The fact that someone is giving money advice doesn’t make him qualified to do so.Flickr/Seth Anderson When a financial advisor or an author of financial books becomes well-known, investors may assume they can trust that person’s advice. This isn’t necessarily the case.
Fame and quality don’t always go together. Recently, I was selected by an Internet community site called moneytips.com as one of their top 50 “social influencers.” This is a list of professionals in the areas of wealth and personal finance who use social media and other Internet tools effectively.
Among the top three on this list are famous figures Dave Ramsey and Suze Orman, whose books and advice include a great deal of solid information to help people get out of debt, manage money well, and provide for the future. Many others in the top 50 are respected financial journalists and advisors.
However, the list also includes a few advocates for high-risk investment methods, proponents of dubious get-rich-quick schemes and purveyors of poorly researched advice.
Those who put together the list focused on how well people established a presence on the Internet and used technology to communicate — an assessment completely unrelated to the value of the advice.
Financial planning has a solid core of professionals who quietly and ethically serve their clients. It also has its gurus, outstanding marketers, and fringe practitioners with extreme ideas. The challenge for consumers is identifying the reliable ones. Here are a few suggestions:
1. Get recommendations firsthand.Knowing about a professional isn’t the same as knowing a professional. Everyone you know may have heard of Noted Local Advisor. That’s not the same as being able to recommend him or her. Get recommendations from people who are clients of a firm, or who used the advice. Ask specific questions about what they did and how it worked for them.
2. Avoid cookie-cutter advice.Your financial situation is unique to you. Even if a method of building wealth is perfectly legitimate and works for others, it still may not be a good fit for you.
3. Promises of quick money are red flags.Yes, there are shortcuts to building wealth, but they come with very high risks. For most of us, the best ways to build wealth are gradual and even boring: saving part of every paycheck, living on less than we earn, and investing for the long term in a well-diversified portfolio of different asset classes. While it’s natural to wish for an easier, faster way, that desire makes you more vulnerable to high-risk schemes and scams.
4. Be skeptical.Apply the same common sense to financial products or wealth-building methods that you use anywhere else. For example, you probably don’t assume that a car’s advertised gas mileage is what you actually get under real-world conditions. In the same way, it’s wise to assume your real-world results from a proposed investment or business will be lower than the advertised numbers.
Certainly, not every guru is a crook. Your job is to learn the financial basics so you can evaluate them with some educated skepticism. Keep in mind that the true genius of some financial experts is, after all, marketing.
Rick Kahler, CFP, is president of Kahler Financial Group in Rapid City, S.D.