The Latin term panem et circenses (bread and circuses) is a figure of speech for a superficial form of appeasement.  It is a diversion or a distraction from core issues.  If you’ve seen the movie Gladiator, multiple times they show Roman soldiers throwing bread into the stands of the Colosseum prior to the starting of the games.  Both the provisions of bread and the games themselves (hence bread and circus) were literally designed to be distractions from the poor living conditions that most Roman citizens had to endure.

Roman politicians actually passed laws to keep the votes of the poorer citizens in exchange for providing cheap food and entertainment.  Thereby those that gave bread and entertainment rose to power off the backs of the Roman citizens.

So, what does this have to do with investing?  I believe that given the volume of articles I see surrounding the avoidance of investment fees as a primary driver of success is becoming today’s panem et circenses.  This subject of portfolio cost or investment fees still dominates the discussion boards in virtually every channel.  If perception is reality, then it would seem that if everyone just used low-cost index funds for their retirement portfolio, then everyone would be financially independent at age 65.  Logic and common sense would tell us this is not the case.

A number that gets thrown around a lot is that only 5% of people are financially independent at age 65.  Whether or not this number is accurate within even 20 percentage points is almost irrelevant because the number is so staggeringly low.

And the primary reason that so few Americans do not have enough to retire doesn’t have anything to do with whether they used index funds or actively managed mutual funds.  They don’t have enough due to a combination of issues — namely that they didn’t put enough away, made behavioral errors and didn’t start saving early enough.

My intent is not to demean low-cost investing as anyone that has read my blog knows that I’m a serious advocate for it.  Look no further than my post on Why I Advocate for Passive Investing for Clients.  And I think most would agree that the fee discussion has been a very positive movement.

But investing in low-cost funds (or high-priced funds with the allure of outperformance for that matter) never has been and never will be the primary determinant of investor success.  It’s not even close.

I’ve seen articles with titles such as, “Do I really need a financial advisor if I can just choose low-cost index funds?” and “Do I need an advisor when I can manage money myself?”  Articles like that attribute far too much importance on the impact of picking funds and not nearly enough on all the other aspects that are required to navigate a successful retirement.

If I had to assign a relative importance to “picking funds” with regard to it’s contribution to achieving one’s goals - I’d say it’s in the ballpark of about 5%.  It’s true, almost anyone can pick funds, so the articles that discuss this topic with such passion are right.

That’s not the hard part though.  And that’s not where the real value of a true financial advisor should be placed.  Any advisor that’s selling themselves based on their fund picking ability is destined for failure in my opinion.

This past summer, I was lucky enough to hear Robert Gates speak.  For anyone who doesn’t know who he is, he was the Secretary of Defense for both George W. Bush and Barack Obama becoming the first Secretary of Defense to serve under two presidents of different parties.  I bring this up because he spoke of objectivity.

Pardon me for paraphrasing Mr. Gates, but he knew it was time to step down from his role as Secretary of Defense when he realized he had lost his objectivity.  In his words (again this is me paraphrasing), he had been to the front lines to see the young men and women too many times to faithfully serve in his position.  He said he had gotten too close to them to make the decisions he knew must be made and therefore felt it was only right to step down.  Once his objectivity was compromised, he could no longer make the decisions that his job required.

When it comes to retirement, I think the most significant value that a true financial advisor can provide is objectivity.  I recently wrote about emotions and retirement planning and how objectivity is almost impossible when 100% of your success or failure is in your hands.  And this goes far beyond investing into all aspects of retirement planning.

Here are a few examples of how real objectivity can play out in a planning relationship…

• Helping a client decide whether to use their investment funds to pay off their home.
• Providing the historical perspective that a client needs to stay the course when the going gets tough.
• Providing an income distribution plan that gives clients the confidence they need to spend money in retirement.
• Deciding where to take income distributions from and when.
• Helping clients to ignore all the new “shiny things” when it comes to their portfolio - (Bitcoin comes to mind).
• Finding a consensus opinion between spouses - this is always a fine line but can add extraordinary value.
• Helping clients decide what long-term care strategy is best for them (insurance policy vs. self-funding).
• Medicare Advantage vs. Medigap Coverage.
• What Social Security strategy to settle on.
• Encouraging a client to purchase an umbrella policy from their existing P&C insurer to protect themselves from liability issues.
• Deciding on next steps when helping a surviving spouse that just lost their husband/wife.
• Accountability to put an estate plan in place or update an existing plan.
• Providing assistance in identifying possible charitable organizations that are in line with a client’s values.
• Deciding whether or not a trust is the right planning tool.

This list could go on and on and I’d still be scratching the surface of what value a financial advisor might provide.  In fact, it completely ignores many of the technical, knowledge-based issues that come about.  To be clear, I’m not bragging — I’m simply attempting to refute those that believe that picking funds is THE primary determinant of investing/planning success.  It’s not.  Picking funds is somewhere close to the bottom of the list.

The real value that a true financial advisor provides is the filtering of knowledge from an objective viewpoint that is successfully applied to your specific situation.  This can be anything from helping you to bring your money into alignment with your values to making portfolio decisions to legacy planning.

Long story short, on the whole, fees are just the bread and circus that keeps people from focusing on what truly makes a difference with regard to their retirement plan.  What is far more likely to separate the successful from those that fall short is the ability to make objective decisions in light of everything that stands in front of them.  And that is where a true financial advisor can really add value.

What I’ve Been Reading:

Diversification Means Saying Sorry (blairbellecurve.com) - “By eliminating international and emerging market stocks, an investor is leaving half of the global market out of his portfolio. That is an enormous overweight position to take in the U.S.”

Go-Go, Slow-Go, No-Go: Is This A Smart Retirement Life Plan? (satisfyingretirement.blogspot.com) - “These three activity and energy stages are a natural part of the aging process. Each of us moves from stage to stage on our own unique timetable.”

Cheap is Great, But Free Will Cost You (bloomberg.com) - “Whenever a company offers something at no charge, that means the price is hidden and out of sight.”

Rube Goldberg (collaborativefund.com) - “Here’s what happens when interest rates rise. It’s really simple.”

Here’s How to Find Out What Your Social Security Check Will Be in 2019 (cnbc.com) - “The Social Security Administration has announced a 2.8 percent increase to benefits in 2019 through a cost-of-living adjustment.”

The Internet’s History Has Just Begun (ourworldindata.org) - “And while many of us cannot imagine their lives without the services that the internet provides, the key message for me from this overview of the global history of the internet is that we are still in the very early stages of the internet. It was only in 2017 that half of the world population was online; and in 2018 it is therefore still the case that close to half of the world population is not using the internet.”

How Exercise Might “Clean” the Alzheimer’s Brain (scientificamerican.com) - “At the same time, there have been traces of evidence for exercise playing a preventative role in Alzheimer’s disease, but exactly how this occurs and how to take advantage of it therapeutically has remained elusive. Exercise has been shown to create biochemical changes that fertilize the brain’s environment to mend nerve cell health.”

Last Year, The Flu Put Him in a Coma, This Year He’s Getting the Shot (npr.org) - Get your flu shot!

Bezos Unbound: Exclusive Interview With the Amazon Founder on What He Plans to Conquer Next (forbes.com) - “…but Bezos’ greatest strength, borne out over the past few years, has been his ability to shape-shift Amazon into adjacent businesses—some of which were adjacent only in retrospect—on a massive scale.”

Thanks for reading!

Ashby Daniels

Disclaimer: The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Ashby Daniels and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Although Passive Funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the funds may not be able to exactly replicate the performance of the indexes because of fund expenses and other factors.