Pound Foolish: Exposing the Dark Side of the Personal Finance Industry

274 Pages·2008·1.42 MB·English

by  Helaine Olen

POUND
FOOLISH
POUND
FOOLISH
Exposing the Dark Side of the
Personal Finance Industry
HELAINE OLEN
PORTFOLIO / PENGUIN
PORTFOLIO / PENGUIN
Published by the Penguin Group
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New York, New York 10014, U.S.A.
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First published in 2012 by Portfolio / Penguin,
a member of Penguin Group (USA) Inc.
Copyright © Helaine Olen, 2012
All rights reserved
Library of Congress Cataloging-in-Publication Data
Olen, Helaine.
Pound foolish : exposing the dark side of the personal finance industry / Helaine Olen.
p. cm.
Includes bibliographical references and index.
ISBN: 978-1-101-57530-7
1. Financial planners—United States. 2. Investment advisors—United States. 3. Finance, Personal—
United States. 4. Financial services industry—United States. I. Title.
HG179.5.O44 2013
332.02400973—dc23
2012035385
No part of this book may be reproduced, scanned, or distributed in any printed or electronic form without
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While the author has made every effort to provide accurate telephone numbers and Internet addresses at the
time of publication, neither the publisher nor the author assumes any responsibility for errors, or for
changes that occur after publication. Further, publisher does not have any control over and does not assume
any responsibility for author or third-party Web sites or their content.
For all those who participated in Money Makeover
“How did you go bankrupt?” Bill asked. “Two ways,” Mike said.
“Gradually and then suddenly.”
ERNEST HEMINGWAY, THE SUN ALSO RISES
All humanity is here. There’s Greed, there’s Fear, Joy, Faith, Hope…and
the greatest of these…is Money.
LUCY PREBBLE, ENRON
CONTENTS
TITLE PAGE
COPYRIGHT
DEDICATION
EPIGRAPH
INTRODUCTION
CHAPTER ONE
WHAT HATH SYLVIA WROUGHT?
CHAPTER TWO
THE TAO OF SUZE
CHAPTER THREE
THE LATTE IS A LIE
CHAPTER FOUR
SLIP SLIDIN’ AWAY
CHAPTER FIVE
THE ROAD TO PAS TINA
CHAPTER SIX
I’VE GOT THE HORSE RIGHT HERE
CHAPTER SEVEN
AN EMPIRE OF HER OWN
CHAPTER EIGHT
WHO WANTS TO BE A REAL ESTATE MILLIONAIRE?
CHAPTER NINE
ELMO IS B(r)OUGHT TO YOU BY THE LETTER P
CONCLUSION
WE NEED TO TALK ABOUT OUR MONEY
ACKNOWLEDGMENTS
NOTES
INDEX
INTRODUCTION
UST BEFORE CHRISTMAS 1996, I received a call from an acquaintance asking
me if I would like to try writing for the Los Angeles Times’s recently
J
established Money Makeover series. I was thirty years old and all I knew
about personal finance was that writing about it paid more than the lifestyle
features and breaking news coverage I’d been doing. So I accepted the gig
eagerly. I figured I would write one sample, the editors would realize I had no
idea what I was doing, there would be an uncomfortable confrontation, and they
would issue me a check for double my usual fee and send me on my way.
The premise of Money Makeover was similar to other makeovers, but
instead of providing fashion or beauty suggestions we fixed our candidates up
with financial experts. My role was to do everything from determining the issues
to be discussed to documenting the interactions between all the parties. So when
I spoke with my first subject, a former college basketball player turned
pharmaceutical account executive, I let the financial planner assigned to the case
take the lead. I frantically jotted down terms and phrases, words I would look up
in my just-purchased copy of Personal Finance for Dummies later that day. I
decided I had to do something to justify my bill, so, lacking the knowledge to
challenge the planner, or even know if I should be challenging the planner, I
began to relentlessly quiz my subject on money: How much money do you
have? How much do you want? What do you want to do with it? Do you want to
travel? Have children? Do you want to work at your current job forever or
change careers? Can you afford to change careers? Do you think you will have
enough money for retirement? Are you even thinking about retirement?
I handed the piece in and waited for the furious phone call from the edit
desk. After all, I had just recommended my subject consider purchasing
something called a variable annuity, even though I had no idea what that was.
But when the call came, I didn’t get fired. I received another assignment.
Maybe, I thought, I got lucky. I thought for sure I’d be caught out on the next
Makeover, a Hollywood producer’s son who didn’t want us to mention the name
of his father because he wanted to see if he could make it on his own (the answer
was…maybe), or the one after that, a gay couple who owned a restaurant in
Mammoth Lakes that was taking over their lives. But that one resulted in a
commendation letter from the Southern California ACLU—according to the
president of the organization, I was the first reporter to simply present a gay
couple in the pages of the Los Angeles Times without making a fuss over their
status except to say it gave them some unique financial issues. There was
another makeover, and another, and another. Pretty soon I was a lead writer, and
more or less responsible for coordinating the feature.
In just a few months, I’d gone from money novice to personal finance expert.
I should pause to say I am not the only personal finance writer to get her start
this way. Demand for journalists who could write about personal finance began
to outpace supply in the 1990s as newspapers upped their coverage of this
formerly ignored subject. “I was ignorant,” wrote an anonymous Fortune writer
about his or her time recommending investments for an Internet publication in a
1999 piece titled “Confessions of a Former Mutual Funds Reporter.” “My only
personal experience had been bumbling into a load fund until a colleague steered
me to an S&P 500 index fund. I worried I’d misdirect readers, but I was assured
that in personal finance journalism it doesn’t matter if the advice turns out to be
right, as long as it’s logical.”
There are any number of things you can take from my story and others like
it. The first is about money and what it means to us. When you write about
people and money, you write about much more than dollars and cents. You write
about their lives. When we talk about money, we tell people where we have been
and where we hope to be. My editors understood that they could more easily
teach me the difference between an annuity and an average annual return than
find another reporter who had the ability to get people to open up about a subject
that most of us will barely discuss with our loved ones, never mind the general
public.
The second takeaway was that much about the handling of money wasn’t
that hard to understand. Terms and concepts that sounded mysterious were really
quite basic. It was easy to learn the difference between a defined benefit and a
defined contribution plan, or a load versus a no-load mutual fund, or a growth
versus value style of investing. Common sense ruled. If it was complicated and
hard to comprehend, chances were you shouldn’t invest in it. Financial advisers
who were paid by a percentage of fees under management or by the hour really
did seem to do a better job than those whose compensation depended on
convincing their clients to buy or sell financial products. People who couldn’t—
for whatever reasons—live below their means generally found themselves in
financial trouble sooner or later. Insurance was invented for a reason. Many of
us could save ourselves a hell of a lot of trouble by simply picking up a copy of
Personal Finance for Dummies, like I did when I was first learning, and
following the advice therein.*
The third takeaway was this: just because we could easily learn the basics of
savings and investing didn’t mean we did so. The ignorance was profound. No
amount of lecturing or hectoring or telling people to take financial medicine for
their own good actually got people to look into upping their financial literacy.
Taking part in a Money Makeover only seemed to help the people who were
already ahead of the curve. When I tracked down a number of our subjects in
2010 and 2011, it seemed as if they had followed our recommendations in a style
that could kindly be described as scattershot. For example, it was clear in 1997
to Margaret Wertheimer, the financial planner we assigned to a marketing
coordinator and artist whose life had been upended when her husband suffered a
disabling brain aneurysm, that the couple needed more comprehensive financial
planning and counseling than their broker was performing. The woman
interviewed a number of financial planners, but ultimately stayed put because
her broker “assured us he could help us with this other stuff.” In this case, alas,
past performance was indicative of future results. Unfortunately, she didn’t
discover that for more than a decade, when her broker’s response to the market
crash of 2008 was to suddenly inform her that she was at serious risk of
outliving her assets.
The fourth takeaway: the column gave readers the illusion of control. I was
told many times by editors and advertising executives that Money Makeover was
one of the most popular features in the entire newspaper, and I believe it. Money
Makeover marked the only time in my entire journalism career when almost
everyone I met had read a sample of my work. Anything from a visit to a
doctor’s office to the occasional invite to a Hollywood dinner party would result
in my being regaled with the details from Makeovers gone by.
What could be the attraction? Sure, there was a financial rubbernecking
aspect, but mostly we analyzed someone’s portfolio and, in conjunction with a
financial planner and other experts as needed, we suggested steps our subject
could take to improve both their finances and their lives. Even I thought hearing
about the need for mutual funds week in and week out was kind of boring, and I
was writing the darn thing. But over time, I grew to understand the column’s
predictability was an essential part of its appeal. With rare exceptions, there was
no problem presented that was insurmountable. “You can do it!” the column
subliminally said, and we believed it. It allowed us to feel more secure about our
own ability to manage our funds and future.
It was the fifth takeaway that was the most important, and it was the one that
took the longest to comprehend. As William Goldman had once discovered
about Hollywood, Nobody knows anything. The same was true for much of the
personal finance and investment culture.
Over time, I listened as nationally renowned financial planners assured
investors that real estate was a terrible investment or informed them they should
eschew gold and silver and other commodities. Others, equally well intentioned,