Have a Spouse? Managing Your Money on Your Own? Heed this Warning.

The following article by Robert Schmansky, CFP® was originally published at Forbes.com.

Labor Secretary Thomas Perez recently testified before the House on a proposed rule to regulate financial advice related to employer-based retirement accounts and rollovers. Perez began his remarks with a story of a couple where the husband managed a low-cost portfolio without the help of a financial advisor. Upon his passing, the wife went to her trusted bank and was sold an insurance product that Mr. Perez claims was inappropriate due to high fees.

Later in his testimony Perez repeatedly recommended an online trading platform that provides low-cost portfolio management as if that is what an elderly widow who needs significant personal attention from a qualified professional would need or want.Online, so-called “robo-advisors,” provide cookie-cutter investment portfolios based upon a few variables, but ignore all of the complexities and emotional needs that human clients like the widow in Mr. Perez’s example need assistance with.

It is unfortunate, but it seems regulators and other groups would be fine with cutting financial advice out of the financial services industry.

Consumer organizations would also like to mandate into law restrictions on how individuals can use their retirement dollars. A website called “Save Our Retirement,” which appears to be made up of several consumer organizations, supports Perez’s claim that rollover fees are an issue for retirement savers (I reached out to the email address for comment, but have yet to receive a response). This site claims there is a “loophole” in the law that needs to be closed, but does an extremely poor job defining what that loophole is, simply saying that individuals can rollover their funds to various financial firms today with different objectives. It is clear they are against the higher fees, though most of the fees Perez and others noted in their examples go toward paying financial advisors for their services through various products.

And while some may be fine without the help of a financial advisor, consider Mr. Perez’s widow. She only knew to turn to a salesperson for help. A human, but one she did not know was a salesperson. If you are the money manager, consider if your spouse may do the same. And then consider the alternatives if the government, consumer and employee protection organizations have their way: Robot trading platforms or no advice at all apparently is preferable to any financial advisor.

As a NAPFA advisor, I am fee-only, have no products to sell, and while it’s likely these groups would not mind someone working with someone like myself, it is odd that they don’t go out of their way to recommend advisors like us. It seems to me someone needs to be criticizing the claims that the cost to employ a human does not come without benefit. There is no mention of the numerous studies of the value provided both by the products and by the personalized advice that advisors are crafting for retirees.

The mutual fund group Mr. Perez cited as the original, good portfolio provider, The Vanguard Group, cites the value of a human financial advisor at about 3% per year. An advisor can counsel on Social Security strategies that can increase lifetime retirement income by over $100,000. Additionally, the impact of tax withdrawal strategies has been shown to add upwards of five years to the life of some portfolios.

Is there a problem that needs a regulatory fix when widows are sold insurance products that have a higher cost than barebones investment products? Maybe. I believe the value of an advisor can overcome many costs, in observable terms with an appropriate investment mix, and with endogenous risks inherit in human decision making. Who is to say an advisor can not add more than the “4-5%” Mr. Perez took issue with to some relationships? Who is to say the value an advisor provides isn’t worth more to that widow than what they would make in market returns?

However, they face a new hurdle in finding human advice if regulators and other organizations seek to limit a spouse’s options to employ advisors. As someone who has worked with widows and widowers, being alone is confusing and difficult enough without having to learn all of the jobs their partner did during their life. If you manage your family’s money I hope this blog may encourage you to develop a relationship with an advisor today who may continue the plans for your investments when you are not able.


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