Review: Who Can You Trust With Your Money?
Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
A while back, I wrote an article describing an utterly painful meeting my wife and I had with a financial advisor. That meeting was painful. It simply accelerated my souring on financial advisors, based on a long run of experiences where I was essentially treated as a “mark” for commissions and sales.
Yet, there are times when a trustable financial advisor can be really useful: when we stumble into a windfall, for example. With so many salesmen out there (and a few purely incompetent folk, too), how can we find people that we can actually trust with our money?
That’s the topic of this book by Bonnie Kirchner. Kirchner is a CFP (Certified Financial Planner), so I was admittedly wary about this book, but I was pleasantly surprised by the fact that the first two-thirds of the book consists of reasons why you don’t need a planner, a very long collection of warning signs of poor financial planning, and techniques for grilling potential financial planners. Who Can You Trust With Your Money? really hammers away at some of the more shark-like elements of the financial planning world.
Let’s dig in and see what the book has to say.
1 | Recent Investment Scams
Yes, we all know about the Bernie Madoff scam. Why did it happen? Well, in the end, you’re simply trusting someone with your money. Madoff put off tons of warning signs to the people who were giving him money, but they weren’t really paying attention to them. A really interesting choice to open the book with a cautionary tale like this.
2 | What Is Financial Planning?
Why do you even need a planner to begin with? Kirchner lays out some of the reasons you might need a planner in this chapter: dealing with a windfall, retirement planning, and so on. My general feeling is that most people are better off if they genuinely try to manage their money on their own and should rely on a financial planner if and only if their own efforts somehow fail. For most issues, financial planning isn’t very difficult at all, just a bit intimidating.
3 | The Meaning Behind Advisor Designations and Licenses
This chapter is a solid reference of the acronym soup that financial advisors use to identify their qualifications. There are literally dozens of acronyms that advisors throw behind their names, and Kirchner defines them all here. It’s useful in a dual sense – not only can you look up acronyms here, but you can also read the definitions to help you determine which qualifications would be important to you if you were seeking a planner.
4 | Advisor Compensation
How do they make money? Commissions and fees are the two main avenues used. While Kirchner doesn’t specifically say it (she seems to try to stick to being neutral here), the case in favor of fee-based advisors and against commission-based ones is fairly self-evident. The commission based ones make their money by selling you a product, while the fee based ones make their money by giving you advice. Who do you want as an advisor?
5 | Deciphering Fee Structures
Kirchner’s key advice here is to make sure that your advisor’s compensation and fee structure are absolutely clear and specified up front in writing. Ask for this from your advisor – and if they won’t give it to you, there’s something amiss. When you do have that document, make sure you understand every item in it. The fees charged to you directly take away from your investments, after all.
6 | Finding Additional Fees
Of course, almost all advisors will try to insert “additional” fees into your account for such things as transactions or annual maintenance or for a special kind of account. This chapter lists what’s typical and what isn’t for such fees. This was the only chapter that raised vague alarm bells for me, but I cross-referenced the information here with other sources and not only was Kirchner pretty spot-on, she was actually a bit below some of the other estimates ...
