written by Richard Laudon

The initial phase of a journey to financial independence can be compared to a typical vacation. Although you know the destination, you may have purposely left some time unplanned. On your trip, you encounter detours as well as a minor car accident. Specific information regarding accommodations and restaurants feels both informative and overwhelming. Hopefully in the end, your vacation becomes a memorable experience despite some moments of doubt.

My own journey began in July of 1975, when I signed a full-time contract to work at the New England College of Optometry. Since my sole objective was getting a job, the actual salary was not an issue during our negotiations. In retrospect, I should have been more concerned about my paycheck because it set the baseline for the rest of my employment. In my third year on the job, my supervisor changed my career path when he abruptly left the College for a position at another optometric institution. The unexpected timing of his departure forced my Administration to alter my professional responsibilities, which resulted in a significant increase in pay. It was one of the few times in my forty-year career that I received a substantial raise. Most of my yearly increases in salary were tied to cost of living raises.

With my position at the College and my wife’s position as a teacher, we felt the need to seek the assistance of a financial advisor. Our money management skills at the time were limited to poorly managing a checkbook, so professional expertise was a necessity. A trusted colleague, I had known since College, recommended his own advisor, and so I ended my search prematurely. I will always remember our initial encounter with his advisor; his office was richly furnished with one whole wall covered with diplomas and other acknowledgements. I was almost embarrasses to be sitting in front of him with an asset base of a white and green Datsun and a few hundred dollars in the bank. His proposed plan was to have my salary directly deposited into a brand-new financial product — the Deyfus Money Market Fund. Although money markets are common today, this was an innovative type of investment, designed to deliver higher interest rates than any bank account. He also strongly recommended life insurance and disability insurance policies. Although I was aware of these types of insurance, I had not considered them as part of our current needs. Disability insurance, specifically, was essential because the odds of becoming disabled versus dying during your working years are much higher.

With the addition of our two children, Sara and Jesse, my wife’s job commitment had to change. Full-time childcare wasn’t an option in our budget, so she took a sabbatical while they were infants and toddlers. Over time, she moved from part time to full time employment as they grew older and entered public school. These changes in income created many money issues. There were arguments over credit card bills and other unexpected expenses associated with raising a family and managing a household. As a result, our financial advisor was a constant in our lives while we navigated these treacherous waters. His primary focus was on changing life insurance policies every two years and building a supportive relationship with me. As a result, I had so much life insurance that I was worth more dead than alive, which made me think that I needed to sleep with one eye open!

The next step in this journey can only be described as my most outrageous dumb decision, which was promoted by my advisor. The logic behind this hare-brained proposition was that we would save money on taxes and have a passive income stream. This non-taxable income would pay for our initial investment and more. For capital, I needed to borrow $25,000 from the Bank of New England by taking out an adjustable mortgage. This money would be used to purchase five different limited partnerships in categories ranging from real estate to gas/oil exploration. This strategy was a popular investment alternative in those years. You could even invest in bull sperm! After receiving two checks for approximately six hundred dollars, the payments stopped. One other undesirable financial consequence was that my adjustable mortgage reset at a higher rate on three different occasions, from 8% to 11%. Although I did ultimately save money on taxes, it was not as scripted by my financial advisor. The ordeal created a lot of anxiety, disappointment, and anger when these programs came to an end. All five of the limited partnerships went into bankruptcy including the Bank of New England. Ironically, the bank’s demise occurred after I had paid off my loan. The bottom line is that schemes to avoid paying taxes are not always an appropriate or successful strategy.

Another component of my advisor’s plan was to build a portfolio of mutual funds. It was exciting to watch the nightly news report gains in the stock market and then track my funds in the newspaper the following morning. What I did not realize until later was that I was only focusing on my funds instead of comparing their performance with similar funds or any other investment opportunities. Comparisons are important because they can distinguish between the good and the bad, within specific fund categories. According to Morningstar, there are over one thousand funds, which are listed as large cap growth funds. Fidelity Investments, itself, offers over fifteen different funds in the large cap group. Obviously, there is a wide range in performance in each of these categories on a yearly as well as other defined time frames. One truism in investing is that poor performers continue to underperform until they cease to exist.

My moment of truth in our unfolding fiasco occurred when I happened to see a late-night infomercial promoting Money magazine. Since entire issue was to be dedicated to mutual funds, I immediately ordered a subscription. When it arrived, I was astonished to find that each of my funds were rated E and E was not for excellence! In fact, they were in the bottom twenty percent in overall performance. The only other commonality between these recommended funds were their high fees. One component was an 8 1/2 percent front end load or entry fee to purchase individual shares, which was an undisclosed commission for my advisor. When confronted with this information, all he did was stress the importance of maintaining a long-term versus a short-term perspective. Eventually, all three of these funds were either merged or completely disappeared because of poor performance or lack of assets. In my naive and trusting mind, I mistakenly thought that our financial plan was still functioning properly because our net worth was going up in value. In the world of investing, Bull markets will have a positive impact on all funds regardless of their actual performance. As described in the famous aphorism, “a tide lifts all ship”, I had finally found the underlying reason why my mutual funds had shown any positive improvement at all.

Another unexpected event occurred when I was forced to change advisors within their firm. My first advisor transferred my account to a colleague so he could commit more time to a new position within the organization. It was a reasonable explanation but I was deeply saddened by the loss of his advise and support. For many decades, I kept this transfer letter in my files as a reminder of this painful experience. My relationship with my second advisor was always strained. I never really developed a rapport with him either on a financial or personal level. Despite many red flags, I foolishly kept my money under his management. For some reason, we have a social etiquette with financial advisors like we do with doctors — we rarely question their competence. There is a blind faith that they will always put our welfare and financial outcomes first. A lesson to be learned from my experience is that personal relationships with financial advisors can ultimately cloud your decision-making. Negative outcomes are often overlooked because it can take years to see the obvious consequences of these relationships. After more than a decade of misguided recommendations and questionable results, I was out of patience with their incompetence and cut all ties with their advisory firm.

In the aftermath of this decision, I had an initial feeling of exhilaration and then despair as I had taken complete control of our financial destiny. Sole responsibility is often a scary and lonely position, and second guessing yourself is frequently the result. Finger pointing or blaming others for your poor financial decision making is also not an option because it does not lead to a positive conclusion. A decision is a decision is a decision. We need to learn from each of our financial mistakes as well as have self-empathy and humility when we encounter periods of financial turbulence. People are often in denial of their errors in judgment especially in the area of money management. With the passage of time, these unexpected interruptions should only be remembered by reflecting on how you had been able to deal with these challenges. Obviously, you will need to make more right decisions than wrong decisions over a lifetime to achieve your financial goals, but no path to anywhere is a smooth route without some unforeseen complications. In the next segment of “Stepping into the Financial Wilderness — Part 3”, I will share how I changes the direction of our future finances. Although my advisors had assisted us in developing a plan, it had ultimately been more beneficial for them then for us. Another eye-opening moment, I had years later was when I learned the fate of my pseudo-trustworthy advisors. My first advisor had been censured by the Securities and Exchange Commission (SEC) for mismanagement of his client’s money and my second advisor had been convicted as a pedophile!

The morale of the story is beware of the negative impact that financial advisors can have on your financial health. My skepticism regarding advisors is based on both personal as well as personal acquaintances’ experiences. Your own interactions may be different, but my advice remains the same no matter how qualified and competent your advisor is — always be cautious in following any advice without defined goals and specific time frames. By taking responsibility or at least sharing responsibility, you will enhance your chances for a successful outcome on your own road to financial independence.

Read Stepping into the Financial Wilderness — Part 1