Find your own adviser before an adviser finds you

April 12, 1992|By Thomas Watterson | Thomas Watterson,Boston Globe

Boston -- Who would you see for advice if you had some money -- say, several thousand dollars -- to invest?

Despite the slowly withering recession, a lot of people seem to have a lot of money looking for an investment home.

April, for example, is a great provider of extra money. It's the second busiest month, after October, for maturing certificates of deposit. It's also the month when many early-filing taxpayers get their income tax refunds, if they don't have them already. Meanwhile, there's a stream of early-retirement buyout payments and severance packages.

But it's all those CDs maturing this month -- estimated at $110 billion or more -- that has Wall Street and the insurance companies salivating, hoping they can get some of that money into mutual funds, brokerage accounts and annuities, all of which can generate big commissions.

But find your own investment adviser before one of them finds you. You'll have a better chance of getting the right advice. Also, you'll be more likely to avoid the problems faced by a woman in New York. She gave $56,000 she had saved for her son's college education to an insurance broker who told her he was going to invest the money in an annuity from the New England Life Insurance Co. Instead, he stole her money.

No one blames insurance company -- although New York officials and the Boston-based company disagree over whether it should repay her and 40 other victims interest as well as the principal it is refunding. "We're still negotiating with these people," says Peter Harrington, a spokesman for the company. "Other companies are also liable."

Insurance salespeople can sell annuities, and many are licensed to sell other investments such as mutual funds, but financial specialists say an insurance agent is not the first place, or even the second place, they would go for objective investment advice.

"Agents say they can sell investments, too," says Craig Hoogstra, director of the financial-services department at the American Association of Retired Persons. "But they aren't very objective."

Most insurance representatives sell the products from no more than a few companies, Mr. Hoogstra says, and even if they can sell mutual funds from several companies, they are almost always going to push products with loads, or sales charges.

And some companies will encourage agents to push certain funds even harder, by paying higher commissions on those products.

Many stockbrokers, especially the newer ones, suffer from this problem, too. The bulk of their training is devoted to selling stocks, bonds and other products the brokerages want to push, with little if any time spent learning to assess your long-term goals, risk tolerance or understanding of investments.

Also, Mr. Hoogstra says, "the financial-services industry has learned relationship marketing very well. If you're Polish-speaking, they'll find you a Polish broker. If you're female, they'll find you a woman. But that doesn't tell you anything about competence."

Or honesty. The insurance broker who fleeced customers in New York was a friend of a friend. Scams have also been perpetrated on religious groups by members of the same religion, by lawyers on lawyers, by doctors on doctors and by members of professional or social organizations on their fellow members.

Even if you are thinking about investing with a friend, co-worker or someone in your bowling league, consider finding another adviser on your own to get a second opinion, just as you would with a medical diagnosis. If this costs you a few hundred dollars, that's a lot less than you might lose with bad or dishonest advice.

There is a growing number of fee-only investment advisers and financial planners who -- contrary to the claims of commission-based advisers -- can and do implement their advice with no-load mutual funds, no-load or low-load life insurance and discount stockbrokers.

It's also getting easier to find these people. For example, Charles Schwab & Co., a discount brokerage, recently published its latest edition of its free "Charles Schwab Guide to Selecting a Financial Adviser." Call (800) 442-5111.

After describing the qualifications to look for and questions to ask an adviser, the book gives the names, addresses and phone numbers of financial planners and money managers who use Schwab to place investments for their clients. Almost all of these people operate on a fee-only basis. Those who receive fees and commissions are noted, too.

Another good source of fee-only planners in your area is the National Association of Personal Financial Advisers (1130 Lake Cook Road, Suite 105, Buffalo Grove, Ill. 60089). This group is zealous in its dedication to fee-only planning and full disclosure of those fees. The association has had a long-running dispute with the much larger Institute of Certified Financial Planners over the full disclosure of the amount and type of fees and commissions received by all planners, a proper position favored by the association.

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