Thursday, December 8, 2011

Not-so-chirpy advice: Don't go to salespeople if you need financial advice

Poor Carl Richards.  He's the financial planner who wrote a book about his financial woes.  Apparently, he's getting hate mail by the bucketfuls.  He's also getting a small but vocal group of defenders and even new clients.  Susan Antilla at BusinessWeek makes the very good point that a financial planner or a money manager with serious personal financial woes may be tempted to rip you off.  It's not something to scoff at.  (For what it's worth, I think Richards made some bad decisions that we are all prone to making.  He's also a fee-for-service planner now, not a "financial advisor" who has to depend on commissions to keep his income up.)

However, I couldn't help but notice this:

It doesn’t help that stockbrokers often are motivated to cheat because of six-figure upfront bonuses that convert into personal debts to their firm if they leave or get fired. Scot Bernstein, a California lawyer who represents aggrieved investors, says it keeps the pressure on brokers to follow management’s sales agenda even if it means fleecing customers. The shady firm desperate to do business sends a message “that we can toss you out on your ear for any reason, including if you don’t want to sell variable annuities to a 90-year-old,” Bernstein says.
Did I ever tell you about my time of unemployment?  Oh, it was grand, if by "grand" you mean "riddled with anxiety."  I kept up a good front of being positive, and there were days that I felt that way, but I was painfully aware of the fact that I could be in serious trouble when unemployment ended and I burned through the emergency fund I had saved up. 

To continue getting unemployment, you have to make moves to look for work.  (I know, Captain Obvious, etc.)  This is fair.  On one particularly dry week, I was contacted by one of those insurance/financial planning firms that offers completely free sessions with financial planners. This was thanks to me putting my resume up on Monster. I had no desire to do this--I wasn't stupid.  I knew it was a sales job.  But it was an interview in a dry spell, and I was desperate. 

I'll give you the story's spoiler now: As it turned out, I wasn't desperate enough to take that job.

I figured I'd go in for the interview. As I said, it was a dry week job hunting-wise, I was discouraged, and I was scared.  Maybe I should consider this? I thought.  It can't hurt to go.  My unemployment is going to come to and end.  This was before the extension.  And no, cutting off unemployment would not have encouraged me to take this "job" for reasons you'll see in a minute.  Bear with me. 

So, I show up to the interview, which was about twenty people in a room laid out like a classroom, and the "interviewer" was talking about how great it was to be a financial planner at X firm.  That you could make all kinds of money.  That your commissions would be through the roof! Oh, we'd be rolling in the dough.  And if we had those moral qualms about selling people things they didn't need, you should also know that we'd get a longevity bonus--customers who kept their accounts with the company would reflect well on us.  But it soon became clear that even though he took pains to say that we wouldn't be representing any stock or fund, thus we'd be objective and disinterested, the way to make commissions was to get customers--er, I mean, clients--to buy products--insurance, stocks, mutual funds.  And buying and selling those, creating all of that churn, is what would get you money.  As well as getting your friends, neighbors and acquaintances to open accounts with the company and use you as their planner. 

I was boggled.  Not only is this really just a sales job and not a financial planning job, I thought, but it's the finance world's version of Mary Kay.  I had already been approached about selling Mary Kay.  I didn't go for it. 

But it got worse.  It was all commission.  No base salary.  The "base" we'd get would be a loan from the company.  Any commissions we'd get would go right into paying that back.  If I took this job, I'd have to be comfortable with that (I wasn't) and I'd have to sell to my friends and family (NO) and I'd have to be okay with selling instead of actually financial planning (are you on crack??).  I'd be in a really vulnerable position. 

And of course, you had to get your Series 7 license. You had to study for it on your own time during your training period at the company.

They asked us to take a test if we were still interested.  I, being passive aggressive and actually worried that walking out would imperil my unemployment, decided to take the test.  But I was brutally honest.  They were multiple choice questions that were supposed to gauge your attitude about the workplace and corporate America.  I figured, once I showcased my utter cynicism about this, that they'd show me the door. 

Oh, no.

I was the first one they called in.  They were so impressed with my answers.  (Readers.  It was the first time ever that I have tested well.)  Could they schedule a follow up interview and discuss start dates?  (Seriously.  Did I just score high on the Hare Psychopathy checklist and somehow make the grade? Yikes.)

Know this: next time I'll just walk out.  I mean, moving back in with my parents or selling my body to the night can't be that bad, right?  (I ended up getting a job offer the next week.  That was a whole other can of worms since it turned out I worked for someone who screamed at people, publicly berated them, and publicly humiliated them, but I was able to keep my soul, which is important to me.)

What is the point of this rambling story?  Well, first of all, these people are not financial planners.  (Their actual job titles are more like "Financial Advisors.")  If you use a financial planner, you want someone who's fee-for-service.  Someone whose livelihood isn't dependent upon creating churn in your accounts or getting you to buy services you may or may not need.  These aren't bad people, but let's face it--they're paying a debt to their company and they're trying to make bills.  And sales quotas.  You do not want to entrust your retirement or savings or anything else to someone who's got that stuff on their mind.  These companies love to say how using their services is completely free! You can meet with your financial planner and get help with your finances and isn't that wonderful! Except it's not free--they just take their pound of flesh through the churn.

Second, and I cannot stress this enough, do not use a friend, a relative, or an in-law as your financial planner.  This is especially true if they are actually salespeople for a financial services company.  Even if the company is a better than average one, even if the person you know is in a good place financially, it's going to feel personal if the economy tanks or you (with the planner's help) make a decision that turns out to be a stinker.  Do you want a friend or do you want a financial planner?  You can't have both.  Sorry.  Granted, I became friendly with my fee-for-service planner, and we met for lunch while I was unemployed since I was looking at options outside of my field and she graciously said she'd keep her eyes and ears open for me.  But we did need a certain amount of distance so that she'd be free to be blunt with me and give me the metaphorical slap upside the head if I needed it.

Here's the other thing I noticed in the article:

Public records at Finra and the CFP show the link between financially pressed investment pros and customer complaints over recent post-credit-crisis years. A Minnesota broker was barred from the brokerage industry in October after using the Social Security number of a customer and personal friend -- without that person’s permission -- to co-sign a college loan for his daughter. The broker told Finra at a hearing that he and his wife had gotten used to doing “things we never did before” and that when times got tough, he had to “mask things a bit.” He’s appealing Finra’s bar.

DO NOT GIVE ANYONE YOUR SOCIAL SECURITY NUMBER. I used a fee-for-service financial planner in the past, and she never asked me for my social security number.  Not once. Her job was to advise me on what funds to put my 401(k) and IRA funds to invest in. She also made sure she knew my comfort level with risk, and worked with me to choose the funds that fit in with that risk tolerance.  She also made sure that I knew I should have a sizable emergency fund before I decided to go playing Gordon Gecko (as. if.) since buying any kind of stock or fund is taking a chance.  A lot of her job was pulling people back down to Earth if they were sure they were going to be rich by doing this ridiculous thing, or prying them from the ceiling and calming them down. 

Her job was not to sell things.  That was the crucial difference.


  1. I love your writing style! I could never be responsible for other people's money, even at a fee-for-service place! It would be beyond stressful!

  2. You're so sweet to say that. I'm the same way--I'd lose sleep with worry. And sadistic me, I hope any financial planner worries over their clients.