ShareThis Page

Free lunches just 1 thing to avoid when seeking investment advice

| Thursday, Feb. 7, 2013, 12:01 a.m.

Whom can you trust for money advice?

It's a fundamental yet complicated question that's getting attention recently with publication of a controversial new book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.”

Author Helaine Olen, a freelance journalist, takes issue with the notion that some money gurus espouse: if only people became financially literate and tried harder to manage their money, they would be on a sure path to wealth and security.

Olen said she supports learning more about finance and managing money responsibly. But the “pull yourself up by your bootstraps” mantra ignores important realities for many Americans in recent years, she said. Those realities include stagnant wages and rocketing costs for health care, housing and education. And life's financial devastations, such as overwhelming medical bills, divorce and unemployment, can strike people regardless of their dollars-and-cents aptitude.

In her book, Olen goes on to attack not only the financial services industry, but media money gurus, such as Suze Orman, Dave Ramsey, David Bach, Robert Kiyosaki and Jim Cramer, saying they offer questionable advice and have conflicts of interest.

We'll sidestep the industry- and guru-bashing — I think the book was fascinating reading but sometimes overly harsh — to offer advice.

There's no single way to discern good money advice from bad, which is a reason to get money-smart yourself, said Eric Tyson, author of the popular “Personal Finance for Dummies” and one of the few money advice-givers that Olen praises.

Here is some food for thought:

• Products. If a specific product is attached to the advice, beware. “That is a huge red flag,” Olen said. That goes for people in the financial industry who push certain investments that give them fat commissions and money celebrities who give advice that matches products they sell.

Olen distinguishes between them and financial writers and journalists who make money writing, but not on companion products.

• Follow the money. Especially with financial advisers, know exactly how yours is being paid. “All things being equal, you're probably better off with somebody who's selling their time on an hourly basis,” Tyson said. “There are brokers or advisers who sell products who do well by their clients, and there are people who charge a percentage of assets under management who help their clients too. But both of those arrangements create inevitable conflicts of interest, which are largely eliminated if you're just writing the person a check for how many hours they spend with you.”

The complicating part is that some commissioned advisers are good.

• Consider the motivation. Beware of someone who claims to be telling an audience a financial secret. Ask yourself why someone would waste time writing a book or giving a seminar about a get-rich-quick scheme instead of using the time to practice that scheme and get rich himself. Moreover, profitable advantages in the financial world are often slim, and if a guru tells a large audience his secret, that advantage will usually be lost.

• Predictions. Have little tolerance for anybody who says they can predict what will happen with financial markets. Rest assured: If they really knew, they wouldn't be telling you about it.

• Beware of free food. “There's no such thing as a free lunch — or a free dinner,” Olen said. She's referring to investment seminar meals that consumers are invited to by financial pros trying to recruit clients. Often the advisers or brokers will attempt to “scare the daylights out of them,” maybe suggesting they will all outlive their money while presenting a financial product as a solution.

“Don't even attend,” she said. Research has shown our defenses weaken when we're eating, she said.

• High yield? If you're a senior, pay special attention when a salesman uses the term “high yield” when pitching a product, Olen said.

Retirees generally need safer investments, but nowadays those types of investments — certificates of deposit, money market accounts and the like — offer pitifully low interest, making high yield sound enticing. Unfortunately, there's no such thing — at least, that's safe.

• Easy money. “Where people get into trouble is when they believe it's really easy, or they can get rich quickly without much effort,” Tyson said, adding that the best long-term returns are in the neighborhood of 9 to 10 percent. “People who claim to have a system that produces returns substantially above that should set off alarms,” he said.

• Consider the medium. Olen used to say that if the financial advice came in the newspaper, it was probably free of many conflicts found in the financial world. That's because most newspapers have strict ethics policies for their writers. That's still largely true of staffers, but some papers run columns by outside writers who might have personal agendas.

Television is a convenient and enticing medium, but often superficial when it comes to finance topics. As for the Internet, there are some excellent finance bloggers, but most blogs do not have the same editorial oversight that professional publications have.

• Disclosure. Noting possible conflicts is a good sign. “People in the clear will often tell you they're in the clear,” Olen said.

For the record, the writer of this column for the past nine years wrote two personal finance books and published an audio learning program. Besides this reference, he does not mention those in his column and sells no companion products. He reports the books and audio program to his newspaper employer annually in a routine ethics disclosure.

TribLIVE commenting policy

You are solely responsible for your comments and by using you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.