The “Truth” About Why Financial Advisors Aren’t Going Away (Part 2)
Financial Planning, Edelman-Style: A Comprehensive How-to Guide
Continued from Part 1 — here
Without directly saying so, Edelman’s point on financial advisors seems to be most consumers’ financial needs reside outside of Modern Portfolio Theory, which many software programs model. There are dozens of financial products to help manage one form of risk or another. And they are distributed in a variety of ways. It can be confusing even to those of us who are genuinely interested in the topic.
Despite already weighing in at a hefty 675 pages, there are a few areas I would hope Edelman would add or expand in the next version:
1. Health — specifically medical inflation risk, health insurance and saving for health expenses in retirement. Health risks pose a meaningful and “controllable” financial risk, certainly as large as many of the others Edelman discusses. Perhaps he held off as this most recent 2010 edition coincided with the passing of the Affordable Care Act. However, given the space dedicated to other topics I’d suspect high deductible health plans and corresponding health savings accounts will receive some mention in a next edition.
2. Social security as a portfolio “bond.” Edelman discusses social security and takes the view — admittedly controversial — you should start withdrawing as soon as you are eligible for the full amount, if only to recycle into the market and generate higher returns. However, what is not clear is how that impacts his firm’s balanced approach to wealth accumulation. Nor, for that matter, is house downsizing discussed as a potential retirement planning lever.
3. Salary growth. Your most important financial asset is your ability to generate income, a view held by Edelman and other financial planners. Given his bedside manner and command of related topics, you could see Edelman writing a career advice book. While the financial topics here are important, and at times complex, they are existing instruments. Like a mechanic hot-rodding your own engine, rather than servicing one built by others, more potential exists in mastering your own professional design.
In its most simple form Edelman’s message is this — invest your money and allow it to grow, mostly by leaving it alone. If necessary, keep reminding yourself “investing is more like a game of horse-shoes, where being close is good enough to win.” In a “work smarter, not harder” sort of way, one simply needs to tackle the basics and avoid the landmines.
And anybody can do this. From Mint.com and HelloWallet (my former employer, acquired by Morningstar) to Personal Capital, LearnVest (now Northwestern Mutual) and Wealthfront, plus many others, “fintech” solutions are everywhere. But will they cover enough of the important topics in the right order, and more importantly, drive the right behavior over the long term?
Based on today’s offerings, Edelman is skeptical.
Footnote — Andy is a business school classmate. However, while I remember seeing him around campus and we have mutual friends, I do not personally know him.
A special thanks to everyone who reads these and provides feedback, in particular my friend John Young, one of many who suggested I shorten my posts, and failing that, divide into parts. I’ll do my best.
My review of one of John Bogle’s books, the founder of Vanguard, here.
HSA Coach. Health is Wealth.
