What Suze Orman Really Thinks of Financial Advisors
Orman tells ThinkAdvisor about her 17 years as a broker and what she thinks of digital advice.
January 02, 2019 at 03:43 PM
16 minute read
Tax PlanningThe original version of this story was published on Law.com
If you could peek at Suze Orman's personal portfolio, here's some of what you'd see: Big positions embracing about a dozen cannabis companies. "I believe that in the future, this will be a tremendous investment," the personal finance expert tells ThinkAdvisor in an interview, in which she reveals more about her investments and serves up a candid critique of financial advisors.
Seventeen years a stockbroker at Merrill Lynch, Prudential Bache and head of her own firm before morphing into a household name as a global personal finance expert, Orman, 67, is pumped up about digital advice but largely thumbs-down on financial advisors. Many fail to serve clients' needs, especially those of women, she argues. Why? Because FAs have their own "horrific relationship[s] with money."
Orman is famed for demystifying investing. Her focus is largely on paying down credit card debt and dollar-cost-averaging — "the secret sauce to making money," as she calls it. She hosted "The Suze Orman Show" on CNBC for 13 years and is the author of nine consecutive New York Times bestsellers.
In the interview, the Chicago native talks about her experiences as a wirehouse advisor — including selling annuities — beginning in 1980, and later, heading her own Suze Orman Financial Group. Also: Why she left Merrill Lynch for Prudential Bache and why she sued Merrill — not in that order and not for the same reason.
Orman semi-retired two years ago to a Florida condo and a private island in the Bahamas. But that doesn't mean she exited the spotlight. Her newest book is a revised, updated edition of "Women & Money" (Spiegel & Grau, Sept. 2018), which features a reworked "Financial Empowerment Plan" and a "Bonus Section: Investing on Your Own."
Booked for about 15 motivational speaking engagements in 2019, Orman resumes her "Women and Money" podcast in January. In one recent week, she turned down offers to star in three different TV shows.
In the interview, she offers guidance to both younger investors and pre-retirees, and stresses the type of effective advice FAs should provide clients, especially how they can help during a correction, such as the current one.
ThinkAdvisor recently interviewed Orman, speaking from her home in the Bahamas, where she and wife Kathy "KT" Travis land big fish — wahoos — from their Boston Whaler.
Here are highlights of our conversation:
THINKADVISOR: Do you take your own financial advice?
SUZE ORMAN: You bet I do!
What's in your personal portfolio?
To this day, about 95% of it is still in municipal bonds. When interest rates were a lot higher, I could lock up 5-1/2% tax free. Because I'm a Florida resident, I was able to diversify throughout the U.S. and not have to pay state income tax [anywhere] on these bonds, making them federal and state income tax-free.
What else do you invest in?
In my growth position and my pension account, I have probably $5 million or $10 million in individual stocks. I recently invested a serious sum of money in about 12 cannabis companies across the board because I believe that in the future, this will be a tremendous investment. I have a considerable amount in Amazon and [other] stocks [in that sector], which I still love to this day. I still have Netflix. I have a variety of stocks across the board — quite a few of them, probably about 100.
Isn't it risky to invest that much in individual equities?
If I lost all of that money, it wouldn't affect my life on any level. So for me, it's not a risk. And this is something I don't plan to touch for 10, 15, 20 years. These aren't stocks that I plan to trade. Some of them I've watched go from $20 to $50 in a month and back down to $20. But I didn't buy them to go from $20 to $50. I bought them to go to $200 or $300 or $500. Amazon, for instance, I didn't buy at $20 to sell at $50. You don't buy a great, great stock to just double your money. You buy it to create tremendous wealth for yourself.
"The financial services industry makes investing seem more complicated than it is (in the hope that you will hire an advisor)," you write. Please elaborate.
Watch CNBC. Do you understand the little tickers they have going by, like in a foreign language? Nobody even uses ticker tapes any more. People are afraid that investing is too complicated. I'm talking about the majority of investors. They're saying to an advisor: "Besides my 401(k) or Roth IRA, can you invest $5,000 a year for me?" So, at that point, they would be buying an index fund.
Wouldn't an advisor be of help, then?
They don't need a stockbroker to buy an index fund or an exchange-traded index fund. All they need to do is pay off their debt; put extra money toward the mortgage on their home, if they're going to stay there; and dollar-cost-average every month into an S&P 500 index fund — maybe an international one. In the majority of cases, over time, their returns will be equally as great as if a manager is managing their money.
You write that women don't have a healthy relationship with money. What can financial advisors do to help?
Most financial advisors also have a horrific relationship with money, in my opinion. I'm almost willing to bet that the majority of advisors telling you to do A, B, C and D haven't themselves done A, B, C and D. Therefore, it's very difficult for them to talk to women in a way they can understand and relate to about money when they don't even talk to themselves that way.
But how can advisors better serve women?
Most financial advisors don't want to make you independent of them. When I was a financial advisor with my own company, my job was to make clients as financially independent of me as possible and develop their own ability to manage their money. Even when I worked for Merrill Lynch and, especially, for Prudential Bache, I never sold a mutual fund.
Really!
If someone wanted to buy one, I gave them an application for Charles Schwab and said, "Either open an account with Schwab and buy no-load mutual funds, or open an account at Vanguard and buy a Standard & Poor's 500 index fund. You're not going to be paying me to sell you a loaded mutual fund when you can buy one without paying a commission.
Do you ever give financial advice to your personal friends?
Yes. About three weeks ago, I was talking with a friend who had a lot of money in Apple and Netflix. I told her that those stocks have had tremendous gains and that, because they're not in her retirement accounts, "Why don't you sell them? You can sell them all without paying a penny in taxes." [She had made no income and was in the 0% capital gains tax bracket.] So she sold everything.
What did she do with the proceeds?
Now that everything has gone down considerably, I told her, "You might want to buy back in now." That's the type of advice you want a financial advisor to be able to give — not "How much money do you have, and therefore you should buy [such and such]." Rather, "What are your needs in your life? What do you own? What do you owe? [etc.]
In "Women & Money," you state that "retirement planning is the most devilish of financial goals." What's devilish?
You have a good angel on one shoulder and the devil on the other. The angel is the fear of getting older. It's the reality of life. The devil is the one saying, "You're never going to get older. Don't worry. It's fine. Just go for it. You're never going to get divorced or lose your job." It's the hope-for-the-best-and-plan-for-the-best scenario versus hope for the best and plan for the worst.
I interviewed writer-director Travis Shakespeare about his upcoming film on FIRE — "Financial Independence, Retire Early." He said the movement more accurately should be called "No Longer Need Mandatory Work to Survive." You've said that you "hate" the idea of FIRE." Then you wrote that you're "so on the same page" with the FIRE principle of "stopping work that you don't like … and finding work that … fulfills you." What's your bottom-line take?
Originally people told me FIRE was: Make all the money you possibly can and at 28 or 29, retire and never work again as long as you live. I thought that was the most ridiculous thing I've ever heard in my life, and still do.
The idea is that FIRE walkers need to save 50% to 70% of their current salary for about 10 to 15 years and invest 25 times their annual expenses so that they can retire one day in their chosen lifestyle.
How do you do that! How big is your salary that after taxes you can save [so much]! How are they sending their kids to school [etc.]? None of it makes sense to me. I don't know anybody who can save 70% of what they're making when they're 28 years old. [Followers] are literally burning up with FIRE: If they were making more than 4% in dividends with their investing in the past month or two, [I'm sure] they're now seriously eating into their principal. So I really don't know what [the movement] is talking about. But more power to them! Not my problem.
Do you like the concept of digital advice?
I do. I'd rather have somebody that's programmed without emotions or needs to give you advice than somebody who gets emotional and has a thousand clients they're putting in the stock market at the top of the market who are now down 10% or 20% and are calling and yelling at them. With [digital investing], there's a formula and a computer. However, I think that for most people, dollar-cost-averaging in a good no-load mutual fund will set them for life.
You were a financial advisor for about 17 years. What was the most challenging aspect?
[What I didn't know but] learned was that the advice your sales manager gave you to sell [a product] to clients was many times not in the best interest of the client — it was in the best interest of the firm. Sometimes the firm had [investments] in their own portfolio of stocks they wanted to unload. Sometimes they had deals and loans outstanding to certain companies — Baldwin-United, for example.
Why name that company, which was in the insurance business, among other fields?
I'll never forget it. Back in 1982, the single-premium deferred annuity was maybe one of the best investments out there. It was paying 14-1/2% to 15% interest, and that's where I was putting all of my clients' money. Before the tax laws changed that year [September 1982], they were first in, first out. For example, if you put in $100,000, you could take out $100,000 income tax free.
So what happened with Baldwin-United?
Merrill Lynch had a buy recommendation on the Baldwin-United stock when it was at about $60 a share. Then it started to go to $50 to $40 to $30. I went into my manager's office: "You still have a 1-1 rating — meaning buy long-term and short-term — on the stock. But it's plummeting." The rumor was that Merrill had a $60 million loan outstanding to Baldwin-United, and they wanted their money back. The stock went belly up.
What happened with the Baldwin-United annuities that you had sold to clients?
Their money got locked up. They finally got all of it, but there was a big lawsuit because Merrill and other brokerage firms weren't being honest about the trouble they knew Baldwin-United was in. The stock was going down the drain, and they still had a 1-1 buy rating on it.
Were you in Baldwin-United stock as well as annuities?
Thank God, I wasn't. But this is when I started to learn that you can't always trust what the firm is telling you and that you have to do your own research or be really, really honest by saying to your clients, "I don't know."
You sued Merrill because shortly before you joined the firm, while you were working as a waitress, a Merrill broker lost all your money in three months — a $50,000 personal loan to open a restaurant — by putting you in options. It was the first time you'd ever invested. You were with Merrill when you brought suit. What happened?
The case never went to court. Merrill knew that I had them. So they settled. They knew. And I knew.
Why did you move to Prudential Bache after three years with Merrill?
Prudential was giving out large checks [to move there]. It was the exact time that I was mad at Merrill because of the Baldwin-United [issue]. So about eight of us left the Oakland [California] office at the same time. I think I was paid $60,000 or $65,000 to go over to Prudential. I thought: "You're paying me $65,000 to come to you? Fine, no problem."
What advice have you for investors during this market correction?
It all depends where you are with your financial needs. If you have money in the market, the key is: Is there something you can do with the money that, in the long run, will be better? This is when having a [good] financial advisor is [valuable]. They can look at your entire situation and not just say, "Invest in this, buy this."
What would be one scenario?
If the client is within five to seven years of retirement and knows they'll need the money they have in the market to generate income to be able to retire, that's not money that belongs in the market — unless it's all invested in good-quality, dividend-paying stocks: companies that are cash-rich enough so they'll be able to keep paying a dividend without cutting it. Then you don't care if the market goes down because eventually it will come back.
What's your advice for younger investors at this juncture?
If you're 20, 30, 40 or even 50 and dollar-cost-averaging every month, this could be the greatest time for you because your dollars are now buying more shares. The more shares you have, the more money you'll make when the market eventually turns around.
You earned your living as a waitress for about eight years before becoming a broker. Were you a good waitress?
Oh, my God, I was fabulous! That's why [customers] lent me $50,000 to open my own restaurant.
Were you always an outgoing person?
No, in that I wasn't self-confident. I always thought everybody was better, smarter, prettier, thinner, had better parents than I.
In a photo on your website, your parents look like they were strong people.
My mother was one of the weakest women — if not the weakest woman — I've ever met in my life. She didn't know her own thoughts. My father was strong. He had a work ethic that was beyond the beyond. But he had emphysema and was always in and out of the hospital. He went through law school, but DePaul University wouldn't let him take his law-degree exam because he owed them $900. He had given my grandpa that money to open a shack to sell live chickens. So my father never became a lawyer. He wasn't a happy man. Everything went wrong for him throughout his entire life.
That certainly didn't happen to you.
No, but my fear was that I was always going to end up like him — losing everything and not being happy.
But now you live on a private island in the Bahamas and in a condo in Florida, your primary residence. How do you pass the time on the island?
KT [spouse Kathy Travis] and I usually spend six to eight hours a day fishing on our 32-foot Boston Whaler. We'd never fished before we came to the island two years ago. But we've become master wahoo fisher people. Wahoo are about four feet long and probably one of the most difficult and dangerous fish to catch. We have a reputation as "The Fishing Ladies." We won the tournament against big boats with six men [typically] on them. Most of the time, we catch three to six wahoos a day. Six is the legal limit. Fishing is one of the hardest, most intellectual sports, bar none.
Besides speaking engagements and appearing on HSN and QVC, what are you doing work-wise?
My new thing is to get [more deeply] involved in working with women who have been financially abused and bringing that [problem] to awareness. One out of four women suffer financial abuse. Most women who are in an abusive relationship stay there because they don't have money to leave. Their abusers take away their checking accounts, their savings accounts, their friends. Anything relating to money, they can't touch.
I know someone who wanted to leave her husband; but to break away, she had to stow cash at a friend's house.
That's called financial abuse. You'd be shocked at the wealthy women who are financially abused. I'm blown away by some of the women I know who are in financially abusive relationships, while they're the ones making the money!
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