Have you tried to advise friend on investing?

[MichaelL]

Yesterday a friend, who I know from high school, called me about buying a rental property. She is a psychologist and works as a therapist. She is not a money or a numbers person, but she knows that I am. She told me that she isn't earning enough on her financial investments. She thinks that she's earning 5%. At first we discussed the basics of real estate investing. The property that she has in mind sounds okay to me. She could buy it for cash. She owns her own house free and clear and she inherited her mother's house free and clear and rents it out. I asked her what percentage of her assets would be in real estate but she didn't know. I asked her what she has for other investments but she didn't know. She told me that she has a financial adviser that she pays a percentage to and they make the investment decisions. I suggested that the first thing to do is to access her situation, create a balance sheet and income statement. She has never done this. Next I asked her to read her financial statements and give me a list of the investment ticker symbols and the number of shares and I'd estimate her income and risk. She's never done this and wants to fax me the statements. I have not seen them yet but I gather that they are from the adviser and not from brokerages. She told me that she transferred her investment money to the adviser, I guess to an account that the adviser controls. From what she said the adviser is an independent planner who some of her work friends use. I told her that I didn't advise giving this control to someone or paying a percentage. It's okay to pay for advise but she should have control over her trades and accounts. She told me that she's comfortable with this person making the decisions. She did send me a high level list of what she has. Currently she has 5% cash, 42% investments of type unknown, and 53% real estate. She's done alright and has about $1.3 million net worth. Once I get the statements I'll look up the tickers and see what interest and dividends they pay and how risky they are. The money for the real estate if she bought it would come from the money that is with the adviser. I'd probably advise against any more real estate and I have advised against giving a blanket power of attorney to an adviser. I don't plan to give advise on individual investments, but I do think that people should be aware of their allocations, income and risk and they should have contingency plans. During our discussion she told me that an adviser talked her mother into selling her blue chip stocks that she had owned forever and he sold her annuities. There went the inheritance. Her husband was a house flipper who got totally wiped out in 2009. He's of course reluctant to buy more real estate. I guess I'm wondering if people on here have had similar discussions with friends and how that went.

 

[braumeister]

Sad. These are otherwise smart folks who don't even think about ER because they don't understand it.

I remember some years ago I was talking with my doctor (who was also a friend) and I casually mentioned some big runup in a pharma stock that was in the news. I asked if he owned any drug companies and his answer was "I have no idea. I don't have time for that sort of thing -- I have a guy who handles my money for me." I didn't pursue the matter.

 

[HI Bill]

Well, despite her advisor, and regardless of her heavy weighting in real estate, she seems to have done ok. Michael- how close are you to this person, and if you get involved, how likely would she be to take your advice? If she's truly open to help, and you have spare time on your hands and don't think this will endanger the friendship, then go ahead. With her AA, I personally wouldn't add an real estate, but there are so many pieces of information missing, it's hard to go further than that.

I've tried giving advice on savings and investing to friends, and they don't take it. They stick to their position (one was burned in the stock market, likely selling at a huge loss and now only invests in real estate, and another, who's nearly 68 and is trying to get rich buying individual stocks). I've also tried to help out folks in the office by giving a retirement planning presentation. Of the few who gave input, it was like "I need to start saving more". Sorry, but most just don't get it, won't implement advice, and are heading, rudderless, to their destination.

 

[flintnational]

In my experience, this forum is the only place where people respect my opinions and follow my advice.


If she asks, I would provide my opinions. But, I would also suggest she read a couple of books and that she gets up to speed on investing and I would explain why she needs to do this.

 

[GrayHare]

In my experience, even if they seek you out for advice, little to no change happens. Numbers iz hard.

 

[Nemo2]

I don't have time for that sort of thing -- I have a guy who handles my money for me."

I seem to recall reading, years ago, that the biggest 'victims' of 'overly ambitious' hedge funds that go belly up are dentists....for the 'reason' cited above.

 

[haha]

I have found that almost everyone thinks they know more about whatever than I know. I guess I am just not a very impressive person. I am glad. It is hard enough to adequately tend to my own business without tending to anyone else's.

Ha

 

[HFWR]

To the limited extent I try to coach others, I’ve found that those using an advisor (a) cannot tell what their return is, (b) do not know what their expenses are, and (c) are happy nonetheless. Not to mention getting pissy...

Not my circus, not my monkeys...

 

[pjigar]

I am a walking preaching machine for financial advise to anyone I meet: a friend or a stranger. Most people listen to me but I don't get any vibe that they will follow a word I say. I am just sawing the seeds everywhere and hoping at least a few will grow some day. Lot of people (work, church, social, friends, etc.) ask me for a specific advise and half of them follow what I tell them. But in general, numbers is hard for people.

 

[Mdlerth]

Wise men don't need it and fools won't heed it

There are so many investing areas about which I know very little, so I don't try.

When I do know something, it's typically unwelcome or disregarded. At least, that's been my experience with family members.

 

[Dtail]

I believe that folks just don't believe in general that "amateurs" can invest as well as the "professionals".
One could study all day and night on how to remove an appendix, but you wouldn't let him/her perform that surgery on you.
So, many folks feel the same way about a layman's acumen on investing. However this is simply not true, as shown by the many posters here/Bogleheads/etc.

 

[Dawg52]

As long as a person is not hooked up with a scam artist, I don't think having someone manage your money is the worst thing in the world. There are plenty of people that simply do not want to manage their money. I have never advised people on how they should invest. I have disclosed my AA if asked, but that's about it.

 

[sengsational]

I sometimes will get a general idea of "where" a person is, financially, and find a concept to mention. Usually just something easy to communicate. If the person doesn't act interested, I drop it, but I'll keep going if they seem interested. Occasionally someone will learn about my ER and start asking about a silver bullet, which then ushers in the "long slog" of spending less than you make and keeping investments simple and with low expenses.

 

[Aerides]

I asked her...but she didn't know. I asked her ...but she didn't know. She has never done this...She's never done this and wants to fax me the statements.... She told me that she's comfortable with this person making the decisions...She's done alright and has about $1.3 million net worth. Her husband...He's of course reluctant to buy more real estate.

Disaster waiting to happen here. Not her finances, but your friendship. She's blundered her way along for years.

I snipped out the stuff above to paint a picture: She has gone decades doing quite well for herself without knowing the details. She's comfortable with her advisor (as are her friends). She's asking you for a third opinion, and isn't even stopping the idea when her husband doesn't like it? I would politely decline to get into any more of the weeds here.

Advice and friendships rarely go well together on deep consequential topics. Deep down, most people turn to friends for support and validation, not contradiction.

 

[street]

I believe that folks just don't believe in general that "amateurs" can invest as well as the "professionals".
One could study all day and night on how to remove an appendix, but you wouldn't let him/her perform that surgery on you.
So, many folks feel the same way about a layman's acumen on investing. However this is simply not true, as shown by the many posters here/Bogleheads/etc.

True!

 

[target2019]

I give no advice unless it's requested. That is a rare occurrence.

 

[MichaelL]

Thanks for the replies. I knew that I'd get some good comments. I agree with what many of you are saying. As soon as I started asking questions I had a feeling that I'd make my friend uncomfortable. She seemed set on buying real estate. She didn't understand how to read a broker statement and didn't want to do it. She doesn't have logins to her accounts or use any financial tools. She doesn't want to read financial books. My concern about advisers is that they sell you things that earn them money and that have high management fees. Also I've heard so many stories about advisers taking the money and people don't find out until they try to make a large withdrawal. Of course if I tell her this then she'll get stressed about who to trust. If she sends me the statements I think I'll just give her the facts and let her sort out her own decision.

 

[Which Roger]

I've given advice to a few close friends and family members, but my prerequisite is that the person is willing to learn enough to understand why I am making such a recommendation. My boglehead-style investing is very different from the kind of investing you hear about from salespeople and sound bites, and frankly, in a sound bite, chasing return sounds a lot better than "the market is smarter than you are". But if the person is willing to understand risk tolerance, asset allocation, minimizing costs and taxes, etc, and accepts that neither I nor anybody else knows what is going to happen to stock prices or interest rates, then it's safe to discuss.

 

[jollystomper]

I never give advice unless asked. And even then, I (a) try to first discern if the person is really asking for advice, instead of looking for confirmation for a choice they already desire to make, and (b) always add the caveat of my advice being based on the level of risk I am willing to take, which may not match theirs.

 

[joeea]

I'd probably advise against any more real estate and I have advised against giving a blanket power of attorney to an adviser. I don't plan to give advise on individual investments, but I do think that people should be aware of their allocations, income and risk and they should have contingency plans.

I guess I'm wondering if people on here have had similar discussions with friends and how that went.

Tread carefully. Guess who gets the blame if the new set of investments doesn't perform as well as she expects? Remember, you aren't a professional, and you may not be seeing all the relevant factors.

You break it, you own it.

I occasionally give my feelings about financial issues to friends. I make it clear that I am not offering investment advice, just giving my opinion.

I try to explain my thinking, how I got there, and what the friend might want to consider before making their own decision.

I sometimes offer to give them the contact information for a great fee-only fiduciary financial planner I know.

 

[brett]

No, never. The only people I discuss investments with is my spouse, one like minded investor friend, and our investment advisor.

I may give some very general advice about products and strategies but never down to micro level. Besides, I believe that many people who ask really are not interested in following through on advice. Not even the most basic.

 

[Chuckanut]

I have found that almost everyone thinks they know more about whatever than I know.

Ha, Your situation is an example of the Dunning-Kruger effect.

https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

the Dunning–Kruger effect is a cognitive bias in which people mistakenly assess their cognitive ability as greater than it is. It is related to the cognitive bias of illusory superiority and comes from the inability of people to recognize their lack of ability.

Back on topic:

When it comes to investment advice I tell what people what I am doing and why I am doing it. Most do nothing with that information. A few ask for more details and then I go into things like how I use index funds, AA, dollar cost averaging, etc. I mention I read articles by people like Jonathan Clements. I make a point of mentioning that there is risk in everything financial decision I make.

They can take what they want, and leave the rest.

 

[misshathaway]

No, based on personal experience. My father advised me on investments - all Vanguard mutual funds, when I was in my 30's. He was a successful investor himself, but in individual stocks. He traded every day.

I really was not interested in investing or retirement or anything having to do with money. What an idiot 30-year-old self was. So there was a pretty big market swing down and all my mutual funds lost money repeatedly for months. At the bottom I sold them all and blamed him.

This person you want to help is willing to cede complete control to someone else, without understanding anything. Just ask yourself what will happen if she takes your advice and it doesn't seem to pan out in the short term.

 

[Sunset]

Thanks for the replies. I knew that I'd get some good comments. I agree with what many of you are saying. As soon as I started asking questions I had a feeling that I'd make my friend uncomfortable. She seemed set on buying real estate. She didn't understand how to read a broker statement and didn't want to do it. She doesn't have logins to her accounts or use any financial tools. She doesn't want to read financial books. My concern about advisers is that they sell you things that earn them money and that have high management fees. Also I've heard so many stories about advisers taking the money and people don't find out until they try to make a large withdrawal. Of course if I tell her this then she'll get stressed about who to trust. If she sends me the statements I think I'll just give her the facts and let her sort out her own decision.

This is a tough situation.
I too have heard the horror stories of these small private FA's stealing the money, at least with large corporations, there is some safety from that issue, and recompense if it happens.

My experience colors my view, which is that the FA is probably taking a huge amount of money for the services provided, and putting your friend into weird and odd investments in order to fill his/her own pockets with front-end loads or win a free trip.

See if you can find the fee charged annually, it should be in the yearly summary, once I showed that to a couple of people, they were shocked at how much they were paying to be invested.
This amount is of course on top of the fund fees.

I also found some investments (interest earning ones) that nicely listed the interest rate paid as: 0.01% (yes 1/100th of a percent).

Those types of things convinced the people they could move the money to do better. When they asked, then I told them where they could move their money.

However, maybe you don't want all that involvement, and your friend needs to read some investing for dummies type book, to have some basic knowledge.
Just telling your friend how much all this investing is costing might be a good start.

 

[Starsky]

One of the first things financial advisers will suggest is that you get both the husband and wife into the conversation together. It's both of their money that is being invested. This sounds like a disaster in the making.

In this case, I'd stay far, far away and suggest that your friend and her husband find a new adviser if they don't like their current one.