Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup of interesting reads in another edition of Happy Hour.
When Advice Sucks
I don’t know to many people who buy a car on the spot based only on what the salesperson tells them. Yet, that’s exactly what many people do every year with their retirement money.
Bloomberg reported how people were duped by sketchy advisors to rollover their 401k money into terrible financial products.
This is a recurring theme that needs to ends. Here’s a few things you can do to protect yourself from the same fate:
- Ask how they get paid
- Know the difference between a designation (CFP, CPA) and a license to sell something
- Watch for signs of urgency
- Always educate yourself on products being sold
I’ve covered this before. Most of it is self-explanatory, so I won’t rehash it all.
There’s a huge difference between someone with a designation versus only a license to sell products. Someone tossing out Series 6, 63, or 7 (these are licenses to sell financial products) as a qualifier to why you should trust them is a joke.
The tests for these licenses take about two hours (the Series 7 is longer) and needs a 70% passing grade. You can study and pass the test in a week, even less if you know the products already. After that, its renewed annually for a small fee with retests every three years. There’s no course requirements or continuing education. You don’t even need a college degree.
When you work on commissions, time is very important. The more time a salesperson spends with you, the more it costs, and the less they make.
The typical sale takes two meetings. The first is for introductions. The second is for the sale. If you don’t bite on the second, they may try to followup again. Beyond that, its wasted money. They want you bought in on the first meeting.
The sketchy people won’t waste much time pushing a front loaded fund on your $100/month IRA contributions either. That’s chump change (on a 5% commission its $5/month). They want access to six figure (and higher) 401k or IRA accounts. Anytime you’re rushed to make a decision about a financial product, alarms should go off. Especially with that much money involved. It’s a giant red flag to stop and walk away.
None of this guarantees your money is absolutely safe. Or that only commission based advisors are sketchy. It’s about education. The internet is a wonderful tool to find information. Google it! Google the names of people selling to you! Find out everything you can.
Go back to the car example from the start. You should spend more time researching the financial products you put your money into than you did your car.
While we’re on the topic of trust. Gallop released a survey this week about Congress. They’ve hit a historic low with a 7% confidence level! Put another way, 93% have little to no confidence in their ability to do the job. How does that feel?
With numbers that low, you’d expect some turnover in the upcoming midterm elections. That’s 435 House of Representatives, 33 Senators, and 36 Governors that could be looking for a new job soon. How will that affect the markets as we close in on November?
- Dangerous Financial Words – M. Housel
- 4 Questions (and Answers) About Value Investing – Morningstar
- Don’t Save 10% Of Income, Spend (Just) 50% Of Every Raise And Systematically Save More Tomorrow! – M. Kitces
- The Problem With Index Funds – Part 1
- More Problems With Index Funds – Part 2