Jeannie Krieger is not your average widowed grandmother.
In the 1980s, after her husband died unexpectedly, she took an active role in making sure the insurance money for their two children was invested safely.
It helped that she had an MBA – at least she knew to steer clear of a firm in Los Angeles that wanted to manage the money but did not want to discuss how it would do it.
But in 1990, when her father, a successful surgeon, died, she felt she needed more help to manage her inheritance. “I saw people profligately destroy estates,” said Krieger, now 66. “I was willing to seek any counsel not to do it.”
In the end she turned to her son-in-law, Joseph Duran. He had just sold his financial firm, Centurion Capital Management, to General Electric after transforming it from a commission-based to a fee-based service.
And he was starting to think that Krieger’s approach was the next step: advising people who wanted to be involved in managing their money and getting others interested in taking that responsibility, too.
“I told him I knew where to go for a specific stock or bond but not for a financial plan,” she said. “How could I know what was the best choice?”
Krieger described her financial position as “moderate, but not mega-wealth,” and this was a group Duran thought needed to be involved the most.
People with $200,000 simply needed to keep working and save, he said, while those with tens of millions of dollars had plenty of advice already.
He began United Capital Financial Partners to serve people who had $500,000 to $10 million, but to really concentrate on clients with $1 million to $2 million. Still, he said he would take on clients only if they were willing to take an active role in managing their money.
Making people take responsibility for managing their wealth is now emerging as a shared goal of both the brokerage firm and the advisory community.
“The client has ultimate responsibility for the management of his wealth,” said John G. Taft, chief executive of RBC Wealth Management and chairman of the Securities Industry and Financial Markets Association, a trade group for the brokerage industry.
Historically, people’s involvement with managing their money has been in inverse proportion to their wealth and need. P
eople who have plenty of money have been the most involved with managing their wealth – and talking to their coterie of advisers – while those with far less money and much more to lose from a bad investment decision have been less involved.
Taft said too many people thought that giving their money to someone to manage was like buying a washing machine: the manager would make sure everything ran smoothly.
“The reality is 20 per cent of the time the clothes are shredded, 20 per cent of the time they come out a different colour and 60 per cent of the time they’re clean,” he said. “This is the mismatch between expectations and reality.”
When some people realize this, they go to the opposite extreme and become convinced that an adviser has no value. There are now plenty of places to channel this populist anger.
“Millions of people are asking themselves, after the last 10 years where the market has gone nowhere, if they can afford the advice they’ve been getting,” said Ken Kam, chief executive of Marketocracy, which operates a website that allows people to trade model portfolios before putting real money at stake.
“Many people want something done differently, and they feel they probably can’t do worse than their advisers could do. They can do this, but it isn’t simple.”
His website has become a haven for people who believe they can go it alone and achieve spectacular returns. The site allows would-be stock gurus to trade virtual portfolios before they put their own money at risk.
Matthew Schifrin, author of “The Warren Buffetts Next Door” (Wiley, 2010) and an editor at Forbes, has followed what 10 self-taught investors have done.
He said what they had done was unusual – their returns were all astronomical – but that he believed the average person could learn enough to increase returns by up to 4 percent a year.
“You can do it on your own,” Schifrin said. “You can also learn when an adviser is trying to sell you something that is not appropriate for you.”
While the people chronicled in Schifrin’s book are at the extremes, there are also do-it-yourselfers whose enthusiasm risks frustrating their advisers or, worse, harming their retirement portfolios.
“When an adviser constructs a portfolio, it’s beneficial for the client to know why those securities were selected but it’s not beneficial for the client to redo the selection or replicate the analysis,” said Stephen Horan, head of professional education content and private wealth management at the CFA Institute, a membership organization for investment professionals.
Horan said that whenever a client questioned an adviser it offered an opportunity for greater dialogue. He said the onus was on advisers to empathize with the client’s concerns, rather than offer a response full of historical data or be dismissive.
“There is a lot of communication that should precede the asset allocation,” he said. “That encourages client involvement and could lead to conversations that might not have happened otherwise.”
But in most instances this process is a slow one.
Sallie Krawcheck, president of Bank of America’s global wealth and investment management unit, said studies her firm had done showed that people wanted to be more involved in their finances and investments.
But the surveys suggested that new clients found the process of creating a financial plan too invasive. “With a plan, they feel defeated before they begin,” she said. “Very few people can sit down and do it all at once.”