Personal Financial Advice

Personal Financial Advice: How To Be Sure You’re Getting the Guidance That’s Best for Your Unique Situation

By Dr. Steve Sjuggerud, Chairman, Investment U
Tuesday, February 18, 2003: Issue #214

Finding the right people – to get the proper personal financial advice and guidance – is actually extremely hard. The main reason this has become so difficult, of course, is that those “posing” as legitimate sources of advice have learned to act legitimate enough to fool most people most of the time.

There are two main sources of financial guidance and advice:

The media
Financial professionals

Today, let’s set out a few guidelines for who is worth paying attention to, and who to conduct your affairs with.

Look For Experience And Lots Of It

The most important thing when seeking financial consult is to look for is EXPERIENCE, preferably actual, ‘in-the-trenches’ experience. Finding someone with such experience, though, is more difficult than it seems.

For example, managing a hedge fund is real financial experience – there’s real money on the line, and there are real impacts to all decisions. Doing a research paper on the stock market at the university is NOT in-the-trenches experience. And neither is being a financial journalist writing a weekly column for a year. Incidentally, I don’t necessarily consider being an analyst for a brokerage firm as in-the-trenches experience. If you have not directly been personally responsible for someone’s money (or your own, if you have a lot) through a bull market and a bear market, you haven’t experienced what it’s about.

Let’s start by saying the more experience, the better. Richard Russell writes an intense daily column on the stock market at www.DowTheoryLetters.com. He has written this letter continuously since 1958. That is personal financial experience worth a look. Leon Levy started on Wall Street over half a century ago. His book The Mind of Wall Street is essential reading. Both are easy writers to read. And they have EXPERIENCE with a capital “E.”

Getting Personal Financial Advice First Requires Paying Attention To Those With A Solid Track Record

When you’re considering paying attention to a new writer, or considering a new financial planner, consider experience first. You’ll want to gauge whether the personal financial advice they espouse is worth a salt. Check their track record in a bull and a bear market, if possible. For newsletters, one source worth exploring would be the Hulbert Financial Digest (go to cbs.marketwatch.com and click “Newsletters”). Hulbert tracks the recommended lists of many financial newsletters.

If the newsletter you’re considering is not tracked there, at least check out a few back issues. The newsletter should be willing to give up some free financial advice via old issues, especially by e-mail or on their web site, without any obligation on your part. The most important factor for you to examine on that back issue might be the recommended list. See for yourself how it did.

Books and other publications fall under the same rules about financial advice and experience. The majority of the financial books and magazines out there are worthless, in my opinion. The writers quite often have no in-the-trenches experience. Or they’re experts at selling you stuff that you’ll buy not at giving useful advice and insight. For every one Leon Levy book out there, there are 100 Wade Cook books on the shelves – books that promise riches, but can’t possibly deliver on their promises. Check out our list of recommended books to get you off on the right start. This is critical, and there’s plenty to read right there.

You Must Do Your Homework On Personal Financial Planners

For personal financial planners, there are a variety of things you need to do. Think of this as the right advice to get to the best advice. Here are the three most important. Taking these three easy steps won’t take much of your time at all and you’ll sleep much better knowing that you’ve done your homework:

First, remember that the personal financial planner has your money you ought to know what they’ve done in the past! You can know exactly what he’s done for the last 10 years by asking to see his Form U-4 or his Form ADV. Instead of asking, you can find out directly from the NASD at www.nasdr.com or by calling 800-289-9999 (or try the SEC at www.sec.gov). If you see something on this form that you do not like (like a disciplinary action), do not immediately dismiss the professional. Remember that a planner may have hundreds of clients that total thousands of transactions a year. Over the course of 10 years, the odds are there will be some type of mishap. Confront your prospective planner and ask about the particular incident(s). If you are not satisfied with the explanation, then move on to another planner.
When you look over the form, you’d prefer to see that he’s been at this at least five years. This way he’s worked through at least a portion of a bull market and a bear market with real money on the line. The more experience, the more likely the financial advice will be sound. So28 might be a good minimum age. There’s just no substitute for the experience.
Get nosy. Remember, it is your money you’re dealing with. Ask to see another client’s statement that has similar objectives as yours to see how he’s done. The financial planner could provide you with a statement with the client’s name marked out. Also, ask for the names and phone numbers of some long-time clients. The planner may balk at first, for privacy reasons. But ask him to call a client, and ask if a potential client can talk to that person.

Asking to call one of their clients is a good weeding out tool. If the broker is a bad broker, he may not even have a single client that he’d be willing to let you talk to. And if the planner doesn’t really want your business, he may not be willing to go through this added effort to contact one of his clients to see if it is okay. Of course, you’ve got to “prove” to this planner that you’re worth taking the time for because a broker or planner may pocket 0.5% of what you’re sending him over the course of a year. Sending him $20,000 may only make him $100 or $200 in a year. How much effort are you worth? Let him have a reasonable guess.

“Red Flags” That Should Catch Your Attention

As you listen to sales pitches – both from newsletters and from planners – there are many words to be wary of Here are a few samples:

Your money will double in six months
This investment is GUARANTEED
We’ve got INSIDE information
You can’t wait any longer

As always, if it sounds too good to be true, it probably is. The opportunity may indeed be legitimate (for example, some things are legitimately guaranteed). But it could just be sensationalism or an outright scam.

If you have any doubts about a particular investment opportunity, you should always (1) get the personal financial advice of a trusted expert (other than whoever is pitching it to you), and (2) do your homework to make sure the opportunity is legitimate (using such tools as www.nasaa.org).

Good investing,

Steve

Today’s IU Crib Sheet

Ultimately, the personal financial advice you seek out all comes down to experience. For any book you’re considering reading, any newsletter advice you’re considering taking, or any financial professional you’re considering doing business with, find out about their experience as best you can before you pay a penny for their services. Taking just a little time to do your homework will help ensure a more successful experience and it could help prevent a huge disaster.

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