The financial crisis may have opened the door to money-talk -- and raises questions about advisors' responsibilities

February 25, 2011 — 2:56 PM UTC by Bob Margolis

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Elizabeth’s note: This story by Bob Margolis was written before he died early last month. I edited it without his help; I take responsibility for any mistakes in it. With his parent’s permission, we decided to run it. Using a letter that some of you may remember from last year as a jumping off point, the story explores American’s attitudes toward money and advisors responsibilities toward Americans. Recognizing that more advisors are seizing the opportunity to donate their services to help people learn about financial responsibility, at the end of this story, I’ve listed a few organizations that give opportunities for advisors to volunteer. Here is RIABiz’s story about Bob Margolis: Goodbye to Bob Margolis, true friend of independent advisors. We’re still missing his e-mails and calls — one of the last of which pointed out that there really is a “Stifler’s mom” — a reference to particularly crass movie called American Pie.

Fame came crashing into Karin Maloney Stifler’s reality last Labor Day. That happens when the “Grey Lady” runs a letter you wrote to your son Colin on the eve of his departure for college.

Last Aug. 30, The New York Times printed “Letter To My College Bound Son,” in which the founder of Ohio-based True Wealth Advisors speaks openly to her son about among other things, fiscal responsibility and in essence, has the crucial “money talk.”

Reaching agreement about what to expect from each other is one of the most important ways we have prepared for this life transition. Putting things in writing is sometimes more powerful than speaking the words. So here it is. Let’s both promise to keep our word.
What you can expect from us:

– Our love and moral support. – Financial support in the ways we have discussed. – Respect. – Room to grow — no helicopter parenting. – Won’t change your bedroom (at least for now).

What we can expect from you:

Your Job: – Value and appreciate this investment in your personal growth and your future …

Your Money: – Give yourself a weekly allowance and stick to it._– Pay with cash or debit card.– Use your credit card for emergencies in the ways we have discussed. – Check your bank account online at least once a week. – Monitor automatic banking texts and e-mail alerts. – Don’t lend or borrow money from friends. – Protect your valuables – most of all, your identity. – If you lose or break something, replace it at your own expense.

This communication between mother and son seems so logical, helpful and obvious. Yet, according to advisors across the board, these conversations rarely take place between family members, friends and associates.

Stifler’s letter, which was forwarded, reblogged and commented on, has continued to resonate. You can see the full text of her letter on the Financial Planning Association’s blog.

“The response to the letter was much more than I expected. Especially when it kinda went viral. Colin lives with three others, including one guy who is a news hound. He found it and thought it was cool,” explains Stifler. As the former Pro Bono chair of the Financial Planning Association, she is no stranger to having these talks both with clients and those who lack the means to work with a financial advisor. “Why is it that every time we need to say something meaningful we go and get a Hallmark card? Talking about money really is our last taboo subject. So I hope my letter to Colin can serve as an outline for others to have these talks.”

In the wake of the financial crisis, when it became painfully apparent how few people had even a basic sense of money, more people are asking why those money-talks are the hardest ones to have. The question is a compelling one for advisors, who sometimes spend years uncovering all the facts about their clients’ financial lives and then have the task of actually motivating people to change their behavior.

“We need to acknowledge the huge gap between knowing and doing,” Stifler says. “Advisors need to be empirical and dispassionate. We have a responsibility to turn “knowing” into healthy behavior.”

A trap that ensnares many investors with low levels of basic financial awareness is emotional investing. Dr. Yuval D. Bar-Or, Ph.D., adjunct professor in finance at Johns Hopkins University, looks for advisors to warn clients to keep an eye on the long term, no matter what their neighbors or friends are doing with their money.

“Emotional investing hits those individual investors the hardest, therefore the importance of having a trusted advisor to keep one honest. What happens when the most risk averse among us finally gives in after seeing their neighbors and friends profiting from a rising stock market? Ultimately, these investors buy at the worst possible time, that is, when the stock has peaked, and after watching it go down 60, 70 percent, they finally break down and sell- again, at the worst possible time- bailing out before any recovery or bounce back can take place.”

What about inexperienced advisors?

The idea here is that a risk averse investor places a value on a particular stock and refuses to adapt despite a tanking market. At the same time, they are not in a financial position to allow the market cycle to rebound.

Bar-Or looks at advisors who have been practicing for less than a decade to be similar to students who have gone through traditional financial literacy courses in school. “Look how many advisors have never even experienced a market downturn of any seriousness? There is also no way for a student to take a one-semester course in high school and understand the volatility found in traditional market cycles.”

The financial crisis provided a stark illustration of the gap financial planners and advisors who are seeking to educate their clients are facing. A study released last year by FINRA’s Investor Education Foundation found brutally discouraging results in four key components of financial capability: making ends meet, planning ahead, managing financial products, and financial knowledge and decision-making.

Almost half reported difficulties in covering monthly expenses and the vast majority lack a “rainy day” fund for emergencies and are underfunded for predictable events, such as their children’s college education or their own retirement.

(Among the more shocking findings, though probably not one that applies to clients of advisors and planners: One in five respondents reported using expensive non-bank borrowing methods such as payday loans, advances on tax refunds or pawnshops.)

So, what happens next? The elephant in the room that advisors such as Stifler are addressing is: Just what is the responsibility of advisors to segments of the population who badly need clear unbiased advice?

Last year, there were efforts by the industry to take education to the people, such as the pro bono Financial Planning Days, which are a combined effort from the US Conference of Mayors, the Financial Planning Association, the Certified Financial Planner Board of Standards and the Foundation for Financial Planning. The days provide opportunities for any and all to walk in and get free one-on-one consulting sessions with volunteer advisors. Those in dire need are able to receive quality guidance- all on the house. In addition, workshops take place all day, covering various personal finance issues.

What happened in the Northern Kingdom

The National Association of Personal Finance Advisors also held a Your Money Bus tour, aimed at offering advice to people who need it. The question a few years back was if there would be an active audience. But there was no shortage of those on the receiving end of free advice.

Jamie Milne, a Vermont- based NAPFA member was also struck by the bravery shown by those seeking help when the Your Money Bus tour rolled into his northern kingdom locale last month. “Hey, if someone told me to board a big green bus and share my private and in some cases embarrassing financial information with somebody whom I have never met and will never see again, I’d be, well, suspicious.”

It is a stringently enforced rule that advisors do not give out business cards or conduct follow-up meetings with those they meet at Financial Planning Days. So any follow up is not in the cards. But, according to Craig Weicker, an advisor and organizer for the Oct. 23rd Eugene Oregon Financial Planning Day, one distressed couple spoke of the effectiveness of workshops following up on what was discussed in their one-on-one session. “They told me that steps 2,3,and 4 made perfect sense after step one and gave them a tangible sense of progress and direction.”

There is no doubt that emotions are running with greater intensity than has been seen in generations. “What I have seen over the past few years is a big picture fear and a deeply unsettling change of myth,” explains Janet Briaud, a Bryan Texas based advisor and chair of NAPFA’s Consumer Education Foundation. “The old way of thinking was a direct line from going to college, establishing savings and then enjoying retired life. The tape keeps going north. All of this is no longer true.”

In meeting with those who came out to Your Money Bus Tour and her own clients, Briaud points to clients and others who she has reached out to and their taking control of how to think about their money – and that of the country as a whole.

Where’s the responsibility

When asked about the fact that, according to the FINRA study, one in 10 people with a mortgage did not know the interest rate they are paying and 17 percent of investors in retirement plans did not know how much of their portfolio is in stocks or stock mutual funds, Briaud pointed to the importance of individuals taking a stake in thinking and acting for themselves and for advisors to engage in the arduous task of cutting through noise and misdirection. “If we learned anything from the lessons of 2008, we simply can’t rely on higher ups to tell us what to think. We need to read and formulate opinions on our own.”

That was the fundamental message of Stifler’s message to her son.

Healthy money behaviors have come naturally to you. You do a good job balancing spending to enjoy today and saving for the future, being a smart shopper, and avoiding debt,” she tells Colin. “You are willing to work for what you need and want. Remember those 5am alarm bells and how hard you worked in the warehouse this summer? Easy money? No way! I know you’ll spend your money with care and make it last through the coming school years… From the moment you were born, I knew the day would come when it’d be time for you to go. That “someday” is now. You’ve grown strong and capable. Like a bird, you’ve outgrown the nest and are ready to fly.

Stay tuned for a possible follow up letter from Stifler to her set of aging parents.

Here is a list of organizations that enable advisors to volunteer their expertise:

NAPFA Consumer Education Foundation – www.NAPFAfoundation.org
National Endowment for Financial Education – www.NEFE.org
Foundation for Financial Planning – www.foundation-finplan.org
Financial Planning Days, sponsored by CFP Board, FPA, Foundation for FP, and US Conference of Mayors. More info at www.FinancialPlanningDays.org
FPA’s chapters – many have ongoing pro bono projects in the community (FPA members only)
Online sites, such as AARP’s LifeTuner allow planners to volunteer on their own schedule by contributing to blogs, answering questions, etc.


Mentioned in this article:

National Association of Personal Finance Advisors
Association
Top Executive: Ellen Turf

Financial Planning Association
Association
Top Executive: Lauren S. Schadle, CAE, Executive Director and CEO



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