How many times do we lose out due to questions we either didn’t think of, or were embarrassed to ask? This is true of virtually all aspects of life, but my focus here is on the financial.
Just recently some acquaintances of mine, a married couple, approached me with a dilemma. They are both working professionals, respected in their fields, who have accumulated savings and investments. Part of their retirement savings are being managed by a large retirement fund manager. One part is under the care of a retirement fund for public employees while their remaining retirement funds are with a low cost investment management company.
The couple decided to try and simplify their financial holdings as they are currently banking far from where they live and would prefer to work with a local bank. Their new bank was happy to help, and suggested that if they wanted to avoid paying banking fees, the couple should move their investments to the bank.
The bank helpfully and clearly explained that they could manage the couple’s retirement savings plans via an associate investment company. The couple would be charged a fee for the asset management, but then their banking would be free.
It was at that point that they contacted me and asked my opinion.
Leaving aside the important question of whether it is makes more sense to actively or passively manage your portfolio, there were some basic points that they were completely unaware of.
I explained that there was no need to transfer all their retirement funds to be managed by the new bank. I suggested that they consider using the bank as the custodian of their assets, and continue to have their assets invested in low cost index funds that they currently hold directly with their investment management company. That should be enough to satisfy the bank and still make them eligible for the no-banking fee arrangement. There was no need to transfer all their savings there and have the bank start actively managing their retirement savings. This solution would satisfy all their needs – reduce the costs but allow them to continue their current investment strategy.
They were surprised that the banks hadn’t actually raised that as a possible option.
But the point is that everyone has an agenda – and the bank wanted to act as their portfolio management company to charge higher fees and maximize its gains.
They contacted the bank to clarify and were assured that yes, they could move some funds to the bank to become the new custodian of their assets and still avoid paying any banking fees.
I don’t believe that the bank was trying to deceive or hoodwink them. The bank was simply looking out for its interests, and felt that it could be in the couple’s interest too.
So my point is when you are faced with a professional giving you advice, consider what they are recommending and break it down simply for yourself. What would be the ideal situation for you?
It could be that what you want cannot be provided. But ask, clarify. Work up from what works best for you within the framework of the service that the professional or company is offering.
This specific case happened in the USA, but the same applies in every country, especially in Israel. There is a fair degree of confusion within the financial world, and it is very difficult for the average person to get the information that he needs. Trying to make decisions in a foreign financial system, a foreign language with clerks who are clearly rigid in trying to implement guidelines can be very difficult and frustrating.
Make sure that you only make your financial decisions once you have clarified the situation with objective sources. Don’t let yourself be swayed by a barrage of financial terms, when you may be unaware of their full meaning and ramifications – let alone their translation. Don’t be afraid of being repetitive – keep asking until you feel confident you understand the situation.
Sometimes it’s a case of not knowing the right questions to ask. So keep asking until you get it right! Often it’s how and to whom you ask the questions that can make all the difference.