would eventually have to start
drawing down their retirement nest egg to supplement the dwindled annuity
income in order to cover their regular monthly expenses. In an effort to protect
their retirement income, they unintentionally put themselves at risk of running
out of money with a product that was too aggressive for their needs.

REGINA AND MARC’S STORY

Regina and Marc waited a long time to have a baby, and when they did they
made three important phone calls: the first two went to their respective parents,
and the third went to a financial advisor who had advertised on one of Regina’s
favorite baby websites. They didn’t want to waste any time before setting up a
college fund for their new bundle of joy.
Marc, a high school teacher at the most respected private school in the
community, knew all too well the financial trouble that many families found
themselves in when it was time to apply to college. As a teacher, Marc was
passionate about the value of education and adamant that his son would not have
to make compromises when it came to going to the college or university of his
choice. He was determined to do whatever it took to make sure he and his wife
saved enough to fully pay for his son’s education.
Marc and Regina’s financial advisor explained to them the benefits of a 529
plan: the tax savings, the prepaid option offered by some states, and the comfort
of knowing that, when the time came, their son would be able to attend college
of knowing that, when the time came, their son would be able to attend college
without taking out student loans. The planner estimated that with a 7 percent
increase in college costs per year, they would need to save about $240,000 by
the time their son was 18 and going off to school. To reach that goal, the advisor
recommended that Regina and Marc sock away close to $550 a month. The
problem was that the advisor was only planning for what they specifically asked
him—how to save for college—and had asked no other questions.
The next month, when Regina went to pay her credit card bill online, she
remembered that she had been planning to use that $550 a month to pay down
her hefty $10,000 balance, which she had accrued before she met Marc; she had
used her credit card to sustain herself when she was unexpectedly laid off from
her job. Since that amount was now being allocated to the baby’s future, she
clicked to pay the minimum monthly payment and her payment was satisfied for
the billing cycle.
When Regina and Marc called our financial helpline in 2009, they had nearly
$30,000 of credit card debt. Even worse, after a significant loss due to the stock
market downturn, they had only a little more than $20,000 in a 529 plan for
college. At the same time, Marc was worried about his own job security in the
face of the recession.
We worked with Regina and Marc to find a practical solution to pay off their
debt and preserve their college savings, but in the process their lives were turned
upside down. They had to temporarily stop saving for college in order to free up
funds to pay off their credit card debt, which broke their hearts, especially as
they watched the stock market rebound. Marc had to pick up extra duties at his
school to generate more income, and he also took odd jobs during the summer.
Regina, who had wanted to dedicate her time to staying home and raising her
son, was forced to ask her mom to care for him while she accepted a job outside
her chosen field. Ultimately, Regina and Marc were both able to develop a
strong financial foundation and return to their normal lives, but for several years
life was much tougher than they ever expected—all because they didn’t pay off
their debt when they had the chance.

TAMARA’S STORY

In her early forties, stay-at-home mom Tamara hadn’t contributed to a 401(k) or
any retirement plan since she left her last job a decade earlier. In fact, she had
been meaning to roll over her savings from her old company’s plan into some
sort of other account, but she really had no idea what.