Month: January 2021

In my last post, we discussed the potential pitfalls of working with a financial advisor and how to successfully navigate them. Now, let’s turn our attention to the first of only a handful of conversations I’ve had with one. This first conversation was useful to me as a wealth creation beginner. The conversation helped me get past some willful ignorance. It also gave me a good advice to kickstart my wealth creation journey. Know your workplace benefits, and don’t leave money at work.

What am I talking about? One word – BENEFITS.

In fact, only half of employees understand their benefits. This is understandable, as benefits have only grown in complexity and diversity over the years. However, data from the International Foundation of Employee Benefits Plans reveals up to 80% of employees do not even open their benefit materials!

Benefits beyond core salary and even health insurance play increasingly critical roles in modern workers’ overall compensation – and even their loyalty to an employer. We’ve all heard about the cool and even unconventional benefits some employers (particularly those in tech) provide their employees. We hear less about the more mundane benefits that can put real money in employees’ pockets but get overlooked.

This is a huge, missed opportunity. You can turn benefits that are already part of your employment into value – money – that can jumpstart your wealth creation.

So what can you do to ensure you’re not leaving money at work?

Know your open enrollment period

Open enrollment is specific to health insurance. It’s the yearly period when people can enroll in the same or new health plan. The open enrollment window for private, individual health plans usually lasts from November 1 to December 15 each year. Employer-sponsored plans may follow a different enrollment window. It’s therefore important to know yours no matter the type of health insurance you have.

Invest the time to learn about all your available benefits

I recently re-read my workplace benefits, and it took me about 30 minutes to get through them. I even learned a new thing or two! Trust me on this one. The small investment in time and a bit of cognitive strain, even just once each year, are well worth it.

These two steps have helped several Black professionals uncover – and then bank – some pretty awesome benefits at work. Below are a few of my favorites:

Mark, 33, Financial Services

Mark started a new job as an associate at an investment firm. He has never utilized a 401(k) plan at work before, which is not uncommon. In fact, only 55% of U.S. workers participate in employer-sponsored plans. Mark does some digging and learns that the firm will match 50 percent of every pre-tax and/or Roth dollar he contributes to the employer-sponsored 401(k) Plan, up to the Internal Revenue Service (IRS) basic deferral limit. Mark decides to opt into and max out his 401(k) Plan. In 2020, Mark therefore saved $19,500 of his own pre-tax dollars via this plan and received another $9,750 in tax-deferred money from his job. After thirty-years, if Mark continues to max out his 401(k) based and receive this $9,750 in yearly match from his employer, the match portion of his 401(k) alone could be worth $1.1 million! *

Felicia, 46, General Management

Felicia is a General Manager at a Fortune 500 company, and to prepare for her oldest child going to college, reopens her workplace benefits to see if they can help. She sees that her company offers an Employee Stock Purchase Plan (ESPP). The company’s ESPP plan allows Felicia to contribute the Federally defined maximum of her pre-tax salary ($22,500) to purchase shares at a 10% discount. This potentially yields Felicia an extra $2,250 in unrealized gains each year. Even if she sells her ESPP shares each quarter upon receiving them, the after-tax realized gains help her make more money than if she had not participated in the ESPP program. And this is money that she now uses to help her child.

Alberto, 23, Technology

Alberto recently graduated from college and has started his first job as a software engineer at a large technology company. He finds out that his workplace benefits include a corporate discount program through Passport Unlimited. The program offers discounts at many local merchants, restaurants, online vendors, and even home and auto lenders. Alberto’s favorite is the “buy-1-get-1 free” restaurant discount at his favorite restaurant. It helps him and his fiancée cut their weekly dining out bill in half – so they can save for their upcoming wedding.

So, spend a few minutes with your workplace benefits and find out for yourself – what money are you leaving at work?

* This estimate was generated using the hyperlinked investment calculator assuming an initial investment of $100, annual contributions of $9,750 for 30 years earning 8% in annual returns. As with anything in the investment world, this is just a loose estimate, and past performance does not guarantee future results.

With my commitment to breaking the money cycles of my past, one would think a grand wealth creation plan would follow. It did not. Instead, I made an appointment to speak with a financial advisor. And what I learned is – Financial Advisors: Guilty until Proven Innocent.

We’ll get into the specifics of the conversation later. Right now, though, I want to spend some time discussing financial advisors and how I generally recommend approaching them:

THEY ARE ALL SUSPECTS!

I’m trained on the law, which holds as sacrosanct, thanks to Coffin v. United States, that a defendant is innocent until proven guilty. However, when it comes to financial advisors, I believe in the opposite. Guilty until proven innocent! Below I’ll explain why and offer three steps you can take to navigate how you approach financial advisors.

Many financial advisors are under no legal obligation to look out for you

It’s sad but true that many financial advisors, particularly broker-dealers, only have to adhere that what’s called a Suitability Obligation.

The Suitability Obligation, put forth by the Financial Industry Regulatory Authority (Rule 2111), requires broker-dealers to make recommendations that are “suitable” based on a client’s particular financial situation. This obligation, however, does not obligate the advisor to act in the client’s best interest.

What does this mean practically? It means that it is perfectly legal for this kind of financial advisor to sell you investments that are “good enough.” Broker-dealers often develop and sell these financial products to make themselves rich through commissions and fees – not you.

If financial advisors are to be approached as suspects first, then how can you ever find one that earns his or her innocence?

Only work with financial advisors held to The Fiduciary Standard

The fiduciary standard, promulgated by the U.S. Securities and Exchange Commission, requires advisors to put their client’s needs first. The advisor must provide advice that is in the best interest of the client and seek the best execution of that advice.

Advisors under the fiduciary standard are called Registered Investment Advisors (RIA). Requiring this standard of any advisor you engage should be non-negotiable.

Remember that not all advice is good advice

Even among the fiduciary standard-aligned RIAs, we need to be careful. There are wide disparities between the quality of advice advisors provide, and even between their view of themselves and reality. The Financial Planning Commission reported in a 2018 white paper that over 166,000 financial advisors referred to themselves as financial planners, but less than 65,000, or 38%, actually provided financial planning services to clients. If RIAs have this much trouble identifying the services they provide clients, it should be no surprise that their actual advice might be all over the place. This sets us all up for complexity and confusion – which are the enemies of wealth creation.

Additionally, low Black representation within the financial planning community exacerbates everything I’ve discussed. As of June 2020, there were just 1,35 Black Certified Financial Planners (CFPs) in the United States. That’s just 1.5% of all CFPs! We must therefore search high, low, backwards and forwards for advice, and be very discerning about who gets to give it to us.

Learn the basics and do it yourself

I firmly believe that knowledge is power, particularly when it comes to wealth creation. With a small investment of time (think a few hours each year), you can achieve outsized success in building wealth over the long term. Don’t let a lack of knowledge, time, or self-confidence keep you away from investing. This enables and even exacerbates the stubborn wealth gap that persists between Black and White Americans. Mellody Hobson said it best in a 2016 interview with Tom Joyner: Black investing is a full 19% lower than White investing. The stock market continues to be one of the best tools we have in our wealth generation toolkit. We owe it to ourselves and to our community to understand it and to leverage it to build wealth.

I struggled with where to start this blog, so I will start it at the beginning of my wealth creation journey, on September 14, 2016, when I opened my first brokerage account at Fidelity. I was 31, newly employed after years of graduate school, and brimming with excitement – about the job, sure, but mostly about receiving stock as part of my compensation for the first time.

Beyond the account being logistically necessary, it represented the first time in years that I was making money and, together with my spouse, more money than either one of us had ever made before. And I knew that I had to break the money cycle.

Breaking the money cycle

You might be wondering just what I mean by this exactly? Well, just in my 20s I had already experienced two cycles of having money and having no money:

Cycle #1

Having money: I worked on Wall Street immediately after undergrad, and despite being there during the worst of the Great Recession, by my standards at least, I was paid handsomely for basically being a kid. It was common, even then, to spend $195/each on an Hermès tie or $800+ on the quintessential banker loafers. Even with the expensive consumption habits that I considered the price of entry to “fit in” on the Street, I still found ways to save money here and there, either by having multiple roommates or trying to make a $5 footlong last over multiple days because I knew I wouldn’t be there forever.

Having no money: I wasn’t on Wall Street forever not because I was part of the massive layoffs of the time, but rather, I quit in late 2009 to pursue my first entrepreneurial venture. With over $50,000 in savings and still in my early 20s, I figured I had enough cash for two years of super-scrappy living in New York City hustling hard to get my business off the ground… how wrong I was! I was squarely out of money by mid-2010, paying my employees with credit cards, working at least two side jobs, and living on PB&J to float the venture that I ultimately shuttered in 2012.

Cycle #2

Having money: I went back into the work force as an employee to lick the many wounds and repay the many debts I picked up between 2010 and 2012. I was making money again, but I might as well not have been because every dollar I made either went to repaying credit card debt or to consumption (embarrassingly, also on my credit card – not a great strategy for wealth creation). I was living paycheck-to-paycheck not for the Gram (I was a late-adopter) but perhaps to hide from other people and from myself that deep down I felt like an abject failure.

Having no money: Soon after going back to work and realizing that job was not going to be a long-term fit either, I went to graduate school, to learn, I suppose, and to further hide those failure feelings. Despite working internships and side jobs to soften the blow of student loans, broke was the name of this game (again, not a great strategy for wealth creation!).

Now in my 30s, I was tired of the financial ping-pong. I was tired of:

• Spending money on status signals to assuage those failure feelings I still struggled to shake.
• Paying bills and wondering where in the world all my money had gone.
• Counting down the days until my next pay day because I needed the money.

I was tired of the cycles.

What money cycles in your life are you ready to break?