K-12 Story: Advising Women Teachers off the Sidelines
by Dina Isola, Investment Advisor Representative
It’s no secret that women face obstacles in securing a solid retirement. They live longer and have less saved in Employer-Sponsored retirement plans, mainly due to time away from the workforce (to start a family or care for a family member). Compounding the problem is that these work leaves also reduce their Social Security benefits. Frankly, to secure their retirement they need to save more; they need to get in the game now.
Research on Women
Fidelity’s 2015 Money FIT Women Study reveals that women know this: 60% worry about outliving their money in retirement. In spite of this concern, 65% of women who are offered retirement guidance through their employer do not utilize it. What gives?
All the data points to trust and confidence. Less than half the study participants feel confident discussing their finances with a professional. When asked the reason for such trepidation the top three answers cited were insufficient knowledge, lack of experience, and uncertainty on where to get the best advice.
The "F" Word
I wrote in my blog on Real$martica.com “Why the “F” Word is so important for Women Investors.” Am I guilty of being provocative? Perhaps; but if it gets women to understand that they have a choice on how they work with a financial professional, it may give them some control. The fiduciary model is a perfect fit for anyone, but especially if trust or confidence is an issue; and, most especially for teachers whose 403(b) plans often do not offer the full disclosure that other retirement plans do.
A fiduciary must act in the best interests of the client and disclose any conflicts of interest (e.g.: The insurance representative you were referred to pays for every lead he receives).
The traditional, commission-based brokerage model is what people have accepted as the only option (miles away from a fiduciary standard) even though the Department of Labor has issued new rules for advisors who handle 401(k)s and IRA accounts to act as fiduciaries.
Notice, I didn’t include 403(b)s in that list, because often they are not offered the same consideration. If teachers (a largely female population) are not offered (or are aware of) a fiduciary option, this might be a contributing factor in the dismal 30% participation rate of teachers in their 403(b) plan. They’re afraid of being misled or making a mistake.
Not All Fiduciaries the Same
However, not all fiduciaries are the same. Fee-only fiduciaries are purists working for only the client. No one is giving them money or tickets to ball games for a referral, or to recommend a product. Fee-only fiduciaries can remain clearly on the side of the client, because the client’s needs and the quality of their experience are the sole focus.
A fee-based fiduciary is a tricky proposition. First of all, it sounds too close (and can be confused with) fee-only. Fee-based advisors can earn commissions (a fee-only advisor does not work this way), referral fees, and “soft dollars” (when an outsider firm will pay for some of the advisor’s company expenses, such as research). Of course, this compensation will need to be fully disclosed to the client, which makes it only slightly better than the traditional brokerage/sales commission based model, but not by much. That model is designed to give the advisor the best of both worlds (consistent income and commissions); the client’s up side to this arrangement is less clear.
A fee-only fiduciary will educate the client; analyze the investment options in retirement plans and select the best fit for the client based on the quality of the investment and the costs. A good advisor will leave the client better informed and feeling more in control of their financial destiny. This stands in stark contrast with the “steering” that goes on with advisors who receive commissions or compensation of any kind that is not tied to the client’s best interests.
Women should shop around and ask one simple question: Are you a FEE-ONLY FIDUCIARY? The choices will narrow significantly; and unnecessary conversations will be eliminated. If “Yes” is not the answer; and I mean that simply, with no further explanation needed, move on.
403bwise provides key resources for what to know if you chose to work with an Advisor. The Certified Financial Planner (CFP®) Board has a zip code search to find local Certified Financial Planners, but look carefully at “Compensation Method” to identify those you are Fee-only.
Some financial professionals might treat their clients’ portfolios as a game of “How can I make the most money from this client?” The fee-only fiduciary wants you to get in – and win – your game of reaching your financial goals. Finding that person will help you confidently get off the sidelines.
Following a successful career in marketing communications in the financial industry, Dina helped her husband, Anthony, establish an independent registered investment advisory firm, where she worked closely with clients to service their accounts. Dina draws on her experiences and challenges, to give readers a relatable way to look at personal finance. She hopes to provide clarity and common sense to demystify the “jargon” of the financial world, so that investors stop feeling intimidated or inadequate when considering their financial planning options. At Ritholtz Wealth Management, her role of Investment Advisor Representative is to address issues affecting clients beyond their investments.