When was the last time that you asked for a second opinion on your finances? Money is one of those subjects that is hard to bring up in conversations. If you talk about money with friends it may open your life more than you want or more than your friends, want to know. The hesitation to discuss money also brings up the problem of trust. Just where does a non-financial person go for financial advice that can be trusted? Here is the short answer:
Employee benefits education at work
CPA’s and attorneys
Fee-based financial planners
Investment product providers
Life insurance companies
Life insurance agents
What are the pros and cons of the various sources of information? Here is some brief insight into the different sources of financial advice. This is not meant to be the end-all of financial information sources, but rather enough information to point you in the right direction.
Employee benefit education is a major source for many people, and its reliability is getting a big boost. In April of 2017, new laws go into effect mandating that all employer retirement plan information be in the best interest of the employee (Department of Labor, 2016). That does not mean that all employee benefit information will be equally informative. It also does not mean that employers are entirely responsible for employees’ financial lives. It does mean that the financial advice concerning the retirement plan should be dependable. How you relate that information to other aspects of your finances is up to you.
Stockbrokers have changed over the past fifty years. Stockbrokers used to be just what their name implied, someone that bought and sold stock. They did not offer much unbiased advice because they usually worked for an investment banker that was organizing the sale of a company’s stock. As time has progressed, stockbrokers have become less sales-oriented and more concerned about if they are offering financial products that are in the best interest of their clients.
Investment product providers are mutual funds purchase directly from the provider or a unit investment trust sometimes shortened to UIT’s. There are some providers that offer good advice, but remember that they still do not have a high responsibility to sell the products that are best for you. They have certain regulations that they have to follow. For example, they are not supposed to say things that are blatant lies. Moreover, they are not supposed to sell their products to people that they find are financially unqualified. However, your overall best interest is not their legal duty. To some degree, it is still buyer beware.
Life insurance companies have some similarities. Like the investment product providers, they are not supposed to stretch the truth. However, the average person is far from qualified to understand some of their products, making the need for an experienced agent more important.
Life insurance agents are separate from the life insurance companies in this information because there are many life insurance agents that are independent. The autonomy of an independent agent does give their financial advice less likelihood of being biased. However most financial advice from life insurance agents will be compartmentalized to deal only with the financial aspects related to their products.
Credit unions remain a good source for financial products and information. They sell credit union and life insurance products. Nevertheless, just like any product provider, it is up to the customer to be sure that they are buying a product that they understand and can afford.
For a long time, banks were perceived as the gold standard of safety. Recently that image has fallen because one big bank let its branches get out of control and cost its customers millions of dollars. It gives the impression to the average person that they cannot trust banks any longer. Time will tell how that circumstance gets resolved and if their image will improve.
Fee-based financial planners are perceived as one of the most unbiased parties when dealing with money. They do not sell products so their primary incentive is client fees.
CPA’s and attorneys are listed together. However, it has been my experience that many more CPA’s deals with financial issues than attorney’s. If you are looking for financial advice, a CPA or attorney will be very straight forward in telling you if they will or will not be able to help you. Some of these professionals have expanded their practice to include fee-based financial advice. Because of their level of fiduciary duty, I would not have any reservations in stating that if a CPA or attorney provides financial advice as part of their service, it is dependable.
Robo-advisors have become a new option available for financial advice, and some are trustworthy sources of financial information. The creators of robo-advisor services have taken the modern theories that are used to manage investments and put them into a computer program. Plug in the parameters of your financial situation and the program will produce what is considered to be an appropriate investment allocation. As the economy changes or personal financial circumstances change the program can alert customers of changes automatically or prompt customers to manually make changes. Do robo-advisors work? The reliability of robo-advisors is as good as the creator, person, or team that is managing the program. Just as in the quality of investment advice that you obtain from real people depends upon the individual you are entrusting. According to a study done by pollster Gallup, only 5% of U.S. investors use robo-advisors and an astounding 80% state that “they are not likely at all to use a robo-advisor” (Gallup, Inc.,2016).
If I could post a big flashing red warning light on the page, this would be the place to put it. The internet is an option that most people will turn to for financial advice however we should all be wary of internet financial advice because of the prevalence of scams. It takes no financial experience, education or certification to start a website. That is reason enough to be cautious. You may have found this article by surfing the internet for financial advice. How do you know you can trust it or me? The fact is you do not. Ask yourself, does the source sound rational and can you research the advice?
When judging the quality or usefulness of any financial advice there is a reliable standard. If a circumstance sounds too good to be true, it probably is. People get caught up in scams because they find an answer to a problem or concern that they have and the solution they find seems to fit just right. We all have some degrees of trust in us. We could not live daily without some trust. We believe a total stranger when we ask them the time of day. Trust gets a little more away from personal control when we ask for information that will impact part of our life. The education system teaches students to trust one another in projects. Everyone’s grade in a group project depends on each other. We trust colleagues at work when we share responsibilities. However, even in these examples, you can see there is room for lapses in confidence. As we broaden the circle of trust to encompass other aspects of our lives such as finance, reasons to mistrust widens. There are people in our world that are putting their personal interest ahead of your best interest. The cold hard fact is that there are people in our world that set out to deceive others. How can you be sure that you are not getting advice for your money from a con-artist?
In her book, The Confidence Game, Maria Konnikova tells the fascinating story of Dr. Joseph Cyr, a surgeon in the Royal Canadian Navy (Konnikova, 2016). Dr. Cyr was outstanding, he did surgery in the toughest conditions at sea, with little or no help. The only problem was the Dr. Cyr was not a doctor at all. He was Ferdinand Waldo Demar, a young man that had not even graduated from high school. Konnikova’s captivating book looks at the reason why people fall for things that are not real. She describes the people that commit these charades like this, “Their genius lies in figuring out what, precisely, it is we want, and how they can present themselves as the perfect vehicle for delivering on that desire” (Konnikova, 2016). The thing we can learn from Konnikova’s insight is that when we are looking to find financial advice, be careful that the solution has not been created to prey on our needs. If it is too good to be true, it probably is not true at all.
How do you make sure that you are getting sound financial advice? Over the years I have worked for large firms and even though the firms had billions and billions of dollars under management clients did not rely as much upon the credibility of the institution as much as they did with the person that was in front of them. Investment firms know this and try desperately to tie their employees to their company. For the average everyday person or the CEO of the multi-billion-dollar corporation, knowing if you can trust the financial advice of your advisor boils down to work experience, life experiences, references, education, and last but not least common sense.
As people begin their careers, education is paramount. As the years go by the value of classroom teaching is replaced with the work experiences encountered. Do not take me wrong, education is valuable, especially financial education. My point is that life experiences have a significant impact on a person’s abilities. If you are presented with financial recommendations, don’t be shy about asking for references of the advisor’s work. Don’t be put off if there are not a lot of Yelp, Google or Angie’s List reviews. How some financial advisors interact online is regulated either by the government or their self-regulatory organizations making online research more difficult. If the circumstance warrants, ask for a referral. Understand this too. If you are asking for advice on a $35 per month life insurance policy, you probably are not going to get the phone numbers of the advisor’s top ten clients. Samples of the advisor’s work can also serve as a good standard for trust. I have mentioned it a several times, and it is worth saying again, the common sense factor is crucial. If the service or results of services sound too good to be true they probably are not real. Follow these guidelines, and it will help you in finding good financial advice.
Department of Labor. (2016). Conflict of interest rule—retirement investment advice (Volume 81, Number 68). Retrieved from National Archives and Records Administration website: http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806
Gallup, Inc. (2016). Robo-advice still a novelty for U.S. investors. Retrieved from Gallup Poll website: http://www.gallup.com/poll/193997/robo-advice-novelty-investors.aspx
Konnikova, M. (2016). The confidence game: why we fall for it … every time. New York, NY: Penguin Random House.