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Wednesday, July 25, 2018

It Is Possible To Get "Neutral" Advice

In their 10-year-old easy-to-read book, "Nudge, Improving Decisions About Health, Wealth and Happiness", Nobel Prize winner Richard Thaler and Cass Sunstein describe "choice architects" (of which I am one) and the drivers behind their recommendations.
But before I give those details, in my substantial experience part of the impossibility of giving "neutral" advice is that there are no neutral clients.  If everyone I met with was fully informed, unbiased, realistic about the future and open to the best available evidence then indeed it might be possible to get close to providing neutral advice.
For example, I have taught many many classes on Social Security Optimization (the largest asset most retirees own) and Retirement Income Planning .  I collect evaluation forms after each class but before handing them out I practically beg for frank criticism, for contructive suggestions on how to improve the class.  Here are typical results:
  1. "The handout was too big" vs.  "You should have all the slides in the handout"
  2.  "Not enough specific examples" vs. "Too complicated"
  3.  "Felt like a pitch to buy annuities" [It is!  Absolutely!] vs. "More information about annuities"
  4. "Too long" vs. "Class needs to be longer".
  5. "Too basic" vs. "Too many terms I didn't understand".
  6. "very concise & well organized!" vs. "needs to be better organized".
And so on.  The classes are very carefully tailored and presented to convey maximum value to the largest number of attendees.  It still amazes me that people expect it to be perfect just for them. Because I diligently explain multiple times that the information is generic, may not apply to everyone, and that is why the free one-hour private strategy session is offered as part of the class.

For a minute, though, I want to talk about #3 above, specifically the annuity skeptics.  During class I can see their faces set as soon as the word "annuity" is mentioned.  A smug knowing expression descends.  It's not their fault.  They've been brainwashed by financial celebities whose self-promotion appears more important than providing evidence-based advice.  The one tried and true tactic (writ large by our current president) is to find things, for the people you're trying to manipulate, to hate.  This makes them feel like they're part of your tribe and you are protecting them.

Here's how that skepticism looks to me.  Since the #1 risk in retirement is outliving your money I feel like I have a gas station and these folks have pulled into my station unsure whether they have enough fuel in their vehicles to make it to their destinations.  I'm promoting fuel*.  They've heard gasoline is bad (well, gasoline is bad but I have yet to come up with a better simile).  Despite all the evidence, they cling to this myth even though they already have similar fuel in their vehicles that is working well (Social Security, pensions, muni bonds, dividends etc).  Nor do they have any better alternatives for extending the range of their vehicleIs this much different than growing up learning that skin color means something?

I follow the best evidence I can find.  I recommend that if you're 65, for example, ask your broker this, "If I give you $100,000 can you guarantee that in 10 years I'll be able to withdraw $10,000/yr for the rest of my life?"  There's no way to do it without annities.

*in addition to checking the oil, tire pressure, fluid levels, warning lights, the vehicle's specifications to be sure the correct products are used, etc.

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