Wednesday, January 07, 1998
An Answer To The
Wise
or
A Foolish Response to Bad Advice
By George Runkle
([email protected])
Last week, after my Fribble titled "Losing Your Money Wisely," I received two critical letters. One was from a reader asking me why I bought Whole Life insurance policies rather than Term. Reading back through my writing, it does seem to infer I like Whole Life. I don't, I bought some of these in my pre-Foolish days. Term policies are better. I wrote about it in this Fribble, "Your Insurance or Your Life". I hope this clarifies that misunderstanding.
The next e-mail was from a financial professional who was very insulted by my Fribble. I can understand, if somebody wrote a Fribble like that about engineers, I'd be furious. Part of his letter said:
<< Needless to say, I hope you will be receiving tons of response to your article, which pays a disservice to those professionals in the market that are financial advisors. Not everybody has the knowledge or the inclination that you and your associates possess to invest personal funds in the market without professional help. >>
I felt he deserved an answer, especially since he gave me the impression he takes his job seriously, and has the best interests of his clients at heart. I believe that there are good brokers and financial planners who help people along the way. However... Here is what I wrote (edited for brevity):
If my experience is any guide, I probably won't get much response to my article. You've been the only one so far. We encourage our readers to make their own decisions: I took this right off our welcome on our Web site:
<<To be fair to the mutual funds, just about everyone who you might pay to manage your money under-performs the market -- a contingent that includes most full-service brokers and money managers. So how do they keep their clients? By having you believe that they are WISE, and that you, poor Fool, can't possibly make a dollar in the big, scary market without them. Well, we've got news for you. The market ain't that scary and you don't need their Wisdom. Be a FOOL and be proud of it. Believe it or not, you may have the upper hand. >>
It's a pretty heavy statement about financial professionals, but our forum has been that way from the start. Why does the forum have such an attitude? I can't answer for Tom and David Gardner, who started this, but I can answer for myself. My experience with Financial Professionals has been rotten. One problem, as I see it, is trying to define a "professional" in financial advice.
There was Jack, from where I used to work, who came to my house and tried to sell me mutual funds from a distributive marketing organization he was in. He had memorized responses to my questions, and had no understanding of the investment field at all. This didn't stop him from telling me he could help me invest.
There was Ron the insurance agent who delivered me the check from my father's life insurance policy. He wouldn't mail it to me, wanted to deliver it so it would be "safe." He used this as an opening to sell me life insurance, and since I'd been laid off, he sold me a "good" IRA for my 401-k funds. This IRA I found out later was an annuity, which is a stupid and costly way to invest IRA funds. The prospectus was unreadable, and the salesman misled me. He was only interested in his commission.
I have been approached by financial planners, who said they did the service for free. They coincidentally sold investment products. It seems a conflict of interest to me; the financial planner would be tempted at least to sell me what paid him or her the highest commission.
These are my own personal experiences. I haven't even bothered listing the calls I have gotten from boiler-room operations trying to sell me penny stocks. There was one that particularly infuriated me. I inherited a sum of money from my father when he died. When it was finally coming, I got a call from a penny-stock hustler. This guy was going to help me invest an amount equal to what I inherited (coincidence?). What I inherited wasn't public knowledge; the money was from a trust. He could only have gotten the information from xxxxxx [censored to keep myself out of court.] I'm certain that an ethics violation occurred here, but I couldn't prove anything.
As I see it, one of the problems you guys have is that almost anybody can define himself as a financial professional, and your industry allows many conflicts of interest. Jack, who tried to sell me the distributive marketed mutual funds, was a failure of a clerk in the U.S. Government, who had to quit to avoid being fired. Ron, the insurance salesman, probably learned his art selling aluminum siding. I get cold calls from "financial planners" who have no type of certification.
In my own profession, engineering, we are fairly well regulated (although not enough in my opinion). Nobody can work in what is very specifically defined in our field without a license, which is very hard to get. The same goes for architects, doctors, and lawyers. It doesn't stop incompetence, or rip-offs, but it does keep some control. In giving personal financial advice, it's a free for all. Worse yet, you can get really bad advice from someone with an obvious conflict of interest, and it is perfectly legal.
In The Motley Fool, we try to explain investing. As a term of my employment, I'm not allowed to give personal financial advice to anyone. Funny, I'm almost to my MBA, and I probably have more investment experience than any of the guys who gave me "professional" financial advice in my early years. Personally, I agree that some people need professional advice. My mother-in-law needed financial help when she retired, and she got very good advice from a financial planner. More people like that are needed in your business. Until that happens, however, and the financial advice free-for-all ends, there will be a strong need for education for the individual investor. We here in the Fool are helping to do that.
Thank you for your letter. I always appreciate getting responses to what I write, especially disagreements. Often readers like you either point out things I didn't think of, or allow me to state my position more clearly. Good luck, and hopefully things will change in the financial professional field in the future. Even then, there will still be the need for us to "educate, amuse, and enrich." Have a Happy New Year.
Foolishly,
George
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