Tuesday, March 24, 2015

The Unbearable Complexity of Almost Everything Financial

"The complexity of our financial lives is so extreme that we must painstakingly manage each and every aspect of it,"laments Ron Lieber in The New York Times. He cites Social Security.

In my parents' time, the breadwinner claimed Social Security when he retired, his stay-at-home wife claimed her spousal benefit, and that was that. Today? Couples need to study a book or two and seek expert counsel or risk leaving money on the table.

If Social Security has become too complicated, "tax-favored" retirement plans have become a national disgrace. We have pensions (often underfunded) and 401(k)s (often overpriced). We have IRAs and spousal IRAs and self-directed IRAs and Roth IRAs and SEP IRAs and rollover IRAs and stretch IRAs and …..

Yet everyone agrees, few Americans are putting aside enough for retirement. Those who do must contend with thorny thickets of rules and regulations. As a result, financial planners devote more and more time to questions relating to the transfer, withdrawal and bequeathing of retirement funds.

Meanwhile, basic investing leaves people utterly bewildered: Thousands of mutual funds. More than a thousand exchange traded funds. A confusing, ever-growing array of packaged investment products. (If a fund is formed to invest in a portfolio of hedge funds that invest in other hedge funds, do you call it a fund of funds of funds?)

In "the landscape of confusion and tedium that characterizes our financial lives," Lieber observes, "every task seems to require its own multichapter management manual."
Most investors won't read the manuals; they will seek human guidance. They are most likely to turn to brokers, who can't always offer disinterested help. Hence the well-intentioned movement to transform investment salespeople into fiduciaries.

Can this 21st-century alchemy succeed?

1 comment:

Jim Gust said...

Making every investment advisor a fiduciary will have the same effect as giving everyone a college degree: The debasement of the credential.

It's a pointless exercise.