DON’T LOSE YOUR PENSION!
8 QUESTIONS
YOU ABSOLUTELY
MUST ASK
YOUR FINANCIAL ADVISORS
by
Dr Bertie du Plessis
Don’t lose your pension! 8 Questions you absolutely must ask your financial advisors
By
Dr Bertie du Plessis
Published by Bertie du Plessis at Smashwords
Available in print from www.crink.co.za
Copyright © Bertie du Plessis 2010
The right of Bertie du Plessis to be identified as the author of this work
Has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988
All rights reserved.
Smashwords Edition, License Notes
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each person you share it with. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then you should return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
ISBN 978-0-620-45822-1
Cover by Designwave
Publishing Project Manager: Ingrid Stegmann
The main idea:
“The main idea is not to be a sucker.”
- Nassim Nicholas Taleb (The Black Swan)
Contents
Introduction
Question: 1
I don’t understand, could you please explain?
Question: 2
How will you prevent me from losing my money?
Question: 3
How long is ‘long term?’
Question: 4
Why not simply invest my money in an all share index?
Question: 5
Are you sure I should invest so much of my money in the stock market?
Question: 6
Are we talking real returns?
Question: 7
If October 2008 happens all over again, how will this influence the portfolio you proposed to me?
Question: 8
How are you paid for the advice you give me?
INTRODUCTION
Why would a communications expert write a book on investment?
Well, precisely because I am not a financial expert who is a communications expert.
Like everybody else I am in need of financial and investment services and found a world full of vague if not contradicting claims in a language I couldn’t understand. I decided to apply my craft to the subject. After all, if a service is offered to the broad public, it should be explained in language that the general public can understand without acquiring a whole new specialist vocabulary!
So although this little book was primarily written for “me,” maybe you could also benefit. Some of the content of this book was developed in a lively debate on my blog, “Read This!” on South Africa’s largest financial portal, fin24.com.(1)
This book focuses on questions — you asking questions. It’s not about the right answers; but about the right thinking process.
A question is such a wonderful communication tool. It sets you upon a course of inquiry and learning. Questioning prevents you from becoming too confident. This is so important, because you will continuously need to be conscious of how little you understand and how fragile the information is that you deal with, in order to avoid costly mistakes. In the investment universe, even more than anywhere else, pride comes before a fall!
On the other hand the act of questioning often fosters an assertive, even demanding and sometimes aggressive attitude.
You will need to be both humble and assertive if you want to get the most from the advice financial advisors offer and avoid becoming a sucker, losing more money than you can afford; or for that matter losing any money! (But that is impossible in the world of investing. Not all your investments will be successful.)
At this point we must say something more about financial advisors, sometimes also referred to as financial planners. You will meet financial advisors in different situations and guises.
You may have a single financial advisor who advises you about your pension, manages your investments, annuities, life insurance policies, short-term insurance. What happens more often than not with us ordinary people is the following: You have a broker that sold you an annuity or policy from company A. This person would be a financial planner or advisor. You might have a policy with organisation B as well. Your banking account is with another financial institution. You have some money to invest or you have inherited some shares. You find a broker. They sit down with you and advise you. Yet another financial advisor! Then a couple of weeks later you phone in to the brokerage and speak with someone else when you inquire about some new shares...
Fact is that most people are exposed to numerous pieces of advice form several financial advisors, belonging to several financial services institutions. Some of the relationships with these financial advisors may be formalised, often we have casual, fleeting interactions with individuals offering investment advice. Only a minority of people have a prolonged relationship with a single financial advisor. Even so, for those of us who have such a relationship, we arrive at that once-a-year review session with numerous snippets of information with which we have been fed through the course of months and that influence our responses when we sit across from our advisor or planner. How do we structure our thoughts going into the meeting? How do we evaluate her advice; how do we react to the suggestions?
This book is aimed at both those who have a single financial advisor and the majority who don’t.
It is an open question whether it is better to be wedded to a single advisor or expose yourself to several and do your own thing.
I look upon the issue as I do at the media. It is best to expose yourself to a variety of news media so that you get a wide spectrum of opinions which prevents you from developing tunnel vision.
Clearly a substantial case can also be made for having a single financial advisor managing your entire portfolio.
Bertie du Plessis
QUESTION 1
I don’t understand, could you please explain?
This is the most important question you can ask of a financial advisor.
If you are not financially literate, as most of us are not, you will be intimidated by your financial advisor. They speak a language different from your own, everyday language. You might be a qualified professional person and yet be unable to follow the arguments and calculations quickly. Remember they do it everyday. You come fresh and innocent to the party!
If the industry were user friendly (which it is not, for then there would have been no need for this book!) you would have been comfortable. Still you would be asked all kinds of personal questions (very much like at your annual medical check up). Your hidden vices come to light. With your financial advisor these vices are overspending, debt; unwise spending habits and recurring splurges (rather than smoking and a couple of extra beers as is the case with your medical checkup). All those things that make you look less of the prudent, strong-willed individual that you like to think you are and show to the world. Imagine meeting with your financial advisor at a cocktail party. There is a glint in her eye, “She knows your dirty little financial secrets”. Not a nice experience!
Sure, you are going to be on the back foot!
And he or she will have software tools on a notebook that will make you even more insecure. Who doesn’t feel inept when seeing a new program for the first time on a computer screen?!
And, very much like IT specialists, financial advisors love to show off their slick handling of the software: zipping open window upon window that claims to be visions of your future, either horrifying or blissful utopia, as the case might be.
Finally we, humans, are by our very nature uncomfortable with figures, arithmetic and math. We did not evolve to figure out complicated formulae.
Even accomplished financial and statistical people are prone to make the most basic mistakes and failures of judgment when they apply math to their personal lives (a Nobel Prize was awarded to Daniel Kahneman for this insight!).
There is no shame in acknowledging that you don’t know, in asking the same question again and again… Above all, this is the one area where true humility is the key to accomplishment.
You can also be sure that after having asked the “MOST IMPORTANT QUESTION” and having been given a reply, you will still not understand.
In fact asking the MOST IMPORTANT QUESTION will be of no help to you if you don’t follow it up with the next question:
“Sorry, I still don’t understand. Could you please explain again?”
And then a third time:
“I am afraid it is still not clear to me. Could you please, just one more time, explain it to me?”
During the course of your conversation you will face several temptations, coming not from the person that is marketing financial products to you, but from your inner-self.
The first of these is the temptation to look intelligent.
Don’t succumb! You will end up making foolish mistakes! This is not the place to show off how intelligent you are; how quick to grasp calculations or projections. You will do best by acting dumber and more slow-witted than you really are.
Get the body language right. Rather than sitting smiling and nodding your head while listening to the guy, frown and narrow your eyes quizzically. This will put the pressure on the advisor to slow the pace, instead of steaming ahead.
REMEMBER: The main idea is not to be a stooge!
Takeaway:
So, make a solemn promise to yourself.
“I (full names):
solemnly pledge to keep on asking “Please explain” until I fully understand what my financial advisor is telling me.”
Signed:
Date:
Place:
QUESTION 2
How will you prevent me from losing my money?
We are all greedy. We want more. And then some!
We are by our very nature seduced by promises of increased wealth. It is only natural that financial products will be marketed by promises of returns: “We can offer you 30% per year or better...”
After all, they are in business to make a profit and they must sell their services.
You don’t sell investments like toothpaste (offering a whiter smile), or mobile phones (promising touchy-feely company with your friends). No: this is the one product in the world that is sold on price. You will go where you get more money in return for your initial payment.
Here two forces work together to coerce you into a bad decision:
1. The financial advisor’s (perfectly legitimate) interest in selling his products.