We’re lucky to live in the information era. Anything we want to know is at our fingertips via the internet, television programs, and even podcasts and radio shows. Which is why you don’t need a financial consultant, you can simply educate yourself for free via media channels. Good plan, except media talking heads are incapable and even disallowed from offering advice. They might have impressive credentials and stellar ratings, but actually those financial advice programs are geared only towards selling advertisement, not solving problems or even answering your financial questions.1 The hosts only hear a snippet of a financial problem, they simply do not know enough about you to comply with the “Know your Customer” rule. They do know this, as do their lawyers; which is why their solutions are often unsuitable or inappropriate and include fine print warnings.
Know Your Customer
Watch a TV show, listen to a radio show, or peruse a website geared towards giving free financial advice. They all have fine print disclaimers indicating that the audience members should ignore the presented advice and instead discuss their individual situations with a financial advisor. Huh? It seems backwards to offer free financial advice only to say, “By the way, don’t listen to me!” That fine print warning serves as protection for the talking heads if someone does follow their advice! Some websites even charge you for information and then tell you to go ask someone else!2
Investment professionals are held to the Financial Industry Regulatory Authority’s (FINRA’s) “Suitability” rule. This rule requires investment firms, advisors, brokers, financial consultants, and any one handing out financial advice involving registered or exempt securities to have “a reasonable basis to believe that a transaction or investment strategy involving securities that they recommend is suitable for the customer.” This means the advisor needs to have a good grasp on a person’s financial situation before he advises him or her to invest in any security including mutual funds, stocks, bonds etc. The suitability rule is why advisors want to know information such as:
- current investments
- financial situation and needs
- current debt
- emergency funds
- income sources and amounts
- tax status, such as tax rate current deductibles
- investment objectives, i.e. income, retirement, buying a home, preserving wealth or speculation
- investment experience (what do you know?)
- investment time horizon, the expected time available to achieve a particular financial goal
- liquidity needs, clients possible need to convert investments to cash
- risk tolerance, client’s willingness to understand and take risk
What If I Don’t Want to Give So Much Information Away?
Most advisors will rightfully walk away from a prospective client that refuses to put their cards on the table and have an open conversation. For this reason, it’s important to be forthright during conversations with your financial advisor and do not be surprised as the really good advisor drills down by asking questions you would have never expected! Remember you don’t know what you don’t know!
The bottom line is media advisors don’t know your situation, therefore can’t follow the “Suitability” rule or the “Know your Customer” rule. Some shows feature callers with questions who offer some details into their financial situations, but not even remotely enough to offer legitimate financial advice. The fine print associated with the financial shows legally protects the media advisors, their advertisers and acts as a warning for investors.
Whether you have a dollar or a million dollars in your retirement account you will be able to explore the value of a real advisor simply by visiting the Self Directed Brokerage Account advisor contact site. From this site you can begin to take advantage of the features of your retirement plan. If you wish you can also download a fact finder sheet that can be used to create your personal retirement financial plan.
1. One example of the sometimes misleading nature of financial shows: http://business.time.com/2011/05/23/radios-financial-experts-with-advice-you-shouldnt-follow/ Other examples are the disclaimers following various shows:
2. Jim Cramer The Street
To learn more about Rick Willoughby, view his Paladin Registry research report.
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