MONEY matters

Mark Zaifman's thoughts on money, global economic trends and politics

Investment Strategies Based on Serving, Not Selling

Mark Zaifman   |    Sat, Sep 03, 2011 @ 10:18 AM

seniors getting screwed in investing

Last week, one of my investment management clients called and asked me to review his 85 year old mother’s investment statement and offer my opinion about her overall investment strategy or lack thereof. He was worried that his Mom’s portfolio was being churned and burned.

Even before his fax came through, I had a bad feeling. When I reviewed her current investment statement, it didn’t surprise me to see that 85% of her now dwindling portfolio was invested in stocks and that on average, 42 stock trades were being bought and sold each and every month. I wish I could say this was an isolated incident, but it’s not, not by a long shot. Elder abuse, especially when it comes to investing, is on the rise.

I’ve seen enough statements like this one that betray an investor’s trust to last a lifetime. It always gets me thinking - this could be my Mom being taken advantage of.

Beware of Being Sold the Investment Performance Sizzle

One of the easiest ways seniors and other investors get taken for a ride is when the sole focus of an investment decision is purely about performance. If an advisor keeps pushing investment ideas based on performance, and only performance, you might want to push back. Because performance by itself isn’t a strategy, it’s a sales pitch.

And in today’s volatile economy, even the smoothest pitch can lead to a swing and a miss. In my sad but all too common example, the “advisor” is focused on one thing only - hitting his or her investment sales quota and making goal. After witnessing this so many times, I wish it was possible to assign fault to each individual financial sales rep, but that would be too easy. The financial services industry sells/distributes financial products. The incentive system for “advisors” selling you these products is in need of some radical reform.

Will that ever happen? I doubt it, so for now, it’s caveat emptor - buyer beware.

Having the Money Talk with Your Parents

Most people have a hard time talking about money with their parents. It’s uncomfortable to begin with, especially when your parents are elderly.  But don’t let this obstacle stop you from making sure their investments are safe and sound. There are plenty of independent and objective fee-only financial planners that will charge you a flat fee to x-ray your parent’s portfolio and provide their professional opinion with no strings attached.

Registered Investment Advisors in particular have a fiduciary and legal obligation to always put their client’s interests first. Financial sales people on the other hand have a “suitability” obligation – see the difference?

If you’re thinking about a delicate way to begin the discussion about your parent’s investments, use this blog post or a recent story you may have read as a way to broach the subject and suggest that a second opinion on their investment portfolio might be a good idea. Be prepared to hit a wall of resistance if this is your first foray into the taboo world of talking about money. From your parent’s perspective, understand that their investments symbolize much more than the balance in their account. Surrounding this dicey topic is financial security, ego, self-worth, control, authority, fear, legacy, trust, etc. From your perspective, you’re moving into unchartered territory where booby traps await your every word or inflection. Be patient but be kindly persistent.

It’s a Marathon, Not a Sprint

Tread carefully into this discussion. Actively listen not just to the words being spoken, but to the non-verbal language as well. If this is your first time talking about money with your parents, just begin the discussion gently and on their terms and if possible, at their home.

Empathy is the emotion you’re aiming for here. Come into it with a sense of caring and love and make every attempt to let that be known. Never let this devolve into a discussion about you being smarter or knowing more about money and investing than them. And keep in mind, this may be one of a dozen conversations you have before you actually get your folks to agree to a second opinion.

Enough is enough when it comes to seniors getting raked over the coals because they put their faith and trust in what they thought was someone looking out for their best interests.

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Screw photo by LawPrieR's