Why I’m Hoping The Trump Administration Doesn’t Kill The DOL Fiduciary Rule

Originally in ForbesAdvisors to President-elect Donald Trump have been vocal about rescinding the Department of Labor’s new fiduciary rule, introduced earlier this year to protect retirement savers from advice that isn’t fully in their best interests. The rule has already been under fire from the securities industry, and lack of presidential support could spell its ultimate demise.

As someone who has worked on both the fiduciary and non-fiduciary sides of the industry, I think revoking the rule is a bad, even dangerous, move. My rationale for such a position starts with my experience, early in my career, at one of the nation’s largest insurance companies.

“Look, you can set up your business any way you see fit after you’re successful. But right now? With a young family? You need to put yourself and your family first, and that means selling A-share mutual funds,” said my sales manager.

In other words, you must put your interests ahead of your clients’.

Fiduciaries are required to put their clients' interests ahead of their own.

Fiduciaries are required to put their clients’ interests ahead of their own.

As a brand new financial advisor, I was having a heart-to-heart with my supervisor after laying out my plan for creating a fee-based business within the agency, which would have meant recurring revenue for the firm but apparently in much smaller increments than were preferable.

“A-share mutual funds” are a variety with some of the largest up-front commissions—for both the salesperson and the company they represent. Variable annuities were even better, generating more of a “front-end load.” Whole life insurance was the pinnacle of up-front commissions.

In the newbie bullpen, we were encouraged to sell in various and sundry ways. The general agent in charge of the Baltimore metro area—the self-proclaimed “big dog”—was, indeed, a large man. A former starting lineman for a recognizable college football team, I’m quite sure that he routinely watched the classic Alec Baldwin “motivational speech” from Glengarry Glen Ross (turn the speakers down if you’re at work or children are nearby).


I recently discussed this topic on the Nightly Business Report (at the 9:05 mark)


My favorite anecdote from that time, though, was my general agent’s big fish story: “When you get a big fish on the hook, I want you to set a noon lunch meeting at the Oregon Grille.” (The Oregon Grille is an excellent restaurant north of Baltimore in pastoral horse country, where most of us had never dined.) “Go to the restaurant 30 minutes early and introduce yourself to the maître d’. Let him know that you’ll be returning shortly to the restaurant with a guest, and that you’d like to be referred to by name.”

What The Stock Market Wants This Election, And What You Should Do In Your Portfolio

Originally in ForbesWe’ll know soon enough who America chooses as its next president, but the market has already voted.

Who does the stock market “want” to win?

Hillary Clinton. This isn’t a partisan statement, but simply a statement of fact. election-2016There may be several indicators to which we could point, but the glaring one is this: When the FBI announced last Friday that a new slew of emails had been discovered that could impact its investigation and shed further negative light on Clinton’s handling of classified emails, the market sold off. Period.

But why? Is the market more Democrat than Republican?
No. In fact, you may recall the George Bush/Al Gore recount in 2000, when the market seemed to cheer in Bush’s favor. But what the market really doesn’t like is unpredictability, and it has asserted its opinion that Donald Trump is a more unpredictable candidate than Clinton.

You Won’t Get Fooled Again: Understanding the Availability Heuristic in Investing

Originally in ForbesYou’re no fool. But let’s imagine for a second that a major public figure said something—something false—over and over (and over) again. Regardless of its questionable veracity, is there a chance you’d be more likely to believe the proclamation simply because you’ve heard it often and recently?

Like it or not, the answer is an emphatic “Yes.”

You and I are more likely to believe something is true when it’s readily available—that is, when we’ve heard it frequently and, especially, when we’ve heard it lately. This phenomenon is dubbed the “availability heuristic,” and even though it was discovered and named (by Amos Tversky and Daniel Kahneman) more than 40 years ago, it likely hasn’t caught on in the broader public awareness because its title includes the word “heuristic.”
Nonetheless, the availability heuristic’s power to persuade is not lost on marketers, salespeople, lobbyists and politicians. They use it on us all the time. But let’s explore the errant biases in investing, in particular, that while readily available often lead to sub-optimal outcomes.

Active vs. Passive

The debate rages (and no doubt will continue to do so) over whether active stock pickers are able to beat their respective benchmark indices. The implications seem simple: If fee-charging money managers aren’t persistently outperforming their benchmarks, we likely should not be paying them for underperformance, right?

What A 12-Year-Old Ukulele Player Teaches Us About Authenticity In Our Work

I don’t watch reality television contests, because as a rule, the best participants rarely participate and when they do, they almost never win. Whether the over-commercialized, profit-over-art system is to blame—or the television audience, or both—I’d rather not suffer the invariable disappointment of an unjust outcome. But quite randomly, a 12-year-old ukulele player named Grace VanderWaal, inspired me to break my own boycott.

On our way to another channel, my family stumbled on America’s Got Talent a few months ago just in time to see one of my favorite instruments—the ukulele—adorning the neck of a diminutive blond girl. “Wait a second,” I said.

She’s clearly overwhelmed just to be there. “It’s crazy,” she says, as her voice cracks in response to the judges’ welcome.

How Fantasy Ruins Football (and Investing)

Originally in ForbesIt’s that time of year again, where the heat of summer recedes, sweatshirts make a comeback and businesses lose billions in flagging productivity due to fantasy football. But it’s not just businesses losing out—fans and players come up short as well.

How, after all, can I truly dedicate myself to rooting fully for my beloved Baltimore Ravens if I took Le’Veon Bell—who, for those not acquainted with the best rivalry in football, plays running back for the Steelers—second in the fantasy draft? It can’t be done. It’s just wrong.

I’m kidding, right?

Partly. But there are more serious personal and financial implications to embracing fantasy (sports or otherwise). The danger in fantasy is its distance from reality. It’s “betting on a future that is not likely to happen,” according to Psychology Today.

Our fantasies tend to sensationalize what we’d prefer to imagine while ignoring what we’d prefer to not. Then, when our actual spouse, child, parent, friend or co-worker falls short of the impossibly high bar we’ve set for them, we—and often, they—are crushed.

“Emotional suffering is created in the moment we don’t accept what is,” says Eckhart Tolle, who, perhaps unintentionally, delivers a potent dose of truth that especially informs us in our personal dealings with money.

Here are a handful of financial fantasies, followed by their unvarnished truths:

Don’t Let Wall Street Fool You Into Taking Too Much Risk

Originally in ForbesCompetition for your dollars creates an inertia that always seems to lead Wall Street down the path of unhelpfully increasing the risk in your portfolio. The recent Wall Street Journal headline, “Bond Funds Turn Up Risk,” illustrates an especially alarming trend. Specifically, of increasing the risk in the part of your portfolio that should be reducing overall risk—bonds.

Bonds are supposed to be boring. The primary role they serve in our portfolios is not necessarily to make money, but to dampen the volatility that is an inevitable byproduct of the real moneymakers—stocks.

Thank God Life (and Investing) Isn’t Like the Olympics

Originally in ForbesImagine that your entire life revolves around a single performance lasting less than 14 seconds. You’ve sacrificed your youth, close friendships and any semblance of a career in pursuit of validating your Herculean effort on the world’s largest stage. The hopes of your country on your shoulders. Tens of millions of gawkers eager to praise perfection — and condemn anything less.

And then.

You dork it.

Jeffrey Julmis

That’s precisely what happened to Haitian hurdler Jeffrey Julmis in the Olympic 110-meter semifinal heat when he crashed into the very first hurdle, tumbling violently into the second.

Wow. I love the Olympics, the pinnacle of athletic competition. I even see past all the corporate corruption and commercial sensationalism, drinking in every vignette, simply in awe of all that the human body, mind and spirit can accomplish in peak performance. But thank God life isn’t like the Olympics (even for Olympians).

We aren’t subject to the imperial thumbs up or down based on a single momentary contest (or even a handful of them). But we’re certainly capable of treating life that way, often to our detriment. Don’t believe me? When was the last time you said (or thought):

“This is the most important thing I’ve ever done.”

“It’s all leading up to this.”

We’re trained to think this way because that narrative is more likely to keep you from switching the channel, more likely to motivate you to buy that car (or house or hair product), all of it promising to be that singular moment or lead you to it.

This script is especially common in the world of financial products. If you surveyed the marketing collateral for a host of investment products, you’d think the product being sold was a sailboat, new golf clubs, a winery or beach house — a life without care. But success in investing is actually achieved through the tedium of saving and the application of a simple, long-term investment plan — not the sexy new investment product or strategy that pledges to deliver your hopes and dreams.

Thankfully, this is also true in life (and athletics). “Success” is cultivated in the millions of unseen moments, the application of simple disciplines employed in pursuit of goals that don’t expire the minute we’re out of the spotlight. And even at the moment of our most abominable failures, the humbled Haitian hurdler provided us with the only example we need:

He got up and finished the race.

Is Your Attitude Toward Work Killing Your Retirement Dreams?

Originally in ForbesDo you have a generally positive or negative impression of the word “retirement”?

I ask because it dovetails nicely with a series of questions (inspired by Rick Kahler) that I use to begin most speaking engagements. These questions are designed to incite self-awareness, offering us clues about how our life experiences have shaped the (often unarticulated but powerful) beliefs that unavoidably influence the decisions we make with and for money.

Work or retire as a concept of a difficult decision time for working or retirement as a cross roads and road sign with arrows showing a fork in the road representing the concept of direction when facing a challenging life choice.

Regardless of an audience’s homogeneity, their responses are consistently inconsistent. I have, however, seen some generational persistency on the topic of retirement. For example, on average, baby boomers have a generally positive view of retirement—no doubt shaped in part by the incessant financial services commercials that promise a utopian post-career existence with beaches, sailboats, golf and an unlimited supply of vintage Pinot Noir.

On the other hand, the finance and accounting students that I had the privilege of teaching at Towson University—almost all members of the Millennial generation—had a generally negative view of the notion of retirement. This is for two prominent reasons:

  1. They pictured hot, humid, early buffet dinners in rural Florida.
  2. They don’t think that the American dream of retirement is available to them.

The Real Reason I Moved to the ‘Best City In The World’

Charleston, South Carolina

Originally in ForbesAccording to Travel + Leisure magazine, “Charleston is a remarkably dynamic place, so it’s no surprise that it has achieved its highest ranking ever in our survey as [2016’s] best city in the world.”

It’s the first time a U.S. city has received the top honor, but Charleston ranked No. 2 last year and has been ranked the No. 1 city in the U.S. and Canada for four years running. As scored by Travel + Leisure readers, Charleston received its top-ranked status based on six categories: sights/landmarks, culture/arts, restaurants/food, people/friendliness, shopping and value.

But please allow me to give you the top three reasons why my family moved to Charleston two years ago, and the reason we’ll stay (and invite you to join us).

Hope Deferred Makes the Heart Sick

The practical present application of ancient wisdom

Originally in Forbes“Hope deferred makes the heart sick, but a longing fulfilled is a tree of life.” So reads a Solomonic proverb penned in the 10th century B.C. Consider with me, however, a contemporary application of this ancient wisdom, especially in the realm of personal finance.

HOPE DEFERRED

“We’ve got to apologize, Tim,” said a financial planning client with whom I had a great relationship.

“Whatever for?” I asked.

“You know that new Lexus? The one that backs itself into a parallel parking spot?”

“Yes, I’ve seen the commercials.”

“We bought one,” the client said, with his head bowed in apparent shame.

I’d never communicated that these folks—or anyone, for that matter, who has sufficient means—shouldn’t use said means to purchase a vehicle of their choosing. But the general impression the public has toward financial advisors and educators seems to be that we all think the best use of money is in storing it up and avoiding its deployment. Defer, defer, defer.