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Can You Judge a Financial Adviser By Her Own Portfolio?

This article was written by in Financial Advice and Advisers. 17 comments.


Consider a hypothetical popular financial adviser with $30 million in investable assets. Her (or his) primary clients may average $500,000 of liquid reserves ready to be directed in any manner as instructed. The typical advice these clients may receive likely involve investing mostly in equities through stock index funds. They have low expenses and are poised to provide decent returns with average risk. This advice may include special consideration of asset allocation, with a slide towards lower risk once in retirement to help provide more reliable income while maintaining capital.

This is sensible advice for the average client, though a financial adviser has the responsibility to tailor his advice to the client’s unique situation.

Let’s take a look inside the portfolio of a $30 million adviser. In fact, it just so happens we have some details on one particular famous financial adviser with television and radio shows, books, and a strong brand image, so let’s use her portfolio as reported in 2007.

Suze Orman has a liquid net worth of $25 million, which doesn’t include her $7 million in real estate. Only $1 million, or 4% of her liquid net worth, is in equities. Suze, whose advice is over-simplified and dumbed down to be understood by the most idiotic of callers and is usually accompanied by “motivational” words of empowerment bordering on mean, doesn’t follow her own advice. Far from it. As of 2007, Suze invests almost exclusively in municipal bonds, favoring “safe,” lower returns over the risk of the stock market. Out of her entire portfolio, Suze invests only what she can afford to lose in equities.

Does her asset allocation and refusal to follow her own rules mean she is a bad financial adviser? While there may be several reasons to seek personal advice elsewhere, her own portfolio isn’t one of these reasons. Her advice is not directed at people with $25 million to invest. While some of the general tenets of her advice, like pay off debt, spend less than you earn except in some circumstances, and avoid costly commissions, hold true universally, some of the specifics like asset allocation are directed toward a certain type of client.

Suze’s personal choice makes some sense. With $25 million, you can afford quite a bit of flexibility. With $24 million in bonds, you may be generating a yearly income of $720,000. (Add to that seminars, royalties, appearance fees, and endorsements, and you’re doing pretty well.) One might levy criticism that she is not securing the future for her heirs, but I’m not convinced of that argument. Personally, I have no idea if Suze has any heirs or future plans, but I would think that she would want to do something with her accumulation when she dies, either provide for a family or provide for a foundation. And I would also think that she wants to build as much as possible to do the most she can to help whatever cause she chooses. So in that sense, she may not be doing all she can to allow her funds to grow.

But her current wealth puts her in a position where she can still reach her goals, and give herself a better *chance* of doing so by backing off and choosing less risky investments for a major part of her portfolio. You and I, her average clients, can’t afford to forgo the potential for higher returns and must therefore take on higher risk.

The first fallacy is the idea that one piece of financial advice fits all people all the time. The other fallacy is that one cannot give advice without following that same advice. A stunt man can advise an actor not to jump out of a moving car. A parent can advise a child not to handle knives. A police officer can advise a civilian to put down the gun. Suze — or any other financial adviser — can advise her average clients with not much investable assets to invest as much as possible in equities for the greatest return, regardless of her own portfolio.

But when Suze yells at callers, placates the lowest common denominator, or is otherwise condescending, I change the channel. I tend to think her recommended allocation for the average caller is a little on the safe side. However, she’s free to do whatever she likes with her money, and it doesn’t affect the quality of her advice.

Information on Suze’s portfolio from Outing Sue Orman’s Investments, Chuck Jaffe, MarketWatch, March 8, 2007.

Published or updated June 6, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 17 comments… read them below or add one }

avatar KC

I’ve heard this before about Orman and she is quite conservative with her investments. However, we have to remember that she is extremely wealthy and, as you said, can generate $720k a year off her bonds. She doesn’t have to be aggressive to have money – she’s already got it. But she knows 99.9% of her listeners don’t have it and have no means of generating it. So they have to take what they have and invest it as aggressively as is advisable in order to make it grow into something.

It’s sort of like Dave Ramsey. I get so tired of hearing him jump on his listeners, especially men. But I realized that’s who he is dealing with – people who are at their lowest point and need a slap in the face that says “sell your truck and quit making your wife try to manage all the money!” It’s who he deals with, it’s his customer base, and that’s who he has to relate to.

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avatar Jim

I’ve watched Suze Orman quite a bit. I don’t think she is ‘mean’ or condescending to callers. There are callers who have made very poor decisions and are calling for advice. These people really do need someone to tell them that what they did was wrong and not sugar coat it. I think thats all she’s really doing. She may seem to shout a lot but she is an overly energenic person in general.

I also don’t think theres hypocrisy here. Her situation doesn’t compare to any of the callers I’ve ever heard. If she’s generally conservative with invesement advice and her own invesements then I frankly don’t see anything wrong with that. Overly conservative with investments is better than overly risky.

Jim

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avatar Hee Ann

Just last weekend, I saw Suze’s show. There was a caller coming to a net worth of about $40 million and wanted to know what to do with it. Suze flat out said what she does with her own money, primarily being invested in muni bonds. Therefore, she did tailor her advice to that caller. And that advice is what Suze herself has done.

As Bob Brinker of “Money Talk” might say, Suze has reached her “land of critical mass”. She has no need to be aggressive to grow her assets. She doesn’t have to worry about growing her nest egg large enough to last through her retirement years. Inflation isn’t going to swallow up her nest egg before she passes.

She might seem slightly stern on her show towards some callers, but I think that Bob Brinker can be much harsher. I personally would behave somewhere inbetween the two of them when it came to those certain callers.

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avatar Mrs. Micah

I think it makes sense when a person in that situation goes for more risk or more conservative behavior than your average person. If Orman’s got $25 mil not to mention the royalties and whatnot, I’m not surprised she’s decided to go with safe investments. She doesn’t need as much compounding as someone like me. I’d go with indices, which are another comparatively safe investment (compared to buying random stocks, anyway).

I would also understand if she put 10 mil of that into riskier ventures. She’s an entrepreneur and if she loses the money she’ll still have an awful lot.

Nor are her heirs (whoever they may be) entitled to it. When she dies they’ll be entitled to what she leaves them, but it’s not even remotely their money until then. I’m a strong believer that people should accept inheritances as gifts (and use them wisely) rather than expectations. It’s great if she’ll leave behind $10 million to a kid. But it’s such a contingent situation anyway (with death and all that) that they shouldn’t be planning for it. And it’s her money, so they should accept her choices with grace.

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avatar Joshua

I love watching Suzie because I learn new things all the time. I’ve never knew that Insurance companies offered “investments” until I saw her show, for example.

Besides, when you’re earning almost $1 million a year doing pretty much nothing.. I mean really.. how greedy does one need to be in order to take more risk? Besides, muni’s offer huge tax savings for her and so she’s doing the right thing with her money. I would like to know more about how she got all that money in the first place rather then what she does with it now.

;)

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avatar traineeinvestor

One of the basic principles of financial advice is that the advice should take into account the specific circumstances of the individual who is being given the advice. Different people have (among other things) different risk tolerances and financial objectives.

As people have mentioend above, Suzie Orman is in a different position from many of the people she advises. She may well have different risk tolerances as well. I would actually be at least a little surprised if she managed her own finances in the same manner as some of the people struggling with debt or other financial issues. She has reached the position where she may well have decided that wealth preservation is more important than wealth accumulation and, therefore, a lower risk portfolio is appropriate for her.

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avatar Jim

I find Suze Orman totally annoying.

Kristin Wig on Saturday Night Live does an awesome parody of her.

Check it out at: http://www.hulu.com/watch/19681/saturday-night-live-suze-orman

Hilarious!

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avatar Kirk

Some good input here. I agree that if you don’t need to take the risk, then don’t. Suze probably has all she needs with bonds and her current income so that is why she invests that way. I wish I had enough dough to invest in short term munis and not worry.

Suze catches a lot of hell for her advice, but it is very difficult to tailor advice on a call in show. And, when talking to her entire audience, she has to speak in generalities. It is just the nature of the game.

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avatar Zook

The problem I have with Suze is I am not some moron, I don’t make $5K a year and want to buy a $10K boat, I don’t have major debt and her advice to folks like me just seems hollow. She doesn’t speak to me and I therefore tune her out and don’t watch.

Personally, I would LOVE to hear how she got the $25 million and what she was investing in or not investing in to get there. THAT is the story. We all like to know the story before we hear the ending.

$720K a year is nice, but if you half that, it is still nice. So has she been in muni-bonds since her net worth was $12.5 million? If the story came out that she had $12.5 million and was STILL only 4% in the market, I have a strong feeling people would be saying, “Well she is making $360K a year.” Crap you could even half the $12.5 million (making $180K a year) and folks would still side with her and say the same stuff. At what point does having 4% in the market become just odd?

I have read plenty of books, stories etc. and I have never come across a strategy where ANYONE should be 96% bonds, 4% stocks in their portfolio. And I will state it again, if having $25 million and coasting with muni’s is the way to go, I want to hear how she GOT THERE IN THE FIRST PLACE!

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avatar Jeanna

The one main problem I have with Suze and people like her is that she doesn’t have a firm or any clients. That in itself should keep people from wanting to follow her advice.

It’s fine that she makes money from appearances and books, etc, as many real financial advisors do too. But she can blab out advice and people actually listen, and there is no consequence whatsoever for what she says because she isn’t a practicing advisor. Someone who follows her advice has no recourse for ill advice. Now granted, most experienced investors would not follow advice given on a talk show or radio show or in a book. Can you imagine Warren Buffet calling in on her show or reading her book to determine how he should invest?

If you really want good solid advice, become a client of an advisor and make sure they are a fiduciary. Yes it costs money, but it saves you money in the long run, it makes your returns higher, and it is less risky. You also get to write off the cost of the advisory services. Think of it like paying to have your taxes done by a professional. You do this because they are up to date on the laws and any changes, they are experienced, and they stand behind their work if you get audited. The service is also a write off.

Lastly, most of America is in financial jeopardy. They aren’t saving enough and they spend too much. If you want to be wealthy, do what wealthy people do…. Hire a financial advisor! It is not expensive!

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avatar Zook

Not to call you out here Joshua, but what else have you learned on her show? I would make a guess that she is the sole source of financial information in your life?

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avatar Joshua

Zook, why you are attacking me is senseless and shows your true lack of intelligence. The show is interesting to watch and sometimes presents ideas or terminology I had never heard before and thus prompts me to do more research. I read books, listen to books, subscribe to magazines, read financial blogs, and take accounting courses as a hobby. So no, her show is FAR from being my only source of financial information.

You should watch Dr. Phil and learn how to communicate with people. Spending your time signing onto random blogs and attacking people probably isn’t on the “How to be popular” list. I apologize for these posts Flexo, but I had to respond. Keep up the great work!

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avatar Zook

It wasn’t an attack at all (you do alright in “attack mode” though :o), it was a serious question. What else has Suze taught you from her show? To me it is standard financial 101 stuff…rinse and repeat.

Wow. Hit a nerve I guess. Undies in a twist is never a good start to a work week.

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avatar Joshua

In summary, I learned mostly what NOT to do by others examples. It’s more of a refresher to watch the show and realize that I’m not as stupid with my money as many others are. ;)

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avatar Khyron

Sheesh, some of you really need to separate your identity from yourselves.

Suze is Suze. Period. She doesn’t have to justify her actions to anyone. That said, she gives general advice in a compressed time frame to non-savvy investors (e.g. regular folk). That’s her audience. I don’t think she’s targeting the more sophisticated investor; if they happen to watch, then fine. So Zook, dude, relax, get over yourself. Did someone put a gun in your mouth and force you to watch Suze or something?

I’ve been studying investing since I was 13. That’s about 20 years now. When I have a chance, I will watch Suze’s show. I won’t go out of my way to do so (and I don’t have cable). Even I have learned a few things from her show, but asking me recount what those things are is pointless and silly. I do remember some specific tax related advice that I was able to pass on to my (accountant) mother, and which has been very useful to me since.

As for the question of heirs, Suze is a lesbian in a long term relationship. Whomever she leaves her money to won’t be “heirs” in any direct way. IIRC, Suze was a broker. I can’t remember the firm, but she like Martha Stewart had a successful career (by some definition) in retail financial services. I want to say she was with Merrill, but I am guessing on that.

Now, all of that said, investing is about risk management. If Suze is an avid believer that most people can’t pick the winners (funds or equities), then her strategy makes sense. She’s also HNW (high net worth) and subject to high taxes, so being in municipals is intelligent due to their tax advantages. Plus, I’m sure her income from other sources is more than sufficient to provide for her needs. Royalties, advances, licensing and usage fees, her CNBC contract, all of that stuff, probably makes up the bulk of her income. Its a simple, low risk portfolio, with a small amount of upside participation that she doesn’t “need”. What’s with attacking her because she doesn’t invest as she recommends to her most likely much lower net worth and sophisticated customer base?

The answer is different for everyone, from Suze to Martha to Phil Anschutz to each of us. Accept it and get over yourselves, people. Don’t you have anything better to do than argue about the financial posture of someone you (presumably? allegedly?) don’t care about and whose life has no impact on your own? Besides, are you going tell me that when someone came to you with some simplistic question about personal finance, you didn’t blow your top at them? That has never happened? Either no one has ever asked you for advice, or you’re lying, so which is it?

Personally, I think Suze’s approach is perfectly suited to her audience, which is why she has an audience. If these people would do what they need to do, and make optimal decisions in the first place, her heavy handed (but not mean or condescending) approach wouldn’t be required. Suze isn’t about being nice, which is completely overrated. She can be, but she’s committed to helping people get on the path. Nice is not always compatible with the successful realization of a goal. (Nice, that is. I never said that success is dependent on dishonesty, lack of integrity, or ethical or moral flexibility.) That commitment comes across, which is why she has an audience. Her approach reminds me of the people that have and continue to put their feet in my ass when I screw up. I think most of us can probably see similar people in our own pasts, and some of them probably MAKE Suze look nice.

Or, as Seth’s dad told him in “Boiler Room”…”What the f$%k are you talking about, relationship? What are we, dating? I’m not your girlfriend, Seth; I’m your father!”

Sometimes love needs to be tough. Ain’t nuttin wrong wit it!

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avatar Zook

Relax? You think I am angry because of Suze Orman’s show? Yikes….Someone put a gun to my head to watch her show? What it is this, the 5th grade year end comedy show?

Really LAME stuff. C- stuff actually. I “attack” Suze and all of a sudden I am a pissed off, angry person with a lack of intelligence and get attacked myself? Is Suze above discussion? Is she some sort of saint?

She has an audience for the same reason there are about 5,000 authors who have written 10-books a piece and all of them repeat the same crap and people keep buying them for $20 a pop. She does the same thing on her show….rinse and repeat. I watched her hour long special and thought it was OK. I am happy (and sad at the same time) for people with no other avenue of financial help other than Suze Orman. Something is better than nothing. Let her scream and get angry all she wants at people who are clueless trying to buy boats while $50K in CC debt…

Suze has a perfect “in” during this day in age of reality shows and look at me type stunts all over the place. I can’t imagine a show even 20-years ago where folks would call up and ask a TV personality if they can “buy a plasma TV”…

So she made her start as a broker? So she sold loaded, fee-laden crap to folks for years to make her start? Good for her I guess.

My simple question remains..Show me another millionaire that is 4% in the stock market and 96% in muni-bonds…She is so radical in her own portfolio, I can’t help but wonder why…Maybe if she was like 20% it wouldn’t be so odd…Maybe if she gave advice above the standard crap, I would watch her more.

Why even be in stocks at 4%…It is too small an overall percentage to even matter really…

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avatar Nicole

I disagree that Suze does not follow her own advice. she makes it clear that she gives different advice for high net worth investors and she frequently talks about how a large proportion of her assets are in real estate and bonds. I don’t think she is mean either – people who watch her regularly are just used to her style. Dave Ramsey is the same way. If you’re not used to him he sounds mean, but then you realize he is just doing the “tough love” thing.

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