Financial Advice for Friends and Family - How to handle it?

[chinaco]

Like a number of people on this board I am familiar with finance. I have a BSEE and an MBA, plus most of my career has been spent working in the Financial Services Industry (mainly in Information technology). I also did a 3 year stint in the Corporate Finance dept as part of a Management training program a number of years ago. I have read extensively over 20 years (i.e., the deeper stuff).

The point of this post. I sometimes get questions from friends and family regarding investment advice. I typically will not tell someone specifics about what they should do. I tend to describe what i am doing and approach it in general terms and encourage them to read and learn. I have alway been concerned that if the person misunderstood my advice or somehow things did not work out to their satisfaction, I might ruin a family relationship or firendship.

How do you handle these situations?

 

[samclem]

Like a number of people on this board I am familiar with finance. I have a BSEE and an MBA, plus most of my career has been spent working in the Financial Services Industry (mainly in Information technology). I also did a 3 year stint in the Corporate Finance dept as part of a Management training program a number of years ago. I have read extensively over 20 years (i.e., the deeper stuff).

The point of this post. I sometimes get questions from friends and family regarding investment advice. I typically will not tell someone specifics about what they should do. I tend to describe what i am doing and approach it in general terms and encourage them to read and learn. I have alway been concerned that if the person misunderstood my advice or somehow things did not work out to their satisfaction, I might ruin a family relationship or firendship.

How do you handle these situations?

That's fairly close to my approach. I give a few words on a general approach, some info on some things that I believe they should avoid (high costs, load funds, "hot picks" etc). I will loan out a book (Bogle on Mutual Funds, 4 Pillars, etc). If they really show interest I will happily discuss things, but only when it is clear that they want the info in order to "learn to fish."

 

[2B]

I agree with samclem. I've tried to educate people and so many of them are looking for the easy way out of having to make a decision. Most people seem to believe their is this magic financial guy that will somehow assure their financial security. I don't think I've successfully convinced one person to drop their "financial advisor" even after showing them on paper how they are getting bled dry for poor returns -- although I may have successfully gotten one person to start considering it. He would be my first.

Somehow you have to get someone to understand that no one will care more about their money than they will and that a little education will put them in a position to do a better job than the so called "professionals."

Good luck.

 

[W2R]

My brother is a CPA/CFO, now retired, and a genuine financial wizard, in my opinion. As a brother and sister, we were always very competitive which makes it a little touchy for him to give me advice.

The way he handles this with me, is pretty much what 2B suggest. He prefaces his suggestions with "something you might want to consider, is..." or "some people have had good results by...". Then at the end of the conversations he always stresses that I need to make informed decisions for myself, and how well he thinks I have done with that to date (ha! right... : ).

I have taken about 90% of his advice, and thrown out the other 10%, so I don't feel bound by it. If any of his advice did not work out, I wouldn't hold it against him due to his "walking on eggshells" approach to giving me advice in the first place.

He has never recommended any specific reading matter but has strongly recommended that I should personally delve into these topics and learn as much as I can, and use my own good judgment and mathematical/engineering bent to arrive at decisions I can live with.

 

[yakers]

Good question. In my family the only person I have financial discussions with is my sister who is in senior management at a large banking regulatory agency. She calls me yesterday and says that she knows I intend to retire in the next year or so and maybe move, so sell the house NOW, unless I intend to stay there at least 5 and maybe 10 years. I will have a discussion with DW when I return from business trip. We can't live cheaper then where we are and if we sell here for less and buy for less we would be OK too. But this is serious advice from financially sophisticated & connected sister and I need to digest it.

 

[HFWR]

I know nuthink...

 

[kcowan]

When asked I just tell them what I do and why. I never recommend anything specific although I will tell them about some successes that I have sold off and how I came to hold them. I also recommend stop loss approaches to avoid emotion, and rebalancing approaches for the same reasons.

The only advice I offer is not to buy funds that have high MERs and that the lowest risk portfolio will most likely contain 30% equities according to the Efficient Frontier organization.

 

[mickeyd]

I agree with most of the responses so far. What I do is to recommend that the person asking for advice read a book on investing. I refer them to the book list on diehards.org and ask them to get back to me after that have read one of the books and we can discuss it and how it's contents can positively affect them.

I rarely get a person who gets back to me, unfortunately. I take this as a sign that many people are looking for a quick fix and a magic bullet that will secure their financial future. They do not realize that by reading a few books and applying their words to action is really a simple formula for financial success.

 

[Alex]

Like a number of people on this board I am familiar with finance. I have a BSEE and an MBA, plus most of my career has been spent working in the Financial Services Industry (mainly in Information technology). I also did a 3 year stint in the Corporate Finance dept as part of a Management training program a number of years ago. I have read extensively over 20 years (i.e., the deeper stuff).

The point of this post. I sometimes get questions from friends and family regarding investment advice. I typically will not tell someone specifics about what they should do. I tend to describe what i am doing and approach it in general terms and encourage them to read and learn. I have alway been concerned that if the person misunderstood my advice or somehow things did not work out to their satisfaction, I might ruin a family relationship or firendship.

How do you handle these situations?

I recommend a book. I tell them that before I can recommend anything for them, they need to educate themselves so we can have a starting point. Usually I start with the Bogleheads Guide to investing. Sometimes The Four Pillars or Intelligent Asset Allocation. Most of my family have read the Boglehead book and have opened accounts with Vanguard. Good luck!!

 

[LOL!]

Like others above, I recommend books and web sites. I did that for our CEO and I got appointed to the 401(k) committee for my efforts It probably helped that I always asked the tough questions about our plan at company meettings.

I do not mind telling people what I did/do specifically if they ask me. One tactic I always use is that I never say, "You should ....". Instead I say, "Here's what I did, but it may not be right for you ...."

 

[ats5g]

I find it is much easier to give people advice when they can answer the questions "What do you want?" or "What do you want to do with this money?". Until someone can answer this, I think it's rather pointless to discuss options, because said options have to be pointed toward some goal [retirement, house, college].

I also realized a long time ago that the most important thing in an investment plan is to be able to stick to the plan, so I help them structure their investments to do so. And if that means a healthy chunck of bonds, so be it, it's their money. I try to briefly explain pitfalls to avoid, and the risks of alternate plans.

It's also interesting that about half of the people I've met and/or discussed finance issues with have a huge problem admitting they made a wrong decision. For example, some close friends of my wife gave some money to a friend that works for Edward Jones. Even though I tried to pursuade them not to, for various reasons, they still did, and are kicking themselves for it. The broker is siphoning off fees left and right, but they just keep ignoring it.

- Alec

 

[bssc]

I learned to invest from my parents so I can't really give them too much advice. My sisters are spendthrifts (one is up to seven horses).

At the MegaCorp, they have cut down investment choices to a few funds (target fund, US stocks, balanced and income funds). So, I come here to put my two cents in.

 

[Sandy]

My brother is a CPA/CFO, now retired, and a genuine financial wizard, in my opinion...I have taken about 90% of his advice, and thrown out the other 10%, so I don't feel bound by it.

Pretty close to my situation.

Recently, I have started asking him for specific recommendations and then review and evaluate. My brother doesn't offer unless asked.

 

[brewer12345]

I tailor my advice to the person/situation. For my parents, my FIL and my MIL, I actually manage part or all of their portfolios, tailoring each portfolio to each person's risk tolerance and goals. For siblings, I give general and specific advice when they ask for it, but I don't push. They consistently ask for advice, and I give it. Friends vary considerably, from cincrete help to me being evasive on the subject.

 

[FinanceDude]

I get hit up a lot for advice. Funny thing is, I NEVER ask to manage their funds..................

And I have found you can lead a horse to water, but it is tough to make it drink............

 

[saluki9]

I'm the trustee for a lot of family funds, so I guess I don't see the problem with this. If you know what you're talking about, who could you want to help more than your family?

 

[MasterBlaster]

I'm the trustee for a lot of family funds, so I guess I don't see the problem with this. If you know what you're talking about, who could you want to help more than your family?

well the upside is you get some bragging rights

The downside is that your family hates you and talks about the bonehead decisions you made. This can go on for decades.

Based on that it's no wonder that people are reluctant to help others with more than very general guidance.

 

[saluki9]

well the upside is you get some bragging rights

The downside is that your family hates you and talks about the bonehead decisions you made. This can go on for decades.

Based on that it's no wonder that people are reluctant to help others with more than very general guidance.

"bragging rights" we're talking about financial advice to close friends and family and not dropping hot stock tips to a buddy right? Who cares about bragging rights when you're trying to help people?


Sometimes doing the right thing puts you at risk, that's life. I think it is much worse to know what is right, and allow your family to keep making bad choices.

 

[Sarah in SC]

I help out a few family members and friends, but just with mutual fund recommendations (stuff I own as well). I wouldn't go looking for it. I will run performance and overlap if anyone asks, and will open up institutional accounts for the few who have asked. I just tell them that there are no guarantees. It is nice to be able to help folks, and I don't do anything sexy with it.

Sarah

 

[Life_is_Good]

I usually get that long email about the investment that was just made yesterday.

Now.... the sister-in-law is not so sure about all the terms, fees and plan descriptions. The salesman was really nice though and showed her that there is no way it can lose money. It's piece of mind. Here comes the email..... just a single large block of copied statements from the sales contract. As I'm reading... I'm getting that "sick" feeling in my stomach. Oh boy... not again.

 

[FinanceDude]

I'm the trustee for a lot of family funds, so I guess I don't see the problem with this. If you know what you're talking about, who could you want to help more than your family?

Good point, but I have been told I am "too conservative" for the "investors" in my family..............

 

[kaudrey]

I tailor my advice to the person/situation. For my parents, my FIL and my MIL, I actually manage part or all of their portfolios, tailoring each portfolio to each person's risk tolerance and goals. For siblings, I give general and specific advice when they ask for it, but I don't push. They consistently ask for advice, and I give it. Friends vary considerably, from cincrete help to me being evasive on the subject.

This is pretty much my situation. My sister and several friends have asked for advice, so I set them up, tell them how I think they should invest their funds, and review their portfolios several times a year.

I usually give them several options (i.e. between different mutual funds in the same asset class), but they pretty much always go with my first choices.

Karen

 

[JustCurious]

I usually get that long email about the investment that was just made yesterday.

Now.... the sister-in-law is not so sure about all the terms, fees and plan descriptions. The salesman was really nice though and showed her that there is no way it can lose money. It's piece of mind. Here comes the email..... just a single large block of copied statements from the sales contract. As I'm reading... I'm getting that "sick" feeling in my stomach. Oh boy... not again.

That was very nice of her to ask your advice AFTER she completed the transaction.