Olen - Pound foolish: exposing the dark side of the personal finance industry

PORTFOLIO / PENGUIN

POUND FOOLISH

H ELAINE O LEN is a freelance journalist whose work has appeared in The New York Times, The Washington Post, Slate, Salon, Forbes, Businessweek, and elsewhere. She wrote and edited the popular Money Makeover series in the Los Angeles Times. She lives in New York City with her family. Follow her on Twitter at @helaineolen.

POUND
FOOLISH

Exposing the Dark Side of the
Personal Finance Industry

HELAINE OLEN

For all those who participated in Money Makeover

PORTFOLIO / PENGUIN

Published by the Penguin Group

Penguin Group (USA) LLC

375 Hudson Street

New York, New York 10014

USA | Canada | UK | Ireland | Australia | New Zealand | India | South Africa | China

penguin.com

A Penguin Random House Company

First published in the United States of America by Portfolio / Penguin,
a member of Penguin Group (USA) Inc., 2012

This paperback edition with a new afterword published 2013

Copyright 2012, 2013 by Helaine Olen

Penguin supports copyright. Copyright fuels creativity, encourages diverse voices, promotes free speech, and creates a vibrant culture. Thank you for buying an authorized edition of this book and for complying with copyright laws by not reproducing, scanning, or distributing any part of it in any form without permission. You are supporting writers and allowing Penguin to continue to publish books for every reader.

THE LIBRARY OF CONGRESS HAS CATALOGED THE HARDCOVER EDITION AS FOLLOWS:

Olen, Helaine.

Pound foolish : exposing the dark side of the personal finance industry / Helaine Olen.

p. cm.

Includes bibliographical references and index.

ISBN: 978-1-101-57530-7

1. Financial plannersUnited States. 2. Investment advisorsUnited States. 3. Finance,
PersonalUnited States. 4. Financial services industryUnited States. I. Title.

HG179.5.O44 2013

332.02400973dc23

2012035385125

Designed by Pauline Neuwirth

While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication. Further, publisher does not have any control over and does not assume any responsibility for author or third-party Web sites or their content.

How did you go bankrupt? Bill asked. Two ways, Mike said.
Gradually and then suddenly.

E RNEST H EMINGWAY , T HE S UN A LSO R ISES

All humanity is here. Theres Greed, theres Fear, Joy, Faith,
Hope... and the greatest of these... is Money.

L UCY P REBBLE , E NRON

J UST BEFORE CHRISTMAS 1996, I received a call from an acquaintance asking me if I would like to try writing for the Los Angeles Timess recently established Money Makeover series. I was thirty years old and all I knew about personal finance was that writing about it paid more than the lifestyle features and breaking news coverage Id been doing. So I accepted the gig eagerly. I figured I would write one sample, the editors would realize I had no idea what I was doing, there would be an uncomfortable confrontation, and they would issue me a check for double my usual fee and send me on my way.

The premise of Money Makeover was similar to other makeovers, but instead of providing fashion or beauty suggestions we fixed our candidates up with financial experts. My role was to do everything from determining the issues to be discussed to documenting the interactions between all the parties. So when I spoke with my first subject, a former college basketball player turned pharmaceutical account executive, I let the financial planner assigned to the case take the lead. I frantically jotted down terms and phrases, words I would look up in my just-purchased copy of Personal Finance for Dummies later that day. I decided I had to do something to justify my bill, so, lacking the knowledge to challenge the planner, or even know if I should be challenging the planner, I began to relentlessly quiz my subject on money: How much money do you have? How much do you want? What do you want to do with it? Do you want to travel? Have children? Do you want to work at your current job forever or change careers? Can you afford to change careers? Do you think you will have enough money for retirement? Are you even thinking about retirement?

I handed the piece in and waited for the furious phone call from the edit desk. After all, I had just recommended my subject consider purchasing something called a variable annuity, even though I had no idea what that was. But when the call came, I didnt get fired. I received another assignment.

Maybe, I thought, I got lucky. I thought for sure Id be caught out on the next Makeover, a Hollywood producers son who didnt want us to mention the name of his father because he wanted to see if he could make it on his own (the answer was... maybe), or the one after that, a gay couple who owned a restaurant in Mammoth Lakes that was taking over their lives. But that one resulted in a commendation letter from the Southern California ACLUaccording to the president of the organization, I was the first reporter to simply present a gay couple in the pages of the Los Angeles Times without making a fuss over their status except to say it gave them some unique financial issues. There was another makeover, and another, and another. Pretty soon I was a lead writer, and more or less responsible for coordinating the feature.

In just a few months, Id gone from money novice to personal finance expert.

I should pause to say I am not the only personal finance writer to get her start this way. Demand for journalists who could write about personal finance began to outpace supply in the 1990s as newspapers upped their coverage of this formerly ignored subject. I was ignorant, wrote an anonymous Fortune writer about his or her time recommending investments for an Internet publication in a 1999 piece titled Confessions of a Former Mutual Funds Reporter. My only personal experience had been bumbling into a load fund until a colleague steered me to an S&P 500 index fund. I worried Id misdirect readers, but I was assured that in personal finance journalism it doesnt matter if the advice turns out to be right, as long as its logical.

There are any number of things you can take from my story and others like it. The first is about money and what it means to us. When you write about people and money, you write about much more than dollars and cents. You write about their lives. When we talk about money, we tell people where we have been and where we hope to be. My editors understood that they could more easily teach me the difference between an annuity and an average annual return than find another reporter who had the ability to get people to open up about a subject that most of us will barely discuss with our loved ones, never mind the general public.