PERSONAL FINANCE : PREPARING YOURSELF : WANT SOME ADVICE?
“You get what you pay for” is an old maxim that can be applied to many situations--including financial advice. However, investors can debunk the notion that you can’t get something for nothing by finding good sources of free advice.
Finding free advice is not difficult. Finding good advice is the challenge. Regulatory agencies, financial watchdogs and financial trade associations say it’s important to determine the motives and credentials of financial planners, brokers and other investment specialists offering no-cost counseling because free advice--if it’s bad advice--can be costly.
“One of the pitfalls is taking advice from (a financial) planner who will not take time to understand your needs,” says John Markese, director of research for the American Assn. of Individual Investors, a nonprofit educational organization based in Chicago. “And then there is the planner who gives everyone the same financial plan. If they want to deal with you as an individual, they should subject you to an extensive survey.”
If a free seminar is financed by a private corporation, “you should find out the topic and whether they are pushing a certain product at the session,” Markese says. “If it’s free, it’s generally a sales seminar. They’re either mining for clients or selling.”
Advisers involved in client mining are often financial planners who have no affiliation with accounting firms or other corporations. They sometimes offer free introductory sessions in financial planning.
The sessions can sometimes be fruitful, but don’t allow yourself to be lured into a client-planner relationship until investigating the counselor’s credentials, experience and record, says Susan Hasty, a spokeswoman for the Atlanta-based International Assn. for Financial Planning.
“These sessions are fine as long as people realize that the seminar is a marketing tool for the planner,” Hasty says. “It’s a way of exposing services to the community.”
If a session is not designed to gain exposure, determine how counselors are being compensated, Hasty says. Be especially wary of planners who sell stock, bonds or insurance on a commission basis because some advisers may overlook your real investment needs in their zeal to sell those products, she says.
“There could be a conflict of interest,” Hasty says. “If the adviser won’t say how he is compensated, get another planner.”
Some investment firms and independent brokers also sponsor free advisory sessions. Some also publish booklets and brochures on money management and investing.
However, con artists and disreputable brokers also organize free sessions to lure unsophisticated potential investors, according to the Securities and Exchange Commission.
“The vast majority of securities professionals are honest,” SEC Chairman John S. R. Shad said in a recent statement, “but the first line of defense against securities fraud is a skeptical investor. Investigate before you invest.”
The American Assn. of Individual Investors sponsors forums for members featuring accountants, brokers and other financial advisers. AAII members can meet with advisers at no charge during dinner sessions at chapters in 43 cities. The membership fee is $49 a year.
AAII often uses college professors at its sessions “because they have no products to sell,” Markese says.
Methods for investigating and evaluating stocks are sometimes discussed at sessions sponsored by investment clubs affiliated with the National Assn. of Investors Corp. An annual membership fee of $31 is required. The group also provides stock purchase recommendations at no cost to members.
Sources of free or low-cost advice are listed in “The Investor’s Information Sourcebook” by Matthew Lesko (Harper & Row, $9.95), a good reference for beginning investors.
The following publications also provide advice or information at no cost or--as indicated--for nominal postage or handling charges:
STOCKS AND BONDS
“Coping With the Crash: A Step-by-Step Guide to Investor Rights” discusses investors’ rights and legal recourses in securities disputes. Available from the North American Securities Administrators Assn., 555 New Jersey Ave. N.W., Suite 750, Washington, D.C. 20001.
“How the Bond Market Works” describes the do’s and don’ts of fixed-income investing. Standard & Poor’s Corp., 25 Broadway, New York, N.Y. 10004.
“An Investor’s Guide to Tax-Exempt Securities” is a review of tax-free investments. The guide sells for 45 cents. Public Securities Assn., 40 Broad St., 12th Floor, New York, N.Y. 10004-2373.
AAII Journal, a periodical containing educational information on investing, is available to members of the American Assn. of Individual Investors, 625 N. Michigan Ave., Suite 1900, Chicago, Ill. 60611.
“What Else Financial Statements Can Tell Me” describes how to improve communications with brokers and analyze annual reports. American Institute of Certified Public Accountants, 1211 Avenue of the Americas, New York, N.Y. 10036.
The National Assn. of Investors Corp., 1515 E. 11 Mile Rd., Royal Oak, Mich. 48067, offers the following publications at no cost to members:
Better Investing magazine, a monthly that contains information on how to follow stocks and lists companies worth watching.
NAIC Investor Advisory Service a monthly newsletter that contains stock recommendations.
The following publications are available at no cost from the Securities and Exchange Commission, Public Reference Branch, Publications Unit, 450 Fifth St., N.W., Mail Stop 1-2, Washington, D.C. 20549:
“What Every Investor Should Know” includes descriptions of securities markets and how to select an investment.
“Consumer’s Financial Guide” includes a primer on investment safeguards, a listing of SEC offices and agencies that regulate other investment markets, and information on SEC operations.
“Arbitration Procedures” describes the arbitration process in securities disputes and includes information on how to prepare for an arbitration hearing.
“How to Proceed with the Arbitration of a Small Claim” describes the process of making claims in disputes involving less than $5,000.
SAVINGS
“How Safe is Your Money?” describes how to open a bank account and keep it safe. It’s available for $2.50 from Advertising News Service, P.O. Box 088888, North Palm Beach, Fla. 33408.
REAL ESTATE
“Fannie Mae’s Consumer Guide to ARMs” is an explantion of adjustable rate mortgages in the secondary market. Federal National Mortgage Corp., 3900 Wisconsin Ave., N.W., Washington, D.C. 20016.
“Consumer Handbook on Adjustable Rate Mortgages” discusses how to select these mortgages. Federal Trade Commission, Office of Consumer/Business Education, Sixth Street and Pennsylvania Avenue, N.W, Room B-3, Washington, D.C. 20580.
“The Mortgage Money Guide” discusses how to get financing for real estate purchases. Federal Trade Commission, Division of Credit Practices, Sixth St. and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
“Buying or Selling Your Home.” American Bar Assn., Information Services Department, 750 N. Lake Shore Drive, Chicago, Ill. 60611.
FUTURES AND OPTIONS
The National Futures Assn., a self-regulatory agency for futures broker-dealers, offers the following publications from its headquarters at 200 W. Madison St., Chicago, Ill. 60606:
“Investment Swindles--How They Work and How to Avoid Them” includes tips on how to identify scams in various investment fields.
“Investor’s Bill of Rights” lists laws and regulations protecting investors.
The Chicago Board Options Exchange provides the following free publications from it headquarters at 400 South LaSalle St., Chicago, Ill. 60605:
“Understanding Options” provides an introduction to options trading and describes how specific investment strategies can be realized through options.
“Tax Considerations in Using CBOE Options” discusses the general tax rules applicable to stock options.
“S&P; 100 Index Options: The Index Edge” explains how options on the Standard & Poor’s 100-stock index are calculated.
FOREIGN EXCHANGE
“Foreign Exchange Markets in the United States” includes an explanation of the foreign exchange system. Federal Reserve System, Division of Consumer and Community Affairs, Washington, D.C. 20551.
INSURANCE
“Buyers Guide to Insurance” discusses how to evaluate and purchase life insurance. National Insurance Consumer Organization, 121 N. Payne St., Alexandria, Va. 22314.
FINANCIAL PLANNING
The International Assn. for Financial Planning, Suite 800, Two Concourse Parkway, Atlanta, Ga. 30328, provides a number of publications for a nominal $1 charge. Among them are:
“Building a Capital Base,” which provides background on the basics of financial planning. The publication also contains a consumer guide listing financial planners and planner organizations.
“Consumer Guide to Comprehensive Financial Planning” and its companion, the “Registry of Financial Planning Practitioners.” The registry identifies individuals who meet the planning standards of the Registry of Financial Planning Practitioners. The consumer guide describes a six-step planning process.
RETIREMENT PLANNING
“Securing Your Retirement Dollars,” a booklet on how to plan for retirement. American Council of Life Insurance, 1850 K St., N.W., Washington, D.C. 20006-2284.
“Take Charge of Your Money,” a workbook for managing money in retirement. American Assn. of Retired Persons, 1909 K St., N.W., Washington, D.C. 20049.
