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Vanguard Keeps It Simple: Financial Advisors' Daily Digest

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By SA Gil Weinreich :

Vanguard CEO Bill McNabb, in an article on today's SA called " Advising Clients in a Confusing Market ," is not embarrassed to write on a topic of supreme simplicity - the value of stepping up savings - and nor should he be. There're a time and place for complex portfolio strategies - some have value (though others are hazardous to your wealth). But surveying the financial condition and retirement preparedness of a majority of the working population, more needs to be done at the levels of A and B, not X, Y or Z. Here's McNabb's advice to advisors:

You may be asking yourself a question: How do I help my clients make sense of all [the market confusion], keep them investing, and still get a good night's sleep? As with any problem, there are multiple ways to go at it. But we know there's one approach in particular that is simple, straightforward, and nearly foolproof: Save more money. Not only can saving more give them a greater sense of control over their invest­ment plans, but it can also help compensate for long-term returns that, in our estimation, could fall short of historical averages.

Simple though the idea may be, McNabb notes that implementation can be a challenge:

Sacrifices are never fun, so talk to your clients about carrying them out systematically and in doses they will be comfortable with - for instance, gradually getting up to the maximum contribution in their IRA, or adding a percentage point or so to the amount they stash in their employer's retirement plan.

This is precisely the area where financial advisors can most contribute to their clients' welfare through their personal knowledge of the client and their creative thinking about behavioral coaching.

For example, take that IRA. The maximum annual contribution is $5,500. That's $15 a day. You can spend half that amount with a small (or "tall") Starbucks mocha and oatmeal that some people start their day with. If both spouses cut that out, they've got one fully funded retirement vehicle that will really give them a leg up (okay, minus the de minimus cost of whatever they bring in to replace that). Meanwhile, cutting out a subscription to the opera or the cable bill can build momentum to funding the next IRA. This couple is on their way to becoming champion savers.

For those who might react that life is not worth living without "Carmen," the advisor need only remind the clients that as their income rises, they can upgrade their lifestyle. It's all about reintroducing the forgotten idea that there are trade-offs, and reinforcing the notion that slimming down today entitles the financial dieter to enjoy the same standard of living - rather than a reduced one - tomorrow.

Please share your thoughts in the comments section. And, herewith, a few advisor-related links:

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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