Even HNWI's Can Be Financially Clueless

Three questions from an oft-cited quick quiz:

■ If $100 earns 2 percent per year, in five years will you have more than $102, less than $102 or $102? 

■ If the interest rate on your savings is 1 percent per year and annual inflation 2 percent, could you buy more, less or the same with your money in a year’s time? 

■ Is it true or false that buying a single company stock usually provides a safer return than the stock of a mutual fund?

As noted in the NY Times, a survey found that only one-third of Americans could come up with correct answers for all three questions.

Financial cluelessness prevails even among High Net Worth Individuals, as Jason Zweig illustrates in his discussion of wealth-management fees. An investor was paying an adviser 1.5% to manage a $5 million account. When asked how much 1.5% of $5 million was, the investor guessed, "7 thousand or 8 thousand?" 

Fortunately (for themselves if not their advisers) many HNWI's have a handle on basic arithmetic. Zweig wonders if fees based on assets under management are on the way out. What do you think?

Could the future bring a split between investment management, handled at low cost by robo advisers, and financial planning for a fee? 

Might financial planners then become quasi-professionals, charging retainers or hourly fees like lawyers and accountants?