John Oliver Rant Missed One Important Detail
John Oliver did a segment on financial advisors and the financial industry in general back in 2016, but it's still spot-on. While he's right about the importance of taking responsibility for your own retirement savings, the effect of fees on a portfolio and the lack of any real standards for someone to call themselves a financial advisor, he left out one important point.
What was missing in John Oliver's epic rant is that more often than not, good financial advice pays for itself and then some.
According to studies commissioned by Vanguard, there is an "advisor alpha".
Watch and find out how this made a difference of hundreds of thousands of dollars for one client.
All right, so John Oliver's epic rant about retirement, the financial industry and financial advisors was hilarious and spot-on. But he left out one important detail. And it's a detail that saved one of my clients hundreds of thousands of dollars - in one moment. Find out what that is coming up.
Hey folks, I'm Patrick King, financial planner and host of Transformative Television. Here on this channel, we have a soft spot for people who are going through the divorce process, who have lost a spouse or a loved one or people who are just trying to transform their lives for the better.
If that's you or you're in one of those situations, please consider subscribing for more videos like this. And if you need financial help through one of those situations, please don't hesitate to give me a call.
But in this video, what I want to do is pick apart a little bit of John Oliver's epic retirement rant and share my thoughts on that and talk about the one thing that I think he missed that saved one of my clients hundreds of thousands of dollars in one moment.
"Take annuities. Now certain types of those can be very complicated investment products that have high fees and would only be appropriate for certain types of portfolios. But some financial advisers push them hard."
Oh man. Annuities. Man, I see these annuities all the time. They got so many fees and they're impossible to get out of. One thing all the time I find myself working with new clients to figure out ways to get out from under some of these annuity contracts.
And the commissions that these "advisers" - brokers, insurance agents get paid on these annuities are up to 10% - maybe even more - of the contract value up front. So if you're selling someone a million dollar annuity, you're gonna get almost a hundred grand. Stupid.
No wonder why these folks have an incentive to sell you these things.
"Now generally, it is currently legal for financial advisors to put their own interests ahead of yours unless - and this is interesting - they are what's called a "fiduciary". Because not all financial advisors are bound to act in your best interest, but fiduciaries are."
All right, so here we are with fiduciary again. Y'all are gonna get sick of hearing me talk about fiduciaries, right? There you go.
"But compound interest works both ways. Meaning while your money adds up, your fees can really add up too.”
Man. Fees. Fees! All the time - all right so I did the math behind this particular example using the fees from their retirement plan and compared them to the fees from a from a fee-only fiduciary financial advisor (my fees in this case) and what the difference would be for a $1,000,000 investor. Let's say you retired with a million dollars and both portfolios grew the same - let's say 7%. Just the difference in fees alone over the 30-year retirement would be $1.6 million
Check the math, it's in the show notes below. It's absolutely ridiculous.
Fees matter. Fees matter and they're hidden a lot of times, so always check for that stuff.
"But the problem with active management is that even many Wall Street experts find it difficult to consistently beat the market."
Man, active management. So active management, if you actually pay attention to the math, it doesn't really hold up, you know? So there are studies that have shown that over a fifteen year time period only 17% of the mutual funds that start that time period beat their index or their benchmark. 17%!
And to give you an idea how bad those odds suck, over that same course of time only 48% of funds survived! 52% went out of business!
So you've got a better chance of picking a fund that goes out of business than you do a finding one that's gonna beat the benchmark. Good luck with that!
THE ONE THING THAT JOHN OLIVER MISSED
All right, at the end, you know the one thing that I really love that they touched on was, you know they mentioned working with fiduciary advisor. They worked with - to invest in low-cost index funds, Vanguard funds they mentioned in the in the video.
But I think the thing that kind of got left on the cutting room floor (along with Kristin Chenoweth) was, is there a difference between people who work with an advisor and people who don't?
You know, is there a benefit of working with a fiduciary advisor?
And there was a study done by none other than Vanguard on this topic. And what they found was that the clients that worked with a fiduciary advisor tended to see 3% more return than those that didn't in a given year. Now of course, individual years varied, but what they saw is, over time, they averaged three percent more per year.
Now we talked about the little bit in fees that made a huge difference. 3 percent is ridiculous.
So you know what were the factors that were involved in this 3 percent? What were those things that those advisors were doing to get that extra 3 percent that the clients that work with them saw?
Well the two biggest were behavioral coaching and spending strategy in retirement, the biggest being behavioral coaching. So this, I think, is the most important point of working with an advisor that wasn't mentioned in the video.
HOW A CLIENT SAVED HUNDREDS OF THOUSANDS OF DOLLARS IN ONE MOMENT
So to give you a quick story of why I think this makes such a big difference, I want to share with you the experience of a client of mine. Obviously can't name names but this gentleman - he was an older gentleman - this was back in the financial crisis and he came in, he almost picked them up bottom of the market.
This was March 2009, so obviously he's scared. You know, recessions and corrections are a normal part of investment but we'd never seen anything like that before.
Stock market's down a lot, but you know his portfolio didn't have a whole ton of stocks in it. It was down a little bit but, you know, it was not nearly as down the market in general.
So he came in and he wanted to go to cash. He couldn't take it anymore. He had been watching the news and reading the headlines. And so he's like, "You know Patrick, we gotta go to cash."
But as unusual as those circumstances were, we stuck with our strategy. We had a strategy for a reason. And again, he didn't have 100% stocks, but we stuck with it.
And if he had gone to all cash at that moment he would have locked in his losses forever or until he decided to get back in "when it was safe". So we stuck with the strategy.
Fast-forward a year later, he comes back in, his portfolio is way up. And we're talking hundreds of thousands of dollars. But in that one moment we decided to stick with our strategy, we kept his money invested and it allowed him to participate fully in that recovery when the market bounced back in March of 2009. And of course it did nothing but go up with a couple of blips since then, which has been kind of ridiculous.
So not only did he did he benefit by NOT locking in hundreds of thousands of dollars of losses in that one year, but that growth also compounded over time too, as the market continued to go up and he continued to participate in it.
So that behavioral coaching thing is the biggest benefit as evidenced by thEVanguard study and it could be worth hundreds of thousands of dollars.
So that's where that "advisor alpha" comes from and, I think, one of the important points of working with a fiduciary financial advisor that wasn't that wasn't included in that video.
Of course that story's not quite as hilarious as his but it's a true story and it's real dollars.
So all right folks, thank you so much for watching. I hope you enjoyed this video. If you did click like below, consider subscribing, leave us a comment. Let me know what you thought.
Until next time I'm Patrick King. This is Transformative Television. Take a deep breath. You got this!
(You know, I totally have an elf-spotting degree now. Thanks, John Oliver!)