Every week during the More Than Money show on AM 750 WSB we open up the week's mailbag to answer your questions in the "Lightning Round."
Today we’re discussing how rising interest rates can be both good and bad, and how to track your management fees when working with a financial advisor
I heard all week that rising interest rates are hurting the market, but you’ve talked before about interest rates going up being a good thing. Can you explain?
That's a great point. A number of shows ago I talked about interest rates going up. It's not that it's a good thing, but rather it's two sides of a coin. We tend to look at if the market goes down, it's good or bad. It totally depends on how you respond and on your situation. It can be great for some folks and terrible for others. It's not black or white, and the same thing can be said with interest rates.
Think about mortgages. If your mortgage rates are going up, that's not great. Most of us would like to be able to get a mortgage super cheap like we've got them for the last number of years. There's a flip side to this. People nearing retirement or in retirement haven't been able to get any sort of decent return on low-risk money because interest rates are so low.
We had just announced this week the new growth in the Social Security payments for next year. Social Security, when you begin receiving it, gets cost-of-living adjustments and have often been pathetic because they're tied to interest rates. This year they just announced that it’s 2.8%…the best it’s been in years! Why? Because interest rates are going up. The question is how do you make sure your plan is ready for rising interest rates?
I work with a financial advisor. He manages all our investments, but I don’t see any management fee on my statement. How do you track dollars spent in fees?
One of the first things I do with clients in the initial consultation is explain every way that we get paid. Fees and payment in my industry has been opaque for so long. Many advisors don’t ever talk about this and yet it influences the decisions they make. If you don’t see a management fee on your statement, but your advisor is the one that put you in the investments, it’s probably because he got paid commissions.
When I manage money for people, there is a flat fixed fee that is paid for that management regardless of where we put them. The other way people get paid in my industry is from commissions. That would mean putting you in a mutual fund and then up front getting paid a big chunk of money, but then Im not paid to manage it. Thats not always a bad thing, but the danger I often see with it is: I was paid that big chunk up front and now I have no incentive beyond that. Besides my goodwill or being a good person, whats keeping me managing the money well?
What it’s incentivizing me to do is to actually move you again in the near future so I can get paid another commission. I see this disturbingly often. People come in and say, “I don’t know why my advisor is tell me to move my money?” Before I even look at their statement I can usually tell them, “I’m going to guess it’s becuase it’s a commission account and they want to get paid again.” Unfortunatly, that is totally normal in our industry.
Most likely, Bill, he’s paid via commissions and that’s why you don’t see any funds coming out cuz you already paid a big chunk of money when you bought those funds. Which just means, be very careful if he comes back to you and says, “We need to move the money soon.” There is a dollar tag sign attached to that for you.
THAT'S ALL FOR THIS WEEK!
As always, I don’t know the full situation with these questions. If you want to dive deeper into any of these questions please don’t hesitate to set up a free consultation through the link below. I would love to help you figure out the most efficient way to save and utilize your money.
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