Author Topic: "Professional" Financial Advice  (Read 5039 times)

firemondays

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"Professional" Financial Advice
« on: November 09, 2019, 10:58:10 AM »
Some corners of the financial industry are ripe for lampooning by proper Mustachians.  Let's get it started!


I recently signed up for an online financial service my company offers as an employee benefit.  I just couldn't get over the company's self-assessment options below!

How much of your income do you put towards retirement and savings?
A None
B 0.1% to 2.9%
C 3.0% to 5.9%
D 6.0% to 8.9%
E 9% and above

How is a 10% savings rate an A+?!  What pains me is that folks genuinely trying to learn about financial independence are anchoring on this paltry rate.
« Last Edit: November 20, 2019, 09:26:57 PM by firemondays »

The_Big_H

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Re: "Professional" Financial Advice
« Reply #1 on: November 09, 2019, 03:37:48 PM »
The answer is.... 

Better not become an HCE here!

scottish

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Re: "Professional" Financial Advice
« Reply #2 on: November 09, 2019, 05:16:52 PM »
You know, these company retirement programs piss me off.

It's great that they'll match our contribution up to 5K (or whatever).   But then it's stuck in stupid insurance company mutual funds.

So I transfer it to my RSP with my broker.   And the plan says that I can only transfer my contribution.   The company's contribution has to stay with the insurance company until I leave the company.

If the company is going to go to the trouble to setup the plan and match contributions, then they could at least provide better investment vehicles.   It's just one little step further...

It's make me wonder if corporate finance people know anything about investing.  Or maybe they just don't talk to the HR types.

firemondays

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Re: "Professional" Financial Advice
« Reply #3 on: November 09, 2019, 06:28:42 PM »
The answer is.... 

Better not become an HCE here!

You can... but your spending apparently needs to keep up!

firemondays

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Re: "Professional" Financial Advice
« Reply #4 on: November 09, 2019, 06:37:03 PM »
You know, these company retirement programs piss me off.

It's great that they'll match our contribution up to 5K (or whatever).   But then it's stuck in stupid insurance company mutual funds.

So I transfer it to my RSP with my broker.   And the plan says that I can only transfer my contribution.   The company's contribution has to stay with the insurance company until I leave the company.

If the company is going to go to the trouble to setup the plan and match contributions, then they could at least provide better investment vehicles.   It's just one little step further...

It's make me wonder if corporate finance people know anything about investing.  Or maybe they just don't talk to the HR types.

Small employers may have especially limited options because they lack negotiation clout.  My wife helps manage her company's retirement plan.  The struggle to get the custodian to do seemingly basic things is real.

We're just glad she has access to a 401k for the first time in her life!  It's criminal how few people have access to company sponsored retirement plans.
« Last Edit: November 09, 2019, 09:48:09 PM by firemondays »

Fomerly known as something

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Re: "Professional" Financial Advice
« Reply #5 on: November 10, 2019, 05:11:57 AM »
You know, these company retirement programs piss me off.

It's great that they'll match our contribution up to 5K (or whatever).   But then it's stuck in stupid insurance company mutual funds.

So I transfer it to my RSP with my broker.   And the plan says that I can only transfer my contribution.   The company's contribution has to stay with the insurance company until I leave the company.

If the company is going to go to the trouble to setup the plan and match contributions, then they could at least provide better investment vehicles.   It's just one little step further...

It's make me wonder if corporate finance people know anything about investing.  Or maybe they just don't talk to the HR types.

Small employers may have especially limited options because they lack negotiation clout.  My wife helps manage her company's retirement plan.  The struggle to get the custodian to do seemingly basic things is real.

We're just glad she has access to a 401k for the first time in her life!  It's criminal how few people have access to company sponsored retirement plans.

Have they looked at switching to Guideline?  I have heard their name bantered about as basically a company's whose goal is to make plans better/more affordable for small businesses.

firemondays

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Re: "Professional" Financial Advice
« Reply #6 on: November 10, 2019, 09:38:36 AM »
You know, these company retirement programs piss me off.

It's great that they'll match our contribution up to 5K (or whatever).   But then it's stuck in stupid insurance company mutual funds.

So I transfer it to my RSP with my broker.   And the plan says that I can only transfer my contribution.   The company's contribution has to stay with the insurance company until I leave the company.

If the company is going to go to the trouble to setup the plan and match contributions, then they could at least provide better investment vehicles.   It's just one little step further...

It's make me wonder if corporate finance people know anything about investing.  Or maybe they just don't talk to the HR types.

Small employers may have especially limited options because they lack negotiation clout.  My wife helps manage her company's retirement plan.  The struggle to get the custodian to do seemingly basic things is real.

We're just glad she has access to a 401k for the first time in her life!  It's criminal how few people have access to company sponsored retirement plans.

Have they looked at switching to Guideline?  I have heard their name bantered about as basically a company's whose goal is to make plans better/more affordable for small businesses.

I don't believe they have.  Thanks for the suggestion!  I'll pass it along!

Panly

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Re: "Professional" Financial Advice
« Reply #7 on: November 10, 2019, 10:21:18 AM »
I recently signed up for an online financial service my company offers as an employee benefit.  I just couldn't get over the company's self-assessment options below!

How much of your income do you put towards retirement and savings?
A None
B 0.1% to 2.9%
C 3.0% to 5.9%
D 6.0% to 8.9%
E 9% and above

How is a 10% savings rate an A+?!  What pains me is that folks genuinely trying to learn about financial independence are anchoring on this paltry rate.

I think you read too much in that question. 
I guess many companies offer different options for contribution rates to their 401k plans, options in line with the answers above.
The financial advisor then needs to know which option the employee chose, or better- for most people:  which option was the default, such that they can start advising you from there.


Most people choose the default option, very often the lowest rate offered.  And in that case your company should be lauded for the far-sighted benefit they offer.










firemondays

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Re: "Professional" Financial Advice
« Reply #8 on: November 10, 2019, 11:19:08 AM »
I recently signed up for an online financial service my company offers as an employee benefit.  I just couldn't get over the company's self-assessment options below!

How much of your income do you put towards retirement and savings?
A None
B 0.1% to 2.9%
C 3.0% to 5.9%
D 6.0% to 8.9%
E 9% and above

How is a 10% savings rate an A+?!  What pains me is that folks genuinely trying to learn about financial independence are anchoring on this paltry rate.

I think you read too much in that question. 
I guess many companies offer different options for contribution rates to their 401k plans, options in line with the answers above.
The financial advisor then needs to know which option the employee chose, or better- for most people:  which option was the default, such that they can start advising you from there.


Most people choose the default option, very often the lowest rate offered.  And in that case your company should be lauded for the far-sighted benefit they offer.

Thank you for your reply Panly!

For context, this financial service was separate from 401k planning.  It was meant to be a holistic financial planning service.

I absolutely agree.  The intent was good.  Unfortunately, the impact of this unconscious bias could be massive.  If someone who could save 50% was convinced by the program to save only 10%, the impact on their financials would be devastating long-term.  The working years to retirement balloons from 17 to 51!

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Assuming someone starts on this path after graduating from college at 22 years old, that's the difference between reaching financial independence at 39 and 73!

It doesn't seem like a stretch that people going through this program could lower their savings rate.  If the max savings is >9%, then this "professional" financial service will never recommend saving more than that.  Employees will think they're set saving 10% and prioritize other antimustachian spending.  They'll rent their own place instead of continuing to live with roommates, buy a new car, wear fancy clothes, upgrade to the latest superphone, go out more for drinks/meals...  Before long, they'll find themselves stuck on the hamster wheel of consumerism.  Good for the employer, bad for the employee.

Come to think of it, I wish retirement plans were required to post timeline estimates like credit cards are.  "If you make the minimum 10% saving payment, it will take you 51 years to pay off your retirement balance."

Morning Glory

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Re: "Professional" Financial Advice
« Reply #9 on: November 10, 2019, 01:16:37 PM »
It is not in the company's interest to promote early retirement.  My work had a similar quiz that was sponsored by  an insurance company and of course it told me to buy life insurance.

firemondays

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Re: "Professional" Financial Advice
« Reply #10 on: November 10, 2019, 01:38:43 PM »
It is not in the company's interest to promote early retirement.  My work had a similar quiz that was sponsored by  an insurance company and of course it told me to buy life insurance.

Agreed Aunt Petunia.

Michael Kitces - who started his career in insurance - has a great quote about the industry: "When your only solution is a hammer, every problem looks like a nail."

DaMa

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Re: "Professional" Financial Advice
« Reply #11 on: November 14, 2019, 04:41:37 PM »
The last company I worked at was a small place.  The 401k administrator offered several Vanguard funds with a 1.5% load over the Vanguard load + the management fees the employer paid.  I was astonished.  So I asked the CFO if anyone had talked about a better option.  First, only about 20 people contributing (10% of employees).  Second, the 401k manager was what we called a friends and family vendor -- as was almost every vendor the company used.


firemondays

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Re: "Professional" Financial Advice
« Reply #12 on: November 14, 2019, 07:44:49 PM »
The last company I worked at was a small place.  The 401k administrator offered several Vanguard funds with a 1.5% load over the Vanguard load + the management fees the employer paid.  I was astonished.  So I asked the CFO if anyone had talked about a better option.  First, only about 20 people contributing (10% of employees).  Second, the 401k manager was what we called a friends and family vendor -- as was almost every vendor the company used.

Ouch!  Cronyism is especially painful when it comes right out of your account.  It helps explain why 1) only 20 people were contributing and 2) it's your former employer!

MoneyQuirk

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Re: "Professional" Financial Advice
« Reply #13 on: December 02, 2019, 02:37:43 PM »
*gasp* you put over 10%? Wow, how rich are you that you can afford to put so much of your money in?

Once I factor in the premium coffees, lease on my car, debt from the private college I went to, I can barely afford 15%. But that's better spent on the latest toy.

firemondays

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Re: "Professional" Financial Advice
« Reply #14 on: December 17, 2019, 07:13:08 PM »
I heard a classic commercial here on 710AM ESPN Seattle.  A company's pushing Home Equity Lines of Credit (HELOCs) because "mortgage rates are the lowest they've been in three years."

The line for me in the spot is: "Now's the right time to pull equity out of your home because home prices are likely to fall."

Come again?

This horrendous financial advice brought to you by a clear conflict of interest.  Forget immoral... how is it legal?  Does anyone else remember the Great Recession?

The_Big_H

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Re: "Professional" Financial Advice
« Reply #15 on: December 17, 2019, 10:09:04 PM »
I heard a classic commercial here on 710AM ESPN Seattle.  A company's pushing Home Equity Lines of Credit (HELOCs) because "mortgage rates are the lowest they've been in three years."

The line for me in the spot is: "Now's the right time to pull equity out of your home because home prices are likely to fall."

Come again?

This horrendous financial advice brought to you by a clear conflict of interest.  Forget immoral... how is it legal?  Does anyone else remember the Great Recession?

"Drill a hole in your boat now its about to sink anyway"

raincoast

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Re: "Professional" Financial Advice
« Reply #16 on: December 17, 2019, 10:36:43 PM »
I heard a classic commercial here on 710AM ESPN Seattle.  A company's pushing Home Equity Lines of Credit (HELOCs) because "mortgage rates are the lowest they've been in three years."

The line for me in the spot is: "Now's the right time to pull equity out of your home because home prices are likely to fall."

Come again?

This horrendous financial advice brought to you by a clear conflict of interest.  Forget immoral... how is it legal?  Does anyone else remember the Great Recession?

"Drill a hole in your boat now its about to sink anyway"

This happened in my city (in a way). Real estate speculation pushed values into the stratosphere, so people took out huge HELOCs against homes that they bought decades ago and were now assessed at $3 or $4 million. Then the government brought in a bunch of new taxes to deter speculation, particularly foreign buyers. The less expensive end of the market has stayed pretty steady, but the high end collapsed. Some homes dropped by 30-40%, so now many of these people have much less equity than they used to, and a debt they can't afford to pay off. Some may be forced to sell.

Not sure who advised them to do it - probably some HELOC lender who told them that real estate would keep going up forever and that they might as well live like millionaires.