Given the stuff I’ve encountered in the past week, you’d think I was living in Scam-a-lot. It’s been a banner week for schemes designed to hoodwink the consumer and get us all to buy questionable stuff at unquestionably high fees. It’s made me think about a few predictable trends to watch out for.
If you’re reading about it on the internet, consider the source.
This morning I had a lovely 20 minute conversation with someone representing himself as a reporter on deadline. Now, this guy sounded pretty good—had a voice better than Ron Burgundy—and told me his research staff had identified me as someone unique in the field. Well, I like compliments as much as the next victim, er, individual, and I figured the guy said he was in radio. He had a pretty good angle—asking me the type of reporter questions I always get for background.
I probably hadn’t had enough coffee yet, so it took a while for my BS detector to go off. First clue was the voice—most reporters I talk to are slurping a cup of coffee or chewing on a paperclip while they talk to me. Second clue—no key clacking in the background. Third, he just had a lot of time and most reporters are trying to get the info and get you off the phone stat. And they don’t like you all that much.
So finally, after blathering on about how great fee-only was and how I got into the business and yadda-yadda, I pulled up short when he started showing me his lovely slick website and how they were going to make two shows featuring me AND HOW I COULD APPROVE AND REVISE ALL CONTENT. Uh-oh—so I asked, “Is there a cost to this?” Guess what.
This is not journalism, where a reporter has at least some credibility and isn’t promoting industry interests. Ethical journalism still keeps a barrier between the news and the advertising. So if you’re reading some kind of advice on a website, click that “About” tab to see who these people are. Check the footnote on the page to see if they mention “securities sold”. If you’re really diligent, check out the little link (if it exists) that says “information for advisors” or “how to be selected”—it will tell you what the “experts” have paid to be included as experts.
And BTW, you won’t be hearing me on Blogtalk Radio any time soon.
If someone is in the public eye, it doesn’t mean you can trust them
I’ve written about Dave Ramsey before, but someone else walked into my office with livin’ breathin’ proof of why you should be skeptical.
I like Ramsey’s advice about getting out of debt, and his principle that you should budget for charitable contributions as well as all the junk you and I waste money on. He’s inspired a lot of people with the confidence that they can turn their lives around, and he focuses on the everyday Joe, not those “high-net-worth individuals” so beloved by the brokerage industry.
And then he turns right around and finds a way to scam those same Joes. When you click on his referrals to financial advisors, as far as I can determine every single one of them is a commissioned broker/salesperson or insurance agent, and the main screening ole Dave has done is whether the hefty check he requires has cleared the bank. So much for Dave’s “trusted providers”.
Now, I’m not totally against commissions, especially when clients can understand the product (for example, real estate purchases) or are made aware of exactly what it will cost them (a few low load type insurance providers). But you ought to know what screening, what “referral fees”, and what membership dues have been paid for your referral.
For example, I belong to the Garrett Planning Network, which has a referral service on their site. To be listed there, I have to be a CFP®, be fee-only, not accept referral fees, and half of my engagements (at least) have to be on an hourly basis (as opposed to AUM). I do pay dues to Garrett, and for that I get continuing education, industry updates, and a community of people to ask questions of.
I also belong to NAPFA, which offers referrals to people that visit their site. Again, I have to be a CFP®, be fee-only, and in NAPFA’s case, had to submit a sample client plan to be reviewed and approved. I get approximately the same benefits from them, although they also charge me for continuing education, and require that I report a minimum number of hours each two years.
My blog is sometimes re-syndicated via Garrett and NAPFA to other organizations that are supposed to promote reliable advice to consumers, such as Fee-Only Network. I do what I can to control where my information appears, but various business services often pick up my information, and I don’t have much control over that—in fact, I often do not know until I get a promo from them trying to convince me of the value of going from their basic service to “premium”. I don’t.
Especially beware of people who scream on TV or give you a limited-time offer. You should never be in a blinding hurry to invest.
If it seems too good to be true, it is
The other big beef I have with Ramsay is that he has repeatedly stated that you should be able to achieve a 12% return on your investments. Rotsaruck. Most of the people he speaks to—trying to get out of debt and accumulate initial savings—should not be investing in anything risky enough to earn that kind of annual return. Even over a very long time, that would be an unusually high return on legitimate investments.
Almost every scam I read or hear about involves someone “guaranteeing” that the investment will pay a higher than market rate. Bernie Madoff sucked people in by offering just 8%. I’d guess close to 100% of investment scams could be avoided by the people they bite if individuals were just a tiny bit more skeptical of oversized promises, and a teensy-weensy bit less greedy.
Don’t buy because someone wraps themselves in religion
See especially Dave Ramsay, above. Or the person who trades on belonging to your church, or religion, or alumni association or is your cousin. Not that you shouldn’t have something in common with your advisor, but you should check to make sure they’re competent, credentialed, and reputable as well. In the case of relatives especially you shouldn’t invest because you feel sorry for them just starting out. Every broker is trained to lean on family and friends first to harvest low hanging fruit. And how bad are you going to feel at family gatherings after your relative has lost all your money? Can you ever fire him? Better just to give him a few hundred bucks–it’ll be cheaper in the long run.
Know what you’re paying
Have I said this enough? Well, if Dave Ramsey sent you to some guy who sold you an annuity where 70% of your quarterly investments were going to pay the quarterly fees, would you be in my office wondering how to get out of this “wealth-building” investment? True story.
Even people who ought to be on your side can give crummy advice
Another true one—client met with a plan advisor from his company’s new retirement plan provider. “Advisor” recommended some excellent, low cost mutual funds—ones I often recommend as part of a portfolio. “Advisor” told client these funds were doing great right now. True. However, client already has plenty of money in these asset classes, and when an asset class is “hot”, you ought to be buying the opposite. Buying the “hot” asset class or fund means it’s already run up in value, and you will be buying at the peak of the market. Buy LOW, SELL high. But most people end up doing the opposite, and with “professional” advice.
So, that’s the blowback for the past week. I await with bated breath what new scams lie ahead. Meanwhile, I’ll continue to recommend boring. And prudent. And understandable. And sleep at night.