Nowadays a portion of retired people is entrusting money management firms with their savings. Many view it as a viable option to be led by experts when investing, rather than going through trial and error at own expense. They are being guided by positive responses of their peers along with persuasion of the advisors.
However, those, who have seen their money shrink instead of growing, don’t hesitate to be as blunt as to say, that money management firms are nothing but parasites, abusing their clients. Truth is, there have been sufficient indications to support these harsh judgements.
In Great Britain, for example, the authorities had to step in and start resolving the growing number of consumer claims about their money being misused, awarding them with up to £ 3 000 compensations. Brought into the spotlight due to the volume of malpractice, these companies have also turned out to be operating in such domains as industrial and personal injuries.
Taking us to look at the bigger picture, experts say that the poor outcomes of dealing with such legal entities are to be expected and it is simple as to why. Money management is a market. Therefore, most part of the segment is of bad quality. Investment, dicy as it is, can often end up as a lost game for them and they don’t exactly shun compensating it at the expense of their clients. “Sometimes you win and sometimes you lose” — is the way they break it to you.
Now, aside from taking the blame for unlucky gambling from you, can money management offer anything positive? Turns out they can.
Take the index funds for example. It takes pretty much an average investor to secure an average return and for low cost at that. Therefore, doing so on your own or entrusting your counselors is most likely a good call. Good firms are flexible enough to offer options that are adjustable to your conditions. For example, relating your asset allocation to your retirement date. Combined with a couple of books on investment you can really get a hang of it with no harm done to your financial integrity.
Another one is financial markets which are known for solid efficiency. Solid but not super solid. It’s 90% vs 10% or as Fischer Black puts it: “usually very right but sometimes very wrong”. You can’t expect financial markets to be 100% and if you could, the reward for those who assume more risk would go up. This is where money managers come in handy again. They will estimate how much risk you can afford to take, Social Security included. A counselor can provide valuable intel and act as an arbiter if you are having an argument about investment with a household member. A personal tip on hiring a financial advisor: take those who charge fee-only and not fee-based or commissioned.
To sum up, you can be pretty much positive that the right choice here is somewhat in the middle as it often is. You shouldn’t rely on personal intuition or high reward when investing nor should you trust your funds to third party without a deal of personal knowledge in the matter. Personal education is a solid investment.
References
Train, John. Money Masters of Our Time. HarperCollins, 2000
Mehrling, Perry. The New Lombard Street. How the Fed Became a Dealer of Last Resort. Princeton: Princeton University Press, 2011
Fischer, Black. Exploring General Equilibrium, MIT Press, 1995
Stiglitz, Joseph Freefall: America, free markets, and the sinking of the world economy. New York: NY, 2010
Lasser, J.K. Your Income Tax 2015: For Preparing Your 2014 Tax Return, October, 2014
Silver, Nate. The Signal and the Noise, Penguin Group, September 27, 2012
Kotlikoff, Laurence; Moeller, Philip; Solman, Paul. Get What’s Yours, Simon and Schuster, 2015