When you have money and you want to put it away and invest it, who do you ask for help and advice as to what you should do with it?
A wide variety of sources are used by people, although what I have found is that the most common one is actually from family and friends.
People are twice as likely to seek advice from them, as they are from a banking official and three times more likely to ask a friend than they are a financial expert or accountant (Source: Amarch Research 2013 – Financial Stress & Employees). Clearly, a vast majority of people do not trust banks or financial advisors to give them impartial, honest advice and would prefer counsel from people close to them.
The difficulty, of course, is that whilst a brother, sister or friend will be well intentioned, you might wonder if their advice and the information they are giving is reliable or credible?
I find that one of the reasons many people are struggling financially today is because they are making decisions based on obsolete, biased, or misleading information and this could come from what people are telling them, what they are listening to on the radio or reading on the newspaper.
The sad thing is that some people believe what they are told only to discover at a later date, when the damage is done, that the advice given was not entirely correct.
And wouldn’t you think that the wealthier you are the better advice you would be able to get access to? It appears not. You only have to look at U2’s drummer, Larry Mullen, who made headlines recently because he started legal proceedings against his former accountant for allegedly giving him wrong advice about an investment he participated in where he lost money. He claims that the investment was deemed to be for high-risk investors when he and his partner were very much low-risk investors.
And poor Larry is not alone. The actor Kevin Bacon has been seen on our screens recently doing a series of adverts promoting high-speed phone connections. Bacon isn’t doing this to add to the millions already in his bank account, he is doing it because it is claimed there is nothing there. He invested all he had with his financial advisor, Bernie Madoff, who constructed and operated a Ponzi scheme that became the biggest financial fraud in US history.
When you need advice because you have some money to invest it is what you do with it that is important, and making sure that that whoever is giving you advice, is doing so in accordance with your needs, your risk profile, your age, your family and what you ultimately want to get out of it. So, to help you with this, let me tell you the four types of people you really want to avoid getting advice from at all costs.
You may recognise some of these traits in people you already know – friends, family members, bankers etc. – and the description of each is actually well known and well written about in the financial world but not spoken of too much. After reading what each is, you will be able to identify them much quicker when you next encounter them.
This is the type of person who tells you about investments that are “no brainers” and investments that have “no risk” attached to them even though there is one, a big one.
They will tell you about investments where the rewards are very high with no risk at all involved. They have invested their own money (when of course they have not) and are probably getting paid by a company to sell these high risk investments. After listening to this type of person and if you think what they are saying is too good to be true then it almost certainly is.
This is where you ask a question, a very simple question but the answer given is no way related to your question. Some financial advisors are excellent at this, where they talk for quite a bit without giving you any useful information at all. I have said it many times before in this column, if someone can’t explain an account to you in very simple and easy to understand terms then don’t invest in it.
The Speedy Gonzales
With this type of person, time is of the essence. Sign here quick, because if you don’t the account will be gone and you will miss out. If Speedy puts a lot of pressure on you and wants you to sign right away without giving you the time to consider and reflect on what they are proposing then alarm bells should be going off. And you know if you do miss out on a deal of a lifetime, well then that’s too bad, it’s better to be safe than sorry.
This is the guy in The Simpsons who is always in the bar, drunk. And if you do have a local, I am sure there is always one guy in it who will tell you everything there is to know about world economics and what’s hot in the financial and stock markets. Please don’t listen to what he has to say about anything that is in any way related to money. All of these characters remind me of what Walter White in the TV series Breaking Bad once said to his brother-in-law Hank, “If you don’t know who I am, maybe your best course would be to tread lightly.” The same applies to people who are willing to give you financial advice.
And I always think that you can make better financial decisions if you take responsibility by educating yourself and improving your own knowledge. Yes, seek counsel from people and take on board what they say and what you read and hear, but in order to make an informed decision no one will know your plans or circumstances better than you and there is no one is better placed to advise you than yourself.