You Won

I’ve interviewed half a dozen financial advisors over the past few years. I haven’t hired one. The search isn’t going badly, exactly. It’s going slowly, and it’s going slowly because of who it’s for.

It isn’t for me. I’ve done my own arithmetic this far and I’ll finish it. But my financial life resolves on a single event, and that event hands everything to Lisa at once: the paid-up life insurance policy, the index funds, the accounts, the paperwork of a life built across two careers and more than a hundred countries. What she needs on that day is not a helpful article about how to find an advisor. It’s a person who already passed the audition, years earlier, on a problem small enough to be a rehearsal. My job now is to run the auditions.

Lisa, for the record, considers the sequencing unsettled. Between the tendon in her foot and an irregular heartbeat, she figures the order of operations could go either way. She’s entitled to her optimism. The actuarial tables and I are planning around the likelier version.

The test problem

An audition needs material, and the material has to have specific properties: genuinely hard, incentive-loaded, high stakes, and no clean answer a computer could generate. I happen to own a problem with all four. Whether they land on the right answer matters less than whether they engage with the hard part at all.

I spent thirty years paying into a cash-value life insurance policy and the last year unwinding most of it: roughly $1.4 million of cash value at its peak, roughly two-thirds of it basis, pulled out tax-free and moved into index funds, and the remaining gain converted into a paid-up policy that will pay about a million dollars, income-tax-free, when I die. The mechanics of that exit are their own story, and I wrote them up separately. What matters here is the shape of the problem. The right answer depended on tax law, on policy mechanics nobody explains, and above all on when I die. No software solves it. No answer is obviously right.

Which makes it nearly perfect as an interview question.

Why nobody wants the job

The insurance company’s side of this I covered in the earlier piece: every honest exit costs them money, and the one they’ll happily walk you through is the 1035 exchange, because it is the only exit that still pays the person pitching it.

Now the side that’s supposed to be clean: the fee-only planner or the CPA. No product to sell, paid by the client and nobody else, structurally free of the conflict. This is where you’d expect real help.

Mostly you don’t get it. The obstacle is disinterest rather than conflict.

Some of it may be self-protection. Nobody ever got sued for telling a client to surrender a policy, and the recommendation that ends the engagement also ends the exposure. But mostly it’s the tedium. Their instinctive answer is that you never should have owned the policy in the first place, which is true and completely useless to someone who already does.

Ask them to actually dig in, to pull the basis, model the 1035 branches against a surrender, price the loan-against-the-gain hybrid, weigh the reduced paid-up option, reason through the date-of-death uncertainty, and most of them won’t. What they’ll do is tell you to gather some numbers from the insurer, glance at them, and recommend you surrender the thing and pay whatever it costs to be free of it.

And here’s what keeps this from being a simple hit piece: they’re not wrong. Surrender-and-reinvest is a defensible option. It’s clean, it’s final, and it might be the right call. It’s just a blunt instrument applied to a problem that has finesse available, and they won’t pick up the finer tool. Surrender is a fine answer that also happens to be the only answer that requires no further work from them. If you die six months later, you’ll have made an expensive mistake; the same unanswerable variable, pointing the other way.

So both sides fail you, in mirror image. The conflicted party won’t help because the honest answer pays nothing. The unconflicted party won’t help because the honest answer is tedious. One exploits the uncertainty, the other flees it, and you’re left in the middle doing your own tax analysis at the kitchen table.

You won

The surrender reflex was one answer. The other one came up more often, and it was much better company.

My favorite of the six sounded like a television anchorman over the phone. Great voice, easy authority, warm in the way that makes you want to keep him talking. There may be a rule in there: the great voice sells at a distance, the great face sells across a desk. He looked at the assets, skimmed them really, and delivered a verdict.

You won.

You’re in great shape, nothing to worry about. That was the engagement.

But what about the expenses? An asset number tells you what you have. The withdrawals tell you whether it lasts, and he never asked about the withdrawals. When I raised them, the interest wasn’t there.

I doubt he was being cynical. “You won” is probably what he believed, and it is certainly what keeps a client paying. Tough talk makes people defensive, and defensive people cancel. A pat on the back renews. He had found the version of the conversation that costs him the least and pays him the longest.

This is where being properly critical gets hard, because every one of these people is enormously likable. Likability is most of the job. And the fee-only structure hands you a reason to trust them that the insurance salesman and the stockbroker can’t offer: no products, no commissions, nobody’s mortgage riding on which fund you pick.

Then you look at the phrase again. Fee-only names the payment structure and nothing else. Read it the other way and it stays true: what they are selling is the fee, only. The label tells you how the money reaches them and makes no promise about what comes back.

Trusting the structure only makes sense once you understand the incentives inside it. Fee-only removes the product conflict. It does not install curiosity.

The two kinds of true belief

It’s tempting to lump every insurance salesperson into one bucket of bad faith. That’s too easy, and it misses the more interesting thing.

Some of it is straightforward incentive. Upton Sinclair had the line a century ago: it is difficult to get a man to understand something when his salary depends on his not understanding it. That’s the agent who stonewalls you off the in-force ledger. He may not even experience it as dishonesty. The paycheck does the reasoning for him.

But a lot of these people genuinely believe. They remind me of chiropractors. The resemblance is in the epistemics rather than the claims. A chiropractor operates inside a closed system that trained him, hands him testimonials that feel like evidence, and shows him cases that seem to confirm the worldview. He isn’t lying to you. He believes it, sincerely, because everything in his environment tells him it’s true.

The insurance evangelist lives in the same closed loop, and his confirming cases are real. He has watched a term policy keep a young widow in her house. He has watched disability coverage rescue a tradesman who lost the use of his hands. Those stories happened. They’re genuinely moving, and they’re what let him believe the entire edifice is righteous, including the high-commission cash-value products sold to people who’d have been better off with term and a little discipline. The true stories launder the rest. That’s why he’s so persuasive on the phone. Conviction like that can’t be performed.

You can hold both of these at once. The products sometimes save people. The cash-value version is usually the wrong tool for those people. Both true, and the industry survives in the gap between them.

What the market actually looks like

Half a dozen interviews is not a large sample, but it has been a consistent one. Several friends pay around one percent of assets under management, every year, forever. The percentage bends a little at higher balances, which sounds like a concession until you run it: for example, half a point on $10 million is $50,000 a year, for what is in most cases a simple index-fund allocation and an annual meeting. Stretch that across the thirty years you might need them and you’re describing $1.5 million in fees for a plan a spreadsheet could hold. And that figure assumes the balance never moves. The fee is charged on the balance, so a portfolio that grows pays more every year.

Then there’s the fashionable version, popular with some of the bigger and better-known firms. It’s called direct indexing. Instead of buying an index fund, they rebuild the index inside your account, hundreds of individual stocks bought position by position so the software can harvest tax losses along the way. It sounds sophisticated, and it is, which is part of the point.

But watch how it ages. The tax benefit lives in the losses, and the losses are front-loaded: the market dips, the software books them, you save some tax in the early years. Then the market does what you hope it does. The positions recover and appreciate, the harvestable losses dry up, and the advertised advantage decays year by year until what’s left is the index’s return minus their fee, which is the index fund you could have bought at a fraction of the cost.

And here’s the elegant part: you’re now sitting on hundreds of appreciated positions, and moving your money to a plain index fund means paying capital gains tax on the lot of them. The benefit expired years ago, but leaving still costs you. Hard to leave is the product.

Then there are the ones most likely to have the answer, the fee-only planners with real credentials, and their failure is structural rather than temperamental. What they sell is the plan rather than the answer: the comprehensive engagement, the data gathering, the full workup. Call it $10,000 to get one question addressed. I don’t begrudge them the model. It’s a system, it works, and they have plenty of customers. But an audition requires a small paid problem, and the small paid problem is the one thing they won’t sell. The candidates most likely to pass the test are the ones who refuse to sit for it.

And behind all of them waits the commissioned army: the brokers, the insurance agents, the wealth advisors with the quarterly calls, all of them paid by the products they’d recommend.

The 90/10

Watch for the specific way advisors fail, because it’s rarely an outright refusal. It’s the 90/10 split. You bring them the whole tangle, and they do the 90 percent that’s routine: the asset allocation, the tax-loss harvesting, the retirement projection, the same work they do for every client, and they do it competently enough to justify the fee.

Then they reach the 10 percent that’s actually yours, the strange high-stakes piece that deviates from the norm, and they wave it off. “We’d just surrender that and move on.” No arithmetic, no branches, no engagement with what makes it hard. The fee gets earned on the easy part. The one piece you actually needed an expert for is the piece they skip.

So skip the easy 90 percent. They’ll handle it. Hand them the 10 percent first, lead with the messiest, most norm-deviating problem you’ve got, and watch whether they pick it up or route around it. You’ll know inside one meeting. If they hand you a computer-generated financial plan you could have produced yourself with a Boldin or ProjectionLab subscription for $129 to $144 a year, and their entire contribution is “you shouldn’t have bought this, surrender it,” you’ve learned exactly what they are, cheaply, before you needed them for anything that mattered.

The further filter

Say the audition works. There’s one more filter nobody mentions, and it falls out of who the hire is for. The job doesn’t end at my death; it starts there, and it runs for the rest of Lisa’s life, which could be thirty years. A brilliant 62-year-old with all the right answers doesn’t solve that problem. He retires into the middle of it. What I’m actually hiring is the first decade of a relationship that has to outlive me, which means the person across the table has to be young enough to still be standing at the far end of it, or part of a firm built to hand relationships down instead of letting them retire with the founder. It’s an awkward thing to raise in a first meeting. I raise it anyway.

The prize

So the auditions continue. When someone finally pulls the basis, models the branches, weighs the paid-up remainder, and reasons honestly about a death date nobody knows, with actual arithmetic, at my real numbers, I’ll know I’ve found the person who can solve Lisa’s problems too.

And the prize isn’t their phone number in my contacts. It’s their phone number in Lisa’s.