Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email helaine.olen@slate.com.
Helaine,
I’m 24, working in my first job out of college, and trying to navigate how to save for retirement. I chose to work with a partner in the investing firm that my company uses for its employee retirement accounts. He helped me transfer over my individual retirement account—which had about $3,000 and was at Vanguard—and told me which funds I’d be invested in. I filled out all the paperwork, gave him a voided check so I could automatically deposit a certain amount every month, and everything seemed fine. After hearing nothing from him for a month and a half, I checked my balance online. Not only had my bank draft never gone through, but my IRA hadn’t been invested yet. When I called, the partner explained that I don’t have enough money to invest in the funds he’d previously suggested, so he was putting me into new ones, and I’d have to fill out new paperwork. Shouldn’t he have known? Why did I have to call to find out?
I sent in the new paperwork anyway, figuring everything would be fixed. Well, that was about a month ago, and although my account has now been invested, my bank draft still hasn’t happened, and my emails to him have gone unanswered. I feel uneasy about the whole thing and wonder if I should go back to managing my IRA myself. Am I being hasty? Has he fulfilled his fiduciary duty to me and, if not, what can I do? I know it isn’t a lot of money, but it’s everything I have. It’s frustrating to pay his fees when it feels like he’s neglecting my account.
How fast can you get away from this adviser? He’s no good, and you and your money deserve better. You’re absolutely right to feel uneasy. Where you went wrong was continuing to pursue the relationship. Don’t give him another chance.
And do you know he’s a fiduciary? Did you ask? In the future, never assume a financial adviser is acting as a fiduciary—that is, someone legally bound to act in your best interests—when he handles your personal accounts simply because he handles your workplace plan. You might assume that if someone comes recommended by your employer, he must be good. That’s not true. So do your due diligence.
Finally, kudos on putting money aside for your senior years while only in your 20s. I must confess I’m not sure what I was doing with my funds at your age. (Well, actually, I can. It involved lots of Chinese takeout.) Nonetheless, I certainly wasn’t investing via an employee retirement plan. And that’s what you need to do here. If you want to save more for retirement than you’re currently doing, you can simply up your contribution to your workplace offering. Happy investing!
Helaine,
My husband and I recently came into some family money in the mid–five figures and are due to receive the same amount next year. We realize this is a good problem to have, but: What should we do with our windfall? We’re in our late 30s, have two small children, and about $150,000 in combined student loan debt. We make a good income at professional jobs but are thinking of making some changes in the next eight to 12 months that will likely shrink our income. We don’t own a house and are content to rent for now, especially since these changes could lead to an out-of-state move. Our primary financial goals are to minimize the student loan debt that our children one day incur and have a secure retirement. I should add that my part of the student loan debt, about $40,000, would be eligible for payment assistance programs if I change jobs. Should we just hang on to the money for now? If so, what kinds of accounts would maximize our return? Should we try to pay off some student loan debt? Or do something else altogether?
First, congrats on the windfall. With at least one new job, a big move, and a drop in income all on the table, you’re facing an uncertain year, though perhaps an exciting one. In this sort of situation, my best advice is this: Don’t make any long-term decisions about your money. I’d suggest a one-year certificate of deposit from a bank. This won’t be a path to riches—you’ll likely receive annual interest of a little more than 1 percent. But while you sort out your life, the money will reliably earn more than you’ll get in a savings or money market account.
A CD offers another benefit, too: It makes it harder to quickly access the money. Almost all banks will charge you a few months’ interest if you cash out of a CD early. Some will also take a small portion of the principle as a penalty as well. That’s harsh in an emergency, but it works in your favor, too. It’s almost certain you’ll think twice before dipping into the funds for anything but an urgent need. And make no mistake—if you’re looking at a cut in take-home pay, at some point you’ll be tempted to take some money “just this once.” It’s easy to say you’re cutting back on your lifestyle in the pursuit of a better life. It’s much harder when you see your friends go off on the kinds of vacations you yourselves used to enjoy, or when you’re tired after work and don’t want to cook dinner yet again. (See my comment up above about Chinese takeout!) We get used to things, even if we don’t need them, and we are often reluctant to give them up.
As for the long-term picture, much will depend on what changes in your life over the next year. When you’re ready, sit down with a financial planner who has a legal duty to act in your best interests—that’s the fiduciary standard—and come up with a plan.
Helaine,
I want to hire a fee-based financial adviser to sit down with me and review my situation as I plan for retirement in five years. Most of my retirement income will be from two defined benefit pensions and Social Security. I expect this to be a one-time visit. I don’t need investment advice, just a financial tuneup to make sure I’m not overlooking something. Any advice on how to find someone and what I can expect to pay?
Oh, dear. You’ve fallen prey to one of the more confusing distinctions in the personal finance business. Surely you mean you want to sit down with a fee-only adviser, right? That’s someone who is only compensated by you, either by the hour, as a flat fee, or as a percentage of funds under management. A fee-based adviser, on the other hand, can charge you for advice and also receive a commission for setting up clients with investments. That arrangement screams conflict of interest. You don’t want that, and it sounds like you don’t need it. I suggest reaching out to the Garrett Planning Network, where advisers work on an hourly basis. According to founder Sheryl Garrett, the average hourly rate for an adviser working on the clock is between $200 and $300 an hour. She recommends explaining what you need to an adviser and getting a firm quote for the session in advance. And, remember, always ask if a potential adviser is legally bound to give advice in your best interest. It’s a good financial habit to develop. As you’ve just learned, it’s all too easy to be misled.
