We all get into some terrible relationships in our 20s. I think it’s just one of those phases you have to go through, like thinking that drinking Peach Schnapps makes you look sophisticated. Overall, I don’t regret any of the terrible relationships I had in my youth. They left me with fond memories and no real long-lasting emotional scars. But there was one toxic relationship I had in my 20s that cost me a small fortune and set my journey to financial freedom back almost a decade: my first financial advisor.
Act 1: Financial advice Tinder
I come from one of those families where you can talk about almost anything you like around the dinner table, except for money. As a result, I wandered bright-eyed into the working world with exactly zero understanding of how finances work.
My job didn’t have a pension plan or anything like that, but retirement seemed a million years away. Saving felt like something people did only when they didn’t have anything more interesting to do with their lives. I’ll sort this out later, I thought, when I’m old and an actual grown-up (a fabled state in some far-distant future, eons from 22-year-old me).
That would have been that, and I would have found myself like the vast majority of South Africans who approach the middle of their careers with no savings to speak of, had I not had a boyfriend who actually did know some stuff about money. Despite my repeated protestations that I absolutely couldn’t afford to save money right now, he suggested that I find myself a financial advisor before I blew all my money on Lego sets and Peach Schnapps.
Having no idea how one finds a financial advisor I went on to the internet and Googled “money advice”. After combing through several pages of dodgy internet money scams, I found a website with financial advisor listings. They were almost all crusty white guys pushing 60. Having no better rubric for choosing someone, I looked at the profile pictures and emailed the one who had the friendliest looking face.
Yes, I found someone to help me manage all of the money I’d make in my lifetime like it was Tinder.
I sent Mr Friendly an extremely shy email saying that I was extremely young and broke and sure that I was wasting his time. I said I was ashamed to be interrupting him to ask such basic questions, but please would he consider meeting poor little me?
Of course, looking back at this from the vantage point of having spent some time in the financial services industry, I know that a young professional with good career prospects who is starting to build their assets is a delicious money buffet for financial advisors. I didn’t know this then. I also guessed that I would have to pay money to see this guy so was pleasantly surprised to find out that the consultation was 100% free! What a world, I thought!
So, I met with Mr Friendly, who told me how important it was that I started to save for retirement as early as possible. He explained what income protection insurance was, and why I probably wanted it. I remain very grateful that he did these things. He also suggested that I buy a bunch of financial products, which all happened to be from the same company, one of the Trustworthy Money Companies that you’ve kind of heard of.
I was confused by some of his suggestions. He insisted that it was extremely important that I had life insurance, for example, even though I had zero dependents and didn’t own a house. I emailed asking him to send me the policy documents for the insurance and investment products he was recommending so that I could understand them a bit better, and he refused.
I still have his email:
Remember it’s my job as your advisor to identify and advise on the best course of action for you, so trust me, I know what I’m doing, and I’ll always give you the best possible advice.
And who was I, just some BA graduate who knew a lot about Chaucer but barely anything about taxes. “Trust me,” he said. So, I accepted whatever he told me, signed over a third of my income to him every month, and went on my merry way.
Act 2: Cracks appear
The cracks started to appear about a year later. Mr Friendly sent me an email to say that he’d moved from Trustworthy Money Company 1 to Trustworthy Money Company 2, and said that it was time for me to come in for a check-in. Picture the scene:
**SETTING:**
2010, an office.
**CAST:**
- Me, a 23-year-old idiot.
- Mr Friendly, a financial advisor, formerly a representative of Trustworthy Money Company 1, now a representative of Trustworthy Money Company 2.
Mr Friendly: We have a big problem here.
Me: Oh yikes, what is it?
Mr Friendly: This Trustworthy Money Company 1 retirement annuity product you have is just awful, AWFUL. The fees are terrible and the asset allocation is completely wrong for someone your age. Just look at these sad performance graphs over the past year. The value of your investments went DOWN, I tell you, DOWN!
Me: But … you said …
Mr Friendly: We’ve got to get you on to this Much Better Fund from Trustworthy Money Company 2, pronto!
Me: Um, okay, but you’re the one who…
Mr Friendly: Just look at these graphs!
Me: But…
Mr Friendly: GRAPHS!
— END OF SCENE —
That was my first sign that things weren’t playing out the way I thought they would. You see, naive young me thought seeing a financial advisor was like seeing a doctor. Something’s wrong with you, so you see an expert who tells you how to fix it.
You certainly don’t expect some doctors to be affiliated with chemotherapy companies, so if you come in with bunions they’ll tell you that the way to fix it is through chemo. I thought Mr Friendly was like a doctor, but Mr Friendly was really a salesman. The fact that I wasn’t paying him for his time, like you pay a doctor, should have been my clue; but, as I said, I was young and an idiot.
But even to “I know absolutely nothing about money” me, the fact that he was criticising the very retirement product that he’d sold me just a year before was a sign that maybe I’d misunderstood how this whole financial advice thing worked.
Act 3: The breakup
More years passed and, boy, did I need financial advice in those years. But I had the feeling that Mr Friendly wasn’t quite as trustworthy as I had thought he was, so I didn’t talk to him. The problem is, I didn’t talk to anybody. Instead, I got deeper and deeper into a debt spiral, spending money I didn’t have on stuff I didn’t need. Eventually, my money situation was stressing me out so much that I had no choice but to accept that I needed to learn some stuff about how money works.
I bought some books about money and read them, expecting to be confounded by how complicated it all was. But, SURPRISE! I realised that money matters are actually much simpler to understand than I had assumed. I learned about all the ways statistics can be weaponised to fool regular investors. All those graphs Mr Friendly had shown me, ranking the performance of these investment funds over the past year, had about the same predictive power of an octopus predicting Football World Cup winners.
I also learned about passive investing, and how much fees matter, and I began to wonder what else Mr Friendly hadn’t told me.
I hadn’t seen him for years, although he still managed my retirement annuity, discretionary investments and insurance policies. So I sent him an email asking him some questions about things that hadn’t occurred to me to ask before, questions like:
- Should I consider moving to a passive investment product because the data shows they outperform active funds in South Africa 93% of the time?
Related: Active funds, how do I loathe thee? Let me count the ways
- What fees am I paying on my retirement annuity?
And, the question that I think upset him the most:
- What fees am I paying YOU to manage my retirement annuity?
I still have the reply he sent me. Think he just answered my questions? Think he congratulated me for becoming more involved in managing my own money? Think he saw an opportunity to open up a deeper conversation with me about my financial goals? Nope.
Here was his response:
You asked about Total Expense Ratios, if you’re looking at this you’re on the wrong track completely. The only thing that’s important is net growth figures i.e. after costs. Funds always show return figures AFTER costs, therefore it’s fairly irrelevant to the average investor unless you are a professional that knows what you’re looking for. We as asset managers review TERs and actively negotiate costs on your behalf, so these are important to us, but to the average investor it will just confuse you and lead you to the wrong conclusion.
You’re breaking my heart!
So, basically, he said that Total Expense Ratios are far too complicated for my tiny little girl brain to understand, so he wasn’t going to tell me, and then made me feel guilty for even asking him such a rude question.
But his guilt trip wasn’t going to work on me anymore. I had put in enough work to have some of my own opinions about money. I wasn’t the naive kid I’d been at 22, ready to accept anything he told me as gospel. I decided it was time to put on some Aretha Franklin and end this relationship.
I couldn’t look up the fees on the Trustworthy Money Company’s website because they allow their advisors to set their own fees. But I pushed through to a call centre and got hold of the original minimum disclosure document from the company that held my retirement annuity. Even reading that document I still had no idea what my actual fees were (almost as though they were trying to be as non-transparent as possible! Who’d have guessed!).
Somewhere in the document it said that my fees were 2.2%; elsewhere it said they were over 5%. Whatever they were, they were too darn high, and I disliked how this supposedly Trustworthy Company had made it so difficult for me to find out what my fees were.
It took me another year to move my retirement annuity over to a new-school investment company with low fees (one that lets me do stuff on the internet and doesn’t assume that I’m working through a broker all the time). Like all divorces, it had its ridiculous moments, the most ridiculous one being when Trustworthy Money Company made me get Mr Friendly to sign a form approving that I was taking my investments away from him.
I sleep better at night now, knowing that a third of the wealth I save for elderly me is not going straight into Mr Friendly’s pockets. And, more importantly, I know that I’m the one who’s actually in charge of my money, and never again do I have to put up with condescending dudes who deliberately try to keep me in the dark about my own finances by making me feel stupid.
Also, I’m over that Peach Schnapps phase. Adulthood is pretty great.
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We hope Sam’s story has inspired you to take charge of your own finances. Start by getting your hands on her book (https://www.likeafuckinggrownup.com/) and checking if your financial advisor has your best interests at heart by asking these questions.
