Lisa’s Lament

“Lisa” e-mailed the radio show about a month ago, asking what she should do about a portfolio heavily weighted in financial stocks (she estimated that about 40% of her $200,000 non-retirement portfolio was concentrated in the sector). While on the air, I responded, “I would cry!” but that was obviously not the last word on the topic.

I started to e-mail with Lisa to learn more about her situation. She noted, “I must say that your response of "CRY" to my question has been my gut reaction for the past couple of months.” She had been frustrated by her advisor, who “doesn’t seem to listen to me!” Lisa’s lament was one with which I am quite familiar and I asked her to come in to the office so that I could review the portfolio and provide her with guidance.
I learned that Lisa is retired and that the money that was in this account was probably invested more aggressively than it should have been, given her overall risk tolerance and potential need for the money within the next five years. That was the first problem. Problem #2 was that the portfolio was difficult to change (she wanted her advisor to sell all of the financial stocks in the portfolio), because it was managed by a sub-advisor in a pooled account, not by her investment advisor. Finally, the last problem was the fees associated with the account were high…really high.

After identifying the three problems, it was on to the fun part: the solutions! Lisa showed me the new proposal that her advisor had presented. I pointed out that the advisor was suggesting that Lisa switch to a balanced sub-advisor to replace the more growth-oriented sub-advisor that she had. I asked her a simple question: “if that’s his answer, then why not manage the account yourself?” She looked at me as if I had suggested that she jump into the space shuttle and fly to the moon, so I elaborated on the recommendation.

If her advisor thought that Lisa should be in a balanced portfolio of stocks and bonds, she might consider purchasing a Vanguard Balanced Index Fund (VBINX) directly. Instead of paying her manager 2.25%, she would pay Vanguard .20% -- a savings of $4,100 annually! She wondered if the performance might be better over time with the sub-advisor, but it would have to be a whole heck of lot better to justify 2.05% every single year!

It seemed like a great solution to me, but Lisa said that she did not want to deal with managing her money herself and in fact, for some odd reason, despite her admission that she did not think her advisor was all that smart when it came to investments, “he does meet with me every month and help me reallocate my variable annuities.” Oi, variable annuities too? In the end, despite Lisa’s lament, I just didn’t think that she was ready to make a big change. I sent her on her way, telling her as much. She sent me an e-mail a few hours later thanking me for my time and said, “Who knows? You may not have heard the last of me yet.”